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  • 1. vision 2020Indian Modern Retail:The Ne xt Decademodern retail in india has indeed come a long way in the last 10 years, but what will it looklike in the year 2020? How will it evolve and what shape will it take? Which formats are morelikely to succeed by then? Here is the future of Indian modern retail and what is needed togive it a new direction that will put it on a firm growth path over the next decadeBy Harminder Sahni and Gaurav Marchanda The Indian retail sector has been However, there are several factors plans into India on hold, citing theone of the central drivers of the Indian that can possibly diminish the global downturn, the slowing Indianeconomy over the past decade. In potential exhibited by this sector. economy and the policy instability in2010, it was valued at $435 bn. While Unlike the growth witnessed by the the country.still mostly unorganised, the sector Indian economy in the past decade,is expected to augment at a CAGR of India’s GDP growth slipped to The value of total retail market in India, in USD bnaround 12 percent over the next ten around 6 percent in the 4th quarter 1200years, reaching an estimated size of of 2011 (compared to 6.9 percent 1000 957 CAGR: 12%over $950 bn by 2020. During this y-o-y in 3Q11)), flagging genuineperiod, traditional retail is expected concerns over the economy’s 800to grow at around 5 percent while prospects. This trend, combinedorganised retail is expected to grow at with the global economic slowdown, 600 435a much faster rate of 25 percent per has put significant doubts around 400annum. This also means that by 2020, the plans of several internationalorganised retail would contribute to retailers for Indian retail. In fact, 200around 20 percent to the total value of recently, some major global retailersthe retail sales in India. have decided to put their expansion 0 2010 2020114 . images retail . august 2012
  • 2. vision 2020 Organised retail would account for 20% of the quickly crowding Indian metros, some them less investment-intensive Indian retail market by 2020 have been focussing their expansion destinations for opening stores, 2010 2020 plans on the non-metros, and with which leads to a faster break-even 7% good reason. In the next few years, for real-estate developers and modern retail is expected to grow retailers both. 20% 50–60 percent annually in tier II and However, retailers looking at smaller III cities, compared to only around 30 Indian cities for expansion should be 93% percent in the metros. It is estimated wary of several challenges, including 80% that by 2014, almost half of the malls lack of quality workforce and in India would be present in tier I and infrastructure, and logistical issues. Organised retail Unorganised retail lower cities, with 80 percent of new mall development in the next couple Online retail to lead pan-India While this trend is worrying, its of years taking place in non-metros. access implications should not be over- The rapid growth of retail in tier India is set to become the third burdening. The fact remains that I and lower cities has been one of largest nation of Internet users in the India presents a key investment the most surprising and interesting next two years. This, coupled with opportunity, especially in the current aspects of the Indian retail story. the rising consumer confidence in economic context, and should stay in Several factors are driving this trend: online retail, is driving the growth favor of international retailers, given •• The metros account for around 30 of e-commerce (or e-tailing) in the its massive consumer base, rapidly percent of the total consumption in country. With a significant number growing income, and a significant India. This figure is set to decrease of Indian consumers turning Internet movement towards consumerism. It is with the rapid dissemination of users, and, eventually, online projected that between 2010–2020, 1.3 income in the country. shoppers, selling through the online bn additional people in the world will •• The availability of quality retail channel is set to redefine retail. have disposable incomes of greater spaces in the metros is lagging Online retail is here to stay, and than $5,000. This will introduce an behind demand. This has pushed is bound to force retail managers entirely new population base that will retail rentals sky-high, making it