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Advances InManagement s l. 3 (7) July (2010)

The Growth of Indian Retail IndustryDhivya Sathish'* and VenkatramaRaju D . ^

. Department of Management Studies, Sathyabama University, Jeppiaar Nagar, Rajiv Gandhi Road, C hennai 600 119, INDIA

2. Pachaiyappas College, 113, E.V.R.Periyar High Road, Chennai 600 030, Chennai, INDIA

*[email protected]

AbstractRetailing in a layman's language involves the

procurement of varied products in large quantities from

various sources/producers and their sales in small lot

for direct consumption to the purchaser. The retail

sector in -India is witnessing a huge revamping exercise

as traditional markets make way for new formats such

as departmental stores, hypermarkets, supermarkets

and specialty stores. Western-style malls have begun

appearing in metros and second-rung cities alike

introducing the Indian consumer to a shopping

experience like never before. The sector is at an

inflexion point where the growth of organized retailingand growth in the consumption by the Indian population

will take a higher growth trajectory. In addition, few

other formats such as rural retailing, E-retailing, luxury

retailing etc. too have found favors with the Indian

retailers. In India, retail is the new buzzword. The need

of the hour for Indian retailers is to develop systems

and processes keeping the unique nature of the country

in mind. In the retail trade, change is the only constant;

survival in retail will depend on the ability to adapt to

change.

Keywords: Retail industry, retail growth, dev elopment.

Introduction

The Indian retail industry has strong linkages with

the economic growth and development of the economy. It is

primarily characterized by its hierarchical growth structure,

high working capital requirements etc. The factors such as

rising urbanization, growing consumer class, growing per

capita expenditure, greater interest evinced by the Venture

capitalists / Private equity firms in the industry etc. have been

driving the growth oforganized retail.

The growth of modern retailing has led to the

ernergence of varied formats such as Departmental stores,Supermarkets etc. Retailing can broadly be classified into:

• Organized and

• Unorganized retail.

Unorganized retailing refers to the traditional form of

retailing with the retail outlets situated near the residential

areas. While organized retailing refers to the modern form of

retailing with trading activities undertaken by licensed

• Author for Corresponden ce

retailers generally located in commercial establishments/high-street areas. Globally, the retail industry has grown at a

brisk pace with a Compounded Annual Growth Rate (CAGR)

of 1.11% during the period 2001-2006. Thegrowing expanse

of the top global retailers has ensured globalization of the

industry; however the opportunity for growth of organized

retail is imfnense in countries such as India, S. Korea and

Vietnam etc. where organized retailing is still at a nascent

stage. The Indian retail industry has witnessed a massive

transition during the last few decades. The Indian retail has

grown at a CAGR of 11.2% during the period 2007-2009

with food and grocery accounting for the major share.

Despite the industry being dominated by the unorganized

retailers, the organized retailing revenues have soared at a

CAGR of 19.5% during the period 2007-2009. The apparel

and footwear segment occupies, the major share in the

organized retail pie.

Retail Industry - Development

Retail is India's largest industry. It accounts for over

10 per cent of the India's GDP and around eight per cent of

the employment. Retail sector is one of India's fastest

growing sectors with a 5 per cent compounded annual growth

rate. India's huge middle class base and its untapped retail

industry are key attractions for global retail giants planning to

enter newer markets. Driven by changing lifestyles, strongincome growth and favorable demographic patterns, Indian

retail is expected to grow 25 per cent annually. It is expected

that retail in India could be worth US $ 175-200 billion by

2016.

The organized retail industry in India, had not

evolved till the early 1990s. Until then, the industry was

dominated by the un-organized sector. It wa s a sellers market

with a limited number of brands and little choice available to

customers. Lack of trained manpower, tax laws and

government regulations all discouraged the growth of

organized retailing in India during that period. Lack of

consumer awareness and restrictions over entry of foreign

players into the sector also contributed to the delay in the

growth of organized retailing. Foundation for organized retail

in India was laid by Kishore Biyani of Pantaloon Retails

India -Limited (PR IL). Following Pantaloo n's successful

venture, a host of Indian business giants such as Reliance,

Bharti, Birla and others have now en tered into retail sector.

A number of factors are driving India's retail m arket.

These include:

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• Increase in the young working population,

• Hefty pay-pa ckets,

• Nuclear families in urban areas,

• Increasing working -wom en popu lation,

• Increase in disposa ble income and customer aspiration,

• Increase in expen diture for luxury items, and

• Low share of organized retailing.

India's retail boom is manifested in sprawling

shopping centers, multiplex- malls and huge complexes that

offer shopping, entertainment and food all under one roof.

But there is a flip side to the boom in the retail sector. It is

feared that the entry of global business giants into organized

retail would make redundant the neighbourhood kirana stores

resulting in dislocation in traditional economic structure.

Also, thç! growth path for organized retail in India is

not hurdle frçe. The taxation system still favors small retailbusiness. With the intrinsic complexities of retailing such as

rapid price changes, constant threat of product obsolescence

and low margins, there is always a threat that the venture may

turn out to be a loss making one.

A perfect business model for retail is still in

evolutionary stage. Procurement is very vital cog in the retail

wheel. The retailer has to fight issues like fragmented

sourcing, unpredictable availability, unsorted food provisions

and daily fluctuating prices as against consumer expectations

of round-the-year steady prices, sorted and cleaned food and

fresh stock at all times.

Trained human resource for retail is another big

challenge. The talent base is limited and with the entry of big

giants there is a cat fight among them to retain this talent.

This has resulted in big salary hikes at the level of upper and

middle management and thereby eroding the profit margin of

the business.

All the companies have laid out ambitious expansion

plans for themselves and they may be hampered due to lack*

of requisite skilled manpower, But retail offers tremendous

for the growth of Indian economy. If all the above challenges

are tackled prudently, there is a great potential that retail may

offer employment opportunities to millions living in smalltown and cities and in the process distributing the benefits of

economic boom and resulting in equitable growth. (Fig. 1)

Thus it is clear from the above chart that the

organized retail sector is going to capture a huge market.

Going forward, TSMG projects that in the next 5 years, the

overall retail market in India is likely to grow at a CAGR of

5.5% (at constant prices) to l,677,0(X) cr jn 2015. The

organized retail market is expected to grow much faster at a

CAGR of 21.8% (at constant prices) to Rs. 246,000 cr by

2015 thereby constituting 15% of the overall retail sales.

.- .. -^.. _ . - _ Vo l. 3 (7) July (2010)

Based on the projections, the top 5 organized retail categorie

by 2015 would be food, grocery and general merchandis

apparel, durables, food service and hom e improvement.

According to the 8th Annual Global Reta

Development Index (GRDI) of AT Kearney, India reta

industry is the most promising emerging market fo

investment. In 2007, the retail trade in India had a share of 810% in the GDP (Gross Dom estic Product) of the country. I

2009, it rose to 12%. It is also expected to reach 22% b

2010.

M^jor Retailers in India

Pantaloon: Pantaloon is one of the biggest retailers in Indi

with more than 450 stores across the country. Headquartere

in Mumbai, it has more than 5 million sq. ft retail spac

located across the country. It is growing at an enviable pac

and is expected to reach 30 million sq. ft by the year 2010. In

2001, Pantaloon launched country's first hypermarket 'Bi

Bazaar'. It has the following retail segments:

• Food & Grocery

• Home Solutions

• Consumer Electronics

• Shoes

• Books, Music & Gifts

• Health & Beauty Care

• E-tailing

• Entertainment

Big Bazaar, Food B azaar

Hometown, Furniture

Bazaar, Collection-i

e-zone

Shoe Factory

Depot

Star, Sitara

Futurebazaar.com

Bowling Co.

Tata Group: Tata group is another major player in India

retail industry with its subsidiary Trent, which operate

Westside and Star India Bazaar. Established in 1998, it also

acquired the largest book and music retailer in India

'Landm ark' in 2005. Trent owns over 4 lac sq. ft retail spac

across the country.

RPG Group: RPG Group is one of the earlier entrants in the

Indian retail market, when it came into food and grocery

retailing in 1996 with its retail Food world stores. Later i

also opened the pharmacy and beauty care outlets 'Health and

Glow' .

Reliance Group: Reliance is one of the biggest players in

Indian retail industry. More than 300 Reliance Fresh stores

and Reliance Mart are quite popular in the Indian retail

market. It is expecting its sales to reach Rs.9O, 000 crores by

2010.

AV Birla Group: AV Birla Group has a strong presence in

Indian apparel retailing. The brands like Louis Phillipe, Allen

Solly, Van Heusen and Peter England are quite popular. It is

also investing in other segments of retail. It will invest Rs.

8000 -9000 crores by 2*010.

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Advances In Management

Retail formats in India

• Hyper marts/supermarkets: Large self-servicing

outlets offering products from a variety of categories.

• Mom-and-pop stores: They are family owned businesscatering to small sections; they are individually handledretail outlets and have a personal touch.

• Departmental stores: They are general retail

merchandisers offering quality products and services.

• Convenience stores: They are located in residentialareas with slightly higher prices goods due to theconvenience offered.

• Shopping malls: The biggest form of retail in India,malls offers customers a mix of all types of products andservices including entertainment and food under a singleroof.

• E-trailers: They are retailers providing online buyingand selling of products and services.

• Discount stores: They are factory outlets that givediscount on the MRP.

• Vending: It is a i^latively new entry in the retail sector.Here beverages, snacks and other small items can bebought via vending machine. ,

• Category killers: Small specialty stores offer a varietyof categories. They are known as category killers as they

focus on specific categories such as electronics andsporting goods. This is also known as Multi BrandOutlets or MBO's.

• Specialty stores: They are retail chains dealing inspecific categories and provide deep assortment.Mumbai's Crossword Book Store and RPG's MusicWorld are couple of examples.

Retail Industry - Growth

The Indian retail market, which is the fifth largest

retail destination globally, has been ranked as the most

attractive emerging market for investment in the retail sector

by AT Kearney's eighth annual Global Retail DevelopmentIndex (GRDI) in 2009. As per a study conducted by the

Indian Council for Research on International Economic

Relations (ICRIER),,the retail sector is expected to contribute

to 22 per cent of India's GDP by 2011. With rising consumer

demand and greater disposable income, the US$ 400 billion

Indian retail sector is clocking an annual growth rate of 30

per cent. It is projected to grow to U S $ 700 billion by 201 1,

according to a report by global consultancy Northbridge

Capital. In 2008, the share of organized retail was 7.5 per

cent or US$ 300 million of the total retail market.

. 3 (7) July (2010)

A McKinsey report, 'The rise of Indian Consumer

Market', estimates that the Indian consumer market is likely

to grow four times by 2025. Commercial real estate services

company, CB Richard Ellis' findings state that India's retail

market has moyed up to the 39th most preferred retail

destination in the world in 2009 up from 44 last year.

India continues to be amoftg the most attractivecountries for global retailers. Eoreign direct investment (FDI)

inflows as on September 2009, in single-brand retail trading,

stood at approximately US$ 47.43 million according to the

Department of Industrial Policy and Promotion (DIPP).

India's overall retail sector is expected to rise to US$

833 billion by 2013 and to US $ 1.3 trillion by 2018, at a

compound annual growth rate (CAGR) of 10 per cent. As a

democratic country with high growth rates, consumer

spending has risen sharply as the youth population (more than

33 percent of the country is below the age of 15) has seen a

significant increase in its disposable income. Consumer

spending rose an im pressive 75 per cent in the past four years

alone. Also, organized retail, which is pegged at around US $

8.14 billion, is expected to grow at a CAGR of 40 per cent to

touch US $ 107 billion by 2013.

The organized retail sector, which currently accountsfor around 5 per cent of the Indian retail market, is all set to

witness maximum number of large format malls and brandedretail stores in South India, followed by North, West and the

East in the next two years. Tier II cities like Noida, Amritsar,Kochi and Gurgaon are emerging as the favoured destinations

for the retail sector with their huge growth potential.

Eurther, this sector is expected to invest around US$503.2 million in retail technology service solutions in the

current financial year. This could go further up to US $ 1.26billion in the next four to five years, at a CAGR of 40 per

cent. (Eig. 2)

Retailers inspired by the Wal-Mart story of growth

in small town America are tempted to focus on smaller towns

and villages in India. However, a careful analysis of the town

strata-wise population, population growth, migration trends

and consumer spend analysis reveals a very different picture

for India.

