Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday

Can Realty Catch up with Retail Boom

Can Realty Catch up with Retail Boom
Comment E-mail Print Share
First Published: Thu, May 10 2007. 06 07 PM IST
Updated: Thu, May 10 2007. 06 07 PM IST
Retail revolution has just begun. In spite of the big waves it is already making in larger cities, it has a long way to go. The successes achieved by the early birds in organised retailing are more on account of the incumbency factor of the traditional retailers than because of their own inherent virtues.
Organised retailing is much more than air-conditioned malls, eye catching visual displays and entertainment facilities. The conveniences that shopping malls offer such as ample parking space and self-service formats that make shoppers feel ‘more in control’ are no doubt great attractions as compared to overcrowded traditional retail markets.
Most of the popular shopping centres have very little space left for people to move not only between shops but also inside the stores. The growing parking hassles faced in these high streets of commerce would take away much of their sheen even before organised retail has any impact on them.
Still, the real retail revolution will set in only when the competition between the more glamorous shopping malls that offer new shopping experiences heats up. Only when the modern shopping formats compete to enhance shopping efficiency and expand their footprints across length and breadth of the country could we see both the consumers and the country gaining from it.
Retailing efficiency is one of the final frontiers that a developing economy must conquer as it matures. A stage inevitably comes in the life of every economy and company when manufacturing competitiveness would have to be matched by efficiency in distribution.
Little wonder, efficient dealer networks often get the maximum premium in mergers and acquisitions. The essence of organised retailing is in minimising the distance between the producers and ultimate consumers. While in the case of farmers such distances involve both low farm gate prices and substantial loss of produce before it reaches consumers, multi-layered distribution channels also significantly increase the retail prices of manufactured items.
Supply Chain Management (SCM) is a core competence of modern retailing. Intensive use of information technology including the recent RFID make it possible to implement just in time distribution the same way as every manufacturing now forced to adopt it. The point of sale data that organised retailers are able to collect and analyse has become a strategic decision input both for vendors and producers.
There are new initiatives like mass customisation and personalised retailing that have been made possible by strong SCM and Customer Relationship Management (CRM) systems. In the end the consumer should benefit by way of lower retail prices in the range of 5 to 15% and the economy should benefit from both the surplus purchasing power and the rise in overall productivity.
Although the initial focus of the organised retailers is on the most populous urban centres, it is only natural that they soon spread out to cities and towns with relatively much less inhabitants. When competition builds up in the organised retailing sector, network size and volumes are bound to become key differentiators.
They will be forced to look for expanding their footprints in a way as it yields maximum returns on their investments in supply chain management and logistics. After all there are underserved retail consumers in every part of the country. A little over two thirds of our urban population lives in 423 cities having over 100,000 inhabitants each.
Of these, 35 cities are already home to over a million people each. While cities like Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad have over 4 million and others like Pune, Surat, Kanpur, Indore, Jaipur, Lucknow, Bhopal, Agra, and Amritsar with populations between one and four million. More importantly the urban population in the country is expected to increase annually by about 2.7% up to 2020 while rural population would actually have a negative growth rate from year 2015 onwards.
The urban population estimated at 316.3 million or 28.97% of the total now is set to surpass the half billion mark (538 million or 35.95% of total) by 2025. With the economy growing at a robust rate of about 7 to 9%, organised retailing would indeed move in to smaller cities and towns sooner than what is generally expected.
One of the key contributors to the fast spread of organised retailing would be the growth in the real estate sector. Of course the retail sector is also a major consumer of real estate. The demand for real estate from the retail sector is varyingly estimated from 200 to 600 million sq ft.
Consultants also differ on the demand split in to the space required for sale and lease. Fillips given to the real estate sector to by opening it to FDI including scaling down of minimum built up area of commercial real estate development projects 50,000 meters and the minimum area threshold for FDI in Integrated Townships reduced to 25 Acres from 100 Acres have indeed triggered substantial growth of over 30% in this sector.
Every new township and commercial complex is an opportunity awaiting the organised retailers. Apart from the wage arbitrage that is encouraging ITES companies to less costly cities and towns soaring land prices would also drive organised retailers to pick up space in smaller cities before they are crowded out. Land prices being a major element of real estate cost, it is always going to be difficult for organised retailers to survive inside high cost metropolitan areas.
The situation could no doubt change if the railways decide to unlock the stock of land currently being grossly under-utilised at stations and yards. After all, it is not rare to find sprawling commercial complexes sitting atop railway platforms both in land starved Japan and the land rich US. The best bet for them therefore would be look at new suburbs and townships, which offer clearly demarcated areas for shopping malls and commercial complexes and entertainment multiplexes.
Another important development that is not getting adequate attention from the organised retail sector is the rapid growth in the transport sector, particularly the doubling of the National Highway network over the past decade and the sharp rise in ownership of personal vehicles such as cars and motorcycles.
While the rapid growth in good quality highways should provide a great opportunity for hyper marts and big boxes, the rise in the population of personal vehicles provides a clear indication of the number of people waiting go for pleasant shopping trip to a nearby shopping mall or hyper mart. The size of the Indian economy matters for every type of business. It would not take much time for organised retailers realise it and consolidate their presence geographically also.
(The Writer is Director, FICCI. The views expressed here are personal and not necessarily those of FICCI.)
Comment E-mail Print Share
First Published: Thu, May 10 2007. 06 07 PM IST
More Topics: Money Matters | Real Estate |