Mumbai: Profitability is the number one objective for a majority of Indian retailers even ahead of expansion to new geographies, according to a new report released by PricewaterhouseCoopers Pvt. Ltd (PwC) on Tuesday.
The focus on profitability comes even as brick-and-mortar retailers see their sales per square feet declining due to competition from online retailers, said the PwCPL report, ‘Are you profitability ready – Perspectives on the Indian retail industry’.
However, the drive for profitability has not taken companies down the path of mindless cost-cutting. In fact, more than 65% of retailers are focusing on improving profitability and revenue, said the report.
Unlike last year, when brick-and-mortar retailers resorted to heavy discounting to take on etailers, they are now focusing on the need to sharpen the overall value proposition given the disruptive environment. “Fifty-one per cent of retailers interviewed agreed that creating differentiation is a major concern for them. (That’s) Given the onslaught of ‘discount’ based business models," said the report.
Also, the rise in e-commerce is forcing traditional brick-and-mortar retailers to rethink their store formats and numbers.
Sales per sq ft for big Indian retail stores has been declining due to this competition. The decline is particularly noticeable in segments like music, electronics, books and apparel. In the past three years, many big retailers have cut down on the number of new store openings as a result of competition from e-commerce. Planet M, the prominent music retailer, closed 100 stores between 2011 and 2013, said the report.
Given the disruptive technological changes and evolving consumer behaviour, physical retail stores are changing their business models to adapt to the new reality. “Half of our survey respondents admitted that they have considered changes in their business operating models over the past couple of years," said the report.
For instance, Future Group, Shoppers Stop, Aditya Birla Group, Infiniti Retail Pvt. Ltd which runs Croma and Arvind Ltd all announced investments in the so-called omni-channel last year, establishing an online presence. Future Group announced a Rs100 crore investment, Shoppers Stop announced a Rs60 crore investment and others said they would spend about Rs20 crore-30 crore to go online.
Retailers have also partnered with etailers to take advantage of the channel to reach the consumers. Future Group has tied up with Amazon, and Croma with Snapdeal.
As retailers look to take on the competition, there has been considerable consolidation as well as they look at scale. In May this year, Aditya Birla Retail Ltd, a hyper and super market chain of the Aditya Birla Group acquired Total Super Store business from Jubilant Agri and Consumer Products Ltd. Meanwhile, Future Retail merged Bharti Enterprises’ retail business Bharti Retail Ltd in April with itself and acquired grocery chain Nilgiris in November.
The focus on profitability amid the threat from e-commerce will see the overall growth rate of brick-and-mortar retail come down in the coming years. “Brick-and- mortar retailers are expected to see their growth rate moderate to 13-15% over the next 2-3 years from an annual average growth rate of 24% seen in the last five years," Crisil Ltd, a global analytical company providing ratings, said in a report on 9 September.
Moreover in the fast changing environment, “One thing is certain; no-one will make money in the future the way they made it in the past," said the PwCPL report while noting that every aspect from the role of the store to the management of risk, individual roles, reward packages and responsibilities needs to be transformed to grow profitabily in the digital age.
To be profitable retailers need to constantly strive to understand consumers, define value propositions that are relevant, make the experience seamless, fast and efficient across channels, drive decisions through continuous analytics, accelerate investments in new technologies and protect the customer, image and brand in the digital world, said the report.
The promoters of HT Media Ltd, which publishes Hindustan Times and Mint, and Jubilant Agri and Consumer Products are closely related. There are no promoter crossholdings.