Is the long awaited retail explosion in India proving to be a damp squib? Are rising rentals squeezing retailers out of prime locations? Retailers are innovating to win the race to your wallet.
Since the government opened up FDI in supply chain and retail, Wal-Mart, Carrefour and others are preparing to revolutionize the Indian marketplace. Indian retailers have rolled up their sleeves and prepared for competition.
You have malls sprouting in every street, seemingly. Not only that; they’ve also been getting more competitive. International competition will see the race for your money get frenzied.
There’s one small hitch, however. Space is becoming terribly expensive. Prime locations in metros are prohibitively expensive. Now, the suburbs and tier II cities are following suit. Indian retailers are discovering the logic behind Wal-Mart’s stores’ locations.
Will this derail the great consumer boom? Retailers are working out strategies to get around this problem. If you suddenly find a Reliance Fresh outlet where your friendly neighborhood grocer used to be, this is because he has given over the location for a price. The earliest megastores, such as Shoppers’ Stop, were opened by property developers.
In fact the newer malls will be built by developers, and retailers will only rent or lease space. The guys with deeper pockets may choose to own. Also, the high rentals will force retailers to spread to tier II and III towns, where rentals are less. This will benefit the sector by increasing reach.
Another alternative available to retailers is to use SEZs to host hyperstores. There are business houses like Reliance that already have presence in SEZs and can use this effectively. The question is whether the SEZ is located well enough to get you to drive there for your groceries?
As supply chain, logistics and technology adaptation will prove expensive in their own right, retailers will have to find a way out of the land squeeze to make the most of wafer-thin margins. Smaller retailers may get squeezed out.
Does this mean a still-birth for Indian consumerism? Or will aggressive management and deep pockets see you shopping at the mall-next-door?