The Indian retail story was an incredibly interesting one in 2018. All those who predicted that it would be the beginning of the end of physical retail in India are mistaken. Yes, the world's largest physical retailer, Walmart , finally entered into consumer facing retail in India by acquiring the country's largest online retailer, Flipkart, for an astronomical $16 billion.
However, the action didn't really move towards online retailing. Omni-channel retailing was the name of the game in 2018. While the pioneer of Indian modern retail, Kishore Biyani, announced his retail 2.0 ambition, which was all about empowering his chain of physical stores with technology, Amazon India along with Samara Capital bought out Aditya Birla's grocery retail chain for Rs 4,200 crore. Later during the year, there was news of Amazon buying a minority stake in Future Retail.
The intense M&A activities lead to the market valuation of retail companies hit the roof. It soared by 57 per cent. The biggest gainer has been V-Mart Retail, whose average market cap grew by 127.8 per cent (Rs 1,601 crore to Rs 3,648 crore for the October 2017-September 2018 period), Future Retail saw a 96.81 per cent jump (from Rs 13,826 crore to Rs 27,211 crore), while Shoppers Stop's average market cap grew by 68.20 per cent (from Rs 2,840 crore to Rs 4,778 crore). Value retailer Dmart (owned by Avenue Supermarts), whose market cap growth was the talk of the market all through 2017, also saw a 59.15 per cent growth in market cap.
Physical retailers need an online presence and vice-versa. As far as consumers are concerned, they don't necessarily want to purchase online, they want to touch and feel too. Hence, a retailer such as V-Mart, which caters to tier 2-3 markets has a unique advantage. These are markets where online retail hasn't really made inroads and the consumers in these markets like to touch and feel the products they buy.
Again, these are markets where other modern physical retailers have also not forayed into, so, shopping in an air-conditioned environment is luxury for the consumers. Therefore, analysts find retailers such as V-Mart, which operate in smaller markets to be great acquisition candidates for the likes of Amazon and Walmart, who want to percolate into small town India.
Amazon has attempted to reach out to small-town India through its assisted online retail initiative Udaan. Reliance Retail is also planning to do the same. But let's not forget that a home-maker in a village will not be too happy if her grocery or vegetables get door delivered to her. After all, stepping out for grocery and vegetable shopping is her only form of social interaction. That is the only time she is able to catch up with her friends and keep herself abreast with what is happening in her locality.
Therefore, while online retailing is set to take off, neither the physical modern retailer nor the kirana store will vanish anytime soon. Instead, the retail companies will try to reach out to the consumer both through physical stores as well as online.
While Amazon is on an acquiring spree, one needs to see how the battleground shapes up. Walmart is presently busy consolidating its Flipkart acquisition but one is surely going to see them go on an acquisition drive soon. Chinese retail major, Alibaba has also been quiet for while after expressing initial interest in the Indian retail market. Will it enter India in 2019? Will India emerge as the battleground for the global retail giants in 2019? Let's wait and watch.Amazon in advance stage to buy stake in Future Retail