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Hypermarkets would be the largest retail segment, accounting for 21 per cent of total retail space by 2013-14.
Introduction
The Indian retail industry has presently emerged as one of the most dynamic and fast paced industries as several players have started to enter the market. It
accounts for over 10 per cent of the countrys gross domestic product (GDP) and around eight per cent of the employment in India. The country is today the
fifth largest global destination in the world for retail.
Several corporates have planned to exploit the opportunities in the Indian retail space, such as Reliance Industries Ltd (RIL), which has lined up capital
expenditure of Rs 1.8 trillion (US$ 28.94 billion) for the next three years for its petrochemicals, telecom and retail ventures.
With the growth in the retail industry, the corresponding demand for real estate is also being created. Further, with the online medium of retail gaining more
and more acceptance, there is a tremendous growth opportunity for retail companies, both domestic and international.
Market Size
Indias retail market is expected to double to US$ 1 trillion by 2020 from US$ 600 billion in 2015 driven by income growth, urbanisation and attitudinal shifts,
highlighted the Boston Consulting Group and Retailers Association of Indias report titled, Retail 2020: Retrospect, Reinvent, Rewrite.
While the overall retail market will grow at 12 per cent per annum, modern trade will grow twice as fast at 20 per cent per annum, and traditional trade at 10
per cent, according to a report titled Retail 2020: Retrospect, Reinvent, Rewrite by Boston Consulting Group and Retailers Association of India.
The retail spending in the top seven Indian cities of India currently amounts to Rs 3.58 trillion (US$ 57.56 billion), with organised retail penetration at 19 per
cent in 2014. It is expected that the online retail will be at par with the physical stores in five years
India is expected to become the worlds fastest growing e-commerce market on the back of robust investment activity in the sector and the rapid increase in
internet users. It is expected that Indias e-commerce market will grow from US$ 2.9 billion in 2013 to over US$ 100 billion by 2020.
E-tailers are betting on more Indians switching to shopping online, with a projection of 200 million new consumers by 2017, according to a report released
last year by Accel India,
Investments
The Indian retail industry in the single brand segment has received foreign direct investment (FDI) equity inflows to the tune of US$ 275.38 million in the
period April 2000January 2015, according to the Department of Industrial Policies and Promotion (DIPP).
With the rising need for consumer goods in different sectors including consumer electronics and home appliances, many companies have invested in the
Indian retail space in the past few months. Some of them are:
Paytm plans to set up 30,000 to 50,000 retail outlets where its customers can load cash on their digital wallets. The company is also looking to enrol retailers - mostly
kirana stores - as merchants for accepting digital payments.
Mobile wallet company MobiKwik has partnered with Jabong.com to provide mobile payment services to Jabong's customers.
DataWind has partnered with HomeShop18 to expand its retail footprint in the country. Under the partnership, HomeShop18 and DataWind will jointly launch special sales
programs across broadcast, mobile and internet media to create greater access of the latter's tablet range.
Amazon Inc and Flipkart India will invest nearly Rs 2,300 crore (US$ 369.87 million) in the near term as they plans to acquire more customers in the country's fast-growing
online retail market.
FashionAndYou has opened three distribution hubs in Surat, Mumbai and Bengaluru to hasten deliveries.
Abu Dhabi-based Lulu Group plans to invest Rs 2,500 crore (US$ 401.98 million) in a fruit and vegetable processing unit, an integrated meat processing unit and a
modern shopping mall in Hyderabad, Telangana.
Government Initiatives
Ms Nirmala Sitharaman, Union Minister of Commerce and Industry, Government of India has stressed on India building a culture of branding and marketing
its products to the rest of the world. The ministry is also willing to take steps to start a Free Trade Agreement (FTA) with the European Union (EU).
The Government of India has taken various initiatives to improve the retail industry in India. Some of these initiatives are:
The Foreign Investment Promotion Board (FIPB) has cleared five retail proposals worth around Rs 420 crore (US$ 67.53 million) from companies such as Bestseller,
Puma SA and Flemingo. Additionally, the board cleared three 100 per cent single-brand retail proposals worth Rs 222.5 crore (US$ 35.77 million), suggesting renewed
interest in Indias growing retail market.
