Mass Retail in India – opportunity to harness the untapped potential

India has the world’s largest number of retailers, over 15 million. Is that a surprise?

Not really, if you see the number of new shops that come up every day in your neighbourhood, while the old ones don’t ever seem to shut down! Those which do shut down, are immediately replaced with new ones in the same location.

India has had a tradition of retail being the first step into a small business when a person moves out of the family’s agriculture work.

The mass retail industry probably employs close to 50 million people and is the direct source of livelihood of over 100 million people.

Behind these retailers are distributors and sub-distributors as well as a large number of sales personnel of various companies who are busy delivering goods and collecting payments from these retailers.

World’s largest mass retail base

Compared to India’s 15 million, China is reportedly at 4 million and the USA at less than a million shops. The big difference is due to the fact that in China, during the communist regime, the government probably ensured large format shops in the vicinity of all residential areas. In the USA, the capitalists did the same. India persisted with the small retailer model for a much longer time.

Standing up to Large Format Retail

India effectively bypassed the large format store “revolution” and has continued to add small, proprietary retail points even after the large format chains started coming up. The large format stores have, in their short existence, seen rough times and have had to close shops in unviable locations.

Even in the US, the large format stores have not necessarily done very well; every now and then we have read one or the other big retailers filing for Chapter 11 or shutting down stores and letting go of people.

Very clearly the large format is not a viable answer to a densely populated country, especially with poor public infrastructure. What can and will work is a large number of decentralised service points focussed on local consumer segments.

E-commerce growth not impacting local retail

The e-commerce sector, especially those delivering groceries have also not made much difference to the traditional retailers. In the cities, the e-commerce companies have to compete with the convenience of fresh goods conveniently available at the local shop, with the advantage of home delivery by the shop, if required.

In the interior towns, the e-commerce companies will find it cost inefficient to deliver their orders.

The large, well-entrenched network of small retailers is therefore not likely to fade away anytime soon.

Reasons for local retailer’s success

The reasons for the success and continuance of the proprietary stores are quite obvious

1. Easy to start, with local supplier’s credit facility and a reasonable viability due to the low cost of operations.
2. Continued patronage by customers due to the convenience of neighbourhood presence.
3. Flexible transaction modes including cash payments and credit to consumers.
4. Easy to exchange or return, if goods not satisfactory.
5. Poor roads infrastructure and traffic in cities making visits to malls or large format stores time-consuming.
6. Time taken to purchase at the large format store, when you have just a few things to buy, is too high to afford.
7. Quick home delivery against phone based orders for regular customers by local retailers.

Which brings us to the next point.

The Opportunity

While this is the world’s largest retail network and has managed to survive against large format and e-commerce players, it is also a fact that

• the retailers do not run the most financially efficient businesses and do not necessarily get the best returns, since the entire business is run on intuitive decisions and subject to the quality of relationships with suppliers.
• They also face the most competitive situations with many neighbouring shops selling the same goods, thus eating into each other’s business.
• They are limited to the products of suppliers who reach them and service them. The retailer cannot afford to leave the shop to go looking for merchandise.Many other new products and services could be sold through them if only the suppliers reach out to them.

Technology could help tap into the real potential of small retailers

The telecom industry brought a huge change in the retailers’ experience outside traditional FMCG businesses. The retailers gained comfort with mobile based transactions and were, for the first time, dealing with the sale of mass market services rather than physical goods.

 With the startup culture growing rapidly and mobile and cloud-based applications becoming commonplace, it is time for consumer business marketeers and startups to look at how

• these outlets could be helped to become more efficient financially and get the best returns on investment
• while the product/service suppliers are able to tap into the fantastic consumer reach these retailers provide.

Some of the areas where innovative startups could work with retailers and brands include

1. Inventory tracking and accounting methods of the retailer, for better decision making
2. Inventory ordering and payments, to deliver faster ordering cycles and lower costs to suppliers
3. Surplus inventory liquidation opportunities, to improve profits and liquidity of retailers
4. Product information, planning and ordering support to help the retailer move out of the present high competition product categories towards new, more profitable ones.
5. Payment mechanisms to facilitate long distance payments to suppliers or from consumers

While some good work has been initiated in many of the above areas, so far, the impact has not been really felt all over the retail industry. Most shops continue to do business in the old ways.

A radical shift towards new-gen technology by retailers and providing a more optimal mix of products and services to consumers, could have a huge impact on the quality and efficiency of both offline and online businesses.

Feature photo by Sirish Rao. Copyright @infinumgrowth.com

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