Indian Retailers: Coping up in the changing environments

5Rules4RetailersThe Indian retail industry is colossal in size. Estimated to be worth around USD 500 Bn, it is catering to a population of 1.23 Bn people presently. Over the years it has been through a number of changes. From local retail shops to markets to shopping complexes and now eCommerce, retail in India is evolving with the world.

The economic reform in the early 90s which involved the policies of Liberalization, Privatization and Globalization (LPG model), was a major milestone for Indian economy in general. It gave a positive boost to this developing country. Now looking at the contemporary times, the Government’s move to bring FDI in retail last year, stirred an unrest among the retailers, for the obvious reasons of losing revenue and jobs to big international brands. To add to their woes Indian eCommerce companies are also proving to be unfavourable for the brick and mortar stores.

It is no denying fact that eCommerce market in India is growing. But it is to be mentioned that online retail accounts for less than 1% of the total retail market due to poor infrastructure and minimal support from the Government. Yet due to the rapid penetration of Internet enabled affordable mobile devices the online retail market will grow at a 39% CAGR during FY 2013 to FY 2016.

And even though the actual online purchase revenue may not be that high, showrooming is causing loss of sales to the retailers, particularly to those in the electronics segment. So in such a scenario where the Indian retailers are at a risk of losing their customers to foreign retailers and indigenous eTailers, what should they do to sustain their individual position in the economy. Unlike in the developed countries, Indian retail mainly comprises of owner manned shops, so every retailer has to find a solution that is best for his/her business. Following are a few key points that will help all retailers in general to cope up.

Realistic cost-cutting

One major reason for why people buy goods online is that the prices for some items are lower online than what they get in their local retail stores or shopping malls. This is mainly because the physical stores have higher operational costs, and even by selling goods at the maximum retail price they aren’t earning much profit. An article by McKinsey and company about retail in America talks about different costs that could be worked upon. ‘We believe all retailers should address three cost levers: direct product costs, the indirect costs of goods not for resale, and labor costs. Retailers that tackle these levers comprehensively can reduce costs by up to 20 to 30 percent’

The same model could be used by Indian retailers as well. The direct product costs are the base costs at which a retailer gets an item from the wholesaler. Although negotiations are essential, they may not be possible in every scenario. In such cases, especially for in-house products, the retailers should focus on minimising any added feature/material that doesn’t add to the utility or the value of the product.

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Indirect costs include the costs incurred by hardware, electricity etc. In order to reduce these, the seller has to take a judicious decision to removing or replacing any entity that is adding unnecessarily cost burden. For example, investing in better infrastructure for long term positive results

Labour costs may not be an issue in India. Companies in other nations outsource their work to people in India to reduce their workforce costs. But at the same time, on a small scale, retailers in India should try to manage their workforce in a sustainable manner. For functions like marketing, HR etc. work could be outsourced on a part time or contractual basis, to reduce the cost of hiring full time employees for the same.

Restructuring tangible assets

Expansion of businesses in terms of opening new stores in different locations is a usually considered a sign of that business doing well. In India, retail stores like Westside (Tata Group), Pantaloon (Future Group), Shopper’s Stop (Chandru L Raheja Group) etc. have their outlets in a number of locations across the country. Similarly, relatively smaller retail stores usually expand within their respective state or just the locality itself. But one has to realise that if expansion to a particular place was a good idea 10 years back it may not be so in the coming 10 years.

It could be a fine idea to lease out or sell a real-estate property that is not appearing to be a good investment. Many small-scale retailers are even running shops in a rented space. Space reduction is not a negative thing as long as one is able to utilise and allocate resources comfortably and efficiently.

For retailers dealing with multiple categories in a single space eg. apparel, electronics, groceries etc., it is important for them to prioritise these categories based on the revenue and customer response each section is generating. People now prefer buying things like books, small electronic gadgets etc. online, retailers should realise that they could clear up the space to display the items which bring more value to them.

Being in sync with the popular technology

This might seem to be a little far-fetched idea for the Indian retailers as the Internet penetration is still low in India, but this is an important aspect to connect better with the customers. Offline retailers could enjoy some perks enjoyed by the online retailers, such as reaching more audience by online marketing, brand-building etc.

