The Boston Consulting Group (BCG) in association with the Retailers Association of India, recently published a report that highlights the trends in Indian retail. As the world’s leading advisor on retail strategy, BCG has evaluated India’s high-value opportunities in the retail market. Partnering with RAI, the unified voice of Indian Retailers, the report aims at formulating solutions to key challenges faced in the market. The following is a brief summary on the findings.
The Scenario
Retail in India has taken a remarkable transformation over the last two decades. Rising income levels, urbanization, and changing consumer behaviour has given an optimistic outlook to the retail sector, promising an undoubted growth in the future. The digital medium has influenced retail with a powerful strike, reshaping customer behaviour and expectations. To summarize, retail business are in a constant need to retrospect their strengths, reinvent their offerings across the purchase pathway, and rewrite their approach of retail economics.
Trends
Based on research and some stringent analysis of data, the report captured key trends across the following broad categories.
1). Certainty of Growth
A promising growth forecast is one of the primary findings made from the study. The Indian retail sector is projected to double from $600 Billion to $1 Trillion, by 2020. This rapid growth will be determined by factors such as Income Growth, Urbanization, Nuclearization, and Attitudinal Shifts. Modern trade is also expected to grow 3 times, with Rapid Consumer Evolution, Supply-side Evolution, and Positive Regulatory Environment, being the drivers that will materialize this growth. As a key implication from this finding, Indian retailers should sharply identify the emerging opportunities and customer segments and be clear about what to not go after. Retailers should also re-adjust propositions to remain relevant and also allow room for experimentation, though it might not always turn out to be successful.
2). Reality of Digital
The E-commerce market in India is expected to quadruple to $70 Billion, over the next 5 years. With the rapid increase of smartphone users, competitive costs for connectivity, and expanded reach, internet users are expected to reach a mark of ~600 Million. Customers are attracted to superior value propositions like broader assortment, higher discounts and greater convenience. Indian retailers should conceptualize digital strategies with clarity and leverage on social media to create brand awareness. They are also expected to deploy a seamless and connected customer journey, as shoppers migrate across channels. It will also be a lot more seamless for e-retailers to sell across multiple offline & e-commerce market places.
In our view, digital will increasingly drive offline retail sales as well. It is already easy to track phone calls to the store or to track the number of people looking for store directions. Retailers will become more sophisticated (along with measurement tools from platforms like Google, Facebook, etc.) to attribute offline sales to a specific digital marketing effort.
3). Challenge of Capability
Omni-channel business is becoming increasing relevant. Customers expect a seamless experience and do not tend to distinguish between online and physical channels, while shopping. Traditional strengths are insufficient here. In addition to being omni-channel, a well conceptualized talent management strategy is critical. It has been noticed that retail businesses suffer from high attrition rates and limited capabilities in the middle and top management, as a result of inadequate specialized training and experience in the sector. Supply chain also needs an evolution, as the market is viral with long lead response times and infrastructure challenges. It’s high time that Indian retail businesses develop a comprehensive omni-channel offering and adopt a targeted approach to employee training, appraisal, and retention. It is also very vital for businesses to build a demand-driven supply chain that is equipped with a real time flow of information.
4). Importance of Economics
Several economic challenges plague Indian modern trade. Please find them listed below.
On the demand side:
- The level of processing is not high enough, as the Indian consumer gets used to modern trade.
- Pricing and promotions are poorly executed , not leveraging on customer willingness and purchasing power.
On the supply side:
- Inflating costs of real estate and rentals.
- Increasing costs due to low bargaining power with suppliers due to limited scale.
- High cost incurring supply chain due to poor connectivity, excess and deficit inventory.
- As an immediate implicative measure, the throughput problem should be address first. The other cost and margin issue will fall subsequently.
5). Need for Transformation
Fundamental transformation is the need of the hour. Businesses should avail the growth opportunity and serve digitally empowered consumers. As mentioned earlier, they should also build capabilities in quality omni-channel experience, talent management, and supply chain optimizations. This requires working on four pillars simultaneously. They are as follows.
Fund the journey – Generate quick cash from existing operations by relooking at the core of the business.
Win the medium term – Identify the winning consumer proposition formula for the next 6-8 years.
Take measured bets - Invest in emerging but important trends.
Enable the transformation – Invest in people and technology to improve efficiency, productivity, and morale.
Leadership Perspectives
The latter part of the report is its most credible engine, bringing perspectives from over 20 CEOs of top retailers in India. Some of the most thought-sparking lines have been quoted below.
“In times when the economy is tight, we face the brunt of lower discretionary spend. But right now, we are feeling very positive about the future and our industry.” - Ajay Kaul, CEO, Jubilant
“There is some form of a lack of supplier assistance to modern trade: somewhere they will have to accept that this is the way forward.” – Randall Guttery, CEO, Reliance Retail
The future of retail will compose of 3Ds: Daulat (wealth sharing within the retail ecosystem), Depth (in channels and category execution) and Digital (significant part of the operating model).” – Shailesh Chaturvedi, CEO, Tommy Hilfiger
The full report on Indian Retail 2020 can be found here.