Prospects of Retail in India

8/2/2019 Prospects of Retail in India

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PROSPECTS OF RETAIL IN INDIA

Retail is India's largest industry. It accounts for over 10 per cent of the India's GDP and around eight per

cent of the employment. Retail sector is one of India's fastest growing sectors with a 5 per cent

compounded annual growth rate. India's huge middle class base and its untapped retail industry are key

attractions for global retail giants planning to enter newer markets. Driven by changing lifestyles, strong

income growth and favorable demographic patterns, Indian retail is expected to grow 25 per cent

annually. It is expected that retail in India could be worth US$ 175-200 billion by 2016.

The organized retail industry in India had not evolved till the early 1990s. Until then, the industry was

dominated by the un-organized sector. It was a sellers market, with a limited number of brands, and

little choice available to customers. Lack of trained manpower, tax laws and government regulations all

discouraged the growth of organized retailing in India during that period. Lack of consumer awareness

and restrictions over entry of foreign players into the sector also contributed to the delay in the growth

of organized retailing. Foundation for organized retail in India was laid by Kishore Biyani of Pantaloon

Retails India Limited (PRIL). Following Pantaloon's successful venture a host of Indian business giants

such as Reliance, Bharti, Birla and others are now entering into retail sector.

A number of factors are driving India's retail market. These include: increase in the young working

population, hefty pay-packets, nuclear families in urban areas, increasing working-women population,

increase in disposable income and customer aspiration, increase in expenditure for luxury items, and

low share of organized retailing. India's retail boom is manifested in sprawling shopping centers,

multiplex- malls and huge complexes that offer shopping, entertainment and food all under one roof.

But there is a flip side to the boom in the retail sector. It is feared that the entry of global business giants

into organized retail would make redundant the neighborhood kiryana stores resulting in dislocation intraditional economic structure. Also, the growth path for organized retail in India is not hurdle free. The

taxation system still favours small retail business. With the intrinsic complexities of retailing such as

rapid price changes, constant threat of product obsolescence and low margins there is always a threat

that the venture may turn out to be a loss making one.

A perfect business model for retail is still in evolutionary stage. Procurement is very vital cog in the retail

wheel. The retailer has to fight issues like fragmented sourcing, unpredictable availability, unsorted food

provisions and daily fluctuating prices as against consumer expectations of round-the-year steady prices,

sorted and cleaned food and fresh stock at all times.

Trained human resource for retail is another big challenge. The talent base is limited and with the entry

of big giants there is a cat fight among them to retain this talent. This has resulted in big salary hikes at

the level of upper and middle management and thereby eroding the profit margin of the business. All

the companies have laid out ambitious expansion plans for themselves and they may be hampered due

lack of requisite skilled manpower. But retail offers tremendous for the growth of Indian economy. If all

the above challenges are tackled prudently there is a great potential that retail may offer employment

opportunities to millions living in small town and cities and in the process distributing the benefits of

economic boom and resulting in equitable growth.


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Even though India has well over 5 million retail outlets of all sizes and styles (or non-styles),

the country sorely lacks anything that can resemble a retailing industry in the modern senseof the term. This presents international retailing specialists with a great opportunity.

It was only in the year 2000 that the global management consultancy AT Kearney put a

figure to it: Rs. 400,000 crore (1 crore = 10 million) which will increase to Rs. 800,000 crore

by the year 2005

an annual increase of 20 per cent.

Retailing in India is thoroughly unorganized. There is no supply chain managementperspective. According to a survey b y AT Kearney, an overwhelming proportion of the Rs.

400,000 crore retail market is UNORGANISED. In fact, only a Rs. 20,000 crore segment ofthe market is organized.

As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet in area.This means that India per capita retailing space is about 2 square feet (compared to 16square feet in the United States). India's per capita retailing space is thus the lowest in the

world (source: KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt SalmonAssociates).

