India Retail Industry-Abhilash

8/8/2019 India Retail Industry-Abhilash

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ABHILASH VISWANATHAN

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SIVAPRAKASH CS

GROWTH OF RETAIL

SECTOR IN INDIAN

ECONOMY



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INDIA RETAIL INDUSTRY is the fastest growing industry in India and it accounts for 10% of the

country's GDP. In 2006, the retail industry in India amounted to US$ 200 billion and out of this,

the organized retail sector in India amounted to US$ 6.4 billion. By 2010, the Indian organized

retail sector is expected to rise to US$ 23 billion. In 2003, the Indian organized retailing sector

accounted for more than 4.5 million sq. ft of space absorption by malls.

Many Indian companies have entered the retail industry in India and this is also a factor in the

growth of Indian organized retail sector. Reliance Industries Limited is planning to invest US$ 6

billion in the organized retail sector in India by opening 1500 supermarkets and 1000

hypermarkets. Bharti Telecoms is planning a joint venture worth £ 750 million with Tesco a

global retail giant. Pantaloons is planning to invest US$ 1 billion in order to increase its retail

space to 30 million square feet. Such huge investments is also a factor in the growth of the

organized retail sector in India.

Also, the rise in the working population which is young, pay- packets which are hefty, morenuclear families in urban areas, rise in the number of women working, more disposable income

and customer aspiration, western influences and growth in expenditure for luxury items. All

these are the factors for the growth in Indian organized retail sector.

As the count of super markets is going up much faster than rate of growth in retail sector, it is

taking the lions share in food trade. The non-food sector, segments comprising apparel,

accessories, fashion, lifestyle felt the significant change with the emergence of new stores

formats like convenience stores, mini marts, mini supermarkets, large supermarkets, and hyper

marts. Even food retailing has became an important retail business in the national arena, with

large format retail stores, establishing stores all over India. With the entry of packaged foods

like MTR, ITC Ashirvad, fast foods chains like McDonald's, KFC, beverage parlors like Nescafe,

Tata Tea, Cafe Coffee and Barista, the Indian food habits has been altered. This store has

earned the reputation of being 'super saver locations'. The infrastructure of the retail sector will

evolve radically.

THE GROWTH FACTORS OF THE RETAIL SECTOR OF INDIAN ECONOMY:

y Increase in per capita income which in turn increases the household consumption

y Demographical changes and improvements in the standard of living

y Change in patterns of consumption and availability of low-cost consumer credit

y Improvements in infrastructure and enhanced availability of retail space

y Entry to various sources of financing

Retail Sector in India Post liberalization the Retail sector in India is heralded as one of the

sunrise industries. It has never been better for the retail sector in India. Today within the

booming service sector, retailing is the single biggest contributor in terms of GDP to the

National Income. Retailing itself can be further divided into organized and unorganized sector.

GROWTH OF RETAIL SECTOR IN INDIAN ECONOMY



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Organized Sector

Organized retailing came into its own in tandem with the retail boom. Indian corporate like

Reliance, ITC and Pantaloon have made foray into this segment along with several foreign

brands changing the landscape of retailing in India. It coincided with the high growth in the

Indian economy, resulting in greater purchasing power amongst the middle class, which in turn

went on a purchasing spree. Other factors like consumer awareness, investments by venturecapitalists and private equity firms have also contributed to the growth of organized retail. The

growth in the organized retailing has resulted in the establishment of departmental stores,

supermarkets, rural retailing, e-retailing and luxury retailing. Each one of these formats has a

unique advantage and the scale of operation depends upon factors like average footfalls, sales

per sq ft etc. However the process of acquiring license is still a bottleneck for the development

of Indian retailing.

Unorganized sector

The unorganized sector is still dominant in India, since it has the advantage of low investment

need. Since retailing is the process of connecting the supplier and consumer, pricing of products

is very important in a price conscious market like India. Unorganized retailers play an important

role in this regard and are a vital part of the supply chain. If unorganized retail segment

positions itself correctly, it can carve a niche for itself in India's booming retail sector.

Rural Retailing

India's huge rural market has also attracted retail investments and is seen as a viable

opportunity for growth by corporate India.ITC launched the countries first rural mall "Chaupal

Sagar" with diverse products being offered ranging from FMCG to electronics appliance to

automobiles, with a view to provide farmers a one stop center for all their consumption

requirements. Many more new trends could possibly be tried in rural markets to unearth the

huge potential.

Big in size and turnover, Indian retailing industry is characterised by certain attributes.

The network of retailers reaches every nook and corner of the country. So any product

produced anywhere in the country can be easily accessed by the buyers from any location. Thus

the spatial convenience of Indian retailers is very high.

