Retail sector: SWOT analysis - Part I - Views on News from Equitymaster

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Retail sector: SWOT analysis - Part I

Oct 1, 2008

Today, when you pick up a business daily to know what is happening in the Indian economy, it is hard to miss the news about investment plans outlined by companies across sectors. And these are being planned at a time when economic slowdown is being witnessed globally and the countries in the West are struggling to stand firm on their feet. The Indian economy however, is relatively insulated from the global financial meltdown. This may be the reason why the corporates are still going ahead with their outlined investment plans. Moreover, the recent interview of Mr. Kishore Biyani in DNA also highlights the same fact that there is no sign of slowdown as consumption has not taken a hit and volumes are still intact.

  • Read - What is driving India's services sector?

    This consumption or retail growth story in India is not only prodding domestic players to take their businesses to new orbit but is also attracting foreign players as the latter are left with little or no hope to grow further in their saturated home markets. In this article, let us understand why India seems a promising market for retailers worldwide. To word it differently, let us understand the strengths of the sector.
    Median age: Demographics favour growth of the retail sector in India as the size of consuming class or the people with the purchasing power is expected to increase. India currently has the youngest population in the world. The composition of the Indian population is shifting towards the age group of 20-49 i.e. the working population with purchasing power. The median age for India is 25 years as compared to 28 years for Brazil, 33 years for China and 38 years for Russia. As per a Mckinsey report, of the current 204 million households in India, about 13 million households have the income to prop up growth of organised retail and this consumer segment is expected to grow at over 20% annually in the next eight years.

    Rising disposable income: India is the second fastest growing economy in the world. A larger number of households are getting added to the consuming class with the growth in income levels. The growing economy has provided new employment avenues and the same have resulted in increase in number of people in the earners category. Increasing instances of double incomes in most families coupled with the rise in spending power is further fuelling growth in consumption and in turn growth of the retail sector.

    Urbanisation: The share of the urban population has been gradually increasing from 23% in 1991 to 28% in 2001 (Source: IBEF, Census). The urban population is projected to increase to 40% of the total population by 2020 and incomes are simultaneously expected to grow in these segments. Urban population that represents nearly 30% of the total population accounts for 45% of the personal consumption. This consumer segment has further boosted the growth of the modern retail.

    Shopping convenience: Apart from the population that has desire and ability to spend, the other factors that have patronised modern retail or organised retail is the convenience of shopping and wide variety. While mom and pop stores display few hundred units, organised retail owing to the size and scale of operation can stock around 5,000 SKUs (stock keeping units). 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.

    To conclude...
    Though the 'retail' sector does not enjoy the industry status or support of government, it is growing on its own, tapping the renewed aspiration levels of burgeoning middle class and the new earning generation.

  • Read - FY08 performance analysis of India's largest retailer.

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