While delayed winter has been a cause of concern, Rakesh Biyani, joint managing director, Future Group says the sales have started to pick up.
In an interview to CNBC-TV18, Biyani says an early Diwali and unwarranted discount schemes has confused consumers and lead them to buy products they don't necessarily need.
Also read: Romance with e-commerce to continue in 2015 too
But the year ahead looks positive for Biyani who believes the domestic retail business can pick up significantly if the government can seamlessly execute the Make in India reform and bring goods and services tax (GST) effectively into India's taxation system.
On the threat e-commerce sites are posing to brick-and-mortar companies, Biyani says the government should look into the way these site price their products.
"These levels of discounting and subsidizing cannot go on forever. It is not sustainable and the margins aren't as high as the discounts they offer," adds Biyani.
Below is the verbatim transcript of Rakesh Biyani's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: What is the festive season or a year end shopping looking like? Looks like it is tough times for retailers? There were people who called the Diwali season a flop on the channel some of the buyers and now retail or online buying looks like is picking up briskly?
A: The festive season was below expectations, it still end on the positive side over the last year but everybody had lot of hope that it is going to be a very strong season. Unfortunately being an earlier Diwali coupled with all kind of disruptions in the market with unwarranted discount schemes etc; to a certain extent confused the consumer and also there has been a shift in the pattern. There was clearly a lot more people were landing up buying things which have been sold so cheap and things not necessarily what they require.
The electronics category was significantly discounted in the festive period and people landed up buying things which may be many of them will just not use it. That does happens, discounts make people take decisions in a direction which says the fact that lets buy it today and that is what they did. Going forward November started of well with the wedding seasons etc but delayed winter definitely has been a cause of concerned. However, it is good last few weeks, couple of weeks also now the business is back on track and looking quite positive.
The cold weather is only helping the business to go up and this is a trend that is going to continue. We have a huge discount sale period starting in all through January and that should bring back consumers in a big way. If you look at over 2014 the way it has played out it is one of the better years for retail industries I would say that but a lot lower than what the expectations were. Everybody had a very high expectation, the macro indicators kind of says the facts that the consumers should be back into the market place. They have come back but not at the level that one wanted them to be at.
Sonia: How much of this is to do with the on slot of the ecommerce discounting because anecdotal evidence suggest that your own brands like Big Bazaar, Food Bazaar etc are getting hit quite badly with these ecommerce sites like LocalBanya.com, Bigbasket.com. Is that something you are noticing as well and if yes how are you planning to combat this?
A: It is quite contrary, in fact most of these brands have been least impacted by what is happening in the online world. Online is definitely a new channel which is emerging and it is quite good to see that consumers are feeling happy to shop online and kind of trusting the entire process.
The first period in life was clearly about consumers not trusting, not being able to decide that should I put my credit card number or no. Not sure whether I will get the right product or no so that was the first journey. However, now at least consumers feel that it is right place. It is one more channel that we must go and shop.
However, bulk of the business still is continuing to happen in the brick-and-mortar store. So, the perception saying the fact that consumers have left the brick and mortar store and the malls have become empty is an incorrect perception.
Yes, in some of the brands businesses the online discounting has impacted those brands. Whatever I have picked up from the market places some of the exclusive business outlet (EBO) business or the exclusive brand outlet business of brands has got impacted because many of these market places are kind of subsidizing the discounts that the sellers are putting in which is not the right thing to do.
Unfortunately nothing much has happened and I just hope the fact that sooner than later the government looks into the kind of discounting that is happening and the kind of way the discounts are being shared. It is not the right way to go about building the right economic viability of any business so these are phases; I don't see those levels of discounting and those levels of subsidizing continuing forever, it just can not be possible.
Most of us are getting odd by the fact that how can the prices can be so lower. Margins don't exist to that level. So, nobody could really sell that product. Who ever has brought those products at that point of time should feel happy about it but I doubt that such levels of discounting can go on forever.
Latha: Give us some colour about tier II cities, about outside Mumbai cities? Are you seeing any improvement of household disposable incomes? Is there at least a toughing out of buyer incapacity to buy and is there a return of the buyer volume wise, value wise?
A: This year the biggest positive has been increase in the volume. You have to also reflect into the fact that the commodity cycle is on the reverse and most of the commodities have corrected prices and there are trading today at quite a low level compared to past. If you are continuing to able to maintain value growth it is only happening because there is quantity growth and it is also happening because there are more people walking into those stores.
Clearly in tier II towns the demand is strong so is the demand strong in metros. Traffic is a concern but then that is what the retailers like us have been doing. We have been expanding our presence in the metro cities and compare to having four stores in the past today we run anything between 14 to 20 stores in quite a lot of these cities. So, from being a destination stores we have kind of migrated to being more like a neighborhood store reflecting into the way the urban markets in India have really revolved here.
Latha: What is the plan for 2015 in terms of capex? What are your expectations in terms of revenues?
A: The indicators are all positive for 2015 and it is a year where we have to get ready to transition in to what is going to happen in 2016. The game changer is happening in 2016 the goods and service tax (GST) and it is going to get implemented and that is a good new. What everybody needs to do and especially retailers like us have to really work hard to build the economies of scale that you can create with the way GST will come through.
However, the first half away has to go working with the government as in industry body trying to make it and sure the fact that GST gets implemented in the way it has been thought through over the years. We keep hearing about the concerns of state in terms of revenue is not going to be matching in and they want support etc however the key thing that one needs to really look at it is the right time to ensure the fact that more and more people come into the tax net. More and more retailers, more and more traders and manufacturers etc kind of are in the tax net.
What that can do is only increase the compliance level which means we could easily get a lower rate of GST which could boost consumption. If government is serious about continuing, think about a Make in India campaign which is a fantastic idea that the government is pursuing but that has to get supported by a significant increase in consumption within the country. Globally things don't look as good, demand is quite weak and it grows at a very small space.
India will get an opportunity to replace some of the other countries which has been exporting in big numbers over the years and their cost base are increasing. So, we would get some opportunity to replace those counties as a place to source from. However, the world is looking at India as a consumption market and Make in India needs to really work on how to increase the consumption within India and if that can be done with a right GST rate structure easy implementation, seamless implementation, 2016 onwards domestic business could look at a every high growth rates.
