Advances In Management s

l. 3 (7) July (2010)

The Growth of Indian Retail Industry
Dhivya Sathish'* and VenkatramaRaju D. ^
. Department of Management Studies, Sathyabama University, Jeppiaar Nagar, Rajiv Gandhi Road, Chennai 600 119, INDIA 2. Pachaiyappas College, 113, E.V.R.Periyar High Road, Chennai 600 030, Chennai, INDIA *dhivya.sathish05@gmail.com

Abstract
Retailing in a layman's language involves the procurement of varied products in large quantities from various sources/producers and their sales in small lot for direct consumption to the purchaser. The retail sector in -India is witnessing a huge revamping exercise as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls have begun appearing in metros and second-rung cities alike introducing the Indian consumer to a shopping experience like never before. The sector is at an inflexion point where the growth of organized retailing and growth in the consumption by the Indian population will take a higher growth trajectory. In addition, few other formats such as rural retailing, E-retailing, luxury retailing etc. too have found favors with the Indian retailers. In India, retail is the new buzzword. The need of the hour for Indian retailers is to develop systems and processes keeping the unique nature of the country in mind. In the retail trade, change is the only constant; survival in retail will depend on the ability to adapt to change. Keywords: Retail industry, retail growth, development.

retailers generally located in commercial establishments/ high-street areas. Globally, the retail industry has grown at a brisk pace with a Compounded Annual Growth Rate (CAGR) of 1.11% during the period 2001-2006. The growing expanse of the top global retailers has ensured globalization of the industry; however the opportunity for growth of organized retail is imfnense in countries such as India, S. Korea and Vietnam etc. where organized retailing is still at a nascent stage. The Indian retail industry has witnessed a massive transition during the last few decades. The Indian retail has grown at a CAGR of 11.2% during the period 2007-2009 with food and grocery accounting for the major share. Despite the industry being dominated by the unorganized retailers, the organized retailing revenues have soared at a CAGR of 19.5% during the period 2007-2009. The apparel and footwear segment occupies, the major share in the organized retail pie.

Retail Industry - Development
Retail is India's largest industry. It accounts for over 10 per cent of the India's GDP and around eight per cent of the employment. Retail sector is one of India's fastest growing sectors with a 5 per cent compounded annual growth rate. India's huge middle class base and its untapped retail industry are key attractions for global retail giants planning to enter newer markets. Driven by changing lifestyles, strong income growth and favorable demographic patterns, Indian retail is expected to grow 25 per cent annually. It is expected that retail in India could be worth US $ 175-200 billion by 2016. The organized retail industry in India, had not evolved till the early 1990s. Until then, the industry was dominated by the un-organized sector. It was a sellers market with a limited number of brands and little choice available to customers. Lack of trained manpower, tax laws and government regulations all discouraged the growth of organized retailing in India during that period. Lack of consumer awareness and restrictions over entry of foreign players into the sector also contributed to the delay in the growth of organized retailing. Foundation for organized retail in India was laid by Kishore Biyani of Pantaloon Retails India -Limited (PRIL). Following Pantaloon's successful venture, a host of Indian business giants such as Reliance, Bharti, Birla and others have now entered into retail sector. A number of factors are driving India's retail market. These include:

Introduction
The Indian retail industry has strong linkages with the economic growth and development of the economy. It is primarily characterized by its hierarchical growth structure, high working capital requirements etc. The factors such as rising urbanization, growing consumer class, growing per capita expenditure, greater interest evinced by the Venture capitalists / Private equity firms in the industry etc. have been driving the growth of organized retail. The growth of modern retailing has led to the ernergence of varied formats such as Departmental stores, Supermarkets etc. Retailing can broadly be classified into: • • Organized and Unorganized retail.

Unorganized retailing refers to the traditional form of retailing with the retail outlets situated near the residential areas. While organized retailing refers to the modern form of retailing with trading activities undertaken by licensed •Author for Correspondence (15)

Advances In Management • • • • • • •

•f^^"-"Tr, - . -^ — ,

•_

.- .. -^..

_

.-

_ Vol. 3 (7) July (2010)

Increase in the young working population, Hefty pay-packets, Nuclear families in urban areas, Increasing working-women population, Increase in disposable income and customer aspiration, Increase in expenditure for luxury items, and Low share of organized retailing.

Based on the projections, the top 5 organized retail categories by 2015 would be food, grocery and general merchandise, apparel, durables, food service and home improvement. According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry is the most promising emerging market for investment. In 2007, the retail trade in India had a share of 810% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2010.

