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October 7, 2023
Gargi Sarkar, Inc42
7 Oct 2023
The Indian ecommerce industry anticipates a stronger festive season compared to last year with over 20% sales growth, driven by the D2C segment’s expected 40% QoQ surge
The overlap of festive celebrations and wedding seasons, particularly with a later Diwali this year, is predicted to further stimulate demand
Despite the evident purchase intent, retailers are preparing for a possibly neutral festive season as economic challenges may hit consumers’ spending
As the festive season rings in its 10th anniversary in the ecommerce realm, giants like Flipkart and Amazon are prepping for their annual mega sales, set to begin on October 8. This year, however, they will face tough competition from newer players, including Meesho, which carved out a significant slice of the festive sales pie last year.
With new entrants like Tata Neu and JioMart, and fashion and lifestyle ecommerce players such as Myntra, Nykaa, and AJIO, the stage seems to be set for a fierce showdown.
For these ecommerce platforms, the annual festive sales aren’t merely about revenue generation; they’re pivotal customer engagement and acquisition opportunities. These events lure consumers with compelling discounts and promotions, giving a considerable boost to their yearly sales targets.
Through strategic marketing blitzes, they also aim to amplify brand recognition and glean insights into shopper preferences. Following last year’s subdued festivities, market analysts have predicted a revival in shoppers’ enthusiasm this year, forecasting a robust 20% surge in sales.
The festive season this year is set to witness a remarkable upswing in the ecommerce sector’s gross merchandise value (GMV). According to consulting firm Redseer, the GMV is anticipated to see an 18-20% surge, amounting to INR 90,000 Cr, a leap from INR 76,000 Cr in the previous year.
“The preceding quarter (April to June) witnessed a subdued performance in both offline and online retail sectors, primarily due to persistent inflationary pressures. However, the scenario is expected to undergo a transformation during the upcoming festive season. Festive periods tend to unleash latent consumer demand, prompting individuals to open their wallets more liberally,” Ashish Dhir, EVP (consumer and retail) of business consulting and services firm 1Lattice said.
There is a growing focus on electronics and appliances as traditional categories of interest. However, fashion and beauty are also emerging as important categories. The emergence of luxury goods is another important segment, which will likely make waves during the upcoming festive sales.
The ecommerce industry anticipates a stronger festive season compared to last year with over 20% sales growth, driven by the D2C segment’s expected 40% quarter-over-quarter (Q0Q) surge. However, average user spending is likely to remain flat.
Further, Tier III cities and beyond are becoming key revenue contributors, particularly in the fashion and beauty categories. Although consumer sentiment has improved, retailers are wary that buyers could maintain a cautious stance when it comes to spending lavishly.
While there is much to look forward to, let’s delve deeper into what shoppers and retailers can expect from this milestone year, which marks 10 years of festive sales fervour in the Indian ecommerce space.
D2C Brands To Lead The Charge
Notably, the Indian market is projected to have 500 Mn+ online shoppers by 2030, growing at 12% compound annual growth rate from 205 Mn in 2022, according to a 2020 report.
As far as the upcoming quarter is concerned, industry experts forecast that the homegrown ecommerce sector will likely see impressive growth of over 20%.
Playing a pivotal role in this escalation will be the D2C segment, predicted to grow more than 40% QoQ from October to December. Established ecommerce giants like Amazon, Flipkart and Meesho could also be looking at an approximate 30% uptick in sales, according to experts.
Tracing back to the inaugural ecommerce festive sales in 2014, the industry’s GMV was recorded at INR 27,000 Cr. Fast forward to 2023, the GMV is poised to touch an impressive INR 5,25,000 Cr, a nearly 20-fold increase, per a RedSeer report.
Festive Ecommerce OffersAverage User Spending Could Remain Muted
Despite the rise in GMV in 2022 compared to 2021, average expenditure per shopper held steady at INR 5,200 during the initial four days of the festive season sale, according to a RedSeer report.
This year doesn’t seem poised for a significant spike in individual user spending either. However, there is a silver lining in the form of rising consumer activity in smaller towns and cities. On the flip side, elevated living costs in metropolises like Bengaluru and Mumbai could dent extravagant consumer spending, noted Devangshu Dutta, the founder and CEO of Third Eyesight, a boutique management consulting firm.
