Retailing Sector Analysis Report 

• India is the 5^th largest retail market in the world.
• Retailing in India accounts for over 10% of the country's Gross Domestic Product (GDP) and around 8% of the employment (Source: IBEF).
• From US$ 672 billion in 2017, the Indian retail market is expected to grow to US$1.1 trillion by 2020, while the modern retail market in India is expected to double in size over the next three years. (Source: IBEF)
• The retail sector in India is dominated by the unorganized retail trade, where unorganised trade forms around 93% of the overall trade. This is in contrast with the developed countries where the organised retail industry accounts for almost an average of more than 80% of the total retail trade. This highlights a lot of scope for further penetration of organized retail in India.
• The sector can be broadly divided into two segments: Value retailing, which is typically a low margin-high volume business (primarily food and groceries) and Lifestyle retailing, a high margin-low volume business (apparel, footwear, etc). The sector is further divided into various categories, depending on the types of products offered.
• Transition from traditional retail to organised retail is taking place due to changing consumer expectations, growing middle class, higher disposable income, preference for luxury goods, change in the demographic mix, etc. This is further intensified with the convenience of shopping with online stores (online shopping), multiplicity of choice under one roof (Shop-in-Shop), and the increase of mall culture, etc. These factors are expected to drive organized retail growth in India over the long run.
• The online retail is growing at rapid pace. Online retail in India is expected to be at par with the physical stores in the upcoming few years, driven by robust investment and rapid increase in the number of internet users. (It grew 23% to US$ 17.8 bn in 2017 (Source: IBEF))
• The overall retail market in India is expected to grow at 12% growth rate per annum, driven by growing urbanization, rising income, younger demographics and rising aspirations of the middle class. Modern trade is going to expand as twice as fast at 20% per annum and traditional trade is expected to grow at 10% (Source: IBEF).

• Supply
• The retail industry is now leveraging the digital retail channels (e-commerce), which allows them to spend less on real estate while reaching out to more customers in Tier II and Tier III cities. Supply is also influenced by some international players entering domestic markets.
• Demand
• Growing urbanization, increasing disposable incomes, changing demographic profile, changing consumer tastes and preferences are some of the factors that are driving demand in retail market in India.
• Barriers to entry
• Lack of quality, economic backdrop, regulatory issues are some of the factors acting as an impediment to the spread of organised retail in India. Since it is capital-intensive industry, access to capital also plays an important part for expansion.
• 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 in the total retail market in India. There are few players who enjoy an edge over others on account of being established players and enjoying brand distinction. Overall, the bargaining power of suppliers is low as retailers have low switching costs.
• Bargaining power of customers
• High due to wide availability of choice and cheaper options available across various channels. Also, low switching costs, price sensitiveness, and easily accessible information of a product and its price gives customers high bargaining power.
• Competition
• With India being an attractive retail market, there is a high level of competition. Competition is characterised by many factors, including assortment, products, price, quality, service, location, reputation, credit, convenience offered, etc. Aggressive e-commerce and digital retailing coupled with new entrants such as business houses and international players are intensifying the competition at a rapid pace.

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Financial Year '17

• Financial year 2016-17 stood as another year of mixed trends. The retail sector in India witnessed some improvement in consumer sentiments and business confidence.
• The introduction of Goods and Services Tax (GST) and the demonetisation move supported the growth of organized retail industry.
• With the rising need for consumer goods in different sectors including consumer electronics and home appliances, many companies invested in the Indian retail space in FY17.
• Department of Industrial Policy and Promotion (DIPP) approved three foreign direct investments (FDI), Mountain Trail Food, Kohler India Corporation, and Merlin Entertainments India in the single brand retail sector and two FDI proposals of over Rs 4 billion (US$ 62.45 million) within the retail sector. (Source: IBEF)
• 2017 was a successful year for herbal-ayurvedic brands. With the growing need for organic products, many new Indian companies were seen entering this segment.
• Investments by private equity firms in Indian retail sector reached US$ 200 million in the first half of 2017. This was seen on the back of seven new global brands entering India during the period. (Source: IBEF)
• The year saw emergence of online market places across a whole range of categories with aggressive discounting strategies funded by overseas investors.

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Prospects

• Retail industry has been on a growth trajectory over the past few years. Indian retail market industry is expected to be worth US$ 1.1 trillion by 2020 (from US$ 672 billion in 2017).
• A new trend emerging in retail sector is the increase in sales during discount seasons. It has been observed of late that sales numbers in discount seasons are significantly higher than at other times. This is prompting retailers to start discounts earlier and have longer than usual sale season. Also, concepts such as online retailing and direct selling are becoming increasingly popular in India thereby boosting growth of retail sector.
• E-commerce is probably said to create a revolution in the retail industry in the years to come. With the rapid expansion of e-commerce, there can be seen a trend of ever increasing choice of products at lowest rates. All of this will also lead to intensified competition in the industry.
• One of the major areas supporting the retail growth in India is the E-commerce industry. As per India Brand Equity Foundation, India is expected to become the world's fastest growing e-commerce market, driven by robust investment in the sector and rapid increase in the number of internet users. E-commerce sales in India are expected to reach US$ 120 billion by 2020 from US$ 30 billion in FY16. Further, India's e-commerce market is expected to reach US$ 220 billion in terms of gross merchandise value (GMV) with 530 million shoppers by the year 2025. This will come on the back of faster speeds on reliable telecom networks, faster adoption of online services, variety of choice, convenience, etc.
• There is also an upward trend seen in modern retailing. Driven by western culture and urbanisation, it has become a part of day to day lifestyle. There are more than 500 operational shopping malls in India having thousands of brands across food, fashion and lifestyle which are offering best of national & international brands to better educated consumers.
• The new buzz word in retail is omni-channel. Omni-channel offers a seamless experience to the customers across various channels, whether brick & mortar, online stores, etc. The strategic objective here is to merge various channels (departmental stores, online stores) and link them to a multichannel retailer. This strategy makes a brand always available to the customer and gives an impetus to sales by increasing visibility, consumer base across various geographies. It also optimises inventory holding costs, operating costs and real estate cost. With modern retail gaining ground in India, there remains a lot of scope for omni-channel to expand.
• With rising incomes, favorable demographics, entry of foreign players and increasing urbanisation, the long-term outlook for the retail industry in India is positive.
• Goods and Services Tax (GST) is expected to simplify the distribution structure and reduce the operational complexities of overall supply chain in the retail business. The passage of GST will also come out as a positive development for the retail Industry in India.

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

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