India's retail boom is manifested in sprawling shopping centers, multiplex- malls and huge complexes that offer shopping, entertainment and food all under one roof. But there is a flip side to the boom in the retail sector. It is feared that the entry of global business giants into organized retail would make redundant the neighbourhood kirana stores resulting in dislocation in traditional economic structure. Also, thç! growth path for organized retail in India is not hurdle frçe. The taxation system still favors small retail business. With the intrinsic complexities of retailing such as rapid price changes, constant threat of product obsolescence and low margins, there is always a threat that the venture may turn out to be a loss making one. A perfect business model for retail is still in evolutionary stage. Procurement is very vital cog in the retail wheel. The retailer has to fight issues like fragmented sourcing, unpredictable availability, unsorted food provisions and daily fluctuating prices as against consumer expectations of round-the-year steady prices, sorted and cleaned food and fresh stock at all times. Trained human resource for retail is another big challenge. The talent base is limited and with the entry of big giants there is a cat fight among them to retain this talent. This has resulted in big salary hikes at the level of upper and middle management and thereby eroding the profit margin of the business. All the companies have laid out ambitious expansion plans for themselves and they may be hampered due to lack* of requisite skilled manpower, But retail offers tremendous for the growth of Indian economy. If all the above challenges are tackled prudently, there is a great potential that retail may offer employment opportunities to millions living in small town and cities and in the process distributing the benefits of economic boom and resulting in equitable growth. (Fig. 1) Thus it is clear from the above chart that the organized retail sector is going to capture a huge market. Going forward, TSMG projects that in the next 5 years, the overall retail market in India is likely to grow at a CAGR of 5.5% (at constant prices) to l,677,0(X) cr jn 2015. The organized retail market is expected to grow much faster at a CAGR of 21.8% (at constant prices) to Rs. 246,000 cr by 2015 thereby constituting 15% of the overall retail sales.

M^jor Retailers in India
Pantaloon: Pantaloon is one of the biggest retailers in India with more than 450 stores across the country. Headquartered in Mumbai, it has more than 5 million sq. ft retail space located across the country. It is growing at an enviable pace and is expected to reach 30 million sq. ft by the year 2010. In 2001, Pantaloon launched country's first hypermarket 'Big Bazaar'. It has the following retail segments: • Food & Grocery • Home Solutions • Consumer Electronics • Shoes • Books, Music & Gifts • Health & Beauty Care • • E-tailing Entertainment Big Bazaar, Food Bazaar Hometown, Furniture Bazaar, Collection-i e-zone Shoe Factory Depot Star, Sitara Futurebazaar.com Bowling Co.

Tata Group: Tata group is another major player in Indian retail industry with its subsidiary Trent, which operates Westside and Star India Bazaar. Established in 1998, it also acquired the largest book and music retailer in India 'Landmark' in 2005. Trent owns over 4 lac sq. ft retail space across the country. RPG Group: RPG Group is one of the earlier entrants in the Indian retail market, when it came into food and grocery retailing in 1996 with its retail Food world stores. Later it also opened the pharmacy and beauty care outlets 'Health and Glow'. Reliance Group: Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Fresh stores and Reliance Mart are quite popular in the Indian retail market. It is expecting its sales to reach Rs.9O, 000 crores by 2010. AV Birla Group: AV Birla Group has a strong presence in Indian apparel retailing. The brands like Louis Phillipe, Allen Solly, Van Heusen and Peter England are quite popular. It is also investing in other segments of retail. It will invest Rs. 8000-9000 crores by 2*010.

(16)

Advances In Management Retail formats in India
• Hyper marts/supermarkets: Large self-servicing outlets offering products from a variety of categories. Mom-and-pop stores: They are family owned business catering to small sections; they are individually handled retail outlets and have a personal touch. Departmental stores: They are general retail merchandisers offering quality products and services. Convenience stores: They are located in residential areas with slightly higher prices goods due to the convenience offered. Shopping malls: The biggest form of retail in India, malls offers customers a mix of all types of products and services including entertainment and food under a single roof. E-trailers: They are retailers providing online buying and selling of products and services. Discount stores: They are factory outlets that give discount on the MRP. Vending: It is a i^latively new entry in the retail sector. Here beverages, snacks and other small items can be bought via vending machine. , Category killers: Small specialty stores offer a variety of categories. They are known as category killers as they focus on specific categories such as electronics and sporting goods. This is also known as Multi Brand Outlets or MBO's. Specialty stores: They are retail chains dealing in specific categories and provide deep assortment. Mumbai's Crossword Book Store and RPG's Music World are couple of examples.