Yet, with the growing online shopper populace in these cities, there’s potential for the average order value (AoV) to reduce as more users flock online to shop.
“As the online shopping base continues to expand, the average spending per user naturally tends to decrease. This phenomenon occurs as more people venture into ecommerce, with platforms like Amazon and Flipkart extending their reach to cover a broader audience. However, it’s essential to note that this drop in the average ticket size is a common trend when the customer base expands,” Sangeeta Verma, director of digiCart India said.
Consumers Sentiment Positive, But Retailers Remain Realistic
With the waning impact of inflation, India is witnessing a positive shift in consumer sentiment from the previous year. Unlike several developed nations wrestling with inflation, India has remained largely untouched by its dual impact on demand and supply, experts suggest.
For example, Flipkart delivered strong gross merchandise value (GMV) and sales growth in the company’s second quarter of the financial year 2023-24 (FY24), Walmart’s chief financial officer John David Rainey said during an earnings call.
“In India, the distinguishing factor in terms of festive demand is that it’s not merely brand-driven; consumers here are eager to spend, and the purchase intent is notably high. Unlike some developed economies grappling with inflationary concerns, both the demand and supply sides in India have not seen any impact of inflation. The consumer demand continues to stay buoyant,” Chirag Tanjeja, cofounder and CEO of GoKwik said.
The overlap of festive celebrations and wedding seasons, particularly with a later Diwali this year, is predicted to further stimulate demand, 1Lattice’s Dhir added.
Nevertheless, a note of caution reverberates among retailers. Despite the evident purchase intent, retailers are preparing for a possibly neutral festive season as economic challenges may hit consumers’ spending.
However, a recent study conducted by Nielsen Media India and commissioned by Amazon India says otherwise. According to the report, 81% of consumers are enthusiastic about shopping during the upcoming festive season. More importantly, this positive sentiment towards online shopping is not limited to metropolitan areas but Tier II and III cities and towns.
Ecommerce Platforms Ramp Up Efforts To Woo Sellers
In this year’s festive season, a standout trend is ecommerce giants’ intensified drive to court and captivate sellers with multiple strategic offerings like enticing commission rates, equipping them with advanced selling tools, enhancing the overall selling experience, and broadening their outreach.
Recently, ecommerce heavyweight Meesho made its platform accessible to non-GST registered sellers too. Not too behind in the race is Amazon India, which unveiled its multi-channel fulfilment (MCF) last month for D2C brands and retailers. This initiative is expected to aid sellers in managing customer orders from diverse channels.
Meanwhile, Flipkart flaunted its impressive seller growth, citing a tally surpassing 1.4 Mn — a notable 27% jump since 2022. Meesho currently has a seller base of 1.3 Mn and Amazon has over 1.2 Mn sellers.
Echoing the seller-side optimism, digiCart’s Verma said, “As a seller, we hold a very bullish sentiment. We’re so confident that we started stocking up well in advance. The robust build-up is evident from the current numbers. Mature sellers will expand into existing and new categories after.”
A recent survey by Redseer revealed that sellers are projecting a 15% increase in festive sales year-on-year. Even though the recent sales momentum on ecommerce platforms has been somewhat subdued — with only 40% of those surveyed reporting a 10% quarterly hike — there’s palpable enthusiasm for a significant festive sales boost across a multitude of product sectors.
Who Will Drive The Festive Ecommerce Growth?
Tier II and III cities and towns are expected to be the biggest contributors in this year’s festive season sales. According to experts, customers from these cities and towns are keen on giving their wardrobes and beauty kits a festive makeover. Although Tier I cities are spoilt for choice with numerous offline stores, spanning both legacy and contemporary brands, such luxuries are scarce in smaller cities.
However, this is steadily changing now. Some of the prominent D2C brands that have emerged from the country’s Tier II & III towns and cities are Raipur-based Drools, Mohali-based Lahori, Kanpur-based Phool, Coimbatore-based Juicy Chemistry, just to name a few.
Furthermore, consumer demand in the eastern regions of the country, along with enhanced connectivity in the Northeast, is also on the rise. Semi-urban and rural areas are fast emerging as the driving force behind the new wave of ecommerce growth, a trend expected to be pronounced during the festive season.
