An obsession to follow the big ticket retailers of the West and a booming Indian middle class was suicidal for most Indian retailers in the initial years of organised retail. Overexpansion and poor inventory management, coupled with a slowdown, brought them to their knees faster than expected
In fact, a number of other players were on a blind spree to create another success story like Wal-Mart. But what they forgot was that Wal-Mart generates annual revenues that are equivalent to about 40% of India’s GDP and expecting to earn an annual revenue of Rs.1 trillion through Reliance Retail was nothing but outrageous. According to McKinsey, the Indian retail industry was extrapolated to grow at 25% till 2012. Even smaller retailers like Vishal MegaMart had evinced a 100% growth till the end of fiscal year 2007-08. The end result was an over-investment spree just before the 2008 slowdown. Apparently, the Rs.9.3 trillion retail rodeo (CII) saw players like Subhiksha, Vishal Mega-Mart, Planet Retail miserably failing to bear the brunt of the liquidity crunch due to over-investment and poor conversion ratio of investments to revenue. In retrospect, it seems that it had only hastened an inevitable end.
“Over expansion during the nascent stage of retail industry resulted in increasing working capital requirements which created a liquidity pressures for many retailers in the long run,” says Govind Shrikhande – Customer Care Associate & MD of Shoppers Stop Ltd. to B&E. It is imperative that players that survived learn these valuable lessons quickly to prevent further mayhem. Wal-Mart with its cash & carry model is a case to learn from. The retailer has maintained a measured approach and is building a more sturdy and sustainable ecosystem. It’s just like the golden goose story; expecting too much too soon will only lead to disaster.
“Over expansion during the nascent stage of retail industry resulted in increasing working capital requirements which created a liquidity pressures for many retailers in the long run,” says Govind Shrikhande – Customer Care Associate & MD of Shoppers Stop Ltd. to B&E. It is imperative that players that survived learn these valuable lessons quickly to prevent further mayhem. Wal-Mart with its cash & carry model is a case to learn from. The retailer has maintained a measured approach and is building a more sturdy and sustainable ecosystem. It’s just like the golden goose story; expecting too much too soon will only lead to disaster.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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