Growth in the Rs 45,000-crore organised retail industry has slowed to 5% in the fourth quarter of 2008-09, a far cry from 35% growth recorded in January-March 2008. This has prompted retailers to think of affordable pricing, collaborative advertising and innovative means to maintain product quality.
Indian retail growth had slowed to 12% in the third quarter of FY09, the quarter that followed the Lehman Brothers? collapse in September.
Kumar Rajagopalan, chief executive officer, Retailers Association of India, told FE, ?The retail sector is growing at 5% in Q4 2008-09 since many retail companies have kept their expansion plans on hold due to the economic slowdown.?
Such a slow growth is despite the organised retail industry witnessing rising demand for products across categories, according to Kabir Lumba, executive director, Lifestyle International Private Ltd, a retailer from the Landmark Group.
The steep decline in retail growth and the abrupt halt in expansion plans by organised retailers are worrisome developments for the government since retail too was part of the India growth story being talked about across the globe.
The Indian retail market, the fifth largest retail destination globally, was ranked second after Vietnam as the most attractive emerging market for investment by AT Kearney in its Global Retail Development Index in 2008. The share of retail trade in India?s gross domestic product, between 8 and 10% in 2007, is currently pegged at around 12%. This share is projected reach 22% by 2010.
According to AT Kearney, ?The consumer spending in India has increased by an impressive 75% in the last four years and will quadruple in the next 20 years.?
CB Richard Ellis, a real estate services company, says India?s retail market is currently valued at $511 billion, and is poised to grow to $833 billion by 2013. According to it, organised retail, which currently accounts for less than 5% of the total retail market (an Assocham-KPMG study says it is 7%), is expected to show a compound annual growth rate of 40% and swell to $107 billion by 2013.
The disappointing fourth quarter growth will make the Assocham-KPMG projection of 8% annual growth of the retail market over the next few years difficult, since a large number of stores have already been closed down and expansion plans have been shelved.
Industry experts believe it is now imperative for retailers to think on the lines of the Nano, the Rs 1-lakh car from Tata Motors?small and affordable. Only retailers who can align themselves to quality and affordability will motivate consumers to spend, experts say.
Arvind Singhal, chairman, Technopak Advisors, explains, ?Malls should stop charging parking fees to boost footfalls. Malls and retailers should be creative. I think, this is the time for collaborative advertising. Retailers and malls should get into collaborative advertising. For instance, shop at a mall for ?x? and get coffees at the cafe free.?
But, the immediate reaction of retailers to the slowdown was to downsize. The Future Group has downsized its space expansion plans by almost a half. Kishore Biyani, CEO of the group, said, ?We have downsized our expansion plans to 2.5 million sq ft in the next financial year, though we were planning to add 4 million sq ft earlier.??
Aditya Birla Retail, which had over 660 outlets, closed over 50 outlets in the second half of the current financial year. RPG group?s Spencer?s Retail too shut 60 retail stores, and announced a reduction in its revenue target for this year to Rs 1,500 crore from Rs 1,800 crore. Even Reliance Retail has recast the operations of around 90 stores. Beleaguered retail chain Subhiksha closed nearly 1,600 stores on poor sales.
This turmoil has brought in some interesting price innovations. Lifestyle stores, for instance, has cut the entry-level price for women?s ready-wear to Rs 299, introduced saris priced at Rs 1,000 a piece. In a first for the store, kids apparel is available at Rs 199. These strategies will be extended to its upcoming 35 Lifestyle stores across the country in the next few years, said Lumba.