Considering that a whopping 65% of India’s populace resides in rural regions, the untapped ecommerce potential is immense, according to the Economic Survey 2022-23.
Yet, fostering trust will be paramount. Residents in these regions typically bank on word-of-mouth endorsements and recommendations from local retailers when exploring new products and brands. This is expected to give local D2C brands a much-needed boost in the upcoming festive season.
What’s Beyond The Festive Sale Fervour
As festive trends leave their mark in the ecommerce landscape, we’re likely to witness several transformative strategies. Central to this evolution will be Buy Now, Pay Later (BNPL) schemes. Yet, the traditional cash-on-delivery remains a preferred choice for many.
Ecommerce brands are increasingly prioritising customer retention, recognising that fostering enduring relationships offers more value. This shift is evident in the rise of loyalty programmes.
Notably, Flipkart introduced “Flipkart VIP” – a direct competitor to Amazon’s Prime – right before the festive sales kickoff. Simultaneously, Meesho debuted a loyalty initiative, targeting both customers and sellers.
Apart from the dominant themes, a few other noteworthy trends are slated to redefine the festive shopping narrative. Black Friday, for instance, is set for a revamp. Gen Z’s influence, especially their propensity to favour specific brands, will be significant.
Last year, for D2C brands, the Black Friday event overshadowed the traditional Diwali and Dusshera festivals in sales figures. GoKwik data indicates that brands on their platform saw a staggering 63% rise in GMV during the Black Friday sale, contrasting starkly with the 10-day Diwali sales.
Also, Christmas, too, is evolving. The allure of winter holidays and modern gifting practices are propelling this transformation, turning Christmas into a significant commercial event.
Given that the final leg of 2023 (October to December) will host almost all the major Indian festivals, the ecommerce players are in for a treat. Even though there will be a lot of cut-throat competition among ecommerce players, there will be no dearth of opportunities for them to woo customers who are eager to splurge to add more flavours to their festive celebrations this year. Going ahead, we will keep a close eye on the ecommerce players and D2C brands that will emerge triumphant after the great Indian festive showdown.
(Published in Inc42)
Devangshu Dutta
January 24, 2014
[This article appeared in the February 2014 print issue of Retailer, under the headline “Implications of the Tata-Tesco JV“]
India is a civilisation that has borne fruit from thousands of year of international cultural exchange, commerce and investment flowing both inwards and out. It is also one that has suffered from military and as well as economic colonisation over the millennia.
For those reasons, foreign investment into the country is bound to have both vociferous opponents as well as staunch supporters, and this debate is possibly most polarised in the retail sector that touches every Indian’s life daily. Over the last few decades, foreign investment into the retail sector has seen flip-flops from successive governments and political parties across the spectrum, being allowed until the late 1990s, then blocked (by Congress-led UPA), then selectively allowed (by BJP-led NDA, and later by Congress-led UPA). And more recently, with pressures, protests and influences from all sides 2011, 2012 and 2013 have certainly been on/off years during the UPA’s second successive term.
In this time Zara’s joint-venture, set up in 2010, has turned out be one of the most successful and profitable in India. More recently, Ikea announced a €1.5 billion plan for the country, followed by H&M’s US$ 115 million proposal, while Marks & Spencer identified India as its second largest potential market outside the UK. However in October 2013, the world’s largest retailer Wal-Mart decided to call off its joint venture amid investigations of its executives having supported or indulged in corruption and accusations that it had violated foreign investment norms. It decided to acquire Bharti’s stake in the cash-and-carry JV and announced that it would not invest in Bharti’s retail business.
It was soon after, as if to compensate for Wal-Mart’s blow, that India’s Tata Group and British retailer Tesco announced that they would be creating a formal joint venture in India, with Tesco investing US$ 110 million. The Congress-led government went on to quickly approve the proposal, as if to visibly shake off accusations of “policy paralysis”.
Tesco’s investment doesn’t look like much for a country the size of India, especially in the context of Ikea’s ambitious proposal or H&M’s fashion retail business that is possibly less complex than Tesco’s multi-product multi-brand format. However, let’s keep in mind that Tesco is facing tough trading conditions in Europe, took a global write-down of US$3.5 billion last year including its exit from the US market, and merged its Chinese business with retail giant China Resources Enterprise to become a minority partner. In view of all that and the unpredictability of Indian politics, US$ 110 million looks like a reasonable if not disruptive commitment. It also does somewhat limit the downside risk for Tesco if the environment turns FDI-unfriendly after the general elections.
