Retailing in India

Overview

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

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. With 15-times increase from 2002 to 2010, share of organized retail is estimated to be at 20 percent of total retail trade.(1)

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.(2), it is valued at about US $ 300 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.(3)

India has topped the AT Kearney’s annual Global Retail Development Index (GRDI) for the third consecutive year, maintaining its position as the most attractive market for retail investment. The Indian economy has registered a growth of around 9% for the last two years and the affluent levels of the young Indians have risen. 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.

A report by investment bank Goldman Sachs, credits India with the potential to deliver the fastest growth over the next 50 years with an average of more than five percent a year for the entire period.

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.

The break-up of organized retailing sales into various product categories are (4)

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

• 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 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.

Carrefour, the world’s second largest retailer 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.

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

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.(5)

References

(1) - ICRIER Begins Survey of Indian Retail Sector - Indian Realty News

(2) - Technopak Advisors

(3) - Fibre2Fashion

(4) - [1]

(5) - India's Retail Revolution - CNN Money

Related Links

• Pantaloon