DISSector A B-Gyan Initiative

DISSECTOR The Indian Retail Sector

Introduction
Accounting for around 14-15 per cent of the gross domestic product (GDP), the Indian retail industry is
estimated to be worth around US$ 500 billion currently. Home to one of the top five retail markets in
the world, India offers immense scope of growth and opportunities in this arena. As of now, almost 90
per cent of the Indian retail sector is controlled by tiny family-run shops i.e. the unorganised segment.
Thus, organised retailers have a lot of room for further penetration in this flourishing economy. In 2010,
larger format convenience stores and supermarkets accounted for about 4% of the industry, and these
were present only in large urban centres. Now the trend is changing, and such concepts are
mushrooming in smaller cities and towns as well. Organised retail segment is expanding at 20 per cent a
year, driven by the emergence of shopping centers and malls and growing middle class.
India allowed overseas investment in its supermarket sector in September 2012. Since then, the retail
landscape is witnessing a flurry of foreign investments. Some of the facts, recent statistics and
developments related to the same are discussed hereafter.
150%
Organised Retail
Penetration

100%
50%

95%

91%

80%

2011-12

2015-16

2020-21

0%

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Unorganised Retail
Penetration

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DISSector A B-Gyan Initiative

Market Size

The Indian retail industry has expanded by 10.6 per cent between 2010 and 2012 and is
expected to increase to US$ 750-850 billion by 2015, according to a report by Deloitte. Food and
Grocery is the largest category within the retail sector with 60 per cent share followed by
Apparel and Mobile segment.

Retail Market in India

Food and Grocery

11

Appareal

3
3

Mobile and
Telecom
Food Service

4
5

Jewellery
6

Consumer
Electronics
Pharmacy

60
8

Others

Source: India Retail Report 2013, Images Group

The foreign direct investment (FDI) inflows in single-brand retail trading during April 2000 to
June 2013 stood at US$ 96.96 million, as per the data released by Department of Industrial
Policy and Promotion (DIPP).

Market size over past few years (USD Billion)

500
450
400
350
300
250
200
150
100
50
0
1998

2000

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2002

2004

2006

2008

2010

2012

BGyan - The Business Interaction Committee, NITIE

DISSector A B-Gyan Initiative

Online Retail
Indian consumers are demonstrating an increasing interest in online shopping, thanks to the surging
number of online users. The growing online retail market has become a very lucrative business for
international majors as well. For instance, internet giant Amazon, which was dedicated to the biggest
markets until now, has commenced an India-centric
centric website in June
2013.
India has surpassed Japan to become the worlds third largest
Internet user after China and the United States with almost 74
million Internet users, stated global digital measurement and
analytics firm comScore. In addition to that, online retail web sites
have witnessed a 65 per cent rise in the traffic from the previous
year, according to a survey by the Associated Chambers of
Commerce and Industry of India (Assocham).
The survey indicated that the market
arket for online shopping in India, estimated to be around Rs 52, 000
crore (US$ 8.19 billion), is expanding at a very fast pace. The trend is not only catching up in metros, but
in smaller towns and cities as well.

Other Retail formats in India

Multi-branded retail Shops

Mono-branded retail shops

Convergence retail outlets

Focus on particular product

categories and carry most of
the brands available

Exclusive showrooms either

owned or franchised out by a
manufacturer

Display most of convergence as

well as consumer/electronic
products, including
communication and IT group

Customers have more choices

as many brands are on display

Complete range available for a

given brand, certified product
quality

One stop shop for customers;

many product lines of different
brands on display

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DISSector A B-Gyan Initiative

Strategies
tegies adopted by Indian retailers for sales maximization

Offering Discounts

Most retailers have advanced off-season

season sales from 15
days to a month with discounts ranging from 20-70
20
per
cent on certain products
Higher
Higher discounts and other value added services for
members

Lowering prices

Certain
Certain retailers adopt First Price Right approach.
Retailers do not offer discounts under this strategy they directly compete on the selling price by offering a
best price without any markdowns

Offering value added services

Leveraging partnerships

Companies
Companies offer innovative value added services such
as customer loyalty programmes, happy hours on
shopping deals
Offers for senior citizens, contests for students, and
Offers
lottery gains are now very common
In
In order to keep customers on shop floors for a longer
time and increase conversions, retailers are now
pitching to partner with manufacturers, service
providers, financial companies, etc. to create a buzz
around certain product categories

