growing prospective of retail industry in and around...

International Journal of Computer, Mathematical Sciences and Applications © Serials PublicationsVol. 5, No. 1-2, January-June 2011, pp. 95– 104 ISSN: 0973-6786

Growing Prospective of Retail Industry in and Around India

S. SENTHILKUMAR1 AND P. SHIVAKUMAR2

1Professor in Management Studies, Sri Ganesh School of Business Management, Attur Main Road,Mettupatti, Salem-636111, Tamilnadu, India. E-mail: [email protected]

2Full Time -Research Scholar in Management Studies, Periyar Institute of Management Studies (PRIMS),Periyar University, Salem-636011, Tamilnadu, India.

Abstract: The Indian retail sector is witnessing tremendous growth with the changing demographicsand an increase in the quality of life of urban people. At this moment, it is still premature to say thatthe Indian retail market will replicate the success stories of names such as Walt-Mart Stores, Sainsburyand Tesco but at least the winds are blowing in the direction of growth. The Indian retail industryhas been analyzed taking into perspective the growth of the Indian economy and the sustainabilityof this sector in this scenario. Retail Sector is the most booming sector in the Indian economy. Someof the biggest players of the world are going to enter the industry soon. It is on the threshold ofbringing the next big revolution after the IT sector. Although organized retail market is not so strongas of now, it is expected to grow manifolds by the year 2010. The sector contributes 10% of theGDP, and is estimated to show 20% annual growth rate by the end of the decade as against thecurrent growth rate of 8.5%. A CRISIL report says that the Indian retail market is the most fragmentedin the world and that only 2% of the entire retailing business is in the organized sector. This suggeststhat the potential for growth is immense. There are about 300 new malls, 1500 supermarkets and325 departmental stores currently being built in the cities across India.

1. RETAILING IN INDIA: THE PRESENT SCENARIO

The present value of the Indian retail market is estimated by the India Retail Report to be aroundRs. 12,00,000 crore ($270 billion) and the annual growth rate is 5.7 percent. Retail market for foodand grocery with a worth of Rs. 7, 43,900 crore is the largest of the different types of retail industriespresent in India. Furthermore around 15 million retail outlets help India win the crown of having thehighest retail outlet density in the world. According to Indian Brand Equity Foundation, retail tradeaccounts for 12 per cent of the country’s GDP and is expected to approach 22 per cent by 2010. Areport from McKinsey, ‘The rise of Indian Consumer Market’, foresees the Indian consumer marketgrowing by four times by the year 2025. The contribution of retail sector to GDP has been manifestedbelow:

Country Retail Sector’s Share in GDP (in %)

USA 10 India 12

Brazil 6 China 8

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96 International Journal of Computer, Mathematical Sciences and Applications

2. ESTIMATES AND PREDICTIONS FOR RETAIL SECTOR

• At present, the industry is estimated to be at more than US$ 400 billion by a study ofMcKinsey.

• The Economist Intelligence Unit (EIU) estimates the retail market in India will increase toUS$608.9 billion in 2009 from US$394 billion in 2005.

• KPMG Report says that the organized retail would grow at a higher rate than the GDP inthe next five years.

• The retail sector would generate employment for more than 2.5 million people by the year2010, predicts an analysis by Ma Foi Management Consultants Ltd.

3. MAJOR RETAILERS IN INDIA

Food and Grocery: Big Bazaar, Food Bazaar Home Solutions: Hometown, Furniture Bazaar

Consumer Electronics: e-zone Shoes: Shoe Factory

Entertainment: Bowling Co. E-tailing: Futurebazaar.com

Books, Music and Gifts: Depot Health and Beauty Care: Star, Sitara

Fashion and accessories Footwear retailers

Home and office improvement Telecom retailers

Electronic retailers Catering service retailers

Pharmaceutical retailers Jewellery retailers

Time wear retailers Books, music and gifts

• Tata Group: Tata group is another major player in Indian retail industry with its subsidiaryTrent, which operates Westside and Star India Bazaar. Established in 1998, it also acquiredthe largest book and music retailer in India ‘Landmark’ in 2005. Trent owns over 4 lakhsq. ft retail space across the country.