Whenever Tesco expanded into new markets, it has tried to adopt a localised or partner-led approach. In India, since 2007, Tesco has had an arrangement to provide support to Tata’s food and general merchandise retail business. The intent underlying the partnership was clearly to look at a joint retail business when allowed by regulations and not just at back-end operations. The existing structure has provided Tesco with an opportunity to learn about the Indian market and operating environment first-hand while working closely with Tata’s retail team. Tata, in turn, has drawn upon Tesco considerable expertise of operating retail businesses in both developed and emerging markets. At the very least, the FDI inflow from Tesco will deepen this arrangement further, benefiting both partners further.
But there are the inevitable twists in the tale. While the Tesco proposal was in the works, the new Aam Aadmi Party formed a government in surprise victory in Delhi state and announced that it would not allow foreign owned retail businesses in the state of Delhi. This strikes off one of the most lucrative metropolitan markets from the geographic target list at least in the short term. (The central government has pushed back saying that while retail is a state-subject, the decision to allow FDI by the previous Congress government cannot be reversed at will by the current AAP government, but the debate goes on.) BJP-led and BJP ally-led state governments have also indicated their unwillingness to allow foreign retailers into their markets.
So should we even attempt to forecast what Tesco and Tata could do in this environment? I would rather not pre-empt and second-guess the future plans of business executives who are trying to read the intent of politicians who are focussed on elections 4 months in the future! However, whatever the plans, the retailers must comply with the regulations such as they are now and utilise the opportunities that exist. So it is likely that the following scenario will play out.
Tata and Tesco have said that the proposed joint-venture looks at “building on the existing portfolio of Star Bazaar stores in Maharashtra and Karnataka”. These are both states where Trent has multiple locations, so a certain critical mass is available. Since current government policy requires the investment to be directed at creating fresh capacity, new stores would also be opened in these states, though the expansion plans look modest, with 3-5 new stores every financial year.
But with the 50 percent investment in back-end also being a regulatory requirement, new procurement, processing and logistics infrastructure which could service stores within these states as well as in other states are is likely to be built. Tesco’s wholesale subsidiary currently supplies merchandise to Star Bazaar stores across states – this relationship is likely to continue as some of Tata’s stores are in states that are not within the FDI ambit. The product mix proposed includes vegetables, fruits, meat, fish, dairy products, tea, coffee, liquor, textiles, footwear, furniture, electronics, jewellery and books.
The norms earlier required FDI proposals to ensure that 30 per cent of product sourcing would be domestic, from small-midsized enterprises. However, in August 2013, the government relaxed this requirement to be applied only at the beginning of the joint-venture operations, and that this requirement would not include fruits and vegetables, an area where Tesco has focussed significant energy. So the immediate focus would be on meeting the domestic sourcing requirements in other categories, and creating a viable business model and scale through an appropriate product mix.
The partners are likely to continue working on improving the performance of the existing Star Bazaar stores which are 40,000-80,000 sq ft in size. However, Tata has also launched a new convenience store format, Star Daily sized at about 2,000 sq ft focussed on fresh foods, groceries and essential items. Retailers with foreign investment are now also permitted to open stores in cities with populations under one million from which they had been prohibited previously, so the new small format can provide significant expansion opportunities and more volume for the back-end operations to reach critical mass quicker.
Would there be a change of name on the store fascia? Unlikely, since Tesco has been operating stores under other brands as well in markets outside the UK and a “Tesco” name appearing on the fascia may not significantly change the consumer’s perception of the store. Other than in lifestyle categories or overtly brand-driven products (such as fashion), most Indian consumers focus on utility, quality, local relevance and price as significantly more important purchase drivers than an international name. In fact, a trusted Indian name like Tata carries as much weight or more weight in many categories than an international brand would. So the stores may carry a joint by-line, but the focus is likely to remain on the existing brand names.
