Brick-and-mortar stores growing despite etail boom

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In the last five fiscals, the revenue of B&M retailers has risen at 24 percent CAGR

Naysayers may have written off growth in brick-and-mortar (B&M) stores, but this retail channel is not withering away in a hurry. An analysis of the financials of 24 large B&M retailers in India—18 of them rated by Crisil Ratings—prove why B&M models can still give online retailers a run for their money.

In the last five fiscals, the revenue of B&M retailers has risen at 24 percent compound annual growth rate (CAGR) to about Rs 70,000 crore, says a report released by Crisil Ratings in September. The number is healthy, particularly when compared to India’s GDP growth that stood at 7.4 percent in 2014, up from 6.9 percent in 2013, according to World Bank data.

While India’s ecommerce market is expected to grow 50 percent in the next five years, according to Economic Survey 2014-15, Crisil sees revenues of organised B&M retailers rising at a respectable 13-15 percent over the medium term. “Focus on initiatives such as reorienting store profiles and well thought-out expansions have enabled organised B&M retailers to reduce gestation losses and generate store-level profits faster,” says Amit Bhave, director, Crisil Ratings.

Many large organised B&M retailers have announced investments of up to Rs 100 crore to push an omni-channel strategy to provide a seamless experience to customers. The move would include leveraging mobile and internet technologies to tap high-growth channels.

Another trend being witnessed is tie-ups between B&M stores and etailers. For instance, Shoppers Stop and Tata group-owned Croma have tied up with pure play etailers such as Snapdeal.

B&M retailers are also improving the quality of their private labels—in-house brands—by investing in design capabilities. Today, private labels contribute almost 20 percent to their total revenue, an increase of 600 basis points in the last five years. Going forward, Crisil sees them sharpening this in-house focus by improving store advertising and placement strategy.

Pragya Singh, associate vice president, retail & consumer products at Technopak, a retail consultancy, says innovation is the way to survive. “In certain categories and geographies, online retailers will dominate,” she says. “In large cities, where etailers have made strong inroads in product categories like books and electronics, which do not need brand experience, B&M retailers may need to reinvent themselves.”