• RPG Group: RPG Group is one of the earlier entrants in the Indian retail market, when itcame into food and grocery retailing in 1996 with its retail Foodworld stores. Later it alsoopened the pharmacy and beauty care outlets ‘Health and Glow’.

• Reliance: Reliance is one of the biggest players in Indian retail industry. More than 300Reliance Fresh stores and Reliance Mart are quite popular in the Indian retail market. It’sexpecting its sales to reach Rs. 90,000 crores by 2010.

• AV Birla Group: AV Birla Group has a strong presence in Indian apparel retailing. Thebrands like Louis Phillipe, Allen Solly, Van Heusen, Peter England are quite popular. It’salso investing in other segments of retail. It will invest Rs. 8000-9000 crores by 2010.

3.1 Retail Formats in India

Growing Prospective of Retail Industry in and Around India 97

3.2 Regulatory Framework

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

Shop and Establishment Act Standards of Weights & Measures Act Provisions of the Contract Labour Act

The Income Tax Act Customs Act The Companies Act

3.3 FDI Scenario in India

In 1991, the Indian government introduced the economic policy to attract foreign investments andsince then, it has amended the policy from time to time in various sectors to allow higher levels of


foreign participation. The government policy in retail sector allows 100% foreign investment inwholesale cash-and-carry and single-brand retailing but prohibits investments in retail trading. In1997, the government imposed restrictions on FDI in retail sector but in 2006, these were lifted andopened in single-brand retailing and in cash-and-carry formats. The cash-and-carry business is theeasiest mode of entry for foreign retailers into India. Many global players like Metro and Shopritehave already entered the market. Wal-mart has forged an alliance with Bharti for a cash-and-carrybusiness, and Bharti is concentrating on front-end retail. Similarly, Tesco has entered India throughan alliance with Trent (Tata Group). Apart from investing in the cash-and-carry business, Trent willalso support the back-end activities of Trent Ltd. Many foreign brands have also entered India eitherthrough JVs with leading Indian retailers or through exclusive franchisees to set up shop in India.Louis Vuitton, Marks and Spencer Plc, GAS, Armani are some such operators who have enteredIndia through JVs. McDonald’s, KFC, Domino’s are the retailers who have taken the franchiseroute. Slowly the government is opening up to the idea of permitting FDI in the Indian retail sector;consequently there is greater momentum in the sector. Last year, owing to the global meltdown,investments dropped in all sectors. The government has therefore changed the guidelines for foreigninvestments to boost investments in the current year. This move is certainly likely to improve theinvestment climate in the Indian retail space.

4. PERCENTAGE OF ORGANIZED RETAIL ACROSS THE WORLD

4.1 Global Retail Scenario

Retailing has played a major role in the global economy. In developed markets, retailing is one ofthe most prominent industries. In 2008, the US retail sector contributed 31% to the GDP at currentmarket prices. In developed economies, organized retail has a 75-80% share in total retail as comparedwith developing economies, where un-organized retail has a dominant share.

Global retail sales was estimated to be around US$ 12 trillion in 20072; however, in 2008, theslowdown in the global economy, especially in the US, and credit crunch, decreased consumerspending. On a global level, the economy performed robustly till 2007, but the US crisis spread overto Europe in early 2008, and its impact was felt in the Asia-Pacific region by mid-2008. India has the


highest number of retail outlets in the world at over 13 million retail outlets, and the average size ofone store is 50-100 square feet. It also has the highest number of outlets (11,903) per millioninhabitants. The per capita retail space in India is among the lowest in the world, though the percapita retail store is the highest. Majority of these stores are located in rural areas.

5. EVOLUTION OF ORGANIZED RETAIL

The share of organized retail in developed countries is much higher than developing countries likeIndia. In 20063, the share of organized retail in the US was around 85%, in Japan it was 66%, in theUK it was 80%, while in developing countries like India, China and Russia it was 6%, 20% and33%, respectively. The concept of organized retail had occurred much later in developing economiesthan the developed economies. Modern day retail came into existence in three successive waves.The first wave took place in the early to mid-1990s in South America, East Asia excluding China,North Central Europe and South Africa. The second wave of organized retail occurred during mid-to-late 1990s in Mexico, Central America, South-east Asia and South Central Europe. The thirdwave of organized retail boom started in the late 1990s and early 2000 in some parts of Africa,Central and South America, South-east Asia, China, India and Russia and continues to grow at arapid pace.


