Riding high on mergers and acquisitions, retail players made a strong comeback this year, taking online giants head-on in doling out deals and discounts, and the trend is likely to continue next year.
However, the government’s surprise move to demonetise high denomination notes last month made a huge dent in retailers’ earnings, with sales falling by up to 70 per cent in early days.
Going forward, retailers expect impact of cash recall to continue for a few more months into 2017, but hope to lure customers with new brands and offerings.
After being hit hard by online retail last year, debates on e-commerce eating into the retail pie somewhat subsided this year, with heavyweights like Reliance, Mahindra and Future Group expanding their own online ventures to take on players like Amazon, Flipkart and Snapdeal.
In May, Aditya Birla Fashion and Retail — which had acquired Pantaloons a few years ago — further expanded its kitty with addition of Forever 21. It bought the Indian operations from Diana Retail, promoted by DLF Brands for USD 26 million (around Rs 175.52 crore).
In another interesting deal, Future Retail acquired online furniture seller FabFurnish.com from its owner, Bluerock eServices Private (BEPL).
Besides, Mahindra Retail merged operations of Babyoye, which had both online and offline presence, with that of FirstCry.com — one of the larger online players in the maternity and babycare space.
“The next couple of years will see more consolidation and a much greater maturity of omni-channel retail and sustainable retailing practices,” Retailers Association of India (RAI) CEO Kumar Rajagopalan told PTI.
The Mukesh Ambani-led Reliance Industries, which is making a significant push in telecom with Reliance Jio, also forayed into online retail with its fashion portal Ajio.com.
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However, gains made by retailers during the year came under pressure due to demonetisation.
“Demonetisation of Rs 500 and Rs 1,000 notes had an immediate impact on retail, with sales of retailers seeing a plunge of up to 70 per cent in the first few days. Sales of large discretionary items like electronics too plunged. However, essential consumable goods by stores that accept cards/digital money saw an uptake,” Rajagopalan said.
Giving outlook for the next year, Rajagopalan said impact of demonetisation will continue for the first few months of 2017.
He, however, added that demonetisation served as a wake- up call for retailers that had not adopted modern retailing practices such as accounting every sale and accepting digital payments.
“Demonetisation has opened up a host of opportunities for innovative partnerships between digital wallets and retailers to embrace digital technologies,” he said.
2016 came as a delight for customers as foreign brands like Ted Baker, Scotch & Soda, Izabel London and Simon Carter announced their entry into the Indian market.
One of the biggest names in retail, Ikea, will open its door to customers in India. The Swedish firm plans to pump in more than Rs 10,000 crore over the next few years to expand its footprint in the country.
Spain’s premium fashion brand Massimo Dutti also set up its first store in India in May, more than two years after it received the government’s nod for FDI.
After getting nod for 100 per cent single-brand operations, German sportswear brands Puma and Adidas Group opened their own retail stores during the year. Earlier, they operated through franchisees.
“Doing retail directly will give us better insight about customer behaviour. We can also engage with our customers more meaningfully. Going forward, we will open larger, strategic stores on our own,” Puma India MD Abhishek Ganguly said.
However, multi-brand retail remained a no-go zone for foreign retailers.
The silver lining during the year for foreign retailers was the government’s decision to allow 100 per cent FDI in food retail.
Foreign retailers such as Walmart, Tesco and Auchan are said to be evaluating the option of entering the food retailing sector in India.
According to Food Processing Secretary A K Srivastava, a leading Brazilian poultry company has expressed keenness in joining hands with Kishore Biyani’s Future group to sell products in the country. He, however, did not identify the company or give details.
As per industry experts, this can be an interesting opportunity, going forward, for foreign multi-brand retailers.
The retail sector, which is pegged to grow to USD 1.3 trillion by 2020, clocked a growth of 12 per cent during the year, despite availability of good retail space posing as a major challenge.
Looking back at the year, Rajagopalan said: “The year was one with a lot of momentum for retail. We received a clarification from DIPP on FDI (foreign direct investment) rules for e-commerce, which was a significant step in creating a level-playing field between both channels of retail – offline and online. The passage of GST Bill was another development with a huge impact on retail.”
Hailing GST as an important reform for the retail sector, Rajagopalan said: “Once rolled out, GST will reduce distribution costs and wastage as cascading effect of taxes will go. The ‘speed to market’ will see an increase, as retailers can produce wherever and sell wherever to meet demand of consumers.”
Rajagopalan added: “What’s most important is the availability of products for customers will improve. However, a lot will depend on the actual rollout and adoption by states.”
Another key step forward for retail this year was the unveiling of state-level retail trade policies by several states such as Andhra Pradesh, Maharashtra and Karnataka which facilitate ease of doing business.
While announcing the annual budget for 2016-17, Finance Minster Arun Jaitley mooted the idea of allowing small, medium shops to remain open on all days.
Continuing with the trend of the previous year, predominantly online players such as Nykaa, Voylla, Lenskart and Zivame continued to expand operations through brick and mortar stores as well.