Attrition hits Indian retail sector: What went wrong?

Excerpts from Reporter's Diary on CNBC-TV18 Watch the full show »

There's a twist in the tale of Indian retail. On one hand, rising purchasing power and robust consumption is giving the sector an adrenaline rush, but on the other, spiraling attrition rate is acting as a big dampener, report CNBC-TV18's Farah Bookwala and Supraja Srinivasan.

What's going wrong in India's second-largest employing sector?

Today, the organised retail segment is estimated at USD 28 billion with around 7% penetration. This is estimated to grow to a USD 260 billion business over the next decade with around 21% penetration. But all this provided, the retail business is able to reduce attrition, particularly at the shop-floor level.

For a sector that employs 35.06 million people and is second to only agriculture, retaining its workforce has become a big concern.

Bijou Kurien, president and chief executive officer, Reliance Retail, "On an average, if you look at all retail chains in India, you see an attrition of about 40%. My sense is that it will probably be in the region of 60-65% in the case of food and grocery and probably 25% in apparel and other lifestyle category."

What's behind this trend?

Retail businesses operate on margins as low as 15%, which leaves them little scope to pay attractive salaries to shop-floor level employees. To top this, bleak career prospects results in poor morale leading to increased attrition and loss of expertise.

"Food and grocery tends to be one format where attrition tends to be the highest and that is because in food and grocery, the whole role in food and grocery is about managing shelves and managing stock rather than selling," Kurien added.

What can retail businesses do to control this?

Amitabh Mall, partner and director, BCG, "What retailers really need to do more than the money is to give people a very good, clear path of progression. I think what people at the entry level are looking for more than anything else is certainty of career by rotating people between stores, between formats as many retailers are dealing in multi-formats."

The retail sector in India presently contributes 22% to the country's GDP with organised retailing witnessing a compounded annual growth rate of 35-40%. But to keep the growth momentum of the sector going, analysts say, retail majors will have to find a mechanism to keep employees motivated by providing them a structured growth path along with better pay packets

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