Tuesday, June 16, 2009

Indian retailers should focus more on food and consumer goods to survive the economic slowdown

Indian retail sector has a grim future ahead but not for long. The penetration of the retail market in India would increase to 10.4% in the next three years from its current 5%. According to early predictions, the expansion was supposed to be 16%. Famous global consultancy firm, KPMG, released its latest report on the Indian retail sector on March 31, 2009. Titled ‘Indian Retail: Time to change lanes’, the report said that due to global economic slowdown, Indian retail will experience a temporary slowdown in the next 12-18 months. Here are some more facts revealed by the study about the Indian retail sector:

Ø In 2007, Indian retail sector was observing an unprecedented 34% annual growth which sharply declined to 11% in December 2008.

Ø In the next 4-5 years, Indian retail sector was supposed to see an investment of $25 billion which will slow down.

Ø Confidence of Indian retailers decreased as they are fighting hard to survive the economic slowdown by offering discounts and other promotional offers.

Ø Nearly 70% of the retailers that are surveyed said that their footfalls were extremely low. They are facing major problems in following areas:

o Supply of capital.

o Rising cost of finance.

o No scope of expansion.

o Lower spending on advertising.

o Manpower increasing.

Ø The slowdown has unveiled opportunities to become competitive and acquire lands in lower prices to expand their operations in various Indian cities.

Ø Many of the business methods of the retailers have put them under intense pressure such as having stores in unattractive locatins, failure to live upto their promises, and reliance on debt funding. Ramesh Srinivas, Director, KPMG India National Industry, said that a large number of Indian retailers are highly leveraged and they are now facing the pressure of high interest payments.

Ø Mr. Srinivas also said that the retail stores are facing the pressure of liquidity crunch caused by poor sales.

Ø Retailers who immediately changed their strategies will improve in the long run.

Ø According to the study, this is the right time for Indian retailers, to join with foreign retailers to bring in capital and expertise.

Ø Sales from October-December 2008 makes up about 40% of the total sales in various segments including “apparels” and “consumer durables.”

Ø To survive the slowdown, retailers should focus more on food and consumer goods.

For the last four years, Indian maintained a growth rate of 8.6% which has come down to less than 7% in the current fiscal year that will finish on March 31, 2008. The export oriented economy of India took a downward spiral due to the ongoing economic recession. At such a moment, like all other companies, Indian retail stores switched to various cost cutting measures. At the end of the day, just because there is economic slow down it does not mean that they can not go for expansion. Along with cutting costs, Indian retailers should also look toward expanding their business in various ways.

Related articles:

The Hindu


The Economic Times

(This entry was originally published in April 2009 and it based on the context on that time.)

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