IKEA has entered into a memorandum of understanding (MoU) with the Government of Telangana to set up its first store in India at Hyderabad. IKEA retail outlets have a
standard design and each location entails an investment of around Rs 500-600 crore (US$ 80.38-96.46 million).
The Government of India is also in the final phase of talks with the states for the Goods and Services Tax Bill to be implemented. This Bill is seen as a key to facilitating
industrial growth and improving the business climate in the country.
Road Ahead
The share of e-Commerce is growing steadily. Customers have an ever increasing choice of products at the lowest rates. E-Commerce is probably creating
the biggest disruption in the retail industry and this trend will continue in the year to come. Almost everything is sold on the internet now and this means that
pretty much all of the retail industry faces the challenge of either being a part of e-commerce or taking it head on.
For better prospects of this industry, as a whole, both organized and unorganized retail companies should work together to improve the overall retail industry,
while generating new benefits for their own customers.
Also, the retailers should take advantage of digital retail channels (e-commerce), which would enable them to spend less money on real estate while
reaching more customers in tier-2 and tier-3 cities. Nevertheless, the long term outlook for the industry remains to be positive on the back of rising incomes,
favourable demographics, entry of foreign players and increasing urbanization.
Exchange Rate Used: INR 1 = US$ 0.016 as on March 24, 2015
The Indian Retail sector has come off age and has gone through major transformation over the last decade with a noticeable shift towards
organised retailing. A T Kearney, a US Based global management consulting firm has ranked India as the fourth most attractive nation for retail
investment among 30 flourishing markets.
The retail market is expected to reach a whooping Rs. 47 lakh crore by 2016-17, as it expands at a compounded annual growth rate of 15 per
cent, accordingy to the Yes Bank - Assocham study.
The retail market, (including organised and unorganised retail), was at Rs. 23 lakh crore in 2011-12. According to the study, organised retail, that
comprised just seven per cent of the overall retail market in 2011-12, is expected to grow at a CAGR of 24 per cent and attain 10.2 per cent share
of the total retail sector by 2016-17.
In terms of sheer space, the organised retail supply in 2013 was about 4.7 million square feet (sq ft). This showed a 78 per cent increase over the
total mall supply of just 2.5 million sq ft in 2012.
Favourable demographics, increasing urbanisation, nuclearisation of families, rising affluence amid consumers, growing preference for branded
products and higher aspirations are other factors which will drive retail consumption in India, said DS Rawat, Assocham Secretary General.
Retail classification
Retail industry can be broadly classified into two categories namely- organised and unorganised retail.
Organized retail - Organised traders/retailers, who are licensed for trading activities and registered to pay taxes to the government.
Unorganized retail It consists of unauthorized small shops - conventional Kirana shops, general stores, corner shops among various
other small retail outlets - but remain as the radiating force of Indian retail industry.
Market Dynamics
In the past few years, Indian Retail sector has seen tremendous growth in the organised segment. Major domestic players have stepped into the
retail arena with long term, ambitious plans to expand their business across verticals, cities and formats.
Companies like Tata, Reliance, Adani Enterprise and Bharti have been investing considerably in the booming Indian Retail market. Along with
these giant retailers, a number of transnational brands have also entered into the market to set up retail chains in close association with bigger
Indian companies.
High consumer spending over the years by the young population (more than 31% of the country is below 14 years) and sharp rise in disposable
income are driving the Indian organised retail sectors growth. Even Tier I & Tier II cities and towns are witnessing a major shift in consumer
preferences and lifestyles, the result of which, they have emerged as attractive markets for retailers to expand their presence.
The Indian retail sector is highly fragmented and the unorganised sector has around 13 million retail outlets that account for around 95-96% of the
total Indian retail industry. However, going forward, the organised sectors growth potential is expected to increase due to globalisation, high
economic growth, and improved lifestyle.
Although the growth potential in the sector is immense, there are obstacles too, that could slow the pace of growth for new entrants. Rigid
regulations, high personnel costs, real estate costs, lack of basic infrastructure, and highly competitive domestic retailer groups are some such
challenges.
Key drivers of the Indian Retail Industry
Increasing urbanisation,