to rethink their strategy for tapping contribute significantly to consumer difficult for most retailers to break the Indian consumer’s wallet. The spending. Over 20 percent of these even in these cities. potential for online retail varies across new consumers will come from India. •• Smaller cities provide a low-cost different sectors. As is evident from We believe that in the coming years, advantage, especially in land, the graph on the next page, online four major trends would shape the construction, manpower and retail in India currently lags behind Indian retail scenario. Retailers who facilities management. This makes significantly in the apparel sector, most effectively exploit these would compared to the global average emerge as major players in the Indian % share of malls by 2014 growth rates. Apparel thus represents retail sector by 2020 and beyond. Metros 54% major growth potential for the future. A significant aspect of the booming India beyond the top 20 cities Tier-1 18% Indian e-retail is that the main While most retailers have been Tier-2 and lower 28% demand for it in the coming years is rushing to capture opportunities in the Source: Malls of India, 2011 expected to come from the tier II and The Global retail development index rankings, 2011 2011 Country Region Market Country risk Market Time pressure GRDI score Change in rank rank attractiveness (25%) saturation (25%) compared to 2010 (25%) (25%) 1 Brazil Latin America 100.0 79.4 42.9 63.9 71.5 +4 2 Uruguay Latin America 85.0 73.8 63.6 39.6 65.5 +6 3 Chile Latin America 84.3 100.0 30.3 44.3 64.7 +3 4 India Asia 28.9 59.9 63.1 100.0 63.0 -1 5 Kuwait MENA 80.4 80.6 57.3 27.1 61.3 -3 6 China Asia 49.5 76.5 31.0 87.7 61.2 -5 7 Saudi Arabia MENA 70.9 80.7 50.6 35.7 59.5 -3 8 Peru Latin America 39.8 61.5 72.0 59.5 58.2 +1 9 United Arab Emirates MENA 87.6 88.9 12.6 42.9 58.0 -2 10 Trukey MENA 83.8 65.5 45.0 37.0 57.8 +8Source: GRDI, a 10 year retrospective, AT Kearney august 2012 . images retail . 115
  • 3. vision 2020 Retail rents in Indian metros 2011 III cities. In fact, around 70 percent of India’s City Area Rent (INR/sq. feet per month) e-commerce business even today happens outside the top 10 cities, a recent report by New Delhi Khan Market 1,200 eBay says. Several factors drive this trend: Mumbai Linking Road 666 •• Low brand penetration through physical Bangalore Brigade Road 428 stores in the non-metros; •• Large variety offered by online retailers, not Kolkata Park Street 340 only in terms of diversity of brands but also Chennai Khader Nawaz Khan Road 180 in designs, styles, and categories; and Hyderabad Banjara Hills Road No. 1, 2 & 3 126 •• Price differential between online retailersSource: Cushman & Wakefield Research and physical stores. The online retail market in India is growing at a rapid pace, diven by a rapid growth in online shoppers in the country Value, Online retail market in india, in Rs crores 8000 7000 CAGR: 37% 4000 2000 0 2011 2015 (e) Online retailing or e-tailing could be one of the biggest trends in Active online shoppers in india, in lakhs the retail sector in the coming years 380 400 Mall development to make or break CAGR: 43% organised retail The rapid growth of the Indian retail sector has led to increased demand for retail spaces. 200 This, along with the rapid initial successes of malls in the country, has resulted in a 90 huge shift in focus towards investment into mall development across India. Several mall projects have kick-started in several cities over 0 the past few years. 2011 2015 (e) However, there are signs that India’sSource: Industry Reports and COMSCORE Media Matrix mall growth story is not as rosy as earlier anticipated. While the existing malls have Leading online retail categories, by growth rate, 2010-11 witnessed significantly high footfalls (often Computer software 12.4% comparable to the developed retail markets), 16.8% the conversion rates and the actual business Consumer electronics 16.8% generated has been low. During 2010–11, 14.0% India’s existing malls saw a dip in customer Computer hardware 16.5% 11.6% footfall of around 8–10 percent, in tandem Comparison shopping 21.6% with a 15–20 percent drop in conversion rates. 10.4% The worst hit were premium malls, which 9.3% Books 7.1% have severely suffered due to the unfulfilled 4.4% anticipation of the global single-brand retailers Flowers/gifts/greetings 6.0% entering the Indian market. Retail-Movies 4.4% Further, in 2012, it is estimated that there was 4.1% Worldwide a deferment of more than 30 percent of retail 3.8% India Luxury goods/accessories 3.7% mall space against the projected supply for 18.3% the first half of the year. The overall vacancy Apparel 3.7% rate for major cities during H1 2012 was 19.6Source: Industry Reports and COMSCORE Media Matrix116 . images retail . august 2012
