The giant, growing retail market in India has drawn the attention of the world’s largest retail players as well as prompted many local firms to expand into it, but the sub-continent’s traditional retail sector has not been forgiving to modern formats.
A dramatic expansion of India’s modern retail marked the beginning of 2008, and many companies rushed headlong into the market to stake out a foothold. That enthusiasm has become a liability, however, as the gloomy economic outlook drives consumers back to the traditional ‘mum and dad’ kirana stores.
“Kiranas have clearly won the first round,” Kishore Biyani, the CEO of India’s largest retailer, Future Group, told The Economic Times. “The story of ‘modern retail vs kirana’ is over. The past year was about the survival of modern retail.”
“Before modern retail could attain scale, the economy went into a tailspin,” said Mr Biyani, adding the traditional Kiranas were more effective at managing overhead costs.
Domestic Indian retail groups, such as Future group, Reliance, Aditya Birla group, Subhiksha and Vishal Retail, have been the biggest losers in the turmoil.
India’s restrictive laws on foreign-ownership of retailers has kept the big international players to smaller involvement in the market, such as Wal-Mart’s wholesale joint venture with the Bharti group.
“We have grown too fast. With this kind of pace, we make mistakes,” said CEO of Aditya Birla Retail Thomas Verghese. He added the race to open new stores meant retailers chose bad locations and paid too-high rent prices.
Consumer confidence in India is decreasing from a number of causes, according to RC Agarwal, chairman and managing director of Vishal Retail. “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,” he told The Economic Times.
The coming year will be a telling time for Indian retail, with many players taking a cautious approach to expansion or considering leaving the game altogether.