. 3 (7) July (2010) A McKinsey report, 'The rise of Indian Consumer Market', estimates that the Indian consumer market is likely to grow four times by 2025. Commercial real estate services company, CB Richard Ellis' findings state that India's retail market has moyed up to the 39th most preferred retail destination in the world in 2009 up from 44 last year. India continues to be amoftg the most attractive countries for global retailers. Eoreign direct investment (FDI) inflows as on September 2009, in single-brand retail trading, stood at approximately US$ 47.43 million according to the Department of Industrial Policy and Promotion (DIPP). 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 per cent. As a democratic country with high growth rates, consumer spending has risen sharply as the youth population (more than 33 percent of the country is below the age of 15) has seen a significant increase in its disposable income. Consumer spending rose an impressive 75 per cent in the past four years alone. Also, organized retail, which is pegged at around US $ 8.14 billion, is expected to grow at a CAGR of 40 per cent to touch US $ 107 billion by 2013. The organized retail sector, which currently accounts for around 5 per cent 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 in the next two years. Tier II cities like Noida, Amritsar, Kochi and Gurgaon are emerging as the favoured destinations for the retail sector with their huge growth potential. Eurther, 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 per cent. (Eig. 2) Retailers inspired by the Wal-Mart story of growth in small town America are tempted to focus on smaller towns and villages in India. However, a careful analysis of the town strata-wise population, population growth, migration trends and consumer spend analysis reveals a very different picture for India. As per TSMG estimates, the share of the 35 towns with current population is greater than 1. Million in the overall population of India would grow much faster from 10.2% today to reach 14.4% by 2025. Simultaneously, the share of these towns in the overall retail market would grow from 21 % today to 40% by 2025. Within these top 35 towns, an estimated 70-80% of trade could be in the organized sector. This is similar to the experience in China where in cities like Shanghai and Beijing, organized sector accounts for 70-80% of overall retail trade in certain categories. Hence, retailers should focus

Retail Industry - Growth
The Indian retail market, which is the fifth largest retail destination globally, has been ranked as the most attractive emerging market for investment in the retail sector by AT Kearney's eighth annual Global Retail Development Index (GRDI) in 2009. As per a study conducted by the Indian Council for Research on International Economic Relations (ICRIER),,the retail sector is expected to contribute to 22 per cent of India's GDP by 2011. With rising consumer demand and greater disposable income, the US$ 400 billion Indian retail sector is clocking an annual growth rate of 30 per cent. It is projected to grow to US $ 700 billion by 2011, according to a report by global consultancy Northbridge Capital. In 2008, the share of organized retail was 7.5 per cent or US$ 300 million of the total retail market.

(17)

Advances In Management
on the top 37 towns in the next decade. The opportunity in smaller towns and rural India would be smaller and fragmented as compared to the larger towns. Beyond by improved consumer spending, sales of listed retailers increased by 12 per cent in the September 2009 quarter compared with the same period in 2008. Moreover, many new apparel brands such as Zara, the fashion label owned by Inditex SA of Spain, UK garment chain Topshop, the Marc Ecko clothing line promoted by the US entrepreneur of the same name and the Japanese casual wear brand Uniqlo are preparing to open outlets in India.Australia's Retail Food Group is planning to enter the Indian market in 2010. It has ambitious investment plans which aim to clock revenue of US$ 87 million from the country within five years from start of operations. British retail major Marks & Spencer (M&S) is looking at scaling up its India operations and plans to open at least 50 more outlets in the country over the next few years. Koutons Retail India plans to open 200 stores in 2011 in addition to its existing 1,400. Of the 200 stores, 100 would be family concept stores, which would include women and children's wear. Reliance Footprint, part of Reliance Retail, plans to spend US$ 86.62 million to add 100 outlets across the country in two years to sell branded footwear. It currently has 16 outlets. Retail chain Suvidhaa Info serves plans to open 1,000-1,200 new outlets every month across the country and is eyeing a 100,000 strong network in the next two to three years. At present, the Mumbai-based firm has 18,000 convenient neighbourhood stores called 'Suvidhaa Point' across the country in over 20 states and over 400 cities. Lifestyle International, part of the Dubai-based US $ 1.5 billion Landmark Group, plans to have over 50 stores across India by 2012-13. These will include 35 Lifestyle stores for retailing apparel, cosmetics and footwear, besides 15 Home Centers that sell home furnishing goods. Watch maker, Timex India, is looking at increasing its presence in the country by adding another 52 stores by March 2011 at an investment of US $ 1.3 million taking its* total store count to 120. Wills Lifestyle plans to expand its operations by opening 100 new stores in the next three years. It also plans to concentrate on online buyers. Pantaloon Retail India (PRIL) is planning to invest US $ 77.88 million this fiscal to add up to 2.4 million sq ft retail space at its existing operations. Pantaloon Retail is also looking to hive off its value retail chain. Big Bazaar, into a separate subsidiary may eventually go for an initial public offer (IPO). PRIL proposes to open 155 Big Bazaar stores by 2014 increasing its total network to 275 stores. • • • • • Dissimilarity in consumer groups.

l. 3 (7) July (2010)

Restrictions in Foreign Direct Investment. Shortage of retail study options. Shortage of trained manpower. Low retail management skill.

