In past 12 years prominent retail consultants have painted a misleading picture about retail sector in India and have wrongly advised their clients to take a dip in organised retail in India and many retail chains have suffered huge losses as a result.
While worked as an entrepreneur in India, still I don’t think organised retail is a profitable business model at least till now. International retail brands such as Walmart would face many difficulties and won’t be able to make any profits in Indian Retail Sector for many years to come.
There are many reasons and I am covering the 3 main factors:
(a)Lack of adequate space and absolutely unrealistic rental
Generally Walmart stores are huge in area for example in the USA say they are around 100,000 sq ft plus and in India they can’t find such space in the cities.
If they locate outside the cities the Indian consumers is not used to that kind of concept and model will fail and within the Indian cities rental are abnormally high for making retail store as profitable business model.
Even though Walmart settle down for smaller size say around 4000 to 5000 sqft area, rental value still makes this venture unprofitable.
(b) Heterogeneous consumer consumption and consumer behaviour
Consumer consumption is very different within India in various parts. People living in north India buy differently than those in South India or in west India which will force multinational retailers to customise the retail experience and profitability will further goes down as one can’t operate on mass level.
Shopping space in big shopping malls in India has been sold or rented out at a premium in places such as Gurgoan, Delhi and Noida to various MNCs and the price is largely based on footfalls and location. However consumer behaviour in India is very different to that in the UK or the US.
Indians do not go to shopping malls just to buy products. Rather, most of them visit to window shopping, time pass and for entertainment such as watching a movie. As such, footfalls are not the correct criteria.
(c) Political system and red tapism – There is no concences among the various political parties and what if one state party which allows organised retail loses next election and other party came to power which is against the FDI in Retail? perhaps it will become similar nightmare which company such Enron went through in India.
Subodh Gupta is the author of the books “Doing Business in India and Understanding Pitfalls” and “Understanding Indian Culture & Bridging the Communication Gap”. Subodh has been interviewed by various TV Channels and his views and articles appear regularly in magazines and newspapers in India and in the UK.