The retail industry is 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).
Retail as a whole can be broken into various categories, depending on the types of products serviced. Clothing & textiles dominate the market and account for 36% of total organised retailing, followed by watches & jewellery, food & grocery and footwear which contribute 17%, 14% and 13% respectively. Durables (10%), books, music and others (10%) 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.
||% contribution to
|Clothing, textile & fashion accessories
|Jewellery & watches
|Food & grocery
|Books, music & gifts
Apparel retailing: The apparel market in India is estimated at around US$ 13 bn and is also one of India's largest foreign exchange earners, accounting for nearly 20% of the country's total exports. Though, the apparel market is mainly dominated by the unorganised sector, it is nonetheless also the key revenue driver for organised retailing in India. The major players in this segment are Trent, Shoppers Stop and Pantaloon etc. The segment is witnessing growth on account of increasing income levels, increase in proportion of working women amongst others.
Food and groceries: Currently, the size of the domestic food retailing market is estimated to be US$ 6 bn. The Indian food industry, which forms 44% of the entire FMCG sales, is growing at 9%. (Source: IBEF). Food retailing forms one of the major components of retailing in India and there are large numbers of players in the food retailing segment. The organised sector forms a very small part of the total food retailing in India, as it is the small retailers that dominate this sector. Traditional types of retailers, who operate small single-outlet businesses mainly using family labour, dominate this sector. However, organised food retail is growing day by day on account of rising disposable incomes and higher standards of hygiene and attractive ambience. The major players in this line of business are Pantaloon, FoodMall and Subhiksha and the new entrants are Star India Bazaar (Owned by Tata), Reliance Fresh etc.
Home & furniture: Small retailers again dominate this sector. Despite the large size of this market, very few large and modern retailers have established specialised stores for these products. However, there is considerable potential for the entry or expansion of specialised retail chains in the country.
Books, music & gifts: Increasing household incomes due to better economic opportunities have encouraged consumer expenditure on leisure and personal goods in the country. There are specialised retailers for each category of products (books, music products) in this sector. Another prominent feature of this sector is the popularity of franchising agreements between established manufacturers and retailers. These days online shopping has also assumed significance, which has further fuelled the growth of this business as it does not require the touch and feel concept (generally practiced while buying apparels and food & groceries).
Durables: The Indian durable goods sector has seen the entry of a large number of foreign companies during the post liberalization period. A greater variety of consumer electronic items and household appliances became available to the Indian customer. Intense competition among companies to sell their brands provided a strong impetus to grow for retailers doing business in this sector. The consumer durables sector in India is estimated to be at US$ 4.5 bn.
Footwear: India is the second largest footwear manufacturer in the world, next only to China and the Indian footwear market is estimated to be over Rs 100 bn in value terms. Of the total footwear market, men's footwear accounts for almost half of the total market, women's shoes constitute 40% and the remaining is accounted for by kids' footwear. The market is substantially brand-driven, as is evident from the fact that branded footwear constitutes more than 42% of the total market size. The major players in this segment are Bata, Liberty. These players have their own retail chains. The international top 3 brands such as Reebok, Nike and Adidas have entered the Indian market through the franchise route as 100% FDI is still not allowed in the retail sector. (Source: Indo-Italian Chamber of commerce and industry)
Watches & jewellery: The IMAGES-KSA India Retail Report 2005 estimates that about 28 m watches are sold every year and the off take is growing at the rate of 30% p.a. The growth is mainly on account of the fact that watches are increasingly becoming a function of fashion rather than mere functionality. The Indian watch market is estimated to be in excess of Rs 28 bn, of which the organised segment constitutes nearly 40% of the total retail market. The jewellery market in India is estimated to be around US$ 15 bn and branded jewellery accounts for merely 3% of the total market. The market is highly fragmented and unorganised. However, increased investment by industry bodies such as DTC, PGI, and the like is spurring the rapid growth of branded jewellery market in India. Tanishq, established in 1996, is the first branded jewellery player in India. (Source: Titan company presentation)
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. All the above-mentioned verticals are expected to witness tremendous growth going forward. The retail sector is expected to grow at a CAGR of 40% over the next few years and by 2010 is likely to grow to US$ 22 bn (Source: IBEF). The key factors that will drive the growth of the sector and the various segments have been mentioned in our
previous write up There are huge opportunities across formats and categories as the Indian consumer has shown willingness and is accepting the organised retailing concept. However, players with an efficient supply chain management will be able to withstand the competition.