Secondly, in India the retailing industry is an unorganised lot consisting of, in most of the

cases, small entrepreneurs. And the virtual omnipresence of the Indian retailer can be

attributed to these small entrepreneurs only.

The second attribute gives rise to the following characteristics:

Power of the retailers, as such is very less, and in many cases it is negligible. This weakness has

been exploited by the manufacturers and the stronger partners of the marketing channel. The

retailers, in general, abide by the terms and conditions set by the manufacturers and other "big

brothers" of the channel.

The manufacturers cannot directly reach all retailers in a particular geographical area.

Therefore, the manufacturers cannot maintain the desired relationship with the retailers, which



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in turn, make management of the channel complicated. This also makes the possibility of a

direct feedback loop from the retailers almost remote.

Therefore, the member operating between the manufacturers and retailers become more

powerful as they can block the channel of communication between the two. So the

dependence of retailers on other channel members increases to a high extent. Thus theparticipation of retailers in the flows of marketing mix becomes lower than desired.

The financial strength of the Indian retailers, in general, is very low and hence the investment

capabilities. This makes the retailers more dependent on the other channel members.

However, these characteristics are peculiar to the small retail outlets and may not be present at

every kind of retail level.

Retail Shopkeepers:

India has sometimes been called a nation of shopkeepers. This label has its roots in the

huge number of retail enterprises in India, which totalled over 12 million in 2003. About 78% of

these are small family businesses utilising only household labour. Even among retail enterprises

that employ hired workers, the bulk of them use less than three workers.

Retailing is a `technology-intensive' industry. It is quoted that everyday at least 500

gigabytes of data are transmitted via satellite from the 1,200 point-of-sales counters of JC

Penney to its corporate headquarters. Successful retailers today work closely with their vendors

to predict consumer demand, shorten lead times, reduce inventory holding and thereby, save

cost. Wal-Mart pioneered the concept of building a competitive advantage through distribution

and information systems in the retailing industry. They introduced two innovative logistics

techniques - cross-docking and electronic data interchange.

Today, online systems link point-of-sales terminals to the main office where detailed analyses

on sales by item, classification, stores or vendor are carried out online. Besides vendors, the

focus of the retailing sector is to develop the link with the consumer. `Data Warehousing' is an

established concept in the advanced nations. With the help of `database retailing', information

on existing and potential customers is tracked. Besides knowing what was purchased and by

whom, information on softer issues such as demographics and psychographics is captured.

Retailing is at a nascent stage in our country. Most organised players have managed to put the

front ends in place, but these are relatively easy to copy. The relatively complicated informationsystems and underlying technologies are in the process of being established. Most grocery

retailers such as FoodWorld have started tracking consumer purchases through CRM. The

lifestyle retailers through their `affinity clubs' and `reward clubs' are establishing their

processes. The traditional retailers will always continue to exist but organised retailers are

working towards revamping their business to obtain strategic advantages at various levels -

market, cost, knowledge and customer.

With differentiating strategies - value for money, shopping experience, variety, quality,

discounts and advanced systems and technology in the back-end, change in the equilibrium



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with manufacturers and a thorough understanding of the consumer behaviour, the ground is all

set for the organised retailers.

It would be important to note, however, that the retailing industry in India is still a `protected

industry'. It is one of the few sectors which still has restrictions on FDI. Given the current trend

in liberalisation, it will not be long before the retailing sector is also thrown open tointernational competition. This will see a further segregation of the international retailing

brands and the domestic retailers, thereby injecting much greater dynamism into the market.

That will be when the real action will begin.

RETAILING SCENARIO-INDIA:

The retail scenario in India is unique. Much of its is in the unorganized sector, with over 12

million retail outlets of various sizes and formats. Almost 96% of these retail outlets are less

than 500 sq.ft. in size, the per capita retail space in India being 2 sq.ft. Compared to the US

figure of 16 sq.ft. India per capita retailing space is thus the lowest in the world. With more

than 9 outlets per1,000 people , India has the largest number in the world. Most of them are

independent and contribute as much as 96% to total retail sales.

RETAILING FORMAT IN INDIA

Malls:

The largest form of organized retailing today. Located mainly in metro cities, in proximity to

urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal

shopping experience with an amalgamation of product, service and entertainment, all under a

common roof. Examples include Shoppers Stop, Piramyd, and Pantaloon.

Specialty Stores:

Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword, RPG's

Music World and the Times Group's music chain Planet M, are focusing on specific market

segments and have established themselves strongly in their sectors.

