Retailing Sector Analysis Report 

• Currently, India is the 5th largest retail market in the world. The market size in 2010 was estimated at US$ 353 bn (Source: IBEF) and is expected to reach US$ 543 bn by 2014. 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 organised retail industry accounts for almost 80% of the total retail trade. In contrast, in India organised retail trade accounts for merely 5% of the total retail trade. This highlights tremendous potential for retail sector growth in India.

Consumption spending in India
Segment	% contribution
Food	62.0
Fashion	9.5
Leisure and entertainment	7.9
Fashion accessories	5.5
Consumer durables	4.0
Health, beauty and pharma	3.8
Furniture	3.4
Telecom	1.8
Books and Music	1.1
Others	1.0

Source: Pantaloon Retail analyst report

• 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 (apparel, footwear, etc). The sector is further divided into various categories, depending on the types of products offered. Food dominates market consumption followed by fashion. The relatively low contribution of other categories indicates opportunity for organised retail growth in these segments, especially with India being one of the world's youngest markets.
• Historically, Indians have been conservative spenders, thus food forms a huge chunk of India's consumption needs. Transition from traditional retail to organised retailing is taking place due to changing consumer expectations, demographic mix, etc. With the revival in consumer spending, expansion plans of retailers are back in full swing. The convenience of shopping with multiplicity of choice under one roof (Shop- in Shop), and the increase of mall culture etc. are factors appreciated by the new generation. These are expected to be the growth drivers of organised retailing in India over the long run.

• Supply
• Players are now moving to Tier II and Tier III cities to increase penetration and explore untapped markets as Tier I cities have been explored enough and have reached a saturation level.
• 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 growth in the organised retail market in India.
• Barriers to entry
• Reforms 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, and automatic approval not being allowed for foreign investment in retail. But, some of these are set to change with FDI in multi-brand retail set for approval.
• Bargaining power of suppliers
• The bargaining power of suppliers varies depending upon the target segment, the format followed, and products on offer. The unorganised sector has a dominant position, still contributing 95% of the total retail market. There are few players who have a slight edge over others on account of being established players and enjoying brand distinction. Since it is a capital intensive industry, access to capital also plays an important part for expansion in the space.
• Bargaining power of customers
• High due to wide availability of choice. With FDI coming in, this will increase further.
• Competition
• High. Competition is characterised by many factors, including assortment, products, price, quality, service, location, reputation, credit and availability of retail space etc. New entrants (business houses and international players) are expected to further intensify the competition and so would the foreign players' entry.

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Financial Year '11

• Retail sector was in news throughout the year. The ongoing attempt to bring in foreign direct investment in retail continued and the proposal is through significant hurdles. It is now in the final stages and may see the light of the day soon.
• In the budgetary speech, the Finance Minister announced that the optional levy ofexcise duty on garment manufacturers would now be compulsory. Protests were staged all across the country against this measure. The retailers increased the prices of their goods in a phased manner. At first, to offset the rising prices of cotton and secondly to deal with the newly imposed excise duty.
• Retailing companies are back to their expansion plans. But this time around, the focus is on Tier II and Tier III cities and towns. Most of the retailers opened up new stores in places like Pune, Indore, Kochi, etc in their wake to tap the unsaturated potential in these markets.

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Prospects

• Retail industry has been on a growth trajectory over the past few years. With the economy back on track, retailers are executing their expansion plans. The industry is expected to grow at a rate of 12% per annum for the next 5 years.
• The industry is eagerly awaiting the approval of the FDI in multi brand retail. This, the players feel will help them in funding their operations and expansion plans. The expertise brought in by the foreign retailers will also improve the way the Indian retailers operate. It is expected to bring in more efficiency in the supply chain functions of retailers.
• Retail is mainly a volume game, (especially value retailing). Going forward, with the competition intensifying and the costs scaling up, the players who are able to cater to the needs of the consumers and grow volumes by ensuring footfalls, while being able to reduce costs, withstand downturns, and face competition will have a competitive advantage.
• Luxury Retailing is gaining importance in India. This includes fragrances, gourmet retailing, accessories, jewellery among many others. Indian consumer is ready to splurge on luxury items and is increasingly doing so. The Indian luxury market is expected to grow at a rate of 25% per annum. This will make India the 12th largest luxury retail market in the world.
• Rural retailing is now the focus for many retailers. It is observed that the rural regions registered saw consumption even during the economic slowdown. Rural India accounts for 2/5th of the total consumption in India. Thus, the industry players do not want to be left out and are devising strategies suited especially to the rural consumer.

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Related Links for Retailing Sector
Quarterly Results | Sector Quote | Over The Years