As per TSMG estimates, the share of the 35 townswith current population is greater than 1. Million in the

overall population of India would grow much faster from

10.2% today to reach 14.4% by 2025. Simultaneously, the

share of these towns in the overall retail market would grow

from 21 % today to 40% by 2025.

Within these top 35 towns, an estimated 70-80% of

trade could be in the organized sector. This is similar to the

experience in China where in cities like Shanghai and

Beijing, organized sector accounts for 70-80% of overall

retail trade in certain categories. Hence, retailers should focus

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Advances In Management

on the top 37 towns in the next decade. The opportunity in

smaller towns and rural India would be smaller and

fragmented as compared to the larger towns.

Beyond by improved consumer spending, sales of

listed retailers increased by 12 per cent in the September

2009 quarter compared with the same period in 2008.

Moreover, many new apparel brands such as Zara,

the fashion label owned by Inditex SA of Spain, UK garment

chain Topshop, the Marc Ecko clothing line promoted by the

US entrepreneur of the same name and the Japanese casual

wear brand Uniqlo are preparing to open outlets in India.-

Australia's Retail Food Group is planning to enterthe Indian market in 2010. It has ambitious investment planswhich aim to clock revenue of US$ 87 million from thecountry within five years from start of operations. Britishretail major Marks & Spencer (M&S) is looking at scaling upits India operations and plans to open at least 50 more outletsin the country over the next few years. Koutons Retail Indiaplans to open 200 stores in 2011 in addition to its existing1,400. Of the 200 stores, 100 would be family concept stores,which would include women and children's wear.

Reliance Footprint, part of Reliance Retail, plans tospend US$ 86.62 million to add 100 outlets across thecountry in two years to sell branded footwear. It currently has16 outlets. Retail chain Suvidhaa Info serves plans to open1,000-1,200 new outlets every month across the country andis eyeing a 100,000 strong network in the next two to threeyears. At present, the Mumbai-based firm has 18,000convenient neighbourhood stores called 'Suvidhaa Point'across the country in over 20 states and over 400 cities.

Lifestyle International, part of the Dubai-based US $ 1.5billion Landmark Group, plans to have over 50 stores acrossIndia by 2012-13. These will include 35 Lifestyle stores forretailing apparel, cosmetics and footwear, besides 15 HomeCenters that sell home furnishing goods.

Watch maker, Timex India, is looking at increasingits presence in the country by adding another 52 stores byMarch 2011 at an investment of US $ 1.3 million taking its*total store count to 120. Wills Lifestyle plans to expand itsoperations by opening 100 new stores in the next three years.It also plans to concentrate on online buyers. Pantaloon RetailIndia (PRIL) is planning to invest US $ 77.88 million thisfiscal to add up to 2.4 million sq ft retail space at its existingoperations. Pantaloon Retail is also looking to hive off itsvalue retail chain. Big Bazaar, into a separate subsidiary mayeventually go for an initial public offer (IPO). PRIL proposesto open 155 Big Bazaar stores by 2014 increasing its totalnetwork to 275 stores.

Challenges facing In dian retail indu stry

• The tax structure in India favors small retail busine ss.

• Lack of adequate infrastructure facilities.

• High cost of real estate.

l. 3 (7) July (2010)

• Dissimilarity in consumer groups.

• Restrictions in Foreign Direct Investment.

• Shortage of retail study options.

• Shortage of trained manpow er.

• Low retail managem ent skill.

Key Findings and Highlights• Retail, India's largest industry and the coun try's large

source of employment after agriculture, has the deepespenetration into rural India and generates more than 11of India's GD P.

•> The government allows 100% Foreign Direct Investmen(FDI) in cash and carry through the automatic route an51% FDI in single brand retail through ForeigInvestment Promotion Board (FIPB).

• The Economic Survey 2007-08 has suggested that sharfor foreign equity in all retail trade is 100% in respect oluxury brands and other specialized retail chains.

• The back-end costs without distribution centre costs, o

what is called retail administration costs in retail jargonare around 2 .5% to 3 % of sales.

