Retail: Huge scope ahead... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Retail: Huge scope ahead...

Jun 20, 2007

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. The retail sector is very fragmented in India, with over 12 m outlets operating in the country and only 4% of them being larger than 500 square feet in size. This is in comparison to 0.9 m outlets in the US, catering to more than 13 times India's total retail market size and thus further highlights the high degree of fragmentation of the retail sector within India. However, post liberalisation, favourable economic reforms and the recent changes in the country's economic fundamentals have driven the growth of the retail sector. In India, organised retail is now picking up momentum.

Organised retail penetration
Country %
USA 80
West Europe 70
Brazil 40
Thailand 40
Korea 35
Taiwan 35
China 20
Malaysia 20
Poland 20
India 3
Source: Arvind Mills, company presentation
As mentioned earlier, the penetration of organised retail in India at 3% is very low when compared to developed countries where organised trade makes up for over 70-80% of total trade. It is also lower when compared to other emerging markets or developing economies like China, Thailand, South Korea and Philippines, all of whom have organised retail accounting for around 20% to 40% of the total trade. Even amongst the BRIC countries, India fares poorly on this parameter. As per the AT Kearney report 2007, the top five grocery retailers have 21% market share in Brazil, 10% in Russia, 3% in China, 50% in developed countries and in India they account for less than 1%. These figures reveal the relative underdevelopment of the retail industry in India and huge opportunities that can be capitalised upon.

Though the low penetration level indicates tremendous scope for growth of the retail sector in India, it also raises the question as to what has led to the slow development of organised retailing in the country. The economy as a whole started growing post liberalisation and has picked up momentum in the recent past with growth having been fuelled by the expansion of the service sector. India is dispersed, widespread and labour intensive country with a population of 1 bn. To cater to the needs of such a densely populated country, having an efficient supply chain management is critical. Even today the sector does not enjoy industry status, automatic approval is not allowed for foreign investment in retail, which in turn limits capital investments in the supply chain infrastructure and many other activities such as manufacturing, food processing, packaging and logistic services. Also, consumer credit penetration at 12% to GDP is very low in India, as compared to 50%+ in South East Asian countries and above 100% in the US.

However, with the boom in financing one can see a radical change in the Indian consumers' mindset regarding credit, which has resulted in an increase in spends on housing and consumer durables such as two-wheelers and cars. The use of plastic money (credit and debit cards) has increased significantly in the last 3-4 years. The ease of payments (ability to spend without cash) has also led to an increase in total spending on shopping and eating out. Increasing credit friendliness and a changing consumer mindset will increase penetration of consumer credit, which in turn will augur well for the growth of the retail sector. Further fillip is likely to come with foreign investment, which will not only bring the required capital but also better technology and industry best practices. Currently, 51% of foreign investment through the automatic route in a single brand is allowed. However, foreign players are now taking the joint venture and the franchise route to mark an entry into India. The Government also proposes to further liberalise the retail sector by allowing 51% FDI in consumer electronics and sports goods.

A healthy economic growth, increasing disposable incomes among the middle class, changing consumer tastes and preferences and a young population with a propensity to spend are some of the key factors are driving and will continue to drive growth in the organised retail market in India. Besides this, as the retail services improve, easy financing options and changing consumers' mindset regarding credit will give further fillip to organised retail going forward.

Equitymaster requests your view! Post a comment on "Retail: Huge scope ahead...". Click here!


More Views on News

SPENCERS RETAIL 2020-21 Annual Report Analysis (Annual Result Update)

Nov 18, 2021 | Updated on Nov 18, 2021

Here's an analysis of the annual report of SPENCERS RETAIL for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of SPENCERS RETAIL. Also includes updates on the valuation of SPENCERS RETAIL.

SORIL INFRA RESOURCES 2020-21 Annual Report Analysis (Annual Result Update)

Nov 18, 2021 | Updated on Nov 18, 2021

Here's an analysis of the annual report of SORIL INFRA RESOURCES for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of SORIL INFRA RESOURCES. Also includes updates on the valuation of SORIL INFRA RESOURCES.

AVENUE SUPERMARTS Announces Quarterly Results (2QFY22); Net Profit Up 110.4% (Quarterly Result Update)

Oct 20, 2021 | Updated on Oct 20, 2021

For the quarter ended September 2021, AVENUE SUPERMARTS has posted a net profit of Rs 4 bn (up 110.4% YoY). Sales on the other hand came in at Rs 78 bn (up 46.8% YoY). Read on for a complete analysis of AVENUE SUPERMARTS 's quarterly results.

Avenue Supermarts Hits Record High. Marketcap Tops Rs 2.75 Lakh Crore (Views On News)

Sep 18, 2021

Despite near term challenges, Dmart shares have stayed resilient and scaled new highs. Read on to know why...

Devyani International Shares Make a Strong Debut. Lists at 56% Premium (Views On News)

Aug 16, 2021

Devyani is well placed to benefit from growing industry trends as it has a strong portfolio of highly recognised global brands.

More Views on News

Most Popular

10 Indian Companies with the Fastest Growth in Dividend Payouts... (Views On News)

Jan 10, 2022

These companies have been consistently paying higher dividends for several years.

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.

These 5 Penny Stocks are Held by Rakesh Jhunjhunwala. Worth a Look? (Views On News)

Jan 18, 2022

Rakesh Jhunjhunwala is holding these penny stocks in his portfolio for several years now.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms