The retailing sector is poised for rapid growth and is expected to witness an investment of about Rs 2.4 billion annually for next few years.

However, curbs on foreign direct investment in the sector are still in place. The sector is yet to receive status as an industry. Internally, the sector lacks efficient supply chain practices.

According to a report by the rating agency Fitch, lack of proper infrastructure along with basic inertia and haphazard initiatives taken by companies have resulted in inefficient supply chain management practices.

Analysts believe that retailers can reap benefits in the future like cost savings and operational efficiencies through better supply chain management.

However, investments would be needed in basic infrastructure like parking, real estate, etc. to the tune of Rs1billion per annum. Given the nascent stage of the industry, most of these investments would be in the form of equity.

Comparable Asian markets like Thailand, Indonesia, China and Malaysia saw emergence of organised retailing in the 1980's. Organised retailing now has 20 -40 per cent market share there.

However, for a similar market share in India, investors would have to overcome key roadblocks like lack of foreign direct investment, complex tax structure and infrastructure bottlenecks. Being politically sensitive issues, the hurdles were likely to stay in place for years.

Domestic players in the industry are in investment mode but access to the substantial funds required for expansion and growth has been choked by lack of "industry status". 

On the operations front, most players are only now starting to adopt global retail practices. It would take players years to bring up their supply chain infrastructure to global standards.

Retailers would need to invest at the front-end of their businesses to develop practices and processes for efficient customer relationship management and linking them to merchandise and supply chain planning systems. Lack of trained manpower and infrastructure constraints would pose challenges on this front.

On the financial front, 2002 saw the first retail players turning profitable. However, past losses coupled with low profitability on account of investments on development of retail models along with lack of sufficient knowledge about the consumer behaviour and external constraints will continue to put pressure on profits.

Fitch believes that many of the players which survived the problems of the last two years may be able to harness the benefits of scale and size in the years to come.

As these players grow into national chains, they will be able to take advantage of synergies in the supply chain to reduce costs and offer higher value to customers.

This would help them achieve higher organic growth, with reduced reliance on external funds. These players will, thus, be able to face up to a substantial degree the risks associated with a business start-up.

All these companies have to transform themselves from being small regional chains to geographically well-distributed national chains. Their format, and operational and financial risks, would be key factors influencing the performance of the retail sector.