Just over 8 per cent of India's population is engaged in retailing (compared to 20 per cent inthe United States). There is no data on this sector's contribution to the GDP.

From a size of only Rs.20, 000 crore, the ORGANISED retail industry will grow to Rs. 160,000crore by 2005. The TOTAL retail market, however, as indicated above will grow 20 per cent

annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by 2005 (source: survey by ATKearney)

Given the size, and the geographical, cultural and socio-economic diversity of India, there isno role model for Indian suppliers and retailers to adapt or expand in the Indian context.

The first challenge facing the organized retail industry in India is: competition from theunorganized sector. Traditional retailing has established in India for some centuries. It is a

low cost structure, mostly owner-operated, has negligible real estate and labour costs and

little or no taxes to pay. Consumer familiarity that runs from generation to generation is onebig advantage for the traditional retailing sector.

In contrast, players in the organized sector have big expenses to meet, and yet have to keepprices low enough to be able to compete with the traditional sector. High costs for the

organized sector arises from: higher labour costs, social security to employees, high quality

real estate, much bigger premises, comfort facilities such as air-conditioning, back-up powersupply, taxes etc. Organized retailing also has to cope with the middle class psychology thatthe bigger and brighter a sales outlet is, the more expensive it will be.

The above should not be seen as a gloomy foreboding from global retail operators.

International retail majors such as Benetton, Dairy Farm and Levis have already entered themarket. Lifestyles in India are changing and the concept of "value for money" is picking up.

India's first true shopping mall complete with food courts, recreation facilities and large car

parking space was inaugurated as lately as in 1999 in Mumbai. (this mall is called"Crossroads").

Local companies and local-foreign joint ventures are expected to more advantageouslypositioned than the purely foreign ones in the fledgling organized India's retailing industry.


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These drawbacks present opportunity to international and/or professionally managed Indiancorporations to pioneer a modern retailing industry in India and benefit from it.

The prospects are very encouraging. The first steps towards sophisticated retailing are being

taken, and "Crossroads" is the best example of this awakening. More such malls have beenplanned in the other big cities of India.

An FDI Confidence Index survey done by AT Kearney, retail industry is one of the mostattractive sectors for FDI (foreign direct investment) in India and foreign retail chains wouldmake an impact circa 2003.

The Indian retail industry is the fifth largest in the world. Comprising of organized andunorganized sectors, India retail industry is one of the fastest growing industries in India,especially over the last few years. Though initially, the retail industry in India was mostlyunorganized, however with the change of tastes and preferences of the consumers, the industry isgetting more popular these days and getting organized as well. With growing market demand, theindustry is expected to grow at a pace of 25-30% annually. The India retail industry is expected

to grow from ` 35,000 crore in 2004-05 to ` 109,000 crore by the year 2010.

In the Indian retailing industry, food is the most dominating sector and is growing at a rate of9% annually. The branded food industry is trying to enter the India retail industry and convertIndian consumers to branded food. Since at present 60% of the Indian grocery basket consists ofnon- branded items.

Growth of Indian Retail

It is expected that by 2016 modern retail industry in India will be worth US$ 175- 200 billion.

India retail industry is one of the fastest growing industries with revenue expected in 2007 toamount US$ 320 billion and is increasing at a rate of 5% yearly. A further increase of 7-8% isexpected in the industry of retail in India by growth in consumerism in urban areas, risingincomes, and a steep rise in rural consumption. It has further been predicted that the retailingindustry in India will amount to US$ 21.5 billion by 2010 from the current size of US$ 7.5billion.

According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, Indiaretail industry is the most promising emerging market for investment. In 2007, the retail trade inIndia had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it roseto 12%. It is also expected to reach 22% by 2010.

According to a report by Northbride Capita, the India retail industry is expected to grow to US$700 billion by 2010. By the same time, the organized sector will be 20% of the total marketshare. It can be mentioned here that, the share of organized sector in 2007 was 7.5% of the totalretail market.


