Amazon Reliance & Ikea : Online Retail war in India

Who will rule India in future? A homegrown behemoth Reliance not Flipkart armed with might of Walmart has been projected in media as the probable main competitor to global online retail giant Amazon. When Sumos fight its audience who gets to enjoy the fight without fear of any loss. On the other hand there is rise of another global DIY online retailer IKEA on the horizon in Hyderabad. Don't we know that the share of online sales revenue is as low as 3% of the real brick & mortar version.

Question is who will win the war on online sales in India which has huge population under 35%? I have always maintained that the large population in India provides no dividend to the economy. Moreover a morbidly superstitious Hindu population in India is another drag on the growth of economy to make it attractive to the global investors. Hindu mythologies confuses the kids who grow up becoming parasites rather than net contributor to the economy. In the age of innovation & ideas you have to allow kids become a modern citizen who could challenge the existing cultural rituals and ancient utopias. Indian kids grow up be become unskilled confused and superstitious adults who wait for some gods to solve the everyday life problems.

The hankering for bygone utopias and funny gods make Indian kids completely useless who neither enjoy fruits of their hardwork as their legitimately earned outcome nor take responsibility for their actions. Innovations are the main driver of any economy and innovative minds needs a liberal and progressive culture. Can any Hindu tell how Imran Khan has reduced the fuel prices by 17 rupee while Indians continue to pay brutal prices to the Hindu supremacist govt?

Reliance may be the largest firm on the basis of market cap but does it enjoy the trust of the Indian population? I meet lots of current and old employees of the Reliance industries asking them about their satisfaction about their employer. Ask any Reliance employee to know how much they fear and distrust it. Can any form of retail operation sustain without earning the trust of its customers and employees? No way. Amazon may have several dissatisfied customers but it has won trust of customers as well as employees. IKEA may face cultural barriers as Indians are not known for DIY lifestyle. India being a Hindu caste-infested society which looks down upon those who work with hands by castigating them as low caste its herculean task to inculcate DIY culture. But IKEA can benefit from low cost labor in India offering great potential for sourcing base.

Reliance may have many managerial & strategic challenges compared to the professional approach of its competitors but it has the might of Indian govt on its side that it can deploy to get an unfair advantage in the market. But in the long run as we all know the market competition wins the race. 

India Welcomes Walmart Tesco Carrefour : FDI in Multi-brand Retail

Finally on September 20, 2012 Government of India allowed Foreign Direct Investment in multi-brand retail in India. It’s possible now for global retail majors like Wal-Mart, Tesco & Carrefour to enter the market which has 300-400 millions strong middle class. Without going into political economy aspect of the move let’s look at the management & marketing side of the multi-brand retail in India. Retail & aviation has many similarities in India particularly. Retail majors need to learn lessons from India’s aviation industry as both cater to same customer base.

Lessons: Largest of the domestic corporate giants have burnt their fingers in organized retail in India during more than decade long period. Top three of them have reported losses. Retail in India is a fragmented unorganized business evolved alongside the social structure of communities. India has more cultural diversity than entire Europe as language, food habits, customs, religions & even Gods change every 50 kilometers in India. Hindustan Lever Limited had attempted to monopolize ice cream market in India two decades ago by buying out major brands but they could not fight with local satraps.

Basics: India has population of the size of China living on 1/3 of the area. Publicity managers of brand India have projected that what makes India attractive is presence of 300-400 million middle class consumers. Let me flag this figure right here from marketing perspective. Since Indian society is highly fragmented & culturally diverse therefore it’s a challenge to find various ‘consumers profiles’ embedded in this large population of consumers.

India buys few cars just [1/6 ] as compared to China. This figure is very significant as majority of Indian people prefer buy a house before car unlike in rest of the world.  India has no problem with congestion as all metro cities are teeming with people hence retail experience to India may not be same as routinely described in classical retail plans. On the issue of buying on credit or cash Indian consumers are no different than others but majority of Indians don’t have credit cards.

Entry Strategy: What business model Walmart would use in India is the billion dollar questions. Will they go for company owned company operate [COCO] route to begin with or take the franchise route? I believe later route may be more suitable as it would cut cost of entry & provide for safe landing for this controversial roll out. If Walmart recruits 25 major franchises in the beginning it would provide substantial leverage in domestic market to navigate the social reaction in the first phase.

POS & billing: In my opinion POS strategy would be the waterloo for Retail in India. Walmart, Tesco & Carrefour would be wise to invent a new POS strategy as no other country resembles in India in buying behavior. I would recommend that CXOs of retail giants should invest lots of their time at airport lounges & Metro railway in Delhi & Kolkata to grasp the behavior of Indians and ignore Mckinesy consumer reports. It’s impossible to succeed in retail without strategizing this final moment of truth in retail trade.

