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Subhiksha, one of the earliest home-grown grocery, pharmacy andmobile retail chains, has been in the news for the last several months.The murmurs started surfacing many months ago relating to a brewingfinancial crisis but were resolutely denied by the company till a few days

ago. Then in a striking mea culpa, the companys management has nownot only admitted that it has indeed been in serious financial mess formany months but has even gone to the press with an extraordinary claimthat over 600 of its outlets have been vandalized but the company is stillnot pressing any charges against anyone or filing any FIRs. With theSatyam saga still making headlines, the cynics are already readingbetween the lines as the Subhiksha management makes moredisclosures about its financial health.

With not so encouraging news reports on the financial performance of

some other large Indian retailers including Future Group, RelianceRetail, Aditya Birla Retail and Vishal Retail, many may already betempted to write an epitaph for the organized, modern retail sector inIndia. It would be wrong to do so. Yes, it is true that many of the earlierentrants are finding it difficult to maintain the scorching pace of growththey had set for themselves in the last few years and some of the newerones are discovering the challenges involved in meeting theextraordinarily ambitious growth trajectories they has set for themselvesat the time of their entry into this very promising business sector.However, this is a much-needed pause for these players and for the

nascent organized Indian retail sector. The serious players are now busyrefining their business models and carrying out the much-needed coursecorrection, be it in terms of formats, locations, supply chains or overallbusiness operation costs. Most will succeed in doing so since they havethe entrepreneurial and managerial talent and financial capability to carryout these changes fairly quickly.

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What has gone wrong with retailers like Subhiksha? On the surface,such retailers had a tailor-made retail model for India which was to be adeep discount, no-frills retail format focusing on the very primaryconsumption basket of the middle and lower middle income groups.However, Subhiksha and some others ignored, to their great peril, theimmense financial and managerial investment needed in building asuper-efficient supply chain, and a super-efficient retail operations

organization which can, while competing with the traditionally low-operating cost kirana stores and chemists on the price platform,

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generate adequate margins for themselves. Reckless growth that wasprobably driven by the desire to drive up valuations of the businessrather than creating sustainable value for all the stakeholders becametheir undoing. In this quest for reckless growth, just about every basic

paradigm of a successful retail business was ignored or compromisedupon, be it supply chain-efficient clusters of retail expansion, optimizedstore locations and store rentals, or enhanced customer service.

While the fate of Subhiksha and a few others will be known in thecoming months, the overall health and future of the modern Indian retailsector should not be judged by these outcomes. Some fundamentalfacts have to be kept in mind while re-evaluating the Indian retailopportunity. Firstly, India is still experiencing one of the strongesteconomic growth it has in the last 60 years. At about 7 per cent GDPgrowth in 2008-9, and perhaps between 5 and 6 per cent in 2009-10, thecurrent year and the next one will be better than the India Shiningyears of the NDA government not so long ago. Real consumer spendingwill grow in tandem with this strong GDP growth, and this can be easilyvalidated by the growth of various constituents of consumer spending,be it food and grocery, cooking oils, FMCG products, consumer durablesand electronics, and even clothing and other textiles.

Secondly, modern retail still accounts for less than 5 per cent of the totalretail channel in India. The so-called mom & pop stores continue to showgrowth and profitability that is again, by and large, in line with the growth

in consumer spending.

Thirdly, the consumer spending basket has been showing a consistentshift in components over the last 20 years or so. Hence, while someorganized retailers may be facing certain growth or profitabilitychallenges, there are others including Trent (Westside, Landmark,Others), Fabindia, Shoppers Stop, Reebok, Esprit, Tommy Hilfiger,Tanishq, Croma, The Mobile Store, Guardian Pharmacy, Bharti Retail,Metro Cash & Carry, Caf Coffee Day, McDonalds and others continueto grow steadily and, in most cases, profitably. Many other international

retailers like Tesco and Zara are poised to debut in the next 24 months,and others such as Marks & Spencer are poised to make a strongrecovery and growth.

And finally, the much-needed correction in retail real estate rentals andother operating costs is already under way which should restore theprofitability of many current players and encourage them and the newones to continue to plan further expansion.

Hence, the Indian retail story and its business promise are still verymuch intact.