Organic Value Chain

Organized Retail: Challenges ahead for Indian Organized Retail

Booming economy, favorable demographic patterns, increasing per capita income and urbanization gave rise to a new sector in India: Organized Retail. Opening up of retail sector for FDI can be considered as the prime reason behind the blooming organized retail sector. Sensing this opportunity several companies ventured into this sector, including Reliance, Bharti and Pantaloons.

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 some serious competition to domestic retailers. Nevertheless, growth opportunity in this sector can be judged by the fact that only 3% of the total retail sector is organized and 97% of the sector still consists of local mom and pop stores.

Unfortunately, the growth strategy used by all organized retail players of increasing their number of stores backfired when rentals dramatically shot up following the global economic melt down. Profitability is seriously hampered and almost all major retailers are now struggling to maintain their bottom line. Average operating profit margin declined from 9.5% in 2007 to 7.9% in 2008. The worst part is that such a drastic growth in the number of stores was backed by significant leverage which is expected to further hurt these organized retailers’ liquidity and profitability levels.

Retailers are correcting their over enthusiastic strategies of the past and focusing on improving their business model. This section will review some of the challenges these organized retailers are facing on both macro as well as local levels.

Aggressive Expansion

Over the last few years Indian retailers most preferred mode of expansion was to increase their number of outlets across metros. Outlets were built wherever real estate was available and not where they were actually required, which led to ‘Clustering’. Following credit crunch in 2008, several outlets were cast strapped and had to be closed down simply because they were operating in unviable locations.

Poor Supply Chain Management

One of the major challenges for retailers is to reduce shrinkage which includes short-weighing, pilferage and poor product handling. While the average shrinking percentage of inventory in developed countries is 1% to 2% of Cost of Goods Sold, it is estimated to be much higher for Indian retailers, primarily due to the lack of focus on supply chain management. The existing supply chain is not devoid of inherent weakness of India’s infrastructure, besides being corrupted along the entire chain. Tracing shrinkage is a Hercules task as almost all the transactions still continue to be based on paper system. This gives rise to the need of third party logistics organizations that can provide services at competitive prices. Third party logistics is a concept still absent from the Indian retailers’ value chain.

A large part of shrinkage takes place within the retailer by its employees. Moreover, tracking an employee’s track record and background checks is difficult. Retailers are now joining hands to fight this battle by creating a database of employees and share it amongst themselves to avoid shrinkage from within.

Besides these, some of the other challenges which are now being faced by Organized Retailers are:

Employee training and retention

Managing working capital

Diversifying into untapped rural areas

Backward Integration

To read more on these, please refer to http://understandingbasicsoffinance.blogspot.com/2009/11/organized-indian-retai-challenges-ahead.html

How can I determine acidity of a compound by its chains? (Organic chem)?

Here are some questions I’m slightly confused on how to answer. I don’t have the pKa/pKb values, can’t use resonance, not sure of elemental induction, and hybridization is similar for most.

[I] B > A > C Because CH3OH is like H2O, and the conjugate base CH3O- is not as strong as CH3NH2- and certainly not as strong as CH3CH2-.

[II] Question not understood. What is part (a)?

[III] 3 > 2 > 1 An acetylene is very acidic compared with an allylic compound. And both compared with an alkane.

[IV] 3 > 1 > 2 A chloroacid more than an acid, which is more than an alcohol.

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