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Indian retail sector in flux
19
Oct
2010

A new study that looks at growth scenarios for the Indian retail sector is leading to further collaborations with the UK government, and with the UK India Business Council. The work will increase knowledge transfer between the two countries with respect to supply chains, according to Director of the Oxford Institute for Retail Management (OXIRM), Jonathan Reynolds.

The study’s authors, Saïd Business School researcher Malobi Kar and Director Richard Cuthbertson, report high levels of uncertainty in Indian retail. The sector, they say, is in a state of flux, buffeted by regulatory changes, shifts in consumer trends and the state of the global economy. Retailing has moved from ‘euphoric’ growth to a period of consolidation and strategic insight, and policy makers need now to focus on internal factors to manage growth.

After the report was published, the team started working with a working group set up by the UK’s Business, Innovation and Skills department, and the resulting UK India Business Council is collaborating on educational and research projects.

India’s recent GDP growth has changed Indians’ consumption patterns, says the team. Urban Indians now have open format stores - malls, department stores and supermarkets, mainly from large Indian retailers such as Futures Group, Trent and Reliance - co-existing alongside traditional vendors. These vendors are still the mainstay for the seventy percent of Indians who live in rural communities.

Policy makers therefore face a dilemma. Having partly liberalised the sector in 2000, debate continues as to how foreign direct investment in retailing should be balanced with concerns for the impact on traditional retailers. Increased demand has led to more choice of products, and the traditional over-the-counter service is under pressure from time-pressed consumers, who favour a faster self-service format. 

There is uncertainty as to whether consumers will abandon old ways of shopping, add new ones to a spectrum with various known inherent advantages and disadvantages, or induce innovation in the retail formats available.

The scenarios-based research used policy makers, practitioners and academics from last year’s OXIRM’s Asia Pacific Retail conference in Hong Kong, to refine the scenarios and key indicators for each scenario. From these interviews, the researchers constructed two critical uncertainties: consumer price sensitivity and infrastructure.

“Logistics and supply chain have been a perennial problem in Indian retail development," say Cuthbertson and Kar.  The precise uncertainty though is how far central government initiatives will progress in the regional political environment, where development might for example involve reclaiming urban slums, or agricultural land.

Future consumer price sensitivity is another unknown and again there is uncertainty over how traditional values of prudence and sharing will persist against the changing mindsets of an expanding, young, urban middle class.  Environmental issues “are bound to catch up with the Indian retail community in the not so distant future” according to the report, but Cuthbertson’s own view is that there are positive impacts beyond the obvious, in that organised retailers can provide hugely-effective distribution systems.  In India, he says, up to 30 per cent of food production is lost due to a lack of cold storage facilities. 

India is nothing if not fast-moving, say the paper’s authors. “We can’t underestimate the significance of new trends superseding some of those we have so far identified as being driving forces now”.  As retailers all over the world become more widely recognised, there will increasingly be calls for them to play their role in solving not only economic problems but also social and environmental issues.

Further research and commercial partners are welcome to contribute to this Retail Research Programme by contacting OXIRM Research Director Richard Cuthbertson richard.cuthbertson@sbs.ox.ac.uk or Senior Research Fellow, Malobi Kar.