Research Explorer January - June 20131
Vol . II : Issue. 6 ISSN:2250 - 1940
FEATURE AND CHALLENGES OF GLOBAL ECONOMICS’ TRENDS AFFECTING
INDIAN RETAIL INDUSTRY
Dr. C. Anbalagan,
Professor of M. Sc., Accounting & Finance, School of Management & Accounting
Hawassa University, Hawassa, Ethiopia,EastAfrica.
Head of the Department, Dean In-Charge,
School of Management & Accounting, Hawassa University, Hawassa, Ethiopia, East Africa
Lecturer M. Sc., in Accounting and Finance, Coordinator of Masters Degree,
School of Management & Accounting, Hawassa University, Hawassa, Ethiopia, East Africa,
In this attempt, Author would like to discuss the growth ness of global economy and retail industries in
India. Retailing is the final step in the distribution of merchandise - the last link in the Supply Chain connecting
the bulk producers of commodities to the final consumers. It covers diverse products such as food, apparels,
consumer goods, financial services and leisure. Retailing is one of the pillars of the economy in India and
accounts for 13% of GDP. The retail industry is divided into organised and unorganised sectors. Over 12
million outlets operate in the country and only 4% of them being larger than 500 sq ft (46 m2
) in size. Organised
retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for
sales tax, income tax, etc. India’s economy witnessed a GDP growth rate of 7.4% during the fiscal year 2009-
10 and is further expected to grow at c. 8.5% in 2010-11. With the boom of the service sector and increased
industrial output, the growth pace has spiralled in the last decade. 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 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.
Key wards: Retailing, Globalisation, MNC, E-trailers, Supply Chain
Retailing is the final step in the distribution of
merchandise and the last link in the Supply Chain
connecting the bulk producers of commodities to the
final consumers. It covers diverse products such as
food, apparels, consumer goods, financial services
and leisure. Retail is the sale of goods to end users,
not for resale, but for use and consumption by the
purchaser. The retail transaction is at the end of the
supply chain. Manufacturers sell large quantities of
products to retailers, and retailers sell small quantities
of those products to consumers. Retailing is one of
the pillars of the economy in India and accounts for
13% of GDP. The retail industry is divided into
organised and unorganised sectors. Over 12 million
outlets operate in the country and only 4% of them
being larger than 500 sq ft (46 m2
) in size. Organised
retailing refers to trading activities undertaken by
licensed retailers, that is, those who are registered
for sales tax, income tax, etc. These include the
corporate-backed hypermarkets and retail chains, and
also the privately owned large retail businesses.
Unorganised retailing, on the other hand, refers to
the traditional formats of low-cost retailing, for
example, the local kirana shops, owner manned
general stores, pan / beedi shops, convenience stores,
Available online at www.selptrust.org
ISSN : 2250 - 1940
Vol II : Issue. 6
January - June 2013
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hand cart and pavement vendors, etc. In India, a
shopkeeper of such kind of shops is usually known
as a dukandar.
Retail Opportunity in India
India’s economy witnessed a GDP growth rate of
7.4% during the fiscal year 2009-10 and is further
expected to grow at c. 8.5% in 2010-11. With the
boom of the service sector and increased industrial
output, the growth pace has spiralled in the last
decade. This has set a sustainable platform for
consumerism and rising per capita spend leading to
an inclusive growth. Growing disposable income has
led to increasing consumer