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The year 2017 has been one of the most defining years for the retail sector in many ways. It was the year where companies managed to emerge out of demonetisation, with different degrees of success, and then from the implementation of goods and services tax (GST). Consumers have well managed to balance the growth of e-commerce and brick and mortar retail. The government also played its part in implementing GST as planned and then demonstrating some flexibility in GST rates and easing some rules for retail. In many ways, a new base has been set for 2018 and beyond.
If we look at the year gone by, some aspects clearly stand out. For many, who had written off brick and mortar retail, the year has been quite sobering with the growth of online moderated by business economics. Several brick and mortar retailers have done well this year, beating the online onslaught. This clearly proves that with the right business model and a sensible approach, there is a good opportunity for both and, more importantly, perhaps a stronger case for omni-channel. The other trend last year was the continued success of international retailers, thus, proving the power of the Indian market. The government has played its part in liberalising single brand policies on sourcing, ownership, and even the MRP Act, which was quite unthinkable just a few years ago. Perhaps, the most unspoken but significant factor, however, has been a clutch of Chinese cross-border sites that are starting to attract Indian shoppers by offering low-priced fashion products, catering to customers globally, and India being one among the many delivery destinations. On the backdrop of this, a few trends are likely to dominate 2018:
Improved growth and margins for retail businesses
The retail sector has recovered from the impact of demonetisation and the roll-out issues linked to GST. In the next one year, retailers are expected to post higher operating margins and faster revenue growth. Businesses in the space of food and grocery, apparel and sports goods are poised to grow at a faster rate than others, owing to changing consumer mindset and rising sales. Big-box retailers are expected to further improve their profit margins as we may see less discounts by online retailers trying to reduce cash burn. The new rates and the GST benefits will just aid their growth.
Redefining of retail business models
Over the past few years, retail models have seen several changes with successes in online, own retail and franchisee models. However, it’s quite clear that the model needs to evolve and probably 2018 will see some redefining of the same. Retailers will need to adopt omni-channel not to survive, but to leverage the huge opportunity that it offers. They will also need to further evaluate expansion through own or franchisees and perhaps establish a winning model that is fit for purpose. As a focus for the industry, profit will triumph growth in 2018, which will result in more robust business models for players. This will also be helped by the further stabilisation of GST and positive impact of rate cuts across consumer products.
Next level of growth in digital payments
The digital transformation unlocked post demonetisation has brought about a significant change in the way consumers interact with retailers today. The transition from traditional commerce to e-commerce, and now m-commerce, has been primarily driven by the retail segment. Consumers are shopping through e-wallets and m-wallets giving impetus to online retail. This on-going trend will get a fresh boost in 2018, as more and more consumers from tier II, III and IV cities join the digital movement, with the government set to ease the adoption though favourable reforms.
Increased focus on security
Increasing cybercrime-related activities, fraudulent transactions and fishing have been frequent news items in 2017 for the retail sector, though we are lucky not to have faced major incidents yet. However, the threat is much closer to us than we think and retailers have started to realise this. In 2018, companies will need to address the question: How effective are our internal and external security infrastructure? As retailers increase focus on collecting more digital data, increase in digital payments with enhanced connectivity will increase the threat of a security breach manifold. An information breach related to customer data can lead to major repercussions and can cause irreparable damage to companies’ reputation, customer confidence, and impact operations.
Emergence of intelligent automation
Retail industry in India will need consistency of processes and efficient operations to scale. Intelligent automation provides a unique opportunity for retailers not just to bring efficiency but also to cut costs, reduce frauds and help scale. We expect that in 2018 retailers will start serious efforts to understand and evaluate automation and prepare a base for future adoption beyond 2018. Retailers should seek solutions not just in finance and IT but also in core retail areas like merchandising and supply chain. Retail companies that are early adopters of this technology will certainly have an edge over others and in the long run. It will help save on operating costs and provide flexibility to their business models. Now that a solid base has been set, retailers should not only embrace new generation technologies but also refocus on traditional concepts of retail in 2018.
Partner and national leader, consumer products and retail, EY
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Source : http://www.financialexpress.com/opinion/retail-trends-for-2018-the-sector-should-not-only-embrace-new-gen-technology-but-also-focus-on-traditional-concepts/1018153/