The Indian Retail Sector

Retail the largest private industry globally, is still in its nascent stages in India

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Global Retail industry is of size USD 8 Trillion

Fortune #1 Wal-Mart is a Retailer

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Over 50 of the Fortune 500 companies are retailers

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25 of the Asian Top 200 companies, are retailers
Source: CII Mckinsey, HSBC

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The Indian retail industry is the fifth largest in the world Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Industry is expected to grow at a pace of 25-30% annually The India retail industry is expected to grow from Rs. 35,000 crore in 200405 to Rs. 109,000 crore by the year 2010. The retail trade in India had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2010. The organized sector will be 20% of the total market share by 2010. It can be mentioned here that, the share of organized sector in 2007 was 7.5% of the total retail market

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Unorganized Retailing 

Retailing in India - though large in terms of size is highly fragmented and unorganized Counter stores, kiosks, street markets and vendors, where the ownership and management rest with one person, are classified as traditional or unorganized retail outlets. These formats typically require employees with low skills and account for around two-thirds of the sector's output. These are highly competitive outlets, with minimal rental costs (unregistered kiosks or traditional property), cheap labor (work is shared by family members) and negligible overheads and taxes Unorganised retailers suffer due to poor shopping experience and inability to offer a wide range of products and value-addition due to lack of sourcing capabilities.    

Indian Organised Retail Market
‡ In 2005, the retail industry in India amounted to Rs 10,000 billion accounting for about 10% to the country's GDP, the organized retail market in India out of this total market accounted for Rs 350 billion which is about 3.5% of the total revenues. ‡ Retail market in the Indian organized sector is expected to cross Rs 1000 billion by 2010 ‡ Traditionally the retail industry in India was largely unorganized, comprising of drug stores, medium, and small grocery stores. ‡ Most of the organized retailing in India have started recently and is concentrating mainly in metropolitan cities.

Key Growth Factors
‡ ‡ ‡ ‡ ‡ ‡ ‡ Increased income, Changing lifestyles, Patterns of demography Real estate developments Growing urban population Young consuming class ²growing Easier access to credit The modern Indian consumer is seeking more value in terms of improved availability and quality, pleasant shopping environment, financing options, trial rooms for clothing products, return and exchange policies and competitive prices. This has created a rapidly growing opportunity for organized, modern retail formats to emerge in recent years and grow at a fast pace.

RECENT TRENDS
Retail Sales in India

Traditionally three factors have plagued the retail industry
Unorganized : Vast majority of the twelve million stores are small "father and son" outlets Fragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest. Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell dayto-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs)

Recent Changes
Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Ex. Quasi-mall, suburban discount stores, Cash and carry etc. Store design : Biggest challenge for organised retailing to create a customer-pull environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investing heavily in store design. Emergence of discount stores: They are expected to spearhead the organised retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs. Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large cineplexes, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas.

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Multiple drivers leading to a consumption boom: « Favorable demographics « Growth in income « Increasing population of women « Raising aspirations : Value added goods sales Food and apparel retailing key drivers of growth Organized retailing in India has been largely an urban phenomenon with affluent classes and growing number of double-income households. More successful in cities in the south and west of India. Reasons range from differences in consumer buying behavior to cost of real estate and taxation laws. Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption « ITC is experimenting with retailing through its e-Choupal and Choupal Sagar ² rural hypermarkets. « HLL is using its Project Shakti initiative ² leveraging women self-help groups ² to explore the rural market. « Mahamaza is leveraging technology and network marketing concepts to act as an aggregator and serve the rural markets. IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change buying behavior across the globe. ¶e-tailing· slowly making its presence felt. Companies using their own web portal or tie-sups with horizontal players like Rediff.com and Indiatimes.com to offer products on the web.

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POSITIVES
‡ ‡ ‡ ‡ AT Kearney has estimated India·s total retail market at US$ 202.6 billion which is expected to grow at a compounded 30 per cent over the next five years. With the organised retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010. The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the next decade Over next two years India will see several Indian retail businesses attaining a critical mass as growth in the industry picks up momentum driven by two key factors: ± Availability of quality real estate and mall management practices ± Consumer preference for shopping in new environments Wal-Mart : huge plans for India. Moving a senior official from its headquarters in Bentonville, Arkansas, to head its market research and business development functions pertaining to its retail plans in India. New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty major DLF Properties to set up shop in a mall in New Delhi. Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, Ahmedabad, Lucknow and Bangalore in the next four months.

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CONCERNS
‡ ‡ ‡ Lack of retail space, High cost of real estate Trained manpower shortage The Indian government have allowed 51% foreign direct investment (FDI): entry of global retail giants to organized retail sector in India difficult. Poor inventory turns and stock availability measures - retailers clearly need to augment their operations. Operations of retailers and suppliers are not integrated. Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity ordered, is an issue Supply chain and customer relations followed by merchandising, facilities management and vendor development are areas which have significant gaps and proactive training is a key imperative for overcoming these.

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