| It has been quite well-known to most that India has failed to invest adequately in its infrastructure and that these bottlenecks will start choking prospects of high growth. What has indeed come as a rude surprise is how quickly the saturation point has been reached. Extreme power shortages are now expected to run well into the next decade even if all the currently planned additional capacity comes on stream in the next few years. Road networks are choked beyond imagination in all major cities, adding hours to daily commute for the residents while burning precious fuel. Airports are in no better situation. Hotels in major cities now compete or even exceed cities like New York and London when it comes to tariffs and even then, it is almost impossible to get rooms at short notice. Industrial land prices, in the vicinity of the top 10 cities, are what the residential prices were just a few years ago, severely denting the viability of new manufacturing facilities. Office rentals in third-rate buildings in Mumbai (with no parking support) are higher than in Frankfurt or Barcelona. In this situation, it is no surprise that despite the planned influx of hundreds of new shopping malls across India, the rentals for retail real estate continue to rise and have already touched ridiculous levels in the traditional high streets. |
| As per Technopak estimates, Indian consumers will spend an additional Rs 575,000 crore by 2011, creating a demand for an additional minimum 600 million (60 crore) square feet of retail space. By 2016, an additional minimum 800 million square feet (80 crore) of retail space will be needed, based on current projections of economic, demographic, and consumption trends over the next 10 years. Against this additional demand, the most optimistic current projections are for an addition of about 175 million square feet of new retail space and that too highly clustered rather than well-distributed across the country. As a result, the trends are ominous for current and new retailers barring giants like Reliance, who have the vision and the financial and organisational capacity to acquire and develop most of the real estate that they would need for their larger format stores and thereby reduce their dependence on the mall developers. |
| It is therefore time for companies to start looking at non-store formats more closely than they may have looked at in the past. Besides direct marketing/multi-level door-to-door marketing options like those adopted by Amway, the three promising non-store "formats" are T-Commerce (telephone-based), C-Commerce (catalog-based), and M-Commerce (not mobile phone-based but "mobile" shop-based). |
| In recent years, many have looked at the Internet as the most attractive option but it has not really taken off in most consumer goods categories (most of the e-commerce volume is still generated by travel and leisure services). Only Hindustan Lever has really put in a serious, significant attention on the possibility of using telephone-based ordering (and the Internet) and then direct-to-consumer delivery business model for a super-market based assortment. HLL's initiative "Sangam Direct" has had a mixed success so far but it is a commendable effort, and, in my view, holds a lot of promise if some fundamental changes and improvements are made in the same. The viability of the model is applicable not only for the traditional supermarket product categories (as most consumers who are used to ordering on the phone and getting delivery done from their neighbourhood grocer can vouch for) but also for many others such as white and brown goods (provided the channel operators invest in setting up an efficient interactive system in place that can enable potential customers to have an intelligent conversation with a sales agent). With over 50 million landlines and over 110 million mobile phone connections operational in August this year, and with a teledensity of over 35 per cent in urban India, almost entire middle- and upper-class urban India can be reached through this medium. |
| Catalog-based models have been tried in India in the past. Unfortunately, some of the concepts were ahead of time while others did not have the right financial and management backing. Today, digital technology for the production of catalogs and the possibility to distribute both in print as well as electronic form can potentially allow several other categories to be retailed through catalog such as clothing, home appliances and other home hardware and giftware. |
| The third option that can be experimented by some companies and for several product categories can be through creating a fleet of custom-built mobile sales vans. There are regulatory and local municipal regulations that have to be taken into consideration while a business model is developed on this basis, but it certainly holds promise not only for basic need-oriented product categories but even lifestyle-based (how about taking high-end home theatre systems or a set of massage chairs on specially developed vans to potential customers' homes after prior appointment?). |
| In practice, it is likely that the final retail business model for many companies would be a combination of traditional "brick and mortar" stores and some elements of T, C, and M commerce. What is more important is that they need to start thinking on those lines. |
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
