Indian retailing on the brink of a transformation: McKinsey

By Shanthi Kannan

CHENNAI, OCT. 13. If retailing continues along its current growth path in India, sales are likely to touch $300 billion by 2010, with 6-7 per cent of this flowing through modern channels ($18-20 billion), according to the CII-McKinsey report on ``Retailing in India - The emerging revolution".

Presenting the report at the CII's Retail India 2000 Seminar here today, Mr. Michael Fernandes, Associate Principal, McKinsey & Company Inc., said retailing was now a recognised industry all over the world. It was on the cusp of a transformation. The combination of increased consumer demand, improved sourcing options and increasing availability of real estate were creating the foundation for significant growth in the organised retail sector. The confirmation of this hypothesis could be seen in Chennai, where 20 per cent of the branded foods markets and 20 per cent of durables were already flowing through organised retailers. Earlier, Mr. Shaktikanta Das, State Industries Secretary, released the report.

The study finds that grocery will be the largest of these opportunities and the organised sector could be as large as $ 18 billion by 2010, split across a variety of formats. To capture this opportunity, a company will need to develop significant sourcing scale, build world-class customer management capabilities and make significant investments to extract value from the unprocessed agri-products (dry and fresh) chains.

Similarly, Mr. Fernandes said, the early successes in branded specialty apparel and large multi-brand outlets would continue, driven by the continued growth in men's readymade garments. However, the real key to building a large business in this market lay in developing a sourcing and merchandising system for the women's ethnic wear market, he said.

Electronics, books and music would provide interesting opportunities almost immediately. The challenge in electronics lies in building sourcing scale with extremely low cost operations to increase margins. In books and music, the management of local language ranges and the provision of a value- added shopping environment would be crucial.

Mr. Fernandes said despite the turmoil in the Internet space, e- commerce remained a highly relevant opportunity and increasingly favoured clicks-and-bricks business models. The real challenges for retailers would be launching and managing a highly innovative clicks business that works along with a more stable bricks business.

The value that retailing could add to the economy should not be underestimated, he pointed out. Organised retailing could drive the transformation of the agricultural supply chain, remove the inefficiencies in the distribution of consumer goods and improve overall labour productivity and employment, all in the name of providing consumers with a better range of products at better prices in a better ambience.

Mr. Fernandes said the challenges that lay in implementing the change agenda required to capture these benefits should also not be underestimated. Growth of modern retailing would require rewriting the real estate laws, restructuring the tax regime, and allowing FDI into retail business, accessing and developing new skills and investing significantly in infrastructure. This level of change was unlikely to be successful if carried out by any one retailer. A concerted industry-wide effort and a partnership with the government were required to achieve a number of these goals, he said.

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