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Major Retailers in India

Pantaloon:

Pantaloon is one of the biggest retailers in India with more than 450 stores across the country.Headquartered in Mumbai, it has more than 5 million sq. ft retail space located across thecountry. It's growing at an enviable pace and is expected to reach 30 million sq. ft by the year2010. In 2001, Pantaloon launched country's first hypermarket Big Bazaar. It has the following

retail segments:

Food & Grocery: Big Bazaar, Food Bazaar Home Solutions: Hometown, Furniture Bazaar, Collection-i Consumer Electronics: e-zone Shoes: Shoe Factory Books, Music & Gifts: Depot Health & Beauty Care: Star, Sitara E-tailing: Futurebazaar.com Entertainment: Bowling Co.

Tata Group

Tata group is another major player in Indian retail industry with its subsidiary Trent, whichoperates Westside and Star India Bazaar. Established in 1998, it also acquired the largest bookand music retailer in India Landmark in 2005. Trent owns over 4 lakh sq. ft retail space across

the country.

RPG Group

RPG Group is one of the earlier entrants in the Indian retail market, when it came into food &grocery retailing in 1996 with its retail Foodworld stores. Later it also opened the pharmacy andbeauty care outlets Health & Glow.

Reliance

Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Freshstores and Reliance Mart are quite popular in the Indian retail market. It's expecting its sales toreach ` 90,000 crores by 2010.

AV Birla Group


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AV Birla Group has a strong presence in Indian apparel retailing. The brands like Louis Phillipe,Allen Solly, Van Heusen, Peter England are quite popular. It's also investing in other segmentsof retail. It will invest ` 8000-9000 crores by 2010.

Retail formats in India

Hypermarts/supermarkets: large self-servicing outlets offering products from a variety ofcategories.

Mom-and-pop stores: they are family owned business catering to small sections; they areindividually handled retail outlets and have a personal touch.

Departmental stores: are general retail merchandisers offering quality products andservices.

Convenience stores: are located in residential areas with slightly higher prices goods dueto the convenience offered.

Shopping malls: the biggest form of retail in India, malls offers customers a mix of alltypes of products and services including entertainment and food under a single roof.

E-trailers: are retailers providing online buying and selling of products and services. Discount stores: these are factory outlets that give discount on the MRP. Vending: it is a relatively new entry, in the retail sector. Here beverages, snacks and other

small items can be bought via vending machine. Category killers: small specialty stores that offer a variety of categories. They are known

as category killers as they focus on specific categories, such as electronics and sportinggoods. This is also known as Multi Brand Outlets or MBO's.

Specialty stores: are retail chains dealing in specific categories and provide deepassortment. Mumbai's Crossword Book Store and RPG's Music World are a couple ofexamples.

Challenges facing Indian retail industry

The tax structure in India favors small retail business Lack of adequate infrastructure facilities High cost of real estate Dissimilarity in consumer groups Restrictions in Foreign Direct Investment Shortage of retail study options Shortage of trained manpower Low retail management skill

The Future

The retail industry in India is currently growing at a great pace and is expected to go up to US$833 billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year 2018 at aCAGR of 10%. As the country has got a high growth rates, the consumer spending has also goneup and is also expected to go up further in the future. In the last four year, the consumer spendingin India climbed up to 75%. As a result, the India retail industry is expected to grow further in the


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future days. By the year 2013, the organized sector is also expected to grow at a CAGR of 40%.

India retail industry is progressing well and for this to continue retailers as well as the Indiangovernment will have to make a combined effort.

GLOSSARY

A.T. Kearney is a global management consulting firm, focusing on strategic and operationalCEO-agenda issues for the world's leading organizations across all major industries and sectors.It was founded in 1926, and its head office is in Chicago, Illinois. The firm is regularly ranked inConsulting Magazine's annual list of the "Best Firms to Work For" and among the Top 10 in theVault Consulting 50 rankings.

Prospects of Retail in India

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