Retail Industry: Key Developments and Investments

Sahara Q Shop has recently initiated its operations with 100 exclusive convenience stores in
Delhi/ NCR. The company is planning to open 400 such stores by March 2014 in the region.
Currently, Sahara Q operates 901 stores in 12 states and by the end by FY14; the company
intends to have 10,000 such stores across India. About 2,000 of these will be opened in metros.
American real estate firm Trum
Trump
p Organisation is very positive on the Indian real estate sector.
The company has bog growth plans for the Indian market and is scouting for a local partner to
achieve its goals. Trump reveals that India has always been an important growth market for
them and they want to harness the growing demand for luxury products in the sub-continent.
sub
It
believes that the brand will add significant value to ultra
ultra-luxury
luxury developments - be in residential,
hotel, commercial, retail or golf.

International luxury products major are also very bullish on Indian retail market.

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DISSector A B-Gyan Initiative

Italian luxury goods firm Bulgari is awaiting Foreign Investment Promotion

Board (FIPB)s nod to set up exclusive retail stores in India that will sell high-end jewellery,
watches and accessories under its 'Bvlgari' brand. Part of the French luxury major LVMH Group,
Rome-headquartered Bulgai has made its application under the single-brand route.
On the similar lines, Meanwhile, Villeroy & Boch AG, the Germany-based bath, wellness and
tableware firm, has partnered with Genesis Luxury Fashion to commence its operations in
single-brand retail trade in India.
Villeroy & Bochs application, seeking 50 per cent equity in the joint venture (JV) Company for
single-brand retail trade, has recently got a nod from the FIPB. The FDI infusion in the JV would
be to the tune of Rs 1.12 crore (US$ 176, 949.21).
Genesis Luxury Fashion, that has brands such as Paul Smith, Bottega Veneta, shoe brand Jimmy
Choo, Italian label Etro and Armani and home and personal care products from Crabtree and
Evelyn under its business in India, will exclusively manage the distribution of Villeroy & Boch
tableware products in the country. The alliance ensures the establishment of a distribution
network through the opening of Villeroy & Bochs exclusive retail stores in India.
In a bid to tap the branded footwear market in India, which is estimated to be about Rs 30,000
crore (US$ 4.74 billion), Aero Group (known for its flagship Woodland brand) is planning to
revive one of its old brands, Woods. The company is contemplating to open around 30 new,
revamped Woods stores in 2013. The eight-year-old brand would now lay its focus on the
fashion quotient, rather than the typical outdoor, rough and tough image of Woodland, and will
have more of the range for women.

Recent News

Gap Inc, the largest casual wear retailer in the US, looks set to enter the Indian market next year
though a joint venture with Arvind Brands
Junglee.com has been ranked as the number one comparison shopping website in India for the
fourth consecutive quarter

Important Articles

http://www.predictix.com/storage/Three%20Steps%20to%20Alignment%20Article%20July%20
2013.pdf
http://www.deloitte.com/assets/DcomAustralia/Local%20Assets/Documents/Industries/Consumer%20business/Deloitte_Global_Powe
rs_of_Retail_2013.pdf
http://www.ey.com/Publication/vwLUAssets/Five_areas_of_highly_charged_risk_for-supplychainoperations/$FILE/Climate%20change%20and%20sustinability_Five%20areas%20of%20highly%2
0charged%20risk%20for%20supply%20chain%20operations.pdf

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DISSector A B-Gyan Initiative

