|Anurag Jain's Blog|
Monday, December 08, 2003
Retail sector: Overcapacity under way?
With all the recent reports about millions of sq.ft. of retail property under development, looks like we are headed towards overcapacity in the retail sector. Will there be enough demand to sustain the current capacity-building or will it be the same story as white goods MNCs overestimating Indian middle class market in the mid/early 90s?
Some comments from my friends on this topic
About Prof Dwarika's point on opening malls in non-metros, he's very right: Just recall what Walmart did in the US. And also recall what Sam Walton said about what he did in the 'country' with Walmart: "First lesson we learned was that there was much, much more business out there in small-town America that anybody, including me, had ever dreamed of."
Of course, there are contextual differences between the two countries but I would still bet on Indian smaller towns being totally 'viable'.
But my original query actually has a relation to this thing that happened with Walmart and the US. What I meant initially was not the evolution of the retail so much, which is essentially supply side (in short-term anyway), but the customer side, which is the demand side. The (disposable) income levels in US were/are very different from what they are in India. So, we can build malls after malls in India with the current thought process being "If we build, they'll come". But my question is: would the reality of lower income levels, and probably overestimation of demand, lead to a major dip in organized retail's prospects in near future (2-3 years)?
My understanding and opinion is that there'll be a major indigenization (spelling?) of retail formats after a failure of (majority of) mega malls after 2-3 years (Remember goofy off-the-shelf ERP implementation at Shoppers Stop leading to major losses 2 years back?) . And thats what will lead to a second phase of indigenous retail practices leading to a better retail future. Just a guess, no hard facts!
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