5.1 Rising Household Expenditure in BRIC Countries Drives Organized Retail

The household expenditure in Brazil, Russia, India and China, or the BRIC countries, is growing ata faster rate than the developed countries like the US, UK, Japan, Germany, and France, indicatingthe higher growth potential for the retail sector in these countries that have a large consumer base.Household expenditure (at constant prices) in developed countries like the US, UK, Germany, andJapan has witnessed an average annual growth of 3.2%, 2.5%, 0.2%, and 1.0%, respectively, during2004-2007, but the expenditure in the BRIC countries has been much higher. The developed countriesare witnessing a continuous fall in domestic demand and high dependence on export earnings, whichare the reasons for lower household expenditure. In current times, the global demand is weakening,owing to economic slowdown, and this worry is looming large over the retail sector.

5.2 Retail in India: Industry Structure

The retail industry in India is highly fragmented and unorganized. Earlier on retailing in India wasmostly done through family-owned small stores with limited merchandise, popularly known as kiranaor mom-and-pop stores. In those times, food and grocery were shopped from clusters of open kiosksand stalls called mandis. There were also occasional fairs and festivals where people went to shop.In the twentieth century, infusion of western concepts brought about changes in the structure ofretailing. There were some traditional retail chains like Nilgiri and Akbarallys that were set up onthe lines of western retail concepts of supermarkets. The government set up the public distributionsystem (PDS) outlets to sell subsidized food and started the Khadi Gram Udyog to sell clothes madeof cotton fabric. During this time, high streets like Linking Road and Fashion Street emerged inMumbai. Some manufacturers like Bombay Dyeing started forward integrating to sell their ownmerchandise. Shopping centres or complex came into existence, which was a primitive form oftoday's malls. Since liberalization in early 1990s, many Indian players like Shoppers Stop, PantaloonRetail India Ltd (PRIL), Spencer Retail ventured into the organized retail sector and have grown bymany folds since then. These were the pioneers of the organized Indian retail formats. With theopening up of foreign direct investment in single-brand retail and cash-and-carry formats, a newchapter unfolded in the retail space. Many single-brand retailers like Louis Vuitton and TommyHilfiger took advantage of this opportunity. The cash-and-carry format has proved to be an entryroute for global multi channel retailing giants like Metro, Wal-Mart and Tesco.


5.3 Booming Indian Economy Spurs Consumption

The Indian economy posted a remarkable CAGR growth of 8.9% during FY04-FY08, which increasedthe per capita income and in turn, the disposable income of a large section of the population. Growthin the retail trade depends on the fundamentals of an economy. The Indian economy grew at a robustrate over the last five years, riding high on the high growth in the service sector (10.5%) and themanufacturing sector (9.4%) as compared with 7.4% and 4.1% during FY99-FY03. The rise in percapita income and the resultant rise in disposable income stimulated consumption during this five-year period, thereby resulting in a spurt in retail trade. Furthermore, according to the MckinseyGlobal Institute (MGI), the average real household disposable income is likely to grow by 5.3%during 2005-2025 and reach Rs 318,896 per annum as compared with 3.6% in the previous 20years, which indicates the huge potential for the retail sector in India.

6. SIZE OF THE INDIAN RETAIL INDUSTRY

In 2007, the total Indian retail industry was valued at Rs. 13,300 billion (estimate), and the organizedsegment constituted 5.9% of the value at Rs. 783 billion. In the segment, the clothing and accessoriessales had a majority share of 38.1% followed by the food and grocery segment at 11.5% and electronicssegment at 9.1%. The organized retail industry grew at a CAGR of 33% during 2004-2007. Eventhough the organized retail segment has a minuscule share in the total industry, it has enormouspotential considering the rising urbanization, the efficient supply-chain, the readily-available retailspace, and modern technology, which help in reducing consumer prices to a great extent.