  • 4. vision 2020 New Malls in India by 2014 Three key categories that are going Additional malls 200 malls to witness the most growth include food retail, consumer electronics, Additional built up area 150 mnsq feet (increase by nearly 200%) and apparel. These should be the key Additional gross leasable area 81 mnsq feet (increase of 138%) target categories for retailers.Source: Malls of India, 2011 Food Retail: The food category, which constitutes over half of the Prime Retail Rent, High street vs.Malls in Delhi NCR, March 2012 monthly consumption expenditure High street Rent (INR/sq. feet per month) y-o-y change of Indian households, is expected to benefit significantly through the Khan Market 1,200 ~0.0% advent of modern retail. It includes Connaught Place 650 8.3% food grocery retail and is expected South Extension I & II 600 9.1% to grow beyond the $700 bn mark by 2020, making India the fourth largest Greater Kailash I, M Block 550 10.0% food retail market globally. Karol Bagh 350 7.7% Currently, about 70 percent of BasantLok 250 ~0.0% spending on food in India is on agri Malls products, over half of which comprise fruits and vegetables. This is the key South Delhi 450 ~0.0% target category for new entrants in the West Delhi 250 ~0.0% market. Several retailers such as Safal, Noida 250 ~0.0% Easy Day, Reliance Fresh, Spencer’s, and Food Bazaar have entered food Gurgaon 210 ~0.0% and grocery retailing. Most of theseSource: Cushman & Wakefield Research are playing around the “freshness”percent, marginally higher than theprevious quarters (Source: A report byCushman & Wakefield). This situationis further substantiated by the factthat while rental values across mostmall destinations within these citiesremained largely stable, high streetsrecorded a higher increase in rentals,rubbishing claims of malls replacinghigh streets as the primary retaildestination, at least for the time being. A key reason for this prevalentdownswing in demand for malls is thelack of quality mall spaces in India.Poor tenant mix and planning haveresulted in insufficient mall traffic andlow conversion rate. According to astudy by Jones Lang LaSalle Meghraj,over 90 percent of malls in India The food category is expected to grow over $700 bn in value by 2020are not at par with the internationalstandards. Research further shows appropriate infrastructure facilities and “organic produce” themes.that in the top seven cities of India, and better facility management. The prospects of increasingaround 51 percent of the existing malls international investment into theare of “superior grade,” 37 percent are Food, Apparel and Electronics to category would further boost itsof “average grade” and 12 percent are drive growth potential. Currently in India, onlyof “poor grade.” While growth in the Indian retail about 7 percent of the total agriculture As a result, it can be concluded that sector is bound to create opportunities produce gets processed, comparedretail space management, especially in most of the categories, some of to over 50 percent in the US. Thismall management, is going to be a these are positioned to gain more further substantiates the huge growthmajor driving factor in Indian retail in than others in the coming years. (See potential of this category in thethe near future. This means focusing table on next page for the projected country. The food processing industrymore on key issues such as the ideal growth for different categories in India is currently witnessing a 20 percenttenant mix, positioning of the mall, between 2011–20). annual growth rate in India. august 2012 . images retail . 117
