Real Estate Prices Pose Danger for Retail Sector

December 31, 2007	(1 votes, average: 4 out of 5)  Loading ...
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India has been rated at the top of the global retail development index for the second successive year by AT Kearney. However the consultant has acknowledged at least 10 holdups that need attention. The list includes underdeveloped supply chain capabilities, inadequate utilities, IT infrastructure hurdles, supply base hurdles, inadequate human resources, limited consumer insights, taxation challenges, real estate hurdles, insufficient government incentives and policy-related hurdles.

Among all these, the major hindrance is Real Estate. The fact that retailers have to spend 25-30% of their revenues among rentals, just to operate in metropolitan makes the situation worse. According to CB Richard Ellis South Asia head Anshuman Magazine, the current commercial rentals are actually unaffordable and correction is inevitable,” says.

The concern has started to reflect in either slowing down of many a retailers’ expansion plans or change in strategy. For instance, franchise-driven operations is finding more favor now. “For Westside we plan to involve more franchisees in our expansion plans,” says Trent marketing head Neeta Chopra.

On the infrastructure side, supply chain is pegged to be the biggest hurdle, in food as well as non-food category retailing. Obviously, the magnitude of the problems arising from supply chain issues vary from market to market. “Factors such as logistics infrastructure, the availability of a cold chain network and the presence of distribution hubs and networks is a much bigger challenge in small towns and rural areas than in the large metros,” says Dhruv Prasher, COO, Decube Retail Plus, a New Delhi-based consultant.

Sourcing is another major hurdle being faced by organised retail in India. Experts attribute this mainly to lack of a sustainable vendor base and trained manpower. “In my view the biggest challenge facing the sourcing function comprises trained people and order fulfilment. While we have a lot many purchase managers, we have a very few sourcing strategists,” says Arabind Das, head of sourcing at Aditya Birla Group’s retail venture.

The biggest problem is the non-intervention of Government into the retail sector. Retails in South Africa and China have been able to progress only because of active government participation.

But as far as India is concerned the approach of some state governments have been hostile towards organized retail, that of the central government has been quite indifferent. The sector has attracted opposition of the entire trading community. This community not only forms a formidable vote bank, but is also considered to be a powerful pressure group at the grassroots level.

By and large, some areas where organized retailers have been lobbying for government support in their retail ventures include granting of industry status to retail, reform the Urban Land Ceiling and Regulation Act, reducing license requirements, creation of a single-window facility, ample power supply, creation of commercial space in urban centers, amending labor laws to be more supportive of retail requirements and eliminating octroi taxes.

News Published Under:   Real Estate India, Real Estate Trends |

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