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Breaking Links in Retail Chains – A Word of Caution for the Retail Segment

Posted on September 26, 2010 in Business and Economy

By Utkarsh Chaturvedi:

Retail sector has been one of the fastest growing sectors in India. And the big retail chains have managed to bring a plethora of goods under a single roof. This has given the consumers a power to choose without straining their resources. With more and more stores opening in every town of our country, it seems the retail chains are laughing their way to the bank with all the scaling growth. Or do they?

Retail stores are gearing up for entry in a new market segment – small towns and rural areas. This is part of their strategy to make big bucks with inclusive growth in all market segments as people in tier III cities and small towns are gearing up for the consumerism boom. But there seems to be another reason for the retail giants to head for small towns. There have been various examples in the past which suggest that the retail sector is not as happy as it seems. Retail chains have been crash landing for some years now. With world retail behemoth Wal-Mart entering the fray, all the retail chains at home are feeling insecure.

Problems have been walking hand-in-hand with the retail chains for a long time. First there was the huge unorganized retail market – “the kiranawalas”, who posed a huge competition (they still do). Then there were operational issues, inflation and other variables. Soon it was clear that the path to the modern organized was not as easy as it seemed. Troubles became apparent with the implosion of Subhiksha retail.

In late 2008, Subhiksha closed down all of its 1600 stores. All the operations of Subhiksha now defunct, the future of the retail major seemed uncertain. The retail chain suffered largely due to severe cash crunch. All of a sudden its expansion plan halted and there seemed no way by which the retail chain could recover. There were no telling signs which could indicate the condition of the retail giant. In fact, Mr. Azim Premji invested in Subhiksha in hopes of a high return on investment, but the retail chain crumbled under its own weight. The lenders have no clue as to how money owed to them will show. Still, the market is unsure as to how the damage to the sector will be undone.

Subhiksha isn’t the only retail major to succumb under pressure. Another retail major, Vishal stores is also looking for a prospective buyer. Reportedly, Chennai based Shri Ram group is in sights with a couple of investors. With Vishal retail looking for such means, the haunting memory of the collapse of Subhiksha comes to mind. Although the situation is nowhere near that severe, but still the retail major has to cross some more hurdles in order to successfully handover the company to new players.

Nevertheless, the retail sector is still poised to become one of the commanding sectors in the country. More and more new players are entering the market and big retail behemoths from other countries have also geared up to take advantage of the Indian retail scene. But, the retail chains should tread the path more carefully and should be wary of signals emanating danger. With due lessons learnt from the past and adaptability with current scenario will surely help the retail chains to expand in untapped market segments including small towns and villages and thus help improve quality of life in remote areas.

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