Skip to content

Indian Retail Market — An Overview .

August 6, 2011

 

 

What is retailing?

Retailing is a distribution channel function, where one organization buys products from supplying firms or manufactures produces themselves, and then sells these directly to consumers.

In majority of retail situations, the organization, from whom a consumer buys, is a reseller of products obtained from others, and not the product manufacturer. However, some manufacturers do operate their own retail outlets in a corporate channel arrangement.

Retailers offer many benefits to suppliers and customers as resellers. Consumers, for instance, are able to purchase small quantities of an assortment of products at a reasonably affordable price. Similarly, suppliers get an opportunity to reach their target market, build product demand through retail promotions, and provide consumer feedback to the product marketer.

Formats / Channels of Organized Retail

Channel/Format Type of Merchandise Pricing Size(sq. ft.) Average stock keepings units(SKU’S) location Example
Store            
Supercenter All type of merchandising Discount Pricing 200000 -300000 200000 Outskirts Wal-Mart supercenter
Hypermarket Food clothing and apparels with focus on value products Discount Pricing 60000 – 12000 80000 Malls Hyper city Big Bazaar
Supermarket Food &Grocery Discount Pricing 10000 -300000 20000 Malls Food Bazaar
Neighborhood/convenience store Daily use items   500 to 3000 4000 All localities within the city Subhiksha
Cash and carry Food &Grocery Bulk Buying, Heavy Discounting. 100000 – 300000 150,000 outskirts Metro cash and carry
Discount Store Food&Grocery and Fashions Heavy Discount NA NA NA Subhiksha
Department store Apparels and accessories. Competitive 20000 – 100000 50000 Malls Shoppers shop
Specialty store Any one type of Merchandise Competitive 500-5000 1000 Main market malls Mobile store
Category Killer Any one type of Merchandise Discount Pricing 30000 to 100000 10000 Malls high street Vijay sales
Non-Store            
Kiosks/stalls Small food items and accessories Normal 20-100 20-100 Malls, Multiplexes,cinema halls Popcorn
Vending Machines Small food items Normal Stations, commercials and office complexes Chocolate and newspaper vending machines
Order retailing(Catalogue,TV,Websites) Any type of Merchandising Competitive Argos
Door to Door Mostly low valued items. Normal Amway

 

 

Here are few of the facts of Indian Retail Industry

1. Retail is the largest Industry in India with 22 % share  of the country’s GDP and providing 8% of the employment.It has been growing at the compounded annual growth rate of 13.3 % annually for the period 2006-2010.

image

2. Retailing is still in its infancy in India.The  market share in India is about  US 395.5 billion dollar in 2011 and will grow to US 785.12 billion dollar  by year 2015  according to the BMI India Retail report for the third quarter of 2011.

3. India has the highest number of retail outlets in the world at over 15 million retail outlets, and the average size of one store is 50-100 square feet. It also has the highest number of outlets (11,903) per million inhabitants. The per capita retail space in India is among the lowest in the world, though the per capita retail store is the highest. Majority of these stores are located in rural areas.

4. The organized sector in this retail Industry holds only 2.8% share  and is estimated at around US 8.7 billion dollars . Rest  consists of small neighborhood shopkeepers ( Kirana Stores) in the unorganized sector.

5. India is the third-most attractive retail market for global retailers among the 30 largest emerging markets, according to US consulting group AT Kearney’s report published in June 2010. According to the Department of Industrial Policy and Promotion, approximately US$ 47.43 million was the amount of Foreign Direct Investment (FDI) inflow as on September 2009, in single-brand retail trading.

6. It is observed that the share of organized retailing in India is around 2%, compared to
80% in USA, 40% in Thailand and 20% in China approx. Retail trade in India is US 395.5 billion Dollars as compared to US 3800 billion dollars in the US Market  and US 360 Billion dollars  in China according to The Economist.The number of shops in India are approx. 12 million compared to 2.7 million in China  and 15.3 million in US.

image

Source: Ernst &Young, The Great Indian Retail Story, 2006.

7. Past few years have shown the emergence of large retail houses all over Indian in the organizes sector. Few of them are Big Bazaar of Pantaloons Retail (India ) Ltd. K. Raheja group, Lifestyle International, RPG. Retail, Shoppers Shop, Trent(Tata) ,Reliance , AV Birla Group , Bharti Wal-Mart.

8.Hypermarkets, currently accounting for 14% of mall space are expected to witness high growth.

9. Demographic dividend with over 50% of country populace under 25 years of age is a prime driving factor for modern retail sector.

