'Western retail formats worth adopting'

Retail forum stresses on back-end efficiencies before embarking on price discounting.

Indian retailers need to adapt western formats, which focus on back-end efficiencies, to suit Indian conditions, said retail industry leaders at the annual Indian Retail Forum here.

Subhiksha Managing Director R Subramanian said Indian retailers should think differently from the West since international retailers focused on bigger formats due to low property prices and less stringent laws on maximum retail price (MRP).

"Due to restrictions on MRP and high property prices, big retailers cannot focus on the price differentials unlike their counterparts in the West. In this scenario, they have to focus on something different to attract customers.''

He said retailers need to bring services closer to their customers and make it unique because Indian customers cannot travel 10 km in public transport to hypermarkets or supermarkets as in the West.

Quoting the instance of Wal-Mart, which focused on outskirts of major cities, Sumantra Banerjee, managing director, RPG, said, Indian retailers should broadbase their stores instead of focussing only on major cities which are being crowded by retailers.

"Pressure is building in some markets which have seen the presence of too many retailers. In 12-15 months, we can see retailers taking a call on the existence of stores in unviable areas. Already many big retailers have bought the smaller ones," Banerjee says.

Wal-Mart reduced the total number of its big format Supercentres to 190-200 from 265-270 it originally planned, and relocated 70 stores to improve bottom line and garner better sales. "Indian retailers should take a cue from that," he said.

"Most of the retailers are getting into micro blocks in cities and have nearly 70 per cent of the same merchandise. There could be situation of growth without profits. With the catchment area being stagnant, they are fragmenting the market," he said.

Banerjee said the predatory or discounting of pricing by Indian retailers without focussing on the back-end efficiencies could land them in trouble.

"Everyone talks about $350 billion sales of Wal-Mart. But its bottom line is 4 per cent which comes at nearly $12 billion. Wal-Mart could do it only because of its strong back-end efficiencies," Banerjee adds.

If you undercut prices without proper back-end strengths and believe that higher top line will take care of smaller margins, your profits will certainly hurt,'' he says.

B S Nagesh, managing director, Shopper's Stop, believes that 25 to 30 per cent growth is not sustainable for retailers after 2-3 years of expansion. "Same store growth would be a concern for most of the retailers," he added.

They can sustain on 5 to 10 per cent growth above inflation.''