Earlier we covered about the facts and issues worrying Indian retailers. Today we cover the strategies suggested by Retailers to cope the slowdown. This will be a two part post and we are covering the first of the two parts.
Toughen internal efficiencies – If you are reading our blog regularly then you have already heard of the term “Garv Se Kaho Hum Kanjoos Hey” from India’s Retail King – Kishore Biyani.
- Cost Cutting – Should not happen where it is easy for the retailer but the most effective strategy should be one that identifies the costs least important to delivering what the customers value which can happen only after you understand your customer deeply.
- Resource Optimization – A retailer wants to better manage its backend centers, supply chain and stores while improving its profitability. Each customer amongst his millions is defined by a different buying history, a different buying propensity, and a distinct servicing cost. Some Examples are – Vishal Retail closed its distribution centers in Mumbai and Kolkata and opened a large distribution warehouse in Gurgaon. Future Group merged the backened operations of various retail entities.
- Improve Labor Productivity – To bost sales, focus on employee productivity. Companies need to understand how to retain their most valuable staff and how to scale them by training them to be ready for the next business cycle and challenge.
- Bring Down Real Estate Cost – Real estate rentals constitute the biggest cost item for retailers at about 10-15 percent of sales. Quite frequently, it has been observed that one of the major costs for retail stores i.e. rental cost is ignored by retailers. Revenue sharing model could also be negotiated for.
- IT & Supply chain Management – IT Management is critical and is explained in detail here. Retailers as well as third party logistics providers may increase their investment in logistics
infrastructure. To gain cost leadership in the market, big players may have to minimize costs by developing supply chain infrastructure. Warehouses, distribution centers and transportation are likely to see modernization. Be open to 3rd party logistics.
- Inventory Management – In any retail operation, restraining inventory cost is of utmost importance. Improper inventory may result in stockouts for some of the categories whereas excess stock for others. Lower inventory turns are likely to have negative impact on ROI and more so for categories where gross margin is quite low like fruits and
vegetables, milk, staples, mobiles, etc. In addition, higher inventory may result in obsolete stock, margin leakages, damages and high carrying cost (interest, space, handling costs, etc.).
In the next post we will look into consumer behavior, alliances and private labels to help manage the slowdown.