Growth drivers of retail in India

Easy
consumer
credit
Brand
consciousn
ess

Growth
Drivers

Change in
consumer
mindset

Rise in
income
and
purchasing
power

Increase in
consumer
class

Government Initiatives
In order to attract more of foreign funds and woo global majors such as Wal-Mart ad Carrefour, the
Government has further liberalized rules for international investment in multi-brand retail formats.
Foreign retailers will now be allowed to open stores in cities that have a population of less than one
million. Earlier, supermarkets could only commence their operations in 53 cities; the ones with more
than a million of population. A relaxation was permitted only in case of states that did not have a single
city with a population of one million. The initiative will now facilitate opening of stores in cities such as
Gurgaon and Aurangabad. Meanwhile, the Government of India has recently approved 18 FDI foreign
direct investment (FDI) proposals worth US$ 173 million in the single brand retail segment during April
2010 and May 2013. Out of these, five proposals worth US$ 137.68 million were approved during the
first two months of 2013-14.
Fashion brand Promod, France-based crockery maker Le Creuset, accessories firm Fossil Inc and French
sports giant Decathlon are some of the firms which have received approvals to open retail stores under
the single-brand retail policy.
The Government had raised the FDI cap in single-brand retail to 100 per cent from 51 per cent in
January 2012.

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DISSector A B-Gyan Initiative

Favorable FDI policy encouraging investment

51% FDI in multi brand retail

100% FDI in single brand retail

Status: Policy passed

Status: Policy passed

Minimum investment cap is USD100

million
30 per cent procurement of
manufactured or processed products
must be from SMEs
Minimum 50 per cent of total FDI must
be invested in backend infrastructure
(logistics, cold storage, soil testing labs,
seed farming and agroprocessing units)
Removes the middlemen and provides a
better price to farmers
Development in the retail supply chain
system
50 per cent of the jobs in the retail outlet
could be reserved for rural youth and a
certain amount of farm produce could be
required to be procured from poor
farmers
To ensure the Public Distribution System
(PDS) and Food Security System (FSS),
government reserves the right to procure
a certain amount of food grains
Multi brand retail would keep food and
commodity prices under control
Will cut agricultural waste as mega
retailers would develop backend
infrastructure
Consumers will receive higher quality
products at lower prices and better
service

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Products to be sold under the same

brand internationally
Sale of multi brand goods is not allowed,
even if produced by the same
manufacturer
For FDI above 51 per cent, 30 per cent
sourcing must be from SMEs
Consumerism of the retail market
Any additional product categories to be
sold under single brand retail must first
receive additional government approval

BGyan - The Business Interaction Committee, NITIE

DISSector A B-Gyan Initiative

New Goods and Service Tax (GST) would simplify tax structure

Supply chain structure

Pricing and profitability

Introduction of Goods and Service

Tax (GST) as a
unified tax regime will lead to a re-evaluation of
procurement and distribution arrangements
Removal of excise duty on products would result
in cash flow improvements

Elimination of tax cascading is expected

to lower

input costs and improve profitability

Application of tax at all points of supply chain is
likely to require adjustments to profit margins,
especially for distributors and retailers

Goods and
Service Tax (GST)
Cash flow

System changes and transition management

Changes need to be made to accounting and IT

Tax refunds on goods purchased for resale implies a

significant reduction in the inventory cost of
distribution

systems in order to record transactions in line with GST

requirements

Distributors are also expected to experience cash flow

from collection of GST in their sales, before remitting it
to the government at the end of the tax-filing period

Appropriate measures need to be taken to ensure

smooth transition to the GST regime - through
employee training, compliance under GST, customer
education and inventory credit tracking

Road Ahead
The domestic retail market is projected to be worth US$ 1.3 trillion by 2020, stated Mr KV Thomas, the
Consumer Affairs Minister. Future prospects pose a tremendous growth opportunity for retail playersdomestic as well as foreign. He further mentioned that the consumer behaviour is also experiencing a
transition due to upcoming western concepts like online shopping and direct selling.
Another report by Booz & Co and RAI expects that the overall Indian retail sector would grow 9 per cent
in 2012-16, with organised retail growing at 24 per cent or three times the pace of traditional retail
(which is expected to expand at 8 per cent).
Deloitte also seconds this forecast and expects that organised retail, which constitutes 8 per cent of the
total retail market, will gain a higher share in the growing pie of the retail market in India. Various
estimates put the share of organised retail as 20 per cent by 2020.

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DISSector A B-Gyan Initiative

References

http://en.wikipedia.org/wiki/Retailing_in_India
www.ibef.org
http://www.ey.com/IN/en/Home
http://www.deloitte.com/view/en_IN/in/index.htm
http://www.thehindubusinessline.com
http://articles.economictimes.indiatimes.com

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