Retailers expect flat sales this year on the back of low consumer sentiment and a tight credit market, says a Boston Consulting Group report titled ‘Winning with Uncertainty’. To win in the face of these challenges, retailers need to build agility into their business model, the report says.
Abheek Singhi, partner at Boston Consulting Group, said, in a press statement, the real challenge was not the increase but the volatility in input prices. “Inflation has seen wild swings with the wholesale price based (WPI) index settling at levels as low as 4.89 per cent in April after seeing highs of six-seven per cent over the last year. Consumer sentiment has been a conundrum. Our global trading-up, trading- down survey indicates that while 38 per cent of Indian consumers want to trade up (much higher than US and EU consumers at 13 per cent and 16 per cent respectively) about 30 per cent want to trade down,” Singhi added.
According to a BCG survey covering executives of leading FMCG and retail companies in India, 54 per cent of the respondents said the volatility in raw material prices would remain a challenge for the industry, while 50 per cent expected challenges due to rising competition over the next five years.
Bhaskar Bhatt, managing director of Titan Industries, said businesses were capital- constrained on the back of volatile commodity prices and a cautious consumer sentiment. “The Indian consumer, however, is still willing to spend and trade up for the right value proposition, differentiation and innovation. Aspiration is still driving her to choose the best for her family and herself, while she balances her monthly basket. Hence consumer businesses in India, need to constantly walk the tightrope, balancing growth and efficiency,” Bhatt added.
The BCG report says organised retail in India is at an inflection point – there is a healthy revenue growth of 25 per cent CAGR over the last five years. However organized retail contributes to less than 10 per cent of overall sales across multiple categories. “This gap in sales forms the biggest growth opportunity for organized retail, especially with consumption expected to triple in size over the next decade going from ~900 million in 2010 dollar to ~3.6 trillion dollar in 2020,” said BCG report.
However, organised retail faces uncertainty and challenges both on the revenue side and the cost side, the report says. On the revenue side, there is demand uncertainty due to inflation-driven consumer reluctance to spend. CPI too has reduced substantially standing at ~10.24 per cent for the month of April, according to the BCG report. This is a swing from CPI at 12.06 per cent and 11.44 per cent for February and March respectively.
The report says retailers need to build agility in their offer design through dynamic value proposition, assortment and pricing decisions as well as robust mechanisms to experiment across store formats and channels with minimal loss. “Retailers would also need to build execution agility through flexible sourcing (more direct and local), dynamic supply chain management, lean store operations and efficient working capital management,” the BCG report added.
Source- My Digital FC