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India is currently the ninth largest retail market in the world and the Indian retail market is pegged at US$ 350 bn. Retailing has played a major role the world over in increasing productivity across a wide range of consumer goods and services. In the developed countries, the retail industry has developed into a full-fledged industry where the organised sector accounts for almost 80% of the total retail trade. In contrast to this, in India organised retail trade accounts for merely 3% of the total retail trade.
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The private consumption per capita of around US$ 394 compares poorly to US (US$ 27,643) and Asian countries such as Japan (US$ 20,337), China US$ 609, Malaysia (US$ 2,042) and Thailand (US$ 1,572). This highlights the high degree of fragmentation of the retail sector within India and also indicates tremendous scope for growth of the retail sector in India.
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Earlier, retailers largely catered to lifestyle, clothing and apparel needs of the consumers. However currently, grocery stores, speciality stores like Titan and stores to cater to the needs of music and book lovers etc have also started mushrooming at various locations.
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The sector can be broadly divided into two segments: Value retailing, which is typically a low margin-high volume business (primarily food and groceries) and Lifestyle retailing, a high margin-low volume business (primarily apparel, footwear, etc).
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| Different categories |
% contribution to
organised retailing |
| Clothing, textile & fashion accessories |
36 |
| Jewellery & watches |
17 |
| Food & grocery |
14 |
| Footwear |
13 |
| Durables |
10 |
| Books, music & gifts |
3 |
| Others |
7 |
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The sector is further divided into various categories, depending on the types of products serviced. Clothing & textiles dominate the market followed by watch & jewellery, food & grocery and footwear. Durables, books, music and others contribute the least. This is indicative of the opportunity for organised retail growth in these segments. The proliferation of hypermarkets and supermarkets has led to a growth in food and grocery retail; thus, value retailing is seen to be gaining ground in India. The other high growth verticals are apparel and durables. Impulse goods like books and music are also gaining a larger share in the organised retail market, with players making stores more accessible to consumers.
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Historically, Indians have not been the ones to splurge on luxury items. However, increased awareness among consumers, media proliferation and the desire to look good and try new things have led to the growth of lifestyle retailing and in luxury items. There has been a transition from the traditional retail sector to organised retailing, from small kiranawalas to big super markets over the years. The time constraint and the convenience of shopping with multiplicity of choice under one roof are the major drivers of organised retailing in the country.
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| Supply |
Players are now moving to Tier II and Tier II cities to increase penetration and explore untapped markets as Tier I cities have been explored enough and have reached a saturation level.
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| Demand |
Healthy economic growth, changing demographic profile, increasing disposable incomes, changing consumer tastes and preferences are some of the key factors that are driving and will continue to drive demand growth in the organised retail market in India.
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| Barriers to entry |
RReforms by India in opening up its economy have greatly improved trade prospects, but major barriers still exist such as regulatory issues, supply chain complexities, inefficient infrastructure, automatic approval not being allowed for foreign investment in retail.
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| Bargaining power of suppliers |
The bargaining power of suppliers varies depending upon the target segment, the format that they follow and the products they offer. The unorganised sector has a dominant position. There are few players who have a slight edge over others on account of being established players and enjoying brand distinction.
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| Bargaining power of customers |
THigh, due to availability of wide choice.
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| Competition |
High. Competition is characterised by many factors, including assortment, format, products, advertising, price, quality, service, location, reputation, credit and availability of retail space etc. New entrants (business houses and international players if foreign participation is further liberalised) are expected to further intensify the competition. |
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TThe year witnessed lot of activities such as acquisitions, joint ventures, expansion & capital raising to fund expansion plans. Further, players have also been engaged in strengthening their back end activity by joining hands with the allied service provider.
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TThe new entrants are finding it easier to pay a premium and acquire regional players in order to rapidly scale up their operations and establish a footprint in the sector. Recently Aditya Birla Group acquired Trinethra chain of stores. Bharti and Walmart have formed a 50:50 joint venture for back end expertise and cash and carry format.
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Historically, availability of quality retail space has been a constraint for Indian retail. However, while the recent surge in mall development has to a certain extent increased supply, the high rents in these malls have had a dampening effect. The effect of rising costs was reflected in the bottomline, which either remained flat or contracted for the major players.
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ROrganised retail in India is on a high growth path and is expected to grow at a CAGR of 40% over the next few years and by 2010, it is expected to grow to US$ 22 bn (Source: IBEF).
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SGrowth prospects are likely to be limited by factors such as restrictions on FDI (foreign direct investment), the lack of a uniform tax structure, increasing pressure on infrastructure in key consumer markets and a shortage of quality real estate.
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Growth in Indian retail has been driven by the country's economic fundamentals over the past few years. Going forward, we believe that healthy economic growth, accretion to income levels of the rising Indian middle class (represented by the financially independent young population) and the consequent rise in disposable incomes will fuel the growth of the retailing sector. Improved retail services, easy financing options and changing consumers’ mindset regarding credit will give further fillip to organised retail.
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Going forward, players who will be able to cater to the customer’s changing tastes and preferences and have developed an efficient supply chain system to cater to the needs of the consumers, while being cost effective, will have the competitive advantage.
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