Tuesday, November 13, 2007

Rajeev Karwal, Ex-President & CEO, Consumer Durables Vertical of Reliance Retail Expounds on the Future of Retail in India at DoMS, IITM

The CEO Connect forum of the Department of Management Studies (DoMS), IIT Madras invited Mr. Rajeev Karwal, Ex-President & CEO, Consumer Durables Vertical of Reliance Retail to share his valuable insights and enlighten students about the present scenario and future prospects of the Retail sector in India.

Starting off a session marked by sharp comment, he candidly talked about his own experience with heavy traffic and jams in metropolitan cities. Mr. Rajeev Karwal emphatically said that organized retail in India has miles to go before it revolutionizes the common man’s life. He backed this argument by saying that today a typical metro was plagued with poor road infrastructure, transport services and scarcity of land. In the face of such challenges you can’t expect a typical family of four which rides a two-wheeler to travel small distances on vehicle-infested and pot-holed roads.

However, according to him, the organized retail revolution has begun to slowly find its feet in India. Big Bazaar, Pantaloons and Reliance Retail have begun in earnest. But they have to invest heavily in areas such as infrastructure, technology, training and in-house advertisements. Such activities typically shave off portions of returns giving back only about 5-6%. Giving them a tough fight are the good old kirana stores, who are well entrenched in the nooks and corners of the country and don’t need the same investments. They are also not bound by any obligations that a company has towards its stakeholders and the stock markets.

Talking about the size of the organized retail market in India, he said that it is just about $238 bn big, which is less than the revenues of $ 351 bn of that of Wal-Mart. So there of course lies immense potential in this sector but the demands that it places on the operant companies are immense. Describing a typical mall, Mr. Rajeev Karwal said that it would need at least one major anchor in the form of brands such as Shopper’s Stop or Big Bazaar, a food court or chains such as McDonald’s, Pizza Hut or Haldiram and movie theatres. However there was a shortage of such anchors since many preferred to set up their own shops in the face of high rental prices at malls, resulting in agonizingly long times to reach a semblance of break even.

Mr Rajeev Karwal emphasized that organized retail isn’t about putting together retail in an organized looking place. Just setting up snazzy shops with great looking interiors doesn’t qualify you as an organized retailer. You need to give the customer what he or she demands. Despite so many requirements you need to give low prices at good quality. While many players like Reliance Retail have made decent attempts at extracting the maximum value out of the supply chain, they still fail in providing the personal touch that the Indian consumer demands. He asserted that is where the kirana store owners score. They are ready to drop by to your house to give you a bottle of cold drink every time a guest drops by. They know you favourite brands. They are willing to give you credit. Through relationships built over the years, they provide you peace of mind and product guarantee and replacement. These are the survival tactics of the kirana store owners at work, determined old timers who will leverage upon old practices and still innovate and fight to retain their traditional customers.

Sharing the difficulties that organized retail faced, Mr. Rajeev Karwal said that the back-end supply chain operations were of prime importance. They also require lots of cash as the farmer would need to be paid for 2 seasons of crops before a company could be assured of a steady supply. In contrast, organized retail in developed nations required brand owners and product manufacturers to fund organized players. Such features make the challenges of the Indian market unique, for which retailers must innovate to stay and grow. Mr. Rajeev Karwal said that the cause of organized retail is also not being helped by different and inconsistent policies framed by different governments at different times. In addition, the sector needs foreign investments, an important input that still doesn’t find favour with the powers-that-be.

Confidently claiming the market share of organized retail to be very low, Mr. Rajeev Karwal said that it would be at least 10 years until it would reach 20% of the entire retail pie. That was because product manufacturers would not give up on sales avenues in the form of traditional neighbourhood kirana stores and would woo them more aggressively than the organized players.

However, the scope of growth for organized retail was humongous as there was tremendous confidence and momentum in the market. That is because today the consumer is looking at an entire experience, something that the retailers know about and are working on. Hailing the popularity of mobile phones in India, Mr. Rajeev Karwal stated that their numbers had grown faster than Internet connections and credit cards. Enabling shopping by promotions through such a medium or offering credit or debit through such a route would revolutionize the retail sector in the coming times.

With the stage being opened for questions, students posed their queries. Answering a question about the future of online organized retail, Mr. Rajeev Karwal opined that the average Indian consumer was very value conscious. He or she likes to compare various offerings and touch and feel each of them before making a choice. Online shopping not only blocks the consumer from doing that but also is helpless in the face of limited Internet penetration and the low trust it evinces.

On being queried about the potential of the rural retail sector, he said that there were a thousand unorganized retailers who were supplying goods without being recognized on government papers. This ensures that the rural economy provides cheap goods without worrying about the excise and sales tax and VAT. But still organized retail’s stronghold was the variety it offers to the urban consumer.

When quizzed about the emergence of private labels by organized retailers, Mr. Rajeev Karwal replied that these were the tactics of firms to cut off established brands from the reach of the consumer as they offered low margins. He said that private labels can be created at low costs and thus provide higher margins as well as brand recognition for the retail brand.

At the end of the session, Mr. Rajeev Karwal said that retail giants, though growing, still had miles to go before they can confidently say that they have acquired the faith and trust of the Indian consumer. Till then, the kirana store owner shall rule supreme. Finally, speaking in context of his new venture, Milagrow Business & Knowledge Solutions, he signed off by saying that with strong fundamentals, great ideas and ample opportunities at their disposal he would urge the students of DoMS IIT Madras to become entrepreneurs like him and explore the possibilities that the retail market is offering today.

Kunal Lal

DoMS Interface Team

Class of 2009


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