Rural areas to be next avenue of growth for retailers

13 Jan '10

1 min read

Opening up of retail sector for FDI can be considered as the prime reason behind the blooming organized retail sector.

Despite the Government allowing only 51% of FDI in single format retail segment, global retail giants like Tesco, Wal-Mart and Metro AG are making inroads indirectly through franchise agreements and cash and carry wholesale trading, thus giving serious competition to domestic retailers.

One of the major challenges for retailers is to reduce shrinkage, which includes short weighing, pilferage and poor product handling. The average shrinking percentage of inventory in developed countries is 1% to 2% of cost of goods sold.

Despite a downturn, need for skilled manpower still continues to be a major concern across the sector. Retailers are finding it difficult to finance their working capital requirements, as banks are now reluctant to finance retailers due to plummeting profitability.

Experts believe that the next phase of growth for organized retail sector will come from rural areas that account for half of the $300 billion domestic retail market. Retailers also need to focus on the previously untapped lower income strata by providing them access to credit facilities.

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