India Retail Forum: Organised retail needs to venture beyond cities

By , agencyfaqs!, Mumbai | In Marketing | September 06, 2007
At the India Retail Forum held in Mumbai, Sumantra Banerjee, president and CEO, retail group, RPG Enterprises, spoke of the logistics and infrastructural issues facing organised retail in India

Quite a & #BANNER1 & # few contradictions surfaced on Day 2 of the India Retail Forum held in Mumbai recently. On one hand, BS Nagesh, customer care associate and managing director, Shopper's Stop, condemned the use of jargon such as 'organised' and 'unorganised retail', and said the focus should instead be on modernising all forms of retail. On the other, Sumantra Banerjee, president and CEO, retail group, RPG Enterprises, acknowledged that organised retail has existed in India for the past 10 years; it's just that it has gained momentum in the last three years. This, he said, can be attributed to several factors, chief among which is favourable demographics (over 50 per cent of India's population being below 25 years of age). "The mindsets of younger people are different, as consumption for them is a way of life," said Banerjee.

Sumantra Banerjee
Furthermore, rising consumer incomes as a result of more jobs across sectors is leading to greater purchasing power and disposable income. The credit card culture ('spend now, earn later') has contributed immensely to the growth of expenditure on products/brands. "The mall culture, too, has fuelled the growth of organised retail as it now gives consumers a place to find all they need under one roof, with a great experience to boot," he added.

Despite the good news, some abysmal facts stare the retail industry in the face. While the going is great, growth is concentrated only in cities, and even within cities, only in certain areas. "Having too many players in one area does no good; it pushes up rentals, the catchment area remains the same and doesn't expand, and lastly, retailers end up squeezing each other for profits," explained Banerjee. He also stressed that retailers need to acknowledge rising middle class incomes, as the societal structure is no longer shaped like a pyramid, but like a diamond.

Diving deep into the problem, Banerjee examined profitability issues one by one. Firstly, sky high rentals are outdoing themselves every day. "Mumbai and Delhi can give Madison Avenue in New York a complex!" said Banerjee, only half joking. Further, rent on chargeable area needs to change to a floor-area based rental. Infrastructural constraints in India often force retailers to open shop in cities only, thereby leading to a demand-supply mismatch.

Next, mall owners and other retailers have become soft targets for government levies (service tax on rentals in particular), which is quite a problem.

Lastly, Banerjee touched upon the issue of heavy discounting and predatory pricing, concluding that these are not just profitability issues, but also catalysts in the existing organised-unorganised retail war.