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Also, retailers outside India are using techniques such as customers getting automatic offers and updates on their phones related to the store, as soon as they enter it. Similarly, although currently several retailers in India are offering text subscription for offers and sales to their customers, the rest could also take advantage of the same technology. As unlike Internet, mobile phones are used by a majority of retailers and consumers alike.

Evolution of business model to increase profits

Even if the retailers have managed to do good business by following a certain set of principles over a long period of time, that doesn’t mean they could keep up the trend by remaining stagnant with their operational system.

For instance, supposedly in the late 90s a person had a store where he sold film rolls for cameras. In the next decade, due to the adoption of digital cameras, he ran out of business and switched to selling digital cameras itself. And now when everyone has a camera phone, even less people buy cameras. So what does he do now? One may say start selling cell phones, but it’s easier said than done. Firstly it is not easy to switch businesses when you reach a certain age and with mobile phones being one of the popular items bought online, that might be a bad idea too.

In order to avoid such fate, retailers should have a dynamic business model with a futuristic approach. They should be open to making necessary changes, in order to ensure survival with good revenues. If the demand for the product they are selling seems to be diminishing then they should take steps to look for an alternative product which will do their business some justice, while still having a consumer market.

Enhanced customer experience

The customers are the most important component for any business. And they are the ones who determine the fate of any company or retailer. If the customer is happy, the business is good. According to a recent research by Accenture, 66% of the people switched brands in at least one of ten industries due to poor service in the past year, globally. India was one of the countries where the survey took place.

Customers undoubtedly have numerous options available to buy goods and services from.

So unless a retailer is selling something very unique, he/she must look for ways to have an edge over the competitors. This could be done by offering competitive pricing, better customer service and offering options for customer personalisations. In-store and after purchase experiences greatly determine whether if a customer will return again to that place or not.

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The competition is tough, and it is not getting any less with time. Although one can’t predict the outcome of all variables involved, the retailers still need to work hard to stay up with the ever changing consumer market.

Using data analytics for growth planning

Every business needs to have a future strategy. And to take any such decision, it is required to be well-aware about the current state of the market and consumer behaviour. Although most retailers in India may not be running a medium or big sized business, but even for the smallest of stores, it is essential to assess the demand of the customers to judge which products to sell and how.

Analytics isn’t just for the large-scale retailers with multiple outlets. Researching and analysing data regarding needs, wants and preferences of the consumers could help in determining the target audience for  marketing, offering customer based personalisation, designing promotions and setting the right price for a product. Research techniques could range from taking services of a specialised firms to looking into user activity on a Facebook page. A good understanding of consumer behaviour could be the key for scaling one’s business.

Omni channel presence

Retailers need to understand, adopt and enable omni channel presence. Such a model, enables the shoppers to have a range of platforms to shop at  i.e. mobile internet devices, computers, bricks-and-mortar, television, radio, direct mail etc. This will help to reduce the gap between retailing and eTailing, and help the retailers create additional channels to sell their products.

Also, they need to be prepared to face the consumers directly. So far the consumers were talking to the dealers and distributors, but off late they are writing publically on brands’ and stores’ Facebook, Twitter etc. pages, thus generating a forum where they could directly share their experience about any product or service with the world. Hence retailers must take steps to be connected with the consumers via any channel possible.

In India, retail chains like Shopper’s Stop, Lifestyle, Tata’s Croma Retail, Pantaloons etc. are already working  towards such a strategy. Shopper’s Stop Managing Director Govind Srikhande said, “Globally, several departmental stores, such as Macy’s, John Lewis or Sacks have come back strongly through omni-channel retailing. About 9-20 per cent of their overall sales come through this channel.”

Having an omni channel presence does require a heavy investment of both time and money. But since there’s a lot of potential for retailers in this, with a good understanding of both the customers and the market, they could scale their business to greater heights.

To contact the author, write to sugandh.dhawan@wirefootindia.com

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  • smagg

    interesting article….nice approach..!!!!

  • Vikram

    “Coping up” is grammatically incorrect. Its should be “coping with”.