Organized Retail to Slowdown for 12-18 Months

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Apr. 1 – As a fallout of reduced consumer confidence, the organized retail sector in India is expected not to grow as robustly as previously envisioned. A new KPMG report states that the growth in organized retail might falter over the next 12-18 months, whereby India will not achieve her 2012 target. Organized retail’s share is expected to grow to 10.4 percent of the overall retail market by 2012, rather than the 16 percent estimated earlier, the report stated. Organized retail which is a regulated sector currently accounts for around 5 per cent of the estimated US$350 billion Indian retail market.

The Indian economy is expected to grow at around 4 percent to 5 percent this year, the lowest in seven years and down from more than 9 percent growth in previous years, according to several financial institutions.

As a result of the slowdown in footfalls retailers are taking alternative measures to shore up sales. “Be it store rationalization, change of supply chain, consolidation of operations, improvement in IT infrastructure, retailers need to think quick to protect their margins,” Neil Austin, KPMG’s Global Head of Markets, told Reuters. Alternatively retailers are expected to focus more on food and consumer goods rather than lifestyle products. They are also expected to concentrate more tier II and tier III cities as incomes in cities dries up.

Large format global organized retailers – Wal-Mart, Tesco, Carrefour have been waiting to enter the Indian market due to the large consumer base. However as large domestic retailers put expansion plans on the back foot foreign players are also weary. The Future Group and Reliance Retail have put their cash & carry operations on the back-burner, retailers such as Subhiksha have halted operations. Aditya Birla Retail and Reliance Retail have also closed several stores to conserve cash.