Discount Stores:

As the name suggests, discount stores or factory outlets, offer discounts on the MRP through

selling in bulk reaching economies of scale or excess stock left over at the season. The product

category can range from a variety of perishable/ non-perishable goods.

Department Stores:

Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs. Further

classified into localized departments such as clothing, toys, home, groceries, etc.

Departmental Stores are expected to take over the apparel business from exclusive brand

showrooms. Among these, the biggest success is K Raheja's Shoppers Stop, which started in



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Mumbai and now has more than seven large stores (over 30,000 sq. ft) across India and even

has its own in store brand for clothes called Stop.

Hyper marts/Supermarkets:

Large self-service outlets, catering to varied shopper needs are termed as Supermarkets. These

are located in or near residential high streets. These stores today contribute to 30% of all food

& grocery organized retail sales. Super Markets can further be classified in to mini

supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500

sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales.

Convenience Stores:

These are relatively small stores 400-2,000 sq. feet located near residential areas. They stock a

limited range of high-turnover convenience products and are usually open for extended periods

during the day, seven days a week. Prices are slightly higher due to the convenience premium

MBO:

Multi Brand outlets, also known as Category Killers, offer several brands across a single product

category. These usually do well in busy market places and Metros.

CHALLENGES FACED BY THE INDUSTRY

y Even though India has well over 5 million retail outlets of different sizes and styles, it

still has a long way to go before it can truly have a retail industry at par with

International standards. This is where Indian companies and International brands have a

huge role to play.

y Indian retailing is still dominated by the unorganized sector and there is still a lack of

efficient supply chain management. India must concentrate on improving the supply

chain management, which in turn would bring down inventory cost, which can then be

passed on to the consumer in the form of low pricing.

y Most of the retail outlets in India have outlets that are less than 500 square feet in area.

This is very small by International Standards.

y India's huge size and socio economic and cultural diversity means there is no

established model or consumption pattern throughout the country. Manufacturers and

retailers will have to devise strategies for different sectors and segments which by itself

would be challenging.

y The drawbacks provide a huge opportunity for the retail industry. The entry of foreignmajors like Benetton, Dairy Farm and Levis underline the opportunity for the industry in

India.

EMERGING TRENDS IN INDIAN ORGANIZED RETAIL SECTOR

The emerging trends in the Indian organized retail sector would help the economic growth in

India. There is a fantastic rise in the Indian organized retail sector in a very short period of time

between 2001 and 2006. Eventually, out of the shadows of the unorganized retail sector, India



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has a chance of tremendous economic growth, both in India and abroad.The relaxation by the

government on regulatory controls on foreign direct investments has added to the process of

the growth of the Indian organized retail sector.

The infrastructure of the retail sector will evolve radically in the recent future. The emergence

of shopping malls are increasing at a steady pace in the metros and there are further plans of

expansion which would lead to 150 new ones coming up in India by 2008.

The growth of the Indian organized retail sector is anticipated to be heavier than the growth of

the gross domestic product. Alterations in people's lifestyle, growth in income levels, and

encouraging conventions of demography are proving favorable for the new emerging trends in

the Indian organized retail sector.

The success of this retail sector would also lie in the degree of penetration into the lower

income strata to tap the possible customers in the lowest levels of society. The demands of the

buyers would also be enhanced by more access to credit facilities.

With the arrival of the Transnational Companies (TNC), the Indian retail sector will undergo a

transformation. At present the Foreign Direct Investments (FDI) is not encouraged in the Indian

organized retail sector but once the TNC'S get in they inevitably try to oust their Indian

counterparts. This would be challenging to the retail sector in India.

The trends to follow in the future:

y The Indian Organized retail sector will grow up to 10% of total retailing by 2010.

y No one single format can be assumed as there is a huge difference in cultures regionally.

y The most encouraging format now would be the hypermarts.

y The hypermart format would be further encouraged with the entry of the TNCs.

CONCLUSION

The Indian retailing sector is at an inflexion point where the growth of organised retail

and growth in the consumption by Indians is going to adopt a higher growth trajectory.

The Indian population is witnessing a significant change in its demographics. A large

young working population with median age of 24 years, nuclear families in urban areas,

along with increasing working-women population and emerging opportunities in theservices sector are going to be the key growth drivers of the organised retail sector.

The whole concept of shopping has altered in terms of format and consumer buying

behavior, ushering in a revolution in shopping. Modern retail has entered India as seen

in sprawling shopping centres, multi-storeyed malls and huge complexes offer shopping,

entertainment and food all under one roof. Retailing in India is gradually inching its way

to becoming the next boom industry.

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India Retail Industry-Abhilash