And what of several other retailers who are interested in the Indian market? Will they draw inspiration from Tesco and take their plunge into the market, urged on by the outgoing government eager to demonstrate results during its final months?
Wal-Mart, for one, seems to have returned to the table, having set up a new subsidiary, perhaps preparing the ground for a retail launch with another partner. A European retailer, remaining nameless for now, is being mentioned as being the next proposal in the FDI pipeline.
However, it is likely that most will remain in the wait-and-watch mode until the outcome of the national elections is clear. The real issue is not the regulations themselves as much as the unpredictability of the regulatory environment. Policies are being made, turned around, and twisted over in the name of politics, without a clear thought given to the real impact on the country, the economy and the industry of either the original policy formulation or its reversal.
Until that dust settles down, we should expect no dramatic changes in the near term, no sudden rushes into the market. But then, we could be wrong – policy and politics have taken unexpected twists earlier, and could do so again!
Devangshu Dutta
October 12, 2013
Much has been written about the various relationship break-downs that have happened in the Indian retail sector in recent years. The biggest, most recent high profile ones are between Bharti and Wal-Mart and the three-way conflict playing out at McDonald’s. Other visible ones include Aigner, Armani, Jimmy Choo, and Etam, while Woolworth’s faded away more quietly because, rather than being present as a retail brand, it was mainly involved in back-end operations with the Tata Group.
I think it’s important to frame the larger context for these relationship upsets. Most international companies, non-Indian observers as well as many Indian professionals are quick to blame the investment regulations as being too restrictive, and being the main reason for non-viability of participation of international brands in the Indian consumer sector.
However, India with its retail FDI regulations is not the only environment where companies form partnerships, nor is it the only one where partnerships break up. Regulations are only one part of the story, although they may play a very large role in specific instances. In most cases, FDI regulations are like the mother-in-law in a fraying marriage: a quick, convenient scapegoat on which to pin blame.
Many of the reasons for breaking up of partnerships can be found in the reasons for which they were set up the first place. The main thing to keep in mind is that the break-down is inevitably due to the changes that have happened between the conception of the partnership to the time of the split. The changes can fall into the following categories, and in most cases the reasons behind the break are a combination of these:
According to Third Eyesight’s estimates, more than 300 international brands are currently operating in the Indian retail sector across product categories, if we just count those that have branded stores, shop-in-shop or a distinct brand presence in some form, not the ones that merely have availability through agents or distributors.
Of these, about 20 per cent operate alone, while other others work with Indian partners, either in a joint-venture or through a licensing or franchise arrangement. The relationships that have broken up in the last decade are only about 5 per cent of the total brands that have come in, and in many cases the international brand has stayed in the market by finding a new partner.
So there’s life after death, after all. And my advice to those who’re feeling particularly defensive or pessimistic because of a few corporate break-ups: take time for a song break. Fleetwood Mac (“Don’t Stop”, “Go your own way”) or Bob Dylan (“Don’t Think Twice, It’s All Right”) are good choices!
Devangshu Dutta
October 9, 2013
[This article appeared in Daily News & Analysis (DNA) on 10 October 2013, under the headline “Without Wal-Mart, can Bharti play it alone?”]
A year ago, Wal-Mart had called Bharti its natural retail partner in India. But today the companies have jointly and publicly changed their relationship statuses to “single”, calling off the 6-year old marriage. Bharti will buy out or retire Wal-Mart’s debentures in the 200+ store Easyday retail business, while Wal-Mart in turn will acquire Bharti’s stake in the 20-outlet Bestprice cash-and-carry business.
By some estimates, the split was imminent for perhaps a year or longer, as the pressure rose for the two companies due to multiple factors. Several regulatory changes governing foreign investment in the Indian retail sector made it difficult for Wal-Mart to acquire a stake in the existing retail business that the two partners had set up. Anti-corruption investigations in Wal-Mart’s India business (in addition to Mexico, China and Brazil), as well as questions around the legality of US$ 100 million worth of quasi-equity compulsorily convertible debentures issued to Wal-Mart at a time FDI was not allowed in multi-brand retail businesses brought down even more external scrutiny upon the joint business. And finally, pressure against foreign investment in multi-brand retail of basic goods such as food and grocery, continued to exist not just amongst opposition parties but also parties within the ruling coalition and individuals in the government.
