Organised Retail in Northern and Western States

by S L Talwar

The year 2010 is likely to give new hopes for everyone. The same applies to the retail sector as well.
Retailers are buoyant about their revival in the current year. Plausible revival signs for retail are on the
horizon in big cities like Bangalore, Delhi, and Mumbai. Estimates state that the shopping fever would
soon spread to the other cities revitalizing the retail sector. Industry analysts forecast a drastic retail
expansion during 2010 with many retail giants expanding their presence in tier II and III cities. In tier-II
cities, economy has sufficiently improved to stimulate the shopper’s interest, thereby boosting up the
sales figures. Luxury segment holds much promise for the coming year.

Indian retail market is the fifth largest retail destination globally and owns the credit of being ranked as an
attractive market for retail investment. Retail industry is the largest segment in India, employing about 8%
of the workforce, and contributing more than 10% of the country’s GDP. During the past decade, retail
industries have built up strong lifestyle brands positioning themselves to cater to the tastes and
preferences of their consumers and utilising the increasing income of the end-users. With the economy
recovering faster than anticipated, there is a drastic change in the consumer spending patterns. The first
quarter of 2010 has witnessed a growth in the retail segment.

The year 2010 is the beginning of a deciding decade on how much India will develop in the next 10 years.
It is expected that the country will accelerate its GDP growth like never before and will sustain a GDP
growth of about 9.6% by 2020. India is housing about 1.30 billion people and the per capita income of
every Indian will be at an average of 8%, which is double than the current.

The number of middle class households will increase from 120 million to 170 million with the addition of
50 million people earning Rs 75,000 to 10,00,000 a year. Taking all this statistics into consideration, out of
an end-of decade population 1.30 billion plus, 800 million people will be middle class Indians. The fastest
growing areas will be education, health, recreation, and the consumers buying television, air coolers and
two wheelers will be about 80% of the total population in the country by the end of decade 2020. The
population of urban India will be 40% of the total population of the country by that time.

Retail Industry
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%, said a report. As a democratic country with high
growth rates, consumer spending has risen sharply as the youth population (more than 33% of the
country is below the age of 15) has seen a significant increase in its disposable income. Consumer
spending rose an impressive 75% in the past four years alone. Organised retail, which accounts for nearly
5% of the overall retail market, is likely to touch $13 billion by 2010 end. 

Retail sector income has grown by 22.7% and 30.2% in the fourth quarter of 2009-10.  India’s retail
market was moved up to the 39th most preferred retail destination in the world in 2009, up from 44 in
2008 and continues to be among the most attractive countries for global retailers.

Major expansion plans of retailers

Company                             Format/ Vertical              No. of stores      Deadline

Big Bazaar                            Hypermarket                     350                         -

KB’s Fair Price                    Discount Store                  900                         -

Shopper’s Stop                 Department Store           18                           2012

Reliance Jewels                                Gems & Jewellery           15                           2012

Gloria Jean’s Coffee       Food and Beverage         41                           2011

Maishaa                               Home improvement       50                           March 2010

Major Brands                     Fashion Brands                 62                           2011

Vision Express                   Eyewear                              700                         2016-17

Sun Glass hut                     Eyewear                              30                           2012

 During 2010-12, 55 million sq ft of retail space will be ready in 7 major cities

 Between 2010 and 2012, the organised retail real estate stock will more than double from the
existing 41 million sq ft to 95 million sq ft
 About 20% or 8 million of mall space is vacant
  During 2009-12, the Organised Retail Market will grow at a rate of 31 per cent per annum
 Between 2010-12, a higher pace of real estate development in comparison to the pace of
organised retail market growth, will create an oversupply situation to the magnitude of 21 million
sq ft  in 2012

The organized retail sector, which currently accounts for around 5% of the Indian retail market, is all set to
witness maximum number of large format malls and branded retail stores in South India, followed by
North, West and the East. Further, 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$ 1.26 billion in
the next four to five years, at a CAGR of 40%.

Retail consumption trends remained upbeat in both rural and urban households in the last quarter of
2009-10. All the top retailers, such as Pantaloon, Shoppers Stop, More and Reliance Retail have chalked
out expansion plans. It is estimated that by December 2010, a 2.5 crore sq ft (approx) of new retail space
will be developed countrywide, mainly in big cities and lucrative tier II cities, which is 50% more than what
was developed in the last year.  The last couple of quarters have seen some increase in rentals, but they
are still 25-30% lower than the peak rates during the boom period of 2007-08.

Punjab

A number of changes have taken place on the Punjab’s retail front such as exponentially increased
availability of international brands, increasing number of malls and hypermarkets as a result of easy
availability of retail space. Food and grocery are the two categories in the retail sector which offer the
most promising opportunities.

The state is occupying only 1.54% of the country’s total geographical area with 28 million population but
contributes 60.9% to the national food pool for wheat and 27.8% for rice. Cropping intensity of the state is
the highest in the country as almost 98% of the gross cropped area in Punjab is irrigated, as compared to
only 41.2% for all India. The government has given approval to 37 agri mega projects at a cost of Rs
30,000 million. However, agro-based industries contribute nearly 20% to the manufacturing output and
about 14% to the employment in the state. The state accounts for 54% marketable surplus of wheat and
38% of rice. Services held the largest share of 39% in Punjab’s GSDP.

 
The people of Punjab are open to advancement. Changes are mostly seen in a positive light among the
people of Punjab. The decision makers are predominantly male for shopping with average MHI Rs 12000
-13000 and average monthly spend is Rs 4500-5000. Among both primary and secondary catchment
areas, more than 3/4th profile is largely married with at least 1 kid in household and most of them own all
basic durables in their household and a vehicle.

The people of Punjab have an eye for style - be it stylish clothes or accessories that are out of ordinary.
The people are aware of brands that they have seen in malls while visiting metros and foreign countries.
For a good destination point, basic expectations while shopping are accessibility and hygiene. Desirable
expectations while shopping are diverse range of products, quality, reasonable price, comfortable place,
entertainment, F&B, security, etc. Leasing as a concept is not common in retail in Punjab among the
retailers. Lack of proper theatres in Punjab is bringing the crowd to multiplexes at the malls.

The economy of the state is very impressive and the state GDP is growing at CAGR 13 per cent between
1999-2000 and 2008-09 to reach US$ 30.93 billion. The state is fifth highest per capita income in the
country growing from Rs 31,182 in 2003-04 to Rs 44,411 in 2007-08, higher than the national per capita
income of Rs 33,283. Secondary and tertiary sectors have been growing steadily with a growth rate of 6.5
per cent and 5.4 per cent in 2007-08 respectively, driven by growth in sub sectors like transport, storage
and communication and financial services. In 2007-08, the state GDP was to the tune of Rs 138,467 crore
(US$ 30.62 billion) and share 3.49 percentage of the total GDP of the country. In 2008-09, it went up to
Rs 158,972 crore (US$ 34.22 billion) with 5.21 percentage of total GDP of the country.

Growth factors

The major factors fuelling the growth in retail in the state are increased disposable income of people,
improving lifestyles, increasing international exposure, growing aspirations among customers, large
middle class that is considered to be major potential customer groups. Punjab’s youth is perceived as
trend-setters and decision makers, and also large contributors to the retail phenomenon and tourist
spending in Punjab is increasing, which also contributes to the retail boom.   The GDP of Chandigarh was
Rs 14,176 crore (US$ 3.13 billion) with 0.36 per cent GDP share in 2007-08 and went up to Rs 16,431
crore (US$ 3.54 billion) having 0.54 per cent of the total GDP of the country.