India is really a more diverse country than it appears on paper. Retail industry may have to take Indian Railway route & organize the operations that could handle the diversity of buyer needs in India. Historically Indian may have lived under centuries of foreign domination but they have succeeded at maintaining their lifestyle & culture and this must serve as guiding principle to any executives involved in this service sector. 

Trust is a Must: Future of Retail in India

If you examine the reasons for failure of organized retail in India many factors have been cited by various experts but no one has pointed out the most critical issue of absence of trust as the prime culprit. After all there is enough growth in economy leading to healthy demand for goods & services, some players have deepest pockets too, there is reasonably good transport backbone and India has quite a few well established fmcg majors present for long enough periods too.

We witnessed huge customer interest in buying at such outlets in the beginning & any research could reveal that customers could return to buy from organized retail if the players could get their act together. Quantity, prices, packaging, buying convenience, availability, variety and experience are few given factors that are in favor of organized retail.

Though most retail players failed due to absence of managerial competency for such operations particularly in marketing function lacked the understanding & creativity required to maintain a robust interest of customers in the stores. Across the board players focused on product images to lure the customers without strategizing the brand pull in an effective manner.

Retail is a service but the organized retail players choose to run the biz without regard to the basics of services marketing. Only if Reliance Fresh, Big Bazaar, Spencers etc could learn few lessons from professional service marketers and trained & retrained their teams on a continuous basis they can pull off the act in a powerful manner. There is lack of training, sense of belongingness & trust among the people working at the outlets. 

It’s very important for the retail players to craft a suitable training programme for their team to keep them involved in the business with a degree of pride. Without inculcation of pride among the team working at the outlets its impossible to run such an operation. We must keep in mind that we are not USA or Europe where people generally trust each other. We are a society that’s fractured by insidious mistrust that keeps people from behaving like a cohesive them. First step towards success of retail is to build a trustworthy team that in turn could inspire trust of the buyers, Till such mindset is achieved even Walmart would have to struggle in Indian market. 

Groupon Clones in India

It had to happen, anything that starts working somewhere else must be cloned and tried out in India too. It happened to organised retail, once wall mart topped Forbes list our smart business managers thought it would be easy to replicate it here, the blue collared IIM guys thought that with little deep pockets they could roll it out like a Bihar flood. No, i repeat, no retail company in India has been able to achieve there goals despite several corrections. The simple answer lies in the nature of indian consumer markets, we are not like the USA in any manner therefore how could the hope replicate an american business here?

Once again, whoever you meet these days at seminars and business dinners they would be raring to share there newest passion about groupon clone they have put together for India. Lets wait & see what happens to these indian groupons?

Indian consumer has demonstrated very clearly that except for convenience goods they are averse to buy any other stuff online. We indians buy slowly, very slowly and internet would take little more time to build up among the numbers comparable with the mobile phone. And i don't expect a guy who owns a 2G phone to buy online with mobile interface! How many subscribers have gone for 3G phones?

The most important bottleneck to the online buying through bidding is not the technology or the disposable rupee but the the prevalent trust deficit in India that has been the perpetual nemesis of the marketeers in India.

Online bid based buying would continue to be a like a multiplex film targeted at only 80 years old!  

Organized retail has taught hard lessons to our industry majors

Let us admit that the current players in the organized retail in India completely misunderstood the Indian consumer. Consequently most of them have been vanquished already by the market forces & a few are left in the fray with bruised egos and tattered balance sheets.  

Organised retailing in India has been going through several ups & downs beginning with raw enthusiasm followed by paranoia of failures. No wonder India is an amazing country & you must not lower your guards at any moment as there are many mirages luring you into believing them.  I wonder how come the Indian majors & their blue eyed managers failed to see the writing on the wall.  And the truth is that although India needs malls & the infra related to the organized retail but Indians are not ready to change in their buying habits in a hurry.

Organised retail would certainly succeed in India but the business model has to be reinvented. I am pained to clarify my clients & students about the need to understand the Indian consumer before planning to deal with such diverse group of wonderful people. You could use services of sociologists & psychologists to understand this multifaceted group. But there are few characteristics of Indians that are clearly enunciated like our preference for vegetarian food, belief in God, supernatural & fate, various traditions, family orientation, high opinion about our-selves & a competitive nature. Let us focus on the habits of the consumer.

Most businesses thought once they provide large number of products in one place in air conditioning setting then the consumers would come running right? Wrong! Indian consumers have high degree of trust deficit as they do not trust the sellers on price, quality & other parameters. Therefore there is need for repeated regular dialogue with the consumer that is missing with organized retail model. On the other hand western consumers shop in silence. Indian consumer shop more often and in smaller quantities as different from the developed world. Moreover Indian consumer has greater frequency of shopping & the average revenue is very small.

Organised retail can surely find its feet but they have to reinvent their business model & factor in longer gestation period for breaking even.