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Emergence of Omnichannel retail in India


  • The retail sector outlook is positive in India with exponential growth expected in e-commerce space
  • The retail sector is witnessing a redefining change with emergence of omnichannel partnerships
  • Reliance set to disrupt the unorganized market; Amazon, Walmart gear up for the fight

 

India is the world’s fifth-largest global destination in the retail space which accounts for over 10% of the country’s GDP and provides employment to ~8% of the population. The country’s retail sector is experiencing one of the fastest growths globally, with retail development taking place not just in major cities and metros, but also in Tier-II and Tier-III cities. According to data released by Ministry of Commerce, Indian retail industry (largely dominated by unorganized retail trade) is expected to grow at the rate of 10% by 2021. Within this, the share of organized retail is forecasted to increase to 18% by 2021 and 30% by 2025 from ~8-9% currently. Swiftly increasing disposable incomes (particularly in hands of the middle class) is leading to rise in discretionary spends whereas a changing demographic profile, growing urbanization, brand awareness, increasing convenience (with multiplicity of choice under one roof (Shop-in-Shop)) and increasing women workforce are the key growth drivers in the organized retail market in India. Further, the total consumption expenditure in the country is expected to reach ~ USD 3.6 trillion by 2020 from USD 1.82 trillion in 2017.

The growth in the retail sector is expected not just in the traditional brick & mortar stores (from USD 672 billion (2017) to USD 1.3 trillion (2022), source: Anarock retail), but also Indian population is moving to online retail in a big way (expected to more than quadruple from 2017 to 2022 to reach USD 73 billion, source: Anarock retail). The sector is broadly divided into two segments, Value retailing – low margin high volume (food and groceries) and Lifestyle retailing – high margin low volume (apparel, footwear etc.). Food and Grocery is the largest segment contributing over USD 400 billion in revenues.

However, the most significant change witnessed in the retail space during the last 5 years has been the admission that both online and offline will coexist and instead of competing will collaborate. Jack Ma calls this omnichannel modern retail the ‘New Retail’ or in Kishore Biyani’s vocabulary ‘Retail 3.0’, where lines get blurred between online and offline. Within the framework, burning loads of cash for market share is unlikely to work for online retailers (also government has tightened norms for deep discounting), additionally they will need continuous investments in the ecosystem for supply chain, warehousing and logistics amongst others. In conventional retail, occupancy is the biggest cost, while for e-commerce, it is the fulfilment cost. The omnichannel strategy (Online + Offline) is expected to help in optimizing inventory holding costs, operating costs and real estate costs, while increasing brand visibility and consumer base across various regions in the country. The leading store-based retailers are increasingly deploying a multichannel presence and are investing heavily in developing online platforms, while the online players are in-turn investing in brick & mortar stores to beef up their supply chain.

Globally, India is the largest remaining growth market after saturation of US and European markets, while China remains practically a closed market for global giants such as Amazon and Walmart, with leading Chinese companies ruling the turf there. India has a huge untapped unorganized market, which presents immense scope for further penetration of the organized market. Further, e-commerce constituted only 2.8% of entire retail sales in 2018 and is another promising market, which is expected to grow exponentially while attracting global giants like, Walmart, Amazon and Alibaba etc. as well as domestic leaders like Reliance retail and Future retail. Further, India’s price competitiveness is attracting large retail players to use it as a sourcing base. Global retailers such as Walmart, GAP, JC Penney and Tesco etc. are increasing their sourcing from India and are moving from third-party buying offices to establishing their own wholly owned/wholly managed sourcing and buying offices. Thus, increasing participation from foreign players is providing impetus to the Indian retail industry.

The competition is set to intensify in the market with 4 large groups emerging in the market (refer table below). Reliance retail, the largest retailer in India is launching its online JioMart platform to disrupt the unorganized retail market by bringing in producers, traders, small merchants, consumer brands and consumers in one single platform and is being seen as a big threat to the incumbent players. In order to compete fiercely in this market, every player is shoring up on its war coffer with billons of dollars being set aside to take the battle head on. Further, there has been many strategic partnerships happening in the sector such as Amazon acquiring stake in Future group as well as Walmart acquiring Flipkart (the largest domestic e-commerce venture) to gain on the omnichannel retail footprint. M&A activity heated up in the sector and saw a 700% jump from USD 3.4 billion in 2017 to USD 27 billion in 2018.

Going forward, given the strong retail and consumer outlook and changing retail landscape, India is expected to witness redefining trends as the markets mature. High demand for superior customer experience along with deeper penetration into smaller cities and towns will help businesses to evolve from unorganized to organized business. The omnichannel strategy will likely have an edge considering the psychology of Indian consumers to see and feel products before buying. Both domestic and foreign businesses are expected to aggressively enter and grow the Indian business. While the current market is already heated up with almost 4 large factions vying for leadership position, this has resulted in improvement in service offerings and also resulted in price competitiveness, which is benefiting the consumers at large, who are getting improved services at cheaper rates and at the comfort of their homes. Only time will tell who will rule the Indian Turf, but right now there is ample market space for everyone to grow and thrive. Further, technology will play a pivotal role in the way consumers and products interact with each other and also replace many ‘human roles’ in retail.

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