From abroad, international brands such as Hennes & Mauritz (H&M), Gap and Aeropostale kicked off their India journey
As a year of David vs Goliath in retail market draws to a close, the newbies’ gang of Flipkarts and Snapdeals are forcing Ambanis and Birlas of supermarket chains to join the burgeoning e-commerce landscape.
At the same time, a knockout round is at play in the online as well as offline retail worlds where ‘survival of the fittest theory’ is forcing weaker and smaller players to either close the shop or get merged with stronger rivals — a trend that is likely to consolidate further in 2016.
The year passing-by has also seen overseas players joining the ranks on both the sides — be it the likes of Amazons with online marts with brick-and-mortar shops bolstered by a liberalised FDI policy.
This was also the year which saw major mergers involving home grown supermarket chains, including the one between Future Group and Bharti Enterprises. Besides, Aditya Birla Group also consolidated its operations. From abroad, foreign brands such as Hennes & Mauritz (H&M), Gap and Aeropostale kicked off their India journey while German sportswear major Adidas Group geared up to open its own stores from next year after getting nod for 100 per cent single-brand operations.
Yet, the multi-brand retail remained a no-go zone for foreign retailers.
The retail sector, which is pegged to grow to $1.3 trillion by 2020, clocked a growth of 13 per cent in the year from last year’s $560 billion despite factors such as availability of good retail space remaining a major challenge.
Looking back at the year, Retailers Association of India (RAI) CEO, Kumar Rajagopalan, said: “Year 2015 was a year of challenges and opportunities. Biggest challenge for retailers was unavailability of good retail space due to fall in number of new malls.”
The challenges notwithstanding, retailers are bullish about the sector doing well in future as Mr.Rajagopalan said that out of the estimated size of $1.3 trillion, only about 20 per cent is estimated to be modern retail.
“This also means that traditional retailers will continue to be important part of retail in India,” he said.
For the next year, he said factors such as GST, expansion of mobile-based electronic payment systems and infrastructure development will be the key drivers for the retail sector.
“The other main expectation in 2016 is the announcement of retail policy by various states, including Andhra Pradesh, Telangana, Maharashtra and Gujarat,” Mr. Rajagopalan said.
As for the opportunities during the year, he said the retailers experimented with technology and focused on operational efficiency to increase margins.
“E-commerce was also a big opportunity. Most retailers either began selling their product themselves or through a tie-up with a e-commerce players,” he said.
More than 60 per cent of the brick and mortar retailers have developed their e-commerce capabilities and the trend is definitely redefining the shopping experience for customers.
This was exemplified by the likes of retail chain, Shoppers Stop, tying up with Snapdeal and Amazon besides ramping up its own website to increase its online sales.
Mahindra Retail, which acquired Babyoye.com in February this year, integrated its entire e-commerce business into Babyoye.com and later re-branded its offline retail network from Mom & Me to Babyoye by Mahindra.
Likewise, Aditya Birla Group launched its e-commerce portal for apparel, abof.com, as a one-stop fashion portal for apparel, footwear and accessories for men and women.
“The e-commerce sector is a sunrise sector from an investment point of view.. We plan to stay focussed on seeding and growing specific businesses in areas where we have specific strengths which we can play on extensively. We see fashion e-commerce as one such space,” said Aditya Birla Group Chairman, Kumar Mangalam Birla.
Not to be left behind, Spencer’s Retail acquired online grocery firm Omnipresent Retail India which operates Meragrocer.com, to venture into fast growing e-commerce space.
The government had given a further boost to the e-commerce sector by opening up FDI in the business to customer (B2C) segment in a calibrated manner.
At the same time, questions are already being asked about the business model of various e-commerce players, especially the huge discounts and cash back offers being doled out by them. Former Infosys director and an investor in some startups, TV Mohandas Pai, said the industry may see a shakeout in the next two years, or “even earlier”.
He faulted the business model adopted by e-tailers which, he said, promotes growth without building customer loyalty and the players while Flipkart and Snapdeal are just trying “to grow fast by giving subsidies, which is wrong because there is no customer loyalty”. While preparing for the e-commerce challenge, the brick and mortar operators also went on to fortify their traditional stronghold through consolidation.
Aditya Birla Group merged all its apparel businesses from Aditya Birla Nuvo and Madura Garments Lifestyle Retail into one entity — Pantaloons Fashion & Retail, which was later renamed as Aditya Birla Fashion and Retail Ltd.
Aditya Birla Retail also acquired Jubilant Industries’ hypermarket business in a slump sale deal. The merger of the year, however, was between Kishore Biyani-led Future Group and Bharti Enterprises’ retail arm, Bharti Retail, which runs stores under ‘Easy Day’ brand.
Through this deal, Future Group took control of Bharti Retail by merging its retail business with the latter in a stock deal worth Rs.750 crore to create a Rs.15,000-crore entity with one of the largest networks in the country. As for new entrants, Swedish fashion retailer, Hennes & Mauritz (H&M), became a hit with its first store in Delhi.
Initially, it planned to open just three stores although it had received approval in November, 2013 to open 50 stores.
The U.S.-based fashion brands such as Gap and Aeropostale also entered the country through franchise agreements with Arvind Brands.
Another Swedish firm IKEA moved closer to its plan of setting up stores in India by purchasing its first land parcel in the country in Hyderabad in July. The company plans to open 25 stores at an investment of Rs.10,500 crore over the next decade. It also signed an MoU with the Uttar Pradesh Government to set up its stores in cities such as Lucknow, Agra and Noida.