10.The various segments in Indian retail Industry are : a. Food & Grocery sector . b.Apparel sector. c. Gems& Jewellery sector. d. Pharmaceutical sector e. Music retail F. Books retail  g. Consumers durable retail  . In case of overall retailing revenues, the food & grocery segment accounted for the highest share at 58% of the total retailing pie aggregating Rs.11.49 lakh crore during 2010. In the organized retailing, the food & grocery segment stood as the second largest contributor with revenues aggregating Rs.24,273 crore during the same period. However, the organized retail penetration of other segments such as clothing & footwear, entertainment & books and furniture & furnishing surpassed that of the food & grocery segment.

image

Source: India Retail Report

11. Rural market is emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption.

12. With over 1,000 hypermarkets and 3,000 supermarkets projected to come up by 2011, India will need additional retail space of 700,000,000 sq. ft. (65,000,000 m2) as compared to today. Current projections on construction point to a supply of just 200,000,000 sq. ft. (19,000,000 m2), leaving a gap of 500,000,000 sq. ft. (46,000,000 m2) that needs to be filled, at a cost of US$15–18 billion.

The Growth Drivers for the Indian Retail Industry.

image

 

High growth rate of Indian economy since last 10 years  has been the main factor of such a growth rate of Indian retail sector.India’s GDP at PPP is currently at  US 4.16 trillion dollars making it  fifth largest economy of the world.The per capita income of  India is around US 4542 dollars . The rise in personal disposable income both in Urban and Rural sector has given a tremendous boost to the growth of retail sector due to the increase in demand of the goods and services .50 % of Indian population is under 25 which has a high consumption rate and modern lifestyle. This also contributed to the high growth of the retail sector.The rapid urbanization in India due to rapid industrialization is yet another factor for such a growth rate.The growth of small towns and cities has also contributed to this growth rate. In a survey taken , the top five cities as a combination – Mumbai, Bengaluru, Kolkata, Delhi and Hyderabad – were preferred by 31.8% of the respondent companies.The rise of Real estate , the development of modern banking sector resulting in the rise of use of credit & debit cards and ATM machines , the growth of IT industry leading to the rise in E-commerce and Online shopping  all of these are the key factors in the growth of modern retail sector.India is now regarded next only to China by the foreign investors as a destination to foreign direct investment especially in the Retail sector.

 

Issues and Challenges facing the Indian Retail Industry.

image

The slow down of the economic growth is most important reason for the decline of any sector of any economy. It affects the retail Industry also. The global Meltdown of 2008 has changed the ground reality of the world economy considerably. It has wrecked the national economies of all the major economies of the world including that of India. It has almost crippled the economy of the economic superpower  E.E.C.,U.S.A and Japan .It has put brakes to the the economic growth rate of China which was growing at the rate of almost 11% and India which was growing at the rates of 9% . Both these economies have now somewhat recovered growing at the same rate  annually , but the shock wave continues in the minds of the customers.This has led to the decline of the Industry leading to retrenchment of the employees leading to the rise of unemployment which leads to the decline of personal disposable income leading to the decline in consumption which results in the lower growth rate of the retail industry. Apart from the slowdown in the economy, understanding consumer behavior and customer retention are the other major issues and challenges that the Indian retailers face. Given the current situation, retailers are concerned about decreasing consumer spending, as consumers are deferring their purchases, and the sector is witnessing a paradigm shift from, what is being called, ‘conspicuous consumption to conscious consumption’. Moreover, any dip in customer footfall and weak conversion ratio has an impact on retailers’ inventory turnover, which increases their working capital requirements.Lack of basic infrastructure , high real estate costs , Inflation ,Supply chain inefficiencies ,challenges with respect to human resources, Margin pressure , competition from unorganized sector and inability to gain recognition from the government are few other challenges that the industry has to overcome.

 

Regulatory Framework

The Indian government has not focused on retail as an industry. Until now, there are no specific rules and regulations that are to be followed by retail companies. However, there are certain laws that the retailers need to follow, which are general in nature and which pertain to the establishment of stores and the conduct of activities. These laws are as follows:

  • Shop and Establishment Act
  • Standards of Weights and Measures Act
  • Provisions of the Contract Labor (Regulations and Abolition) Act
  • The Income Tax Act
  • Customs Act
  • The Companies Act

Apart from the above Acts, the companies also follow certain regional rules and regulations on the basis of the stores’ location. In some regions regulations are imposed on the organized retailers to restrict their expansion and to promote regional retailers.Retailers are also required to take necessary approvals from local bodies to carry on with their business. There is no single window for clearances, and companies have to go to different agencies to get approvals, which is one of the biggest hurdles that the segment faces.

 

The Road Ahead


Industry experts predict that the next phase of growth in the retail sector will emerge from the rural markets. By 2012 the rural retail market is projected to have a total of more than 50 per cent market share. The total number of shopping malls is expected to expand at a compound annual growth rate of over 18.9 per cent by 2015. According to market research report by RNCOS the Indian organized retail market is estimated to reach US$ 50 billion by 2011.

                       

                                                        Anurag   Dubey

Advertisements
No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: