By Gautam Saraf, Managing Director, Mumbai, India
From ’kirana’ stores to the advent of malls in the late 1990s, which have now given way to the online shopping frenzy, the attention of the retail sector is now on ‘omni-channel retailing,’ i.e. back to physical retail with amalgamation of retailing-tail.
The retail sector is coming a full circle, syncing in tune with the growing aspirations and expectations of consumers. While ‘kiranas’ were the mainstay of the Indian retail sector, globalization and the resulting greater exposure of consumers led to rampant construction of malls in the 2000s.
During 2007-09, more than 80 malls became operational across the top eight cities in India. However, a large number of these malls were plagued by lack of planning, poor construction and design. By 2009, as the global financial crisis developed, the Indian economy too slowed, which meant lower traction for retailers and low consumer confidence.
As a result of this, developers suffered tremendous cash-flow problems and found it very difficult to exit these, which in turn forced them to hold back on construction and tone down the number of mall launches. Over the last 5-6 years, as the internet-users base grew exponentially in India and the e-commerce space witnessed frenzied growth aided by deep discounts and persistent advertising, growth in physical retail slowed further.
However, with the Indian economy shifting gears since 2015, there was a sense that the retail sector too is getting a boost with greater consumer spending, higher aspirations and controlled inflation.
Calling the year 2016 as a watershed year for the Indian retail sector would be an understatement. During the year, the sector attracted INR 72 bn (USD 1.07 bn) of private equity (PE) investments, rising more than seven-fold in 2016 from 2015 levels. Piqued interest from institutional investors and funds for malls is giving the sector a much-needed respite and we foresee this interest to continue, especially once REITs are implemented.
The interest from institutional investors during the year was matched by the supply of new malls that touched a five-year high of 5.3 million square feet (msf) across the top eight cities during the year. Tables have turned and demand for such malls is much higher than existing/planned supply. Along with the buoyancy in the physical retail space, e-commerce is shifting towards a mature phase, away from the frenzy of discounts seen earlier. Consolidation has commenced in the industry with a handful of big players that will continue to dominate the virtual space.
No doubt that a major chunk of the shopping in India is done through physical retailing. However, the lines between offline and online are slowly blurring. Retailers are understanding the strengths of both the platforms and seeking to invest in greater touch points.
On one hand, online retailers are setting up kiosks, showrooms and even stores, to increase the number of touch points and showcase products in the offline world. Companies such as Lenskart, Pepperfry, Myntra etc, have set up stores across main streets and malls to cater to wider audiences. While on the other hand, offline retailers too have recognized the wide reach of e-commerce and looking to set up online stores for customers who cannot access their physical stores. Several brands are experimenting with their distribution models in this highly competitive space. Supermarket chain Dmart, for instance, has set up pick-up centres across Mumbai for customers who have placed orders online to pick up their orders.
Retailers and Mall developers are studying consumers and their behaviour, analyzing patterns, innovating offerings and creating loyalty program to enhance experiences and encourage repeat business.
Overall, the sector will also be driven by a series of such models where the purchase can be facilitated through websites, apps, tablets, social media, physical stores, kiosks etc. Through such an omni-channel approach, the customer can experience a brand seamlessly. It also gives retailers an opportunity to deliver products efficiently, and to acquire loyal customers.
Consumerism is here to stay and disruption has led to a boom in the retail industry.
Gautam Saraf is the Managing Director, Mumbai, India. Gautam is responsible for providing strategic direction to all service lines at Cushman & Wakefield Mumbai and augmenting its market share in the region. He focuses on identifying new business avenues, cross selling opportunities, strengthening client relationships and ensuring excellence in service delivery.