Retailing in India: Difference between revisions

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Overview

Retailing is one of the pillars of the economy in India and accounts for 35% of GDP.(1)

The retail industry is divided into organised and unorganised sectors. Over 12 million outlets operate in the country and only 4% of them being larger than 500 sq ft in size. Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc (2)

Growth

An increasing number of people in India are turning to the services sector for employment due to the relative low compensation offered by the traditional agriculture and manufacturing sectors. The organized retail market is growing at 35 percent annually while growth of unorganized retail sector is pegged at 6 percent. (3)

The Retail Business in India is currently at the point of inflection. Rapid change with investments to the tune of US $ 25 billion is being planned by several Indian and multinational companies in the next 5 years. It is a huge industry in terms of size and according to management consulting firm Technopak Advisors Pvt. Ltd., it is valued at about US $ 350 billion. Organised retail is expected to garner about 16-18 percent of the total retail market (US $ 65-75 billion) in the next 5 years.(4)

India has topped the AT Kearney’s annual Global Retail Development Index (GRDI) for the third consecutive year (5), maintaining its position as the most attractive market for retail investment. The Indian economy has registered a growth of 8% for 2007. The predictions for 2008 is 7.9%. (6) The enormous growth of the retail industry has created a huge demand for real estate. Property developers are creating retail real estate at an aggressive pace and by 2010, 300 malls are estimated to be operational in the country.(7)

With over 1,000 hypermarkets and 3,000 supermarkets projected to come up by 2011, India will need additional retail space of 700 million sq ft as compared to today. Current projections on construction point to a supply of just 200 million sq ft, leaving a gap of 500 million sq ft that needs to be filled, at a cost of US$15-18 billion. (8)

The Indian Retail Market

Indian market has high complexities in terms of a wide geographic spread and distinct consumer preferences varying by each region necessitating a need for localization even within the geographic zones. India has highest number of outlets per person (7 per thousand) Indian retail space per capita at 2 sq ft/ person is lowest in the world Indian retail density of 6 percent is highest in the world. (9) 1.8 million households in India have an annual income of over 45 lakh (10) Delving further into consumer buying habits, purchase decisions can be separated into two categories: status-oriented and indulgence-oriented. CTVs/LCDs, refrigerators, washing machines, dishwashers, microwave ovens and DVD players fall in the status category. Indulgence-oriented products include plasma TVs, state-of-the-art home theatre systems, iPods, high-end digital cameras, camcorders, and gaming consoles. Consumers in the status category buy because they need to maintain a position in their social group. Indulgence-oriented buying happens with those who want to enjoy life better with products that meet their requirements. When it comes to the festival shopping season, it is primarily the status-oriented segment that contributes largely to the retailer’s cash register. (11)

The break-up of organized retailing sales into various product categories (12)

Books, Music & Gifts: 3% Mobile Handsets: 3% Clothing & Textile: 39% Food & Grocery: 11% Consumer Durables: 9% Footwear: 9% Furniture & Furnishings: 8% Catering Services: 7% Jewellery & Watches: 7% Others: 4%

Major Indian Retailers

Indian apparel retailers are increasing their brand presence overseas, particularly in developed markets. While most have identified a gap in countries in West Asia and Africa, some majors are also looking at the US and Europe. Arvind Brands, Madura Garments, Spykar Lifestyle and Royal Classic Polo are busy chalking out foreign expansion plans through the distribution route and standalone stores as well. Another denim wear brand, Spykar, which is now moving towards becoming a casualwear lifestyle brand, has launched its store in Melbourne recently. It plans to open three stores in London by 2008-end. (13)

The low-intensity entry of the diversified Mahindra Group into retail is unique because it plans to focus on lifestyle products. The Mahindra group is the fourth large Indian business group to enter the business of retail after Reliance Industries Ltd, the Aditya Birla Group, and Bharti Enterprises Ltd. The other three groups are focusing either on perishables and groceries, or a range of products, or both. (14)

RPG Retail-Formats: Music World, Books & Beyond, Spencer’s Hyper, Spencer’s Super, Daily & Fresh
Pantaloon Retail-Formats: Big Bazaar, Food Bazaar, Pantaloons, Central, Fashion Station, Brand Factory, Depot, aLL, E-Zone etc.
The Tata Group-Formats: Westside, Star India Bazaar, Steeljunction, Landmark, Titan Industries with World of Titans showrooms, Tanishq outlets, Chroma.
K Raheja Corp Group-Formats: Shoppers’ Stop, Crossword, Hyper City, Inorbit
Lifestyle International-Lifestyle, Home Centre, Max, Fun City and International Franchise brand stores.
Pyramid Retail-Formats: Pyramid Megastore, TruMart
Nilgiri’s-Formats: Nilgiris’ supermarket chain
Subhiksha-Formats: Subhiksha supermarket pharmacy and telecom discount chain.
Trinethra- Formats: Fabmall supermarket chain and Fabcity hypermarket chain
Vishal Retail Group-Formats: Vishal Mega Mart
BPCL-Formats: In & Out
Reliance Retail-Formats: Reliance Fresh
German Metro Cash & Carry
Shoprite Holdings-Formats: Shoprite Hyper

Entry of MNCs

The world's largest retailer by sales, Wal-Mart Stores Inc and Sunil Mittal's Bharti Enterprises have entered into a joint venture agreement and they are planning to open 10 to 15 cash-and-carry facilities over seven years. The first of the stores, which will sell groceries, consumer appliances and fruits and vegetables to retailers and small businesses, is slated to open in north India by the end of 2008. (15) Carrefour, the world’s second largest retailer by sales, is planning to setup two business entities in the country one for its cash-and-carry business and the other a master franchisee which will lend its banner, technical services and know how to an Indian company for direct-to-consumer retail. (16)

The world’s fifth largest retailer by sales, Costco Wholesale Corp (Costco) known for its warehouse club model is also interested in coming to India and waiting for the right opportunity. (17)

Opposition to the retailers' plans have argued that livelihoods of small scale and rural vendors would be threatened. However, studies have found that only a limited number of small vendors will be affected and that the benefits of market expansion far outweigh the impact of the new stores.(18)

Challenges

To become a truly flourishing industry, retailing needs to cross the following hurdles: (19)

Automatic approval is not allowed for foreign investment in retail.
Regulations restricting real estate purchases, and cumbersome local laws.
Taxation, which favours small retail businesses.
Absence of developed supply chain and integrated IT management.
Lack of trained work force.
Low skill level for retailing management.
Intrinsic complexity of retailing – rapid price changes, constant threat of product

obsolescence and low margins.