Organised retail space and e-retailing – friends or foes? An Indian scenario

October 3, 2013 / By

How difficult is it for any retail company to understand what is going on in a customer’s mind and provide the right product on the shelves to create a wow effect? These questions would not be easy to answer in any country but in a complex market such as we have in India, with its vast diversity of customers with different languages, religions, clothing needs, spending habits, consumer psyches, types of food, weather patterns and so on, it is all the more difficult. Thus, in India, a business can only prosper when the retailer understands the local peculiarities, history, traditions and culture of the target market.

The Indian retail industry has developed from several retail platforms, initially from barter to small scale Mom & Pop (Kirana) stores to high streets to organised retail space. In the current scenario, organised retail space in retail malls has evolved from being just a shopping destination to being a social centre where people can meet, eat, drink and be entertained. Shopping has become an opportunity to socialise and relax. However, while this retail format is still in its growth stage, another new retail channel is making its presence felt, and that is e-retailing.

In India, the number of internet users is growing and crossed the 164 million mark recently as per the latest report published by Telecom Regulatory Authority of India. It is estimated that there are eight million consumers, who buy products regularly through e-commerce retail companies and the growth of these companies looks healthy with a robust 40-50% increase y-o-y on the back of the currently low customer base considering the mammoth retail market size. Purchasing online offers competitive prices, convenience and product variety and in upcoming quarters, online retailers have indicated they will offer lower prices in an effort to increase the customer base. As a result, many of them may have to live with weak balance sheets in the short- to medium-term but, as a long-term bet, private equity and venture capital companies will keep on investing in e-retailing businesses, helping to reinforce their financial health. Nevertheless, there are a few aspects pertaining to organised retailing that cannot be ignored, thus making it tough for online retail to win business from Indian shoppers.

Can the sensory experience of buying in a store be replaced? In India, this could take a long time, and shopping malls offer this and many other things to customers that e-retailing may not, such as buying luxury goods that require a lot of customer involvement and cosmetics such as perfumes that need to have a physical presence.

An increase in per capita income and an increasing consumer trend of buying branded goods and services are expected to keep driving demand for retail platform expansion. Important to mention, the effect of single-brand and multi-brand conventional retailing from global players has yet to be seen in India. All in all, the retail business pie is going to become bigger and bigger. There may be some cannibalisation, but both organised retailing and e-retailing will have opportunities enough to continue to build up their businesses.

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