The retail market in India contributes to 10% of the overall GDP. But retailers come across many challenges in running operations. What are those?
The retail industry has seen a significant rise in recent years, and the Indian market has opened its arms to both in-house and foreign retailers to try out their luck in the industry. This is the reason the Indian retail industry has made it to the top 5 retail industries of the world, accounting for 10% of the GDP. Many retailers have been performing quite well; look at Big Bazaar, Reliance Retail, and D Mart. But some have failed to get the hang of it and are accruing losses. Walmart, for instance, has not managed to make it big in the Indian retail market, even though it has a renowned presence worldwide. So what are the problems stopping big-time retailers from achieving success in India? What are the common challenges they face? Let’s find out.
Common Challenges Faced by Retailers in India
Unorganized Markets
The retail sector in India has been unorganized for a long time. There is no standard procedure and planning that would aid a retailer in establishing and running its business. Small and medium-sized retail outlets and stores are set up here and there, and the lack of planning serves to be a drawback for the big retailers.
Cost Factor Due to Large Supply Chain
When a retailer sets up its outlets in the urban localities, sourcing the materials from the remotest parts of the country becomes a gigantic task. There is no direct contact with the farmers, producers, and manufacturers. This makes way for middlemen that increase the size of the supply chain and thus the overall costs. Now, if the same item is available from a local retailer for a lower price, why would someone choose a retail giant to buy the same product?
Maintenance Cost
Paying a large number of employees who manage the stores, help with the purchases & sales, and are involved in various types of management operations is a factor that is not the same in the case of small stores. Also, the overall maintenance cost in terms of electricity, rents, water, etc., is much more for the big retailers and, more often than not, poses a threat to their overall survival.
The mindset of the Indian Customers
As a retailer, you may offer the biggest discounts, but Indian customers tend to be very loyal to the local grocery stores they have frequented for years. They know the owners and the employees of those stores personally and are convinced of receiving quality products and services. So unless and until you do not create a communication channel with those customers that promises them better services and actually delivers that, their mindset will not change.
Rise of e-Commerce
The age of the internet and technological advancements has opened a number of possibilities in every sphere of life. The same applies to the retail sector too. Many customers do not want to go out in the sun, look out for a parking spot, search for their desired products, and then stand in a queue to pay for their items. Rather, they want their products home-delivered by the click of a few buttons. Big Basket and Amazon Pantry are good examples of that. Also, the recent growth in UPI-based payment has made buying easier for many customers, which they couldn’t before. This is also a major hindrance when it comes to offline retailers being the masters of the industry.
Lack of Personal Touch
Customers want their shopping experiences customized as per their needs. When a person they know recommends a product, the chances of them buying the product increase. Similarly, even if retailers offer the same product at half the price by displaying advertisements, buyers would like it more if the person at a convenience store tells them that a certain product is of great quality and is being offered at a reduced price. This aspect often lacks in the larger retail establishments.
FDI Policies
The Indian government hasn’t been very clear with its foreign investment policies for a long period of time now. At the time FDI was introduced, it was mandatory for the foreign companies to bring in a minimum of $100 million as an investment. Quite a number of companies started investing in the Indian marketplace and by 2015, India went on to become the top destination for Foreign Direct Investment, leaving China and the USA behind. But in the process, French retailers Carrefour and Auchan had already exited the Indian market, citing lack of clarity in policies and having differences with their Indian partners, respectively. To save the interests of local traders, the government has brought forward a number of “back-end” logistics investment clauses and the compulsion to source the items locally. This has made the big retailers uncomfortable and unable to explore the Indian retail industry to the fullest.
Though big retailers have been facing problems, the retail sector has been making great advancements in India. The entry of foreign retailers has also introduced new technologies in the Indian retail sector, and of course, there has been a rise in jobs. But to continue, they would need to overcome the challenges being faced and require more support from the government. There has to be a system that empowers both the local and foreign retailers together.
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