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Amit Sengupta
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Amit Sengupta has over 8 years experience with well-honed expertise and rich cross-functional exposure to the entire spectrum in the areas of the Financial Service Sector. He led a team of Equity Research KPO processes at one of the top Global Investment Bankers and successfully ran the process... More
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  • Is the organized retail industry in India poised for a consolidation?

    As per the report by IBEF (India brand Equity Foundation) on Retail sector, the revenues is expected to reach US$ 460.6 B by 2010-11, with the organized retail sector projected to grow to US$ 43.8 B in the said year.

     

    The pie of the organized retail is going to increase but not at the cost of the unorganized retail. New concepts will be developed by the organized players to demonstrate a co- existence with the mom and pop stores with the big players.

     

    Further the retail industry in India is still in its nascent stage which makes it unlikely that the players might go for a price war usually a phenomenon observed in mature ones. Moreover the industry has options in moving out into Tier II cities and to tap the rural market as well giving it leverage for growth.

     

    However cases like Subhiksha puts our self to assume consolidation might take place in the industry. With the tightening of the credit and the industry’s focus towards the growth of bottom line alongside the top line might force certain players to consolidate their operations and strategy.  Moreover with big names like Ambani’s, Mittal’s and Wadia’s entering the retail sector with huge capital it’s just a matter of time when we expect the retail industry to witness acquisitions of the well established companies.

     

    The Subhiksha Case

     

    Subhiksha was one of the first to enter the retail sector and used to be the largest player in the retail industry. Being founded by R Subramaniam a IIT Chennai and IIM Ahmedabad alumnus with the best combination of pedigree from India there with ICICI Ventures and Wipro’s Aziz Premji as its investors.  It had expanded to 1600 stores with revenues of $470 M in 2008 way ahead from its start in 1997 with the plan to offload 10% stake in the IPO. However by mid 2009 everything came to a standstill. 

     

    I would like to blame the failure of the company on these two factors:

     

    1. Adoption of a wrong retail format: With the availability of free capital and the irrational exuberance of the markets, Subhiksha tried anything and everything to just expand without actually looking back at what they have become. It adopted the small format grocery retailing and tried to compete with neighborhood grocery store on the promise of discount on MRP, while they failed in to negotiate substantially with suppliers.

     

    1. Lack of Focus: The entire focus of the company lay on building its top line even if it meant sacrificing its profits. It ignored to focus on its supply chain management and the procurement model to improve cost and building efficiency.

     

    The organized retail industry in India has still a huge potential for growth in the coming years. The Subhiksha case will not deter the industry in scaling new heights neither will it stop new players from entering the fray. However the industry players need to collaborate on certain functioning like sharing its procurement means and so to develop a Pan India footprint covering the rural areas to target a huge audience and hence a great business.

    Aug 21 6:40 AM | Link | Comment!
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