The split means that Wal-Mart can now overtly take complete ownership of the Bestprice business, and drive it as it sees fit. The fragmented retail market and the myriad small businesses in India do potentially provide a large customer base for the cash-and-carry business if Wal-Mart chooses to be more aggressive. However, that may not happen immediately. The business has been coasting for over a year without new openings that were already planned and significant personnel changes have happened from the seniormost levels down. Wal-Mart’s investigations of corruption allegations continue and before committing more resources it will definitely want to strengthen systems so as to not be in violation of Indian and US laws.
On the other hand, if it wishes to now enter the retail business, Wal-Mart would also have to look for a new Indian partner to set up new retail stores in a separate company. Retail is capital-hungry so Wal-Mart would need a cash-rich partner who can accept a junior position in the venture in which Wal-Mart would clearly be the driver financially, strategically and operationally.
At this time Wal-Mart seems to have decided to take a step back and evaluate what the Indian market means to it right now and in the future, what sort of investment – both in financial and management terms – it demands, and what returns the investment will bring. It remains to be seen whether it will choose to grow aggressively, coast up incrementally or, in fact, take the next exit out of the market as it has done in some other countries earlier.
And what of Bharti? Will it be able sustain the retail play without Wal-Mart’s close operational guidance and financial participation, or will it choose sell the Easyday operation to another domestic investor? On its part Bharti has stated an ongoing commitment to the business, and has also hired the former CEO of the joint venture, Raj Jain, as a Group Advisor. A 200-plus store chain is sizeable and credible in India’s fragmented food and grocery market, and is seen by the group as “a strong platform to significantly grow the business”.
However, Bharti’s core telecom business is also capital-intensive and highly competitive, and it will be difficult at this time to sustain high-paced growth in another cash-hungry, thin-margin business such as grocery retail. For now the Group’s best bet would possibly be to consolidate operations, unearth more margin opportunities and take a call at a more opportune time whether to further invest in growth or to treat retail as a non-core business and exit it.
Creating a substantial, profitable retail business is a long-term play in any part of the world. In India, as retailers are discovering, it takes just that extra dose of patience.
Devangshu Dutta
January 6, 2012
The transition between calendar years offers a pause. We can use it to evaluate what passed in the previous year, chalk out our journey for the next one.
The first response of most people to the question “What happened in the Indian retail sector in 2011” would be probably something like this: lots happened, and then – at the end – nothing did!
That is because one theme ran through the entire year, month after month, fuelled by tremendous interest in the mainstream media as well. This was about the change expected, hoped for, in the policy governing foreign direct investment (FDI) into the retail sector. Hearing the debate go back and forth, on one side it seemed as if FDI was going to cure every ill of the Indian economy, and on the other it seemed as if the country was being sold out to neo-colonists.
It’s worth remembering that not too long ago foreigners could invest in retail businesses in India freely. Benetton ran some of the key locations in the network through its joint-venture which subsequently became a 100 per cent owned subsidiary. Littlewoods (UK) set up a 100 per cent owned operation in India during the 1990s before its home market business collapsed, and its Indian operation was bought by the Tata Group to form Westside. And well before all these, one of the early multi-nationals, Bata, had already built a humongous network of stores across the length, breadth and depth of India.
The motivation for the decision to exclude foreigners from this sector may have been political, economic or mixed – that is not as important as the timing.
By the mid-90s India had just started to attract interest as private consumption was just about picking up steam. Several international apparel, sportswear and quick service brands entered the market during this time. Many of these brands started setting up processes and systems that changed the way the supply chain worked. They gained market share, and more importantly mindshare, with young consumers. In this process some of the domestic brands did suffer, some of them irrecoverably. However, with foreign investment suddenly blocked-off, many brands that wanted direct ownership in the business in India turned away. In their opinion the opportunity just wasn’t big enough to take on the hassle of a partner. Some did enter, but with wholesale distribution structures rather than in retail.
During this last decade, the Indian retail landscape has changed dramatically. During the 2000s the economic boom happened and India became “hot” again. So did retail and real estate, as large corporate houses pumped in significant amounts of capital into setting up modern chains to tap into the fattening consumer wallets. Clearly, FDI was going to come up on the agenda again, but not quite at once. Indian companies needed some headroom to grow; and grow they did, partly with indigenous business models and brands, and partly as partners to international brands.
