One of the first visible signs of the slowdown in the country was the dwindling crowds in the shopping malls and retail chain stores. There has been opposition to organised retail ever since chains like the FoodWorld for grocery retail opened up with foreign collaboration (Hong Kong-based Diary Farm International) in 1996. Organised retail outlets have been attacked and closed in several states. Regional parties have made their disapproval of organised retail in many ways. But the big names in Indian industry like Reliance, Aditya Birla Group, Future Group (Pantaloon, Big Bazaar, Food Bazaar) have all entered the fray.
Those who have opposed the entry of big business and foreign investment in the trade have claimed that they will bring about the end of local kirana stores, throwing hundreds out of their jobs. In reality, organised retail actually creates thousands of jobs as has been shown in other countries. Let?s also accept that India is different. Local kirana shops have successfully fought back and have upgraded themselves in record time instead of keeling over and dying. Indians shoppers like the services the kirana shops provide like personal attention, credit facilities and home delivery. Organised retail can?t offer these facilities.
However, modern retail has been hit hard by the slowdown in the country. The most visible example is the implosion of the Subhiksha Group. Subhiksha at one point (actually, just a few months ago) made proud claims of being one of the largest value for money chains in the country with 1,200 outlets. Early this year the Subhiksha bubble burst with founder R Subramanian drowning in a debt burden of Rs 750 crore. All the outlets have shut down.
While Subhiksha is the most dramatic story, other retailers are not problem-free either. Vishal Retail, another high-profile, fast-growing retail chain, has defaulted on its loan payment. It also has a debt of Rs 750 crore. Shoppers Stop, one of the oldest players in the industry, has found that it has bitten off more than it can chew. It has put a full stop to couple of its ventures (catalogues and airport shops). Even Reliance is having second thoughts about its Fresh stores, which are not at all doing well. Several of these may be shut down. Spencer?s Retail has also shut down or relocated more than 50 of its unviable stores.
Until October last year, retail was considered one of the fastest growing sectors in the economy. Analysts predicted anywhere from 30 to 50 percent of yearly growth for retail. Organised retail was expected to constitute a 16 percent slice of the total retail market by 2011-12. But these optimistic projections were based on India?s GDP growth remaining at or exceeding 9-10 percent for the next five years. But nobody quite anticipated the sudden slowdown of the economy. It dropped to 5.3 percent in the last quarter of last year and it is not expected to be more than 5 percent this year. Under these circumstances, the growth story has also taken a beating. To make matters worse, there is also a shortage of suitable real estate space coupled with skyrocketing rentals because of intense competition.
As long as the economy was growing, many companies took huge loans, paid unviable rentals and had to manage enormous operational costs. Subhiksha raised a debt of Rs 750 crore, on a capital base of Rs 32 crore with shareholder funds of Rs 180 crore. It simply could not manage its debt burden in a rapidly slowing economy.
But can one write organised retail off in this country? The figures show that there is still enormous untapped potential. Organised retail as a percentage of total retail is 85 percent in the US, 66 percent in Japan, 20 percent in China, 4 percent in India and 1 percent in Pakistan. The industry is still in its infancy and it is facing the kind of problems even players in the US faced in the early days of organised retail. The growth in India was too fast to sustain with all kinds excesses like high rentals. People in the trade feel confident that in a couple of years, things will improve and retail will regain its lost glory.
sushila.ravindranath@expressindia.com