Furthermore, with the entry of big foreign players, the Indian organized retail market has becomemore competitive in terms of implementing newer business models on the operational format, andpricing, and in terms of efficiency. The organized retail sector will largely benefit in terms ofproductivity and growth if sectors like agriculture, food processing, and textile are encouraged further.The above-mentioned sectors would receive a remarkable boost if they would supply to big Indianand foreign retail players, which will ensure their growth in tandem with the retail sector. Moreover,the organized retail sector will directly and indirectly improve the country's employment scenario.Many Indian retail players have already started purchasing supplies directly from farmers and othersuppliers, which has invariably eliminated the supply-chain complexities and large number of


intermediaries, and has resultantly lowered prices for consumers. Furthermore, the amendment ofthe Agriculture Product Marketing Act (APMC) has revamped the farm produce supply chain.

7. CHALLENGES FACING INDIAN RETAIL INDUSTRY

• The tax structure in India favors small retail business

• Lack of adequate infrastructure facilities

• High cost of real estate

• Dissimilarity in consumer groups

• Restrictions in Foreign Direct Investment

• Shortage of retail study options

• Shortage of trained manpower

• Low retail management skill

8. GROWING DRIVERS OF RETAIL

According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retailindustry is the most promising emerging market for investment. In 2007, the retail trade in India hada share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It isalso expected to reach 22% by 2010. According to a report by Northbride Capita, the India retailindustry is expected to grow to US$ 700 billion by 2010. By the same time, the organized sector willbe 20% of the total market share. It can be mentioned here that, the share of organized sector in 2007was 7.5% of the total retail market. Currently, organized retail is in a nascent stage of growth in Indiaas it just has a 5.9% share in the total India retail trade. However, in recent years, organized retailinghas been growing at a robust rate due to rise in the number of shopping malls as well as in thenumber of organized retail formats. The key factors of growth of organized retail in modern Indiaare discussed in the following points.


9. RISING DISPOSABLE INCOME OF INDIAN MIDDLE-CLASS

Changing consumer preferences and shopping habits Changing demographics

Increase in working population Spurt in urbanization

Rise in MPCE level in urban areas Easy credit availability – a boon for organized retail

10. THE FUTURE

The retail industry in India is currently growing at a great pace and is expected to go up to US$ 833billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year 2018 at a CAGRof 10%. As the country has got a high growth rates, the consumer spending has also gone up and isalso expected to go up further in the future. In the last 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 futuredays. By the year 2013, the organized sector is also expected to grow at a CAGR of 40%.

11. CONCLUSION

Retailing in India is gradually inching its way toward becoming the next boom industry. The wholeconcept of shopping has altered in terms of format and consumer buying behavior, ushering in arevolution in shopping in India. Modern retail has entered India as seen in sprawling shoppingcentres, multi-storeyed malls and huge complexes offer shopping, entertainment and food all underone roof. The Indian retailing sector is at an inflexion point where the growth of organized retailingand growth in the consumption by the Indian population is going to take a higher growth trajectory.The Indian population is witnessing a significant change in its demographics. A large young workingpopulation with median age of 24 years, nuclear families in urban areas, along with increasingworking-women population and emerging opportunities in the services sector are going to be thekey growth drivers of the organized retail sector in India.

REFERENCE/BIBLIOGRAPHY[1] V. Neethi Mohan, “Indian Retail Industry: Strategies”, Trends and Opportunities.

[2] www.naukrihub.com/india/retail/overview

[3] http://business.mapsofindia.com/india-retail-industry

[4] Omar, and Ogenyi E., “Organized Retailing in the Global Competitive”, Journal of Strategic Marketing,6 (1), Mar 1998, pp. 65.

[5] Arvind, “An Overview of Indian Retail Industry”, Journal of PR log, 2008, Issue 4, pp. 13.

[6] Kapil Khatri, “The Future Prospects of Retail Industry”, European Journal of Marketing, 41(11), 2007,pp. 14.

[7] Adam Gaskill, “The Influence of Consumption Values on Retailing”, Auckland University of Technology,MB, 2004, pp. 6.

[8] www.dnb.co.in/IndianRetailIndustry/overview.asp

[9] V. Neethi Mohan, “Indian Retail Industry: Strategies”, Trends and Opportunities MDI ManagementJournal, 5(2), July, 2002, pp. 97-111.

[10] 8th Annual Global Retail Development Index (GRDI), Kearney.

www.naukrihub.com/india/retail/overview

http://business.mapsofindia.com/india-retail-industry

www.dnb.co.in/IndianRetailIndustry/overview.asp

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