  • 5. vision 2020 LG, Sony, Samsung and Apple setting Categories Total Market 2011, Estimated size 2020 Change in value (2011-20) USD bn USD bn up outlets. Also, there is a definite focus on the category by online Food 320 760 440 retailers like Flipkart and Indiatimes. Consumer Electronics 35 130 95 Apparel: Apparel is bound to Apparel 40 130 90 witness significant growth in the coming years, as the sector is going Jewellery & Watches 30 85 55 to attract a high proportion of the Health & Beauty 25 75 50 increased spend by the Indian Miscellaneous 22 65 43 consumer. At $33, India currently Furniture & Furnishing 20 60 40 has one of the lowest per-capita consumption of apparel in the world. Footwear 8 25 17 However, there is a strong growthSource: NSSO Consumer Expenditure Report in the apparel industry as both Indian and global brands wise up In the food retail category (“eating dominate this category. In 2009–10, to its potential. Global retailersout”), the fast-food formats account the market for LCD TVs in India like Tommy Hilfiger, Zara, Marksfor about 50 percent of the overall expanded from 1.5 million to 2.8 & Spencer, and Mango are activelymarket, while full-service restaurants million units. Another fast-growing scouting locations to open more storesmake up another 25 percent. segment in this category is home across the country while others like One of the main beneficiaries of theatres, which grew from 0.24 H&M, Mossimo Dutti and GAP arethe fast-catching-up “mall culture” in million units to 0.30 million units evaluating the Indian market. Again,the country, especially in the metros, (a growth of 25 percent) during the the category is set to benefit fromis the foodservice industry due to the same period. The sale of microwaves the growth of e-commerce, which isemergence of “eating out” as a major is growing fast too at an estimated bound to provide a strong impetus toleisure activity for Indian families. rate of 21.6 percent yearly. Further, the sector in the near future.Not surprisingly, food courts in malls the value sales of mobile handsets isare expected to grow briskly at 35–40 estimated to be growing at around 15 what the crystal ball sayspercent annually in the coming few percent every year. Despite several challenges relatedyears. Consumer electronics retailing has to government regulations, Food retail has emerged as one of the received significant investments in infrastructure, retail space availability,biggest attractions of the Indian retail recent years, especially from large- costs, and quality and availability ofsector. Several international foodservice format retailers such as Croma, professional talent, Indian organisedgiants like Starbucks (which targets Reliance Digital, eZone and Next, retail is bound to grow really well overto open around 50 locations in India which are attempting to capture the the next decade.by 2013) and Dunkin’ Donuts (plans surge in demand. Some of these are Retailers who learn to look beyondto set up around 80–100 outlets in the now experimenting with smaller size the 20 top cities of India, pro-activelynext five years) along with others like stores and a wider range of products exploit the potential of online retail,Muffin Break, Berrylite, Quiznos and to penetrate deeper into the market closely follow the mall developmentsCi Gusta! are all set to tap into the and expand their market share. across the country, and sharpen theirlarge growth potential of the country’s The sector has witnessed increased focus on food, apparel and electronics,food retail sector. investments from large multi-brand they will create businesses of a Consumer Electronics: The rising outlet (MBOs) chains and e-commerce significant scale and be able to giveincome levels, increasing number players, especially in the mobile stupendous returns to their investorsof double-income families, easy handsets category, with brands like on their investments.availability of credit, changinglifestyles and the enhanced consumer Country Apparel market Per capita ABOUT THE AUTHORawareness, all have led to a rapid size, USD bn in apparelexpansion of the consumer electronics 2011 consumption,category in India. Other growth factors USDbn in 2011 Harminder Sahni is the managinginclude low-penetration levels of the UK 64 1015 director of the Gurgaon-basedindustry and the growing availability management consulting firm USA 310 988of products through retail stores as Wazir Advisors (http://wazir.in)well as online retail. France 50 762 At the gross level, the consumer Japan 95 746electronics category has been growing China 88 65at a CAGR of around 16 percent in India 40 33value terms. Color TVs, with sales Gaurav Marchanda is adriven by flat-screen LCD models, Source: Wazir Analysis Consultant with Wazir Advisors118 . images retail . august 2012