Key Findings and Highlights
• Retail, India's largest industry and the country's largest source of employment after agriculture, has the deepest penetration into rural India and generates more than 11 % of India's GDP.

•> The government allows 100% Foreign Direct Investment (FDI) in cash and carry through the automatic route and 51% FDI in single brand retail through Foreign Investment Promotion Board (FIPB). • The Economic Survey 2007-08 has suggested that share for foreign equity in all retail trade is 100% in respect of luxury brands and other specialized retail chains. The back-end costs without distribution centre costs, or what is called retail administration costs in retail jargon, are around 2.5% to 3% of sales.

Road Ahead
According to industry experts, the next phase of growth is expected to come from rural markets. According to a new market research report by RNCOS titled, 'Booming Retail Sector in India', organized retail market in India is expected to reach US $ 50 billion by 2011. Number of shopping malls is expected to increase at a CAGR of more than 18.9 per cent from 2007 to 2015. Rural market is projected to dominate the retail industry landscape in India by 2012 with total market share of above 50 per cent. Organized retailing of mobile handset and accessories is expected to reach close to US $ 990 million by 2010. Driven by the expanding retail market, the third party logistics market is forecasted to reach US $ 20 billion by 2011. The retail industry in India is currently growing at a great pace and is expected to go up to US $ 833 billion by the year 2013. It is further expected to reach US $ 1.3 trillion by the year 2018 at a CAGR of 10%. As the country has got a high growth rates, the consumer spending has also gone up and is also 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 future days. By the year 2013, the organized, sector is also expected to grow at a CAGR of 40%.

Conclusion
In summary, the retail market is the next growth frontier for corporate India. It offers an opportunity for a large player to build a Rs. 40,000 Crores retail business spanning multiple categories by 2015 (at current prices). Compared to this, the revenue of the largest Indian retailer

Challenges facing Indian retail industry
• • • The tax structure in India favors small retail business. Lack of adequate infrastructure facilities. High cost of real estate.

(18)

Advances In Management

. 3 (7) July (2010)

Organised Retail Market in India (Rs. in Crores)
2004
Food. Grocery S General Merctiandis« Clothes. Textile & Fashion Ac<c Ourables & Mobiles Food Service Home tenproverTient Jewellery & Watches Fo««»ear Books. Music, Toys & Gits Others

:
10%

15 V

ir^Hi e in Rs. Cr.
42»

1 2950

~]ioeao
:
3340 2000
I2X

]

40605
28SSÍ 24351

ia%
12X 10%

1 1 2500 1 19S0 1 2500 BOO
1350

1

8% 7S
91Í

n
1
f

1634« 8770 6S08 3722 14«92
•••

7* 3»
3%
l i t

3» 5%

8 * •

Soared: TSMG Analysis

f Total 1 28,000

J

100%

Total ^ 2.46.431 j

Fig.l
Population in (#. Ct) 2001 2025E Proportion of Total Retait Market
(in % age)

, Metros & Mini Metros

Î

~8 crties
Top Cities (Pap. > 1 mn)

87

13 2%

3%'

27 cities Large Cities Pop X, (0.5 to 1 mn> 32 citi&s Rest of india 5500 towns -)- 6 iac

3.7

7.2

3%

10%

4.5

77%

73%

9% 57%

87.4

115.3
2004 2010 2015

Souroe: MCAER, CSSO, TSMG AnsSysis

2025

Fig. 2
Pantaloon was only Rs 1085 Crores in 2005. No wonder large domestic business houses and international retailers have expressed keen interest to enter the retail sector in India. However, to capitalize on the opportunity, a player needs to be aggressive in its outlook and build scale quickly 4. O'Malley L. et al. Retailer use of geo- demographic and other data sources: an empirical investigation. International Journal of Retail & Distribution Management, 25 (6), 188-196 (1997) 5. Christopher Knee, Learning from experience: five challenges for retailers. International Journal of Retail and Distribution Management, 30 (11), 519-29 (2002) 6. Swarup Arjun, "India's Retail Revolution", Blog Globaleconomydeosmatter, March (2009) 7. Andrew Collins, "Competitive Retail Marketing Dynamic Strategies for Winning and Keeping Customers", McGraw-Hill (1992) 8. 'Shopping malls-myths and realities'. Business Standard (2008). (Received 7* April 2010, accepted 15* June 2010)

References
1. Kearney A.T., Global retail development index (grdi) 2004-2007. http://www.alkearney.com/ (2007) 2. Nath Kamal, India retail detail.asp? (2009) report. Pressrelease/pressrelease

3. Henderson Terilyn, Mihas A. and Elizabeth A., Building Retail brands, The Mckinsey Quarterly Issue (2008)

(19)

Copyright of Advances in Management is the property of Advances in Management and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.