Clicks Aren't Hurting Bricks, For Now
Brick-and-mortar stores are feeling the heat from e-commerce players only in a few categories, but that doesn't mean they can become complacent...
About a year ago, many -that
included some of India's largest organized retailers -were in near
denial that India would feel the impact of e-tailing in the near
future. Today, the pendulum has swung to the other extreme. Some of
India's old est and largest brick-and-mortar retailers believe that
the newly arrived e-tailers are their biggest threat now. Various
associations that represent the interests of India's over 16-million
independ
ent retailers are now actively lobbying against etailers, including
India's homegrown ones. The same associations had long reserved their
vitriol only for multinational retailers despite the fact that the
top-three organized retail businesses in India, each having revenues in
excess of `15,000 crore in 2014, are Indian owned while the largest
multinational retailer in India is struggling to cross even `1,000 crore
in revenues.
India's current consumer spending on merchandise (and hence the size of
India's retail market) is about $525 billion. If India sees a real
compound annual growth rate (CAGR) in the next 10 years, and the
consumer price in
flation remains around 6% CAGR in the same period, India's merchandise
retail spending will
touch about $1,100 billion by 2020, and $2,100 billion by 2025. It is
easy to see what is driving this strong growth in retail consumption -a
relatively young population, convergence in lifestyle aspirations across
urban and rural India and rise of dual (or multiple) income households
especially in urban India.
Consumption Patterns To better understand the current and future impact of e-tail on India's physical retailers, it is important to gain a measure of what India is currently consuming and how that consumption is split between rural and urban populations.
As the chart Retail Consumption Across Key Categories shows, even 10 years from now, almost two-thirds of India's retail spending (not total consumer spending because that also includes services such as housing, healthcare, transportation, education etc) is on food, followed by about 9% on apparel, then jewellery, and then consumer electronics, including mobile handsets.
Of this retail spending, rural India (spread across over 6,60,000 villages) accounts for almost 52%. Even by 2025, rural spending would still account for 43% of spending (see Distribution of Consumer Goods Spending). India will see very strong growth in all channels of retail: the traditional independents, the modern corporatized chains, and e-tailing not only in the coming 10 years but indeed, even much beyond that. Those who fear for the demise of traditional retail from corporatized retail (whether Indian or foreign owned) and now from e-tail will do well to note that Indians who are currently consuming merchandise worth $479 billion from independent mom-and-pop stores will consume more than four times (goods worth about $2,125 billion) from these stores by 2025. The corporatized retailers do not have much to fear either and they are likely to increase their own collective revenues (only from physical stores) from about $46 billion today to over $100 billion (excluding e-tail) by 2020 and perhaps over $345 billion (physical retail and e-tail) by 2025.
As far as e-tailing is concerned, notwithstanding its immense appeal for the metros and other parts of urban India, and notwithstanding its visible impact in select categories such as mobile phones and consumer durables, it will continue to have a fairly small share of the overall retail spending in India even after 10 years.
Negligible Share
To put simply, if seen only from the
perspective of a few categories such as consumer electronics, apparel
and footwear, furniture and home furnishings, and a few others (and that
too largely in the top 15-20 cities and for products targeted towards
the middle and upper-middle-income socio-economic strata), there is
already a measurable impact of e-tail channel on physical stores in
2014. And no doubt, this will become more significant by 2025. However,
if seen from the overall consumer spending perspective, the share of the
e-tail channel by 2020 is expected to be around 3% on a net sales value
(and perhaps 4% by gross merchandise value) and no more than 10% by
2025.Having said this, it is important for physical retailers (especially those located in these top 15-20 cities) to make a serious effort to upgrade themselves. The upgrade should include improvements in the physical look and feel of the stores, offering a better shopping experience to consumers, training and retraining of store staff to offer better services, and aligning their merchandise more sharply to their specific customer profiles.
Physical retailers (independent ones) should also put more effort in knowing their consumer better and deploy basic technology to connect with them for sharing with them information on new arrivals and promotions.This connect could be even through SMS and then wherever possible, through e-mails.Such measures, as their e-commerce rivals have shown, work wonders.
Ref: Article written by Arvind Singhal , Chairman & Managing director of Technopak, a Retail Consultancy, published in ET Magazine.
