Som’s Retail Journey | Part 3
Challenges to Organised Retail for Penetration in Developing Countries
Jun 05, 2026 | 6–7 min read
Knowledge Application of Session 02
Som was busy writing on a notepad. Now he understood why family-run shops often fail to scale and frequently collapse when passed from one generation to the next. The rise of organised retail is systematically replacing unorganised setups by offering superior customer experiences and complete transparency.
He was fully engrossed in this work and unaware of Vishnu Priya’s arrival. Vishnu Priya placed her phone on the round table, which made Som realise her presence.
Som: “Hey, sorry! I was busy summarising the conversation and applying it to my purchase.”
“Interesting,” said Vishnu Priya. “Can I see it?”
Som: “My pleasure.”
Split of his recent shopping list based on what he had just learned:
Unorganised Retail
- Pan Masala: Rashtriya Pan Darbar
- Vegetables: Dwarka Vegetable Market
- Almonds: Kishan Kirana
- Screws: Om Hardware Shop
- Laundry: Munna Laundry
- Birthday Decoration: Vijay Decorators
- Tap Repair: Shyam Plumber
- Sweets: Madan Lal Sweets
Organised Retail
- Buttermilk: Amul Parlour
- Fruits: Reliance Fresh
- Laptop: Croma
- Apple Mobile Charger: Apple Store
- Toys: Hamleys
- Medicine: Apollo Pharmacy
- Haircut: Truefitt & Hill
- Private Taxi: Uber (Service Retail)
- Garments: Marks & Spencer
- Edible Oil: Reliance Smart Bazaar
- Sports Shoes: Adidas
- Smartwatch: Amazon (E-commerce/Organised)
- Gold Earrings: Malabar Gold & Diamonds
- Blankets for Donation: DMart
- Fitness Equipment: Decathlon
“Unorganised retail clearly has immense limitations and challenges,” Som noted. “They are under threat. It feels like individuals in the unorganised sector are sitting on a ticking bomb that may eventually lead to significant disruption.”
The Reality & Challenges of Organised Retail
Vishnu Priya smiled. “Som, did you know that unorganised retail still commands approximately 77% of the market in India, 62% in North Africa, and 70% in Indonesia? The shift toward organised retail is a slow process in developing nations because it comes with its own unique hurdles. On the flip side, countries like Singapore are 85% to 90% organised, while the USA and UK have also crossed the 80% mark.”
Som: “Unique challenges? What are they? I found merits only for customers and retailers under organised retail.”
Vishnu Priya leaned back, smiled, and continued. “Yes, a few of them are:”
- Capital Intensive
- High Operating Cost
- Fragmented Supply Chain
- Complexity & Compliance
- Talent & Attrition
- Loss of Personal Touch
- Cultural Barriers
- Low Demand
Capital Intensive: Setting up organised retail requires massive capital in infrastructure and high property costs. Store designing, creating experiential layouts, installing air conditioners, fire safety norms, advanced technology adoption and upgradation, holding inventory, extensive supply chain development, and long cash conversion cycles lead to massive capital investment.
“Som, recall your experience at the Croma store. Store exterior, interior, electrical work, air conditioning system, and POS infrastructure need approximately ₹2200 per square foot. The size of the store was approximately 7000 sq. ft., so they invested ₹1.5 Cr. For rented property, the security deposit is equal to 3 or 6 months of rent. They invested in inventory additionally.”
High Operating Cost: Retail is all about a good location. Good locations are premium. Property rates are high, so the rentals are as well. Skilled and trained manpower is required for the delivery of a good experience. Store ambience is vital for customer dwelling time and conversion. All these increase the operational cost. Price parity is a challenge with unorganised retail. It may lead to consumer dissatisfaction, low repeat purchases, and a drop in sales.
Talent & Attrition: It demands a highly skilled workforce and regular training. Attrition rates are high, which causes business disruptions and directly impacts the customer experience. While a new staff member takes time to settle in, customers expect flawless service from day one.
“Assume you train a new employee at Truefitt & Hill. It took 8-10 weeks. Now he is ready for serving the customer. He was excellent in performance and liked by customers. He improved your store rating. After 8 months, he is poached by a competitor.
This is common in the retail industry. Attrition is 30%–40% in the retail industry. Out of 100 employees, 30 to 35 leave the company. Practically, every three years, you have a new team.
See in the case of Munna Laundry. It’s a family-run service. No attrition. They know the preference and urgency of every individual.”
Fragmented Supply Chain: A retail chain’s lifeline is on-time supply. A robust supply chain structure till the last mile is needed. In Tier-2 and Tier-3 cities, or extended areas of Metro and Tier-1 cities, infrastructure often does not support this. This holds back the expansion or causes the failure of organised retail.
Reliance Fresh is a beautiful example to understand the supply chain, its importance, and its impact on expansion. In Tier-3 and Tier-4 cities, local vendors win over price and freshness as supply time increases for delivery at a Reliance Fresh store.
Complexity & Compliance: Government compliances increase operational complexity and overhead costs. Unorganised retail can skip taxes and employee benefits, which reduces expenses. This enables them to sell products at a lower price. They don’t follow all the compliance, which saves cost and time. This also enables quick service at a lesser cost.
Som speaks: “Yes, true. I experienced the same at Malabar Gold. The price of gold was high compared to a nearby jeweller as an impact of GST and certification of purity. The difference was approximately 3% but makes an impact on high-value purchases.”
Vishnu Priya: “The labour law enhances complexity. Although the government is working on it, there is still a long way to go.”
Loss of Personal Touch: Rigid, standardised processes can deprive customers of the personalised service they get from a local shopkeeper. Furthermore, decision-making is slow because approvals must go through corporate channels rather than addressing a unique situational problem on the spot.
Low Demand: Low occupancy areas and low per-capita income have low demand. Here, organised retails are commercially unviable. Unorganised retail has good reach in these areas and an efficient model to operate.
Cultural Barriers: Organised retail often forces local cultural and behavioural habits to take a backseat in favour of standard company policies. Language barriers also pose a significant hindrance in regional markets.
Walmart, a successful retail chain from the US, entered the Germany market in 1997 and failed to perform. The hurdles faced were as follows:
- Corporate Ritual: Mandatory group chanting of “WALMART” embarrassed employees.
- Language Barrier: English was declared as the official language, and Americans don’t speak German.
- The Smile Policy: Cashiers were asked to smile at customers during checkout. In Germany, smiling at a stranger was not standard retail etiquette.
- Baggage Assistance: Germans prefer to pack their own products privately. Baggers placed at checkout points were viewed as an intrusive annoyance.
“Because of these constraints,” Vishnu Priya added, “organised retail cannot easily reach every single corner of a city or country. However, it is constantly evolving into different formats to overcome these hurdles. Look at Urban Company—they successfully brought organisation to the service retail sector, a space that was once considered completely invincible. Still, it will take considerable time for a country like India to hit even 50% organised retail.”
“Inspirational!” Som said, his eyes lighting up. “You mentioned different retail formats and their evolution. Could you dive deeper into that?”
Let’s grab our coffee and take a quick break first,” Vishnu Priya replied warmly. “When we get back, we will talk all about the various retail formats and the latest evolutions in the market.”