There
have been predictions written about sun signs and moon signs. So, I set-out
writing one for the Retail Industry in which I complete 20 years this year . These are not purely fictional but I see things going this
way. Take a look and let me know what you think.
Kirana
Stores
The
largest Retail segment, the sem-organized and unorganized Kirana Stores are set
for a huge overhaul. With the onset of demonetization, Kirana stores do not
have a choice but to go digital. All this while, most of them have been
collecting cash for sales which mostly go unaccounted causing a great loss to
the exchequer. This will change in 2017. From Bank EDC machines to Mobile
Wallets, they will start accepting every form of money other than cash. A
robust y-o-y growth is also seen in this business model.
Supermarkets
Neighborhood
Supermarkets from large retail chains have already been making a comeback.
Nilgiris is leading from the front through Franchising, while Aditya Birla More
seems to merge with Future Group, and so would Heritage Retail this year. None of
the supermarket chains have an online presence due to reasons best known to
them. I don’t see any change here. Heritage is experimenting something but I am
not sure if they would be scale up like the Hyperlocal players. Margins will be
strained and even store profitability will be a challenge. I see more
consolidation in 2017 among the medium sized players.
Hypermarkets
The
most abused retail format of the last half a decade, the Hypermarkets have come
a full circle. As I write this article, the store sizes have come down from
25,000-45,000 sft to as low as 8,000 sft. While poor availability of retail
space is one of the reasons, the sheer ability to sell higher volumes like in
Western markets is the core reasons. Indian customers prefer fresh products, be
it rice or atta or oil or vegetables and fruits. Also, the households are
smaller in size, so are the kitchens and refridgerators. Quite obviously the
trolley size will be smaller. With most Mall spaces exhausted and almost no new
Mall of any significance across major metros, Hypers may look for standalone
sites in suburban areas.
Apparel
Retail / Specialty
With
a chunk of this format having moved online, from Diapers to Accessories to
shirts to dresses, this offline retail format would see more store exits in
2017. The franchisee-dominated model will find few takers and loss making /
average performing stores will be closed or consolidated. Malls are already
operating at an average 15-25% vacancy of Vanilla Store locations and this year
will be worse with burgeoning rent and maintenance cost (the CAM Scam!). Consumers
will move towards E-Commerce for specialty retail and will be fine to shop even
with limited or nil discounts due to the convenience it offers. Bad year for
Retailers in this space which will see many small and regional Brands winding
up.
Consumer
Durables Retail
With
E-Commerce already swooping a majority of consumer durable retail sales, such
Retailers will be left in the lurch. Brands, who have initially supported
offline retailers in the mid-2000s have started balancing their act with
e-commerce. 2017 will see a swing in their loyalties towards e-commerce
players. With tighter margins, higher rentals, surging operating costs, many
such Retailers dealing in Consumer Durables will consolidate their store count
while many would shut stores which are not making enough profits. Overall very
challenging year for retailers in this space.
Jewelry
Retail
The
most affected sector after Demonitization is this retail format. Various media
reports suggest how some leading players made a killing on 8th and 9th
Nov. 2016 after the Prime Minister made the historical announcement. With 90%
or more of their business in cash, and it’s quite well known how much of them
get accounted, Bullion retailers will face heat the most. A significant number
of stores would be thrown out of business. Large chains which have PE
Investments made based on PPTs and Excel File projections will face a blank
wall, with valuations diving deep and would find the going very tough.
Extremely tough year for Retailers in this space. The market will dictate terms
in May around Akshaya Trithiya when consumers go bonkers buying bullion.
Food
& Beverage
With
the Industry having matured in the last decade, it is time for consolidation for
F&B Retailers. With scale in place, players like CCD, Dominos and McD will
now consolidate their presence and focus on store EBIDTA. New initiatives such
as Home Delivery and signing up with delivery companies will bring more
business while a tired economy will put pressure on attract store footfalls.
Outlet sizes will reduce by 30-50% across formats. There is a sudden upswing in
specialty bars and pubs and this trend will continue. A growing and discerning
set of gastro-enthusiasts will mean new entrants and new formats are on the
anvil. Interesting space for Startups in this space.
It’s
been 10 years since Flipkart the market leader was born. Sadly, this year would
be the most challenging to the company that made e-commerce take off in this country
where less than 10% of the Retail Industry is organized. With 1,000s of
e-commerce companies of various sizes and shapes, names and offering in the
market, the space would see a blood bath this year too. Most such companies
which did not have a significant differentiator will have to bid adieu. Less
than a Billion Dollar will go in to investments in existing companies while new
startups will find the going tough. Amazon will consolidate itself in the
market and will become a household name with higher market share and mind
share. Hyperlocal Market places which connect offline retailers online will
have a good run, since this model is reasonable new to customers. There will be
some consolidation in this space too but new entrants will carve a niche. Reasonable
investments are expected in this space.
Consumer
A weak economy, struggling to grow since the
last 5 years will mean strained purses for consumers. They will be cautious
this year on spending and will demand quality and service from Retailers than
ever before.