This additional consumption, if met entirely through conventional brick-and-mortar retail channels, will require an additional 4 billion sq ft of space (equivalent to 10,000 new shopping malls, each with a net retail carpet area of 400,000 sq ft). Clearly, such a humongous amount of retail space will not come up in India simply because our town planners (and politicians and bureaucrats) have failed to anticipate the need for clearly earmarked and futuristically-planned spaces for housing, offices, industry, educational institutions, public utilities, sports and cultural arenas, hospitals, public parks, roads and parking, and retail to list a few. Hence, notwithstanding other arguments that support the emergence and strong growth of non-store retail channels, the lack of availability of adequate well-designed, affordable retail space will be one of the most important factors impairing the future of brick-and-mortar retail in India, especially in urban areas.
Beyond the availability of space, the myriad challenges for "brick-and-mortar" retailing in India include the existence of antediluvian and pernicious laws that can be different even from city to city, and certainly state to state. The laws are also different for various product categories being retailed, so the opening of every physical store could imply between 30 and 50 different permissions and licences besides making each outlet vulnerable to regular harassment from an army of inspectors.
With all these challenges for brick-and-mortar retailers, and in the backdrop of the various fundamental changes in Indian consumer behaviour, e-commerce is likely to emerge as the most attractive retail channel for corporatised retail. Other non-store channels such as multi-level marketing and TV are also likely to grow though nowhere close to the scorching pace of growth that e-commerce will see in the coming years.
By 2020, e-commerce will be the dominant "organised" retail channel in the top 75 Indian cities (cities with population of 1 million or more), accounting for much as 30 to 35 per cent of merchandise sales by value in these cities; in the rest of urban India, e-channel could account for as much as 20 per cent of merchandise sales by value. Traditional, small, independent retail outlets will continue to account for a significant 35 to 40 per cent of total merchandise sale in the top 75 cities and closer to 50 to 55 per cent in urban India. Organised "brick-and-mortar" channel sales will be limited to between 25 and 35 per cent share in top 75 cities and between 20 and 25 per cent for all of urban India as a whole. B2B retail business models (the so-called "cash and carry") will be the most successful "large-format" retail businesses, while multi-channel will be the norm for most corporatised retail businesses.
If retailing in India is to be seen from the consumer's perspective, then "anytime/anywhere" will be the overarching desire of the majority of urban consumers in the years to come. Home delivery will be one of the most powerful "convenience" attributes for most urban consumers, and either "almost all under one roof" or "ultra-specialisation" shall be the consumers' preference when selecting the "retailer".
From a positioning point of view, "value"/"extreme value" positioned retail businesses will find the best pan-India growth and deliver the best profitability for the large corporatised retailers. "Luxury"/"bridge-to-luxury" positioning will also be quite rewarding though there will be obvious limits on the size of such businesses even by 2020. Full-service, middle-of-the-road retail formats (for example department stores and supermarkets) will find the going tougher within the next few years.
Although there will be some consolidation in the overall distribution of retail outlets (currently guesstimated at 15 million), India may not see too many multi-billion dollar retail businesses. Instead, India is likely to see the emergence of tens of thousands of "ultra-specialty" and "specialty" e-businesses (to add to the several million independent brick-and-mortar outlets) focussed on supplying a very narrow range of products to a relatively small group of customers either in a small geographical cluster or spread nationally and even internationally. "Apps" for each of these "micro" and "mini" e-retail businesses will make shopping easy for most of their customers while internet/phone-in ordering and home delivery will take care of shopping for others from the small, independent outlets.
So, although the central and the state governments still have to understand the contours of modern retailing and are grappling with the challenge of coming out with pragmatic policies and regulations that can modernise India's obsolete and inefficient retail ecosystem, there is a retail revolution in the making through the emergence of e-tailing. E-commerce can successfully mitigate several of India's infrastructural constraints such as the lack of availability of legitimate, affordable retail space; can offer much better convenience and value to hundreds of millions of time, inflation-ravaged consumers; improve tax compliance; and give an extraordinary fillip to millions of micro and small (manufacturing) entrepreneurs who can find access to hundreds, thousands, tens of thousands, and even millions of consumers directly or through some of the so-called "market-places" such as eBay, Amazon, Jabong, Flipkart, and many others.
Arvind.singhal@technopak.com.
This concludes the two-part series. The first part appeared on October 9
This concludes the two-part series. The first part appeared on October 9