By 2011, there was more of a clear consensus among the Indian businesses that retail could be opened to FDI and must be. Internationally, too, political and economic heavy-weights from the significant western economies pitched for opening up the retail sector in India to foreign investment. Here’s the small public glimpse of the hectic activity that happened internationally and domestically:
Such an anticlimax! For many, 2011 was the year that could have been a turning point. Could have been! If you had slept through the year and woken up on New Year’s Eve, would you have found nothing had really changed?
Ah, that’s the thing! I think most people observing the retail business actually slept through the year, because they were just focused on the FDI dream. Those actually engaged in the retail business know that many other things did change, some of which create the foundation for further growth.
The government did push on with the GST (goods and services tax) agenda. While stuck in politics at the moment, we look forward to incremental changes in harmonizing the taxes and tariffs regime, vital for truly unifying the country in the economic sense. On the downside, excise being levied on the retail price of clothing was a blow to retailers.
Growth continued. Indian’s retail giant, Future Group, grew to around 15 million square feet. The other giant, Reliance, announced renewed vigour and focus on the retail business with additions to the management team partnerships with international brands such as Kenneth Cole, Quiksilver and Roxy. Other new partnerships were announced, including significant American food service brands Starbucks (with the Tata Group) and Dunkin’ Donuts (with Jubilant). The British footwear brand Clark’s announced that it was aiming to make India its second-largest source country and among its top-5 markets within 5 years. Marks & Spencer pushed to expand its chain by more than 50 per cent, adding 10 stores to 19, while Walmart said its focus was on building scale rather than trying to squeeze profitability from its US$ 40 million investment so far. For fashion brands, the Rs 500 crores (US$ 100 million) sales threshold seemed more achievable as they used the accelerated pace of growth.
Many in the retail business talk about “the people problem”. Fortunately, some decided to demonstrate positive leadership, reflected in RAI’s announcement of an ambitious skill development plan for 5 million people in next 4-5 years, and industry veteran BS Nagesh announcing the launch of a non-profit venture, TRRAIN.
There was some bad news on the issue of shrinkage: a sponsored study placed India at the top of the list of countries suffering from theft. But the level was reported to be lower than the previous study, so there seemed to be hope on the horizon. The study didn’t say whether consumers and employees had become more honest, better security systems were preventing theft, or whether retailers themselves had become better at counting and managing merchandise over time.
A significant highlight was the e-commerce sector, which has found its way to grow within the existing restrictions and regulations, even as the online population is estimated to have grown to 100 million. Flipkart delighted customers with its service and racked up Rs. 50 crores (US$ 10 million) in sales. Deal sites proliferated and media channels celebrated the advertising budgets. Even offline businesses, notable among them pizza-major Domino’s, found their online mojo; Domino’s reported 10 per cent of its total revenues from online bookings within a year of launching the service.
In all of this the biggest story remains untold, which is why I call it an Invisible Revolution. This revolution is made up of the changes that are happening in the supply chain in the entire country, including investment by private companies in massive, large and small facilities to store, move and process products more efficiently. And in spite of the high costs of capital, suppliers are continuing to look at investing in upgrading their production facilities as well as their systems and processes. While the companies at the front-end will no doubt get a lot of the credit for modernizing India’s retail sector, it would be impossible without the support of the foundation that is being built by their suppliers and service providers.
2011 seems to have ended with a whimper. 2012’s beginning will be tainted by large piles of leftover inventory that needs to be cleared. Inflation seems tamer, but consumers have already tightened their belts, anticipating difficult times. The policy flip-flops and the political debates are sustaining the air of uncertainty. So what does 2012 hold?
Remember, the ancient Mayan calendar stops in December 2012, and no doubt there are many predicting doomsday! However, there are several others that see this as a possibility of rejuvenation, renewal.
Hope and fear are both fuel for taking action. Investment cycles are caused by an imbalance of one over the other.
In 2012, we’ll probably continue to see a mix of both. I recommend that we don’t take an overdose of any one of them. Even if you think 2011 was “the year that could have been”, I suggest still treating 2012 as “the year that could be”.
Here’s wishing you a successful New Year!