Road Ahead

According to industry experts, the next phase o

growth is expected to come from rural markets. According t

a new market research report by RNCOS titled, 'Boomin

Retail Sector in India', organized retail market in India i

expected to reach US $ 50 billion by 2011. Number o

shopping malls is expected to increase at a CAGR of mor

than 18.9 per cent from 2007 to 2015. Rural market i

projected to dominate the retail industry landscape in India b2012 with total market share of above 50 per cent. Organize

retailing of mobile handset and accessories is expected t

reach close to US $ 990 million by 2010. Driven by th

expanding retail market, the third party logistics market i

forecasted to reach US $ 20 billion by 20 11.

The retail industry in India is currently growing at great pace and is expected to go up to US $ 833 billion by th

year 2013. It is further expected to reach US $ 1.3 trillion bthe year 2018 at a CAGR of 10%. As the country has got high growth rates, the consumer spending has also gone u

and is also expected to go up further in the future. In the las

four year, the consumer spending in India climbed up to 75%As a result, the India retail industry is expected to grow

further in the future days. By the year 2013, the organizedsector is also expected to grow at a CAGR of 40%.

Conclusion

In summary, the retail market is the next growt

frontier for corporate India. It offers an opportunity for

large player to build a Rs. 40,000 Crores retail busines

spanning multiple categories by 2015 (at current prices)

Compared to this, the revenue of the largest Indian retaile

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Advances In Management . 3 (7) July (2010)

Organised Retail Mark et in India (Rs. in Crores)

Food. Grocery S General Merctiandis«

Clothes. Textile & Fashion Ac<c

Ourables &Mobiles

Food Service

Home tenproverTient

Jewellery &Watches

Fo««»ear

Books. Music, Toys & Gits

Others

Soared: TSMG Analysis

1

:

1111

2004 :

2950

~]ioeao3340

2000

2500

19S0

2500

BOO

1350

f Total1 28,000 J

10%

I 2 X

Tí

8 %

7 S

91Í

3 »

5 %

100%

1n

1

15 V ir̂

] 40605

28SSÍ

24351

1634«

8770

6S08

3722

14«92

f Total ^2.46.431 j

Hi e in R s . Cr.

4 2 »

ia %

1 2 X

10%

7 *

3 »

3%

••• l i t

8 * •

F i g . l

Population in (#. Ct)2001 2025E

Proportion of Total Retait Market(in % age)

, Metros & Mini MetrosÎ ~8 crties

Top Cities(Pap . > 1 mn)

27 cities

Large Cities Pop X,(0.5 to 1 mn>

32 citi&s

Rest of india5500 tow ns -)- 6 iac

8 7

3. 7

87.4

13

7.2

4 .5

115.3

2 %

77%

3% '

73 %

3%

9%

10 %

5 7 %

Souroe: MCAER, CSSO, TSMG AnsSysis2004 2010 2015 2025

Fig. 2

Pantaloon was only Rs 1085 Crores in 2005. No wonder large

domestic business houses and international retailers have

expressed keen interest to enter the retail sector in India.

However, to capitalize on the opportunity, a player needs tobe aggressive in its outlook and build scale quickly

References1. Kearney A.T., Global retail development index (grdi) 2004-2007.http://www.alkearney.com/ (2007)

2. Nath Kamal, India retail report. Pressrelease/pressreleasedetail.asp? (2009)

3. Henderson Terilyn, Mihas A. and Elizabeth A., Building Retailbrands, The Mckinsey Q uarterly Issue (2008)

4. O'Malley L. et al. Retailer use of geo- demographic and other

data sources: an empirical investigation. International Journal of

Retail & Distribution Management, 25 (6), 188-196 (1997)

5. Christopher Knee, Learning from experience: five challenges forretailers. International Journal of Retail and Distribution

Management, 30 (11), 519-29 (2002)

6. Swarup Arjun, "Ind ia's R etail Rev olution", Blog Global-economydeosmatter, March (2009)

7. Andrew Collins, "Competitive Retail Marketing DynamicStrategies for Winning and Keeping Customers", McGraw-Hill(1992)

8. 'Shopping malls-myths and realities'. Business Standard (2008).

(Received 7* April 2010, accepted 15 * June 2010)

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