Retailigence

“Club of Knowledge Hunters”

Mom-and-Pop stores stay alive

Posted by retailigence on January 5, 2009

The year 2008 saw some dramatic twists in the discourse on big retail. From a spate of controversies surrounding the entry of corporate houses and fears that big players will swallow small kirana stores, the debate has clearly shifted to whether big retail can survive in its current form.

“Kiranas have clearly won the first round. The story of ‘modern retail vs Kirana’ is over. The past year was about the survival of modern retail,” said Kishore Biyani, CEO of India’s biggest retailer Future Group that operates hundreds of stores in multiple formats.

Modern retail players such as Future group, Reliance, Aditya Birla group, Subhiksha and Vishal Retail went on an expansion spree creating footprints across the country in different formats. Many other smaller players such as 6Ten, Wadhwan Retail, LM365 too joined them. And in the expansion frenzy, many of them lost their way.

By the end of the year, retailers were struggling with sales, shutting down stores and laying off staff in hundreds. “We have grown too fast. With this kind of pace, we make mistakes,” says Thomas Verghese, CEO of Aditya Birla Retail. He admits that retailers chose wrong locations or paid too high rentals in the race to open more stores.

Meanwhile, Kiranas rarely shut shop. Not that big retailers failed to attract shoppers. But they failed to manage cost. “Before modern retail could attain scale, the economy went into a tailspin,” said Mr Biyani, adding that Kirana has been more efficient at managing cost.

Both Kirana and big retail had their sales going up, possibly because a booming economy, rising income levels and a higher propensity among middle class to consume more. Both Kirana stores and local vegetable vendors survived because they offered a value proposition, which modern retailer couldn’t match- local vegetable vendors almost always offered fresher vegetables than the modern retailer, while Kirana offered the luxury of home delivery and interest-free credit. Naturally, customers chose different shopping destination for different needs.

“One could see a slight bias towards processed food and personal care products in terms of sales through modern retail stores,” said Mr Verghese.

A downturn in the economy and terror strikes also played spoilsport for the big retail, still in its infancy in India. “Consumers don’t want to spend as they fear for their jobs. Terror strikes have further eroded consumer sentiment and reduced footfalls at shopping destinations,” said R C Agarwal, chairman and managing director of Vishal Retail.

Retailers see 2009 as the year of consolidation and are cautious about expansion. Most retailers are already in cost-cutting mode and some are even looking at exiting the business lock, stock and barrel. Some of the smaller retailers have been seeking buyers and lobbying for FDI in retail. “I will sell my entire stake as soon as FDI is allowed in the sector,” said a Delhi-based retailer who had earlier held talks with at least two potential buyers, but failed to seal a deal. He says no retailer with less than 150-200 stores will survive. While Mr Biyani is in favour of calibrated approach towards FDI in retail, Mr Agarwal favours 51% FDI in multi-brand retail.

As sales slipped and cost mounted, several retailers were also engaged in a tug of war with suppliers. Major suppliers refused to supply goods to many retailers after they failed to pay or delayed payments. Pilferage was another challenge retailers struggled to find solution to, which made a significant dent in their margins.

The silver lining, however, was a fall in real estate rentals, which is likely to bring down the cost for retailers.

Sources :- Economic Times

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