A day after the Aditya Birla Group made public its retail consolidation plans, Future Retail announced its merger with the retail wing of Bharati. Post merger, the combined entity would be the second largest conventional retailer by number of stores as well as revenue. The organised retail industry has been under pressure, squeezed from both sides: by e-tailers as well as unorganised sector mom-and-pop stores.
And given that the entry of global retailers has been restricted because of policy issues — Carrefour has exited the Indian market, Walmart is restricting itself to cash-and-carry operations and Tesco is laying low — as well as the funding problems faced by the sector, growth through consolidation and mergers and acquisitions seems inevitable. Indeed, this seems to be the only route to expansion. Over the next few months, more such announcements — as well as the entry of conventional retailers into the e-commerce segment — can be expected.
By its very nature, conventional organised retail isn’t as nimble-footed or unencumbered as either e-commerce or unorganised-sector corner shops. Organised brick-and mortar shops have to contend with the high costs of maintaining inventory, lease rentals and labour. In contrast, e-tailers are asset light and their operations, easily scalable. They only have to deal with warehousing- and transportation-related costs. Similarly, the frugality and low overheads of kirana stores — as well as their well-developed networks — gives them an advantage. It is the big brick-and-mortar retailer who is caught between two stools.
