Tough times ahead for retailers in 2015

Kishore Biyani, Chairman, Future Group, attributes the lower footfalls and lower same store revenues of his stores in the latter half of 2014 not to the onslaught of online retailers, but to the festival season coming earlier than usual, and also to the delay in the advent of the winter season.

The fact that the country's largest brick-and-mortar retailer is aggressively readying it's online game plan is proof enough that brick-and-mortar retailers need to do some serious rethinking of their strategies.

The Future Group is also struggling to get rid of a Rs 6,000-crore debt under Future Retail, and is going in for a Rs 1,600-crore rights issue in January 2015.

After a difficult last quarter in 2013/14, where the same store sales (SSS) growth dropped to lower single digits for most brick-and-mortar retailers (due to the economic slowdown and consumers refraining from spending), the first part of 2014 did witness an upswing in consumer sentiments.

All seemed hunky-dory till the online retailers such as Flipkart and Snapdeal stormed the market with alluring offers and deep discounts. A Samsung phone sold at Croma or Vijay Sales for Rs 10,000 was now available for Rs 5,000 on Flipkart, thus giving the consumer every reason to shop online instead of walking into a consumer durable store.

This once again led to brick-and-mortar stores losing on sales during the festival season, which normally gives them the highest revenue growth every year. For instance, Shoppers Stop's SSS growth was just 11 per cent in the second quarter of 2014, compared to an over 16 per cent growth in the previous quarter.

Despite having a paltry two per cent share of organised retail in India, online retail did eat into the share of the physical retailers in 2014, completely taking them by surprise.

"None of the physical retailers believed that the Flipkarts of the world could give them a run for their money till it actually happened," remarks Harminder Sahni, Managing Director of retail consultancy, Wazir & Co.

While every physical retailer today is putting together its e-commerce strategy, industry experts feel that the brick and mortar retailers need to do lot more than before to stay profitable, and months ahead are going to get even more difficult.

According to Arvind Singhal, Chairman of retail consultancy, Technopak, the physical retailers, especially the multibrand retailers, need to think through not just the sizing of their stores, but also the products that they sell there. "Most of them sell everything, from food to clothes and even furniture. That has to change, they need to think through categories which will work for them and only do those categories."

He cites the example of global retailers such as Zara and Ikea, which specialise only in apparels and furniture, respectively.

Sahni of Wazir & Co. cites the example of American retailer Target, which instead of being a me too of value retailer, Walmart, chose to be a notch above by selling mass premium products and also focusing heavily on private labels.

"Most Indian retailers tried to position themselves as destinations where everyone could come and shop. When online retailers lured consumers with deep discounts, most price-conscious consumers switched allegiance. It's time the Indian retailers premiumised and attract consumers who are willing to pay for services."

As if the online onslaught wasn't enough, the physical retailers in 2014 also had to cope with the problem of lack of quality retail space.

"Even though there was ample scope for retailers to grow, most of them couldn't go ahead with their store expansion plans as mall owners were unable to deliver on time due to the economic slowdown," says Singhal of Technopak.

Though the economy is expected to do well in  2015, industry experts feel that it will not accelerate fast enough to benefit the mall developers and eventually the retailers. "There will be very little supply of malls and the retailers will end up paying a huge premium for space," observes Sahni.

With all odds against the brick-and-mortar retailers, how important is it for them to have an omni-channel strategy?

It is important, says experts, but they also wonder how many of them are equipped to crack a hybrid model, which has a blend of physical and online presence.