When most retail chains are struggling to make profit, investor-turned-entrepreneur Radhakishan Damani, founder and promoter of D-Mart grocery-store chain, has impressed the market with stellar performance of his business. Shares of Avenue Supermarts, the company that owns D-Mart, listed at a whopping 102 per cent premium yesterday.
Damani built his brand with a canny understanding of retail market. The USP of D-Mart is heavy discounts, and Damani has managed to sell cheap with his extraordinary business acumen.
But will Damani’s model survive the future? Below are four major challenges D-Mart is likely to face in a few years:
Today, D-Mart is confined to a few states in west and south India and operates 119 stores. Will its model of local supplies and cheaper prices work when it expands and reaches the scale of its competitors such as Reliance Retail which operates nearly 500 Reliance Fresh stores across 80 cities? So far, D-Mart has been able to beat its competitors because it has not scaled up to their level and has kept its costs low. As it grows, it might have to face the challenges that its competitors face.
D-Mart stares at a future which does not seem kind to the brick-and-mortar retail. Damani’s slow and steady pace enterprise can run into formidable challenges brought in by fast-evolving technology. India is witnessing a big surge in use of smartphones. Cheaper devices and data, expanding telecom infrastructure, and the government’s big push for digital payments is not exactly conducive for the growth of retail stores. Add to that huge discounts that online retailers offer.
According to the Global Payments Report by payments firm Worldpay, India will be the world’s second-largest e-commerce market by 2034, thanks to massive surges in internet penetration, a swelling millennial population and the rising uptake of mobile phones. The market is predicted to reach $63.7 billion by 2020 and overtake the US by 2034. This enormous development will in turn open up enormous opportunities for companies who sell online, it says.
A Ficci-PwC report says that about 650 million people are expected to be online by 2020, out of which 250 million will be shopping online—spending more than $50 billion. At least $5 billion of this expenditure is expected to be on packaged consumer goods.
India’s ecommerce industry grew at 180% to become a $13 billion sector in 2015, according to a study by RedSeer Management Consulting. Though the growth shrank to a meagre 12% in 2016 to clock $14.5 billion due to various reasons, ecommerce is all set to expand phenomenally in a few years. Post-demonetisation push for digital payments and falling prices of devices and data will keep fuelling the e-commerce growth.
3. Consumer behaviour
Total Retail Survey 2016 of PwC says online shoppers around the world are fundamentally disrupting retail. In India, 55% compared prices using mobile in store while 53% were likely to buy from offshore online retailer if better prices, the survey showed. This means a serious challenge to offline retailers. Will D-Mart be able to fight off the biggest trend of our times—everything going online. Will it have to add an online format too to its business? So far, online grocery retail has been dominated by struggling startups. In a few years, when serious players start entering the online grocery business, or if there is consolidation that leads to a few players finally emerging stronger, then D-Mart will face a challenging future even if it decides to add online operations to its business.
4. America shows the future of retail
While surveys point out a phenomenal growth in e-commerce in India, what is happening in the US today might give a better idea of where Indian retail is headed. India consumer trends tend to follow US consumer behaviour, albeit with a bit of lag.
A report titled ‘Retail Store ‘Bubble’ Has Burst and CEOs Search for Answers’ in The Wall Street Journal says the US retailers are gathering at a conference beginning Sunday in Las Vegas to look for ways to deal with the problem. Once considered a competitive advantage, store footprints have now become a burden for many chains as more shopping moves online, the report says.
Women’s apparel chain Bebe in the US is closing all 170 of its stores to focus on growing online sales, according to a Bloomberg report. More than 3,500 stores are expected to close in the next couple months in the US, says a report in Business Insider. These include big names such as JCPenney, Macy’s, Sears, Kmart, Crocs, BCBG, Abercrombie & Fitch and Guess. Though these shutdowns are mainly due to the location of stores inside malls, a big reason is growing e-commerce.
What is happening to the brick-and-mortar retail in the US today might happen in India too, sooner or later. Can D-Mart fight off the big trends that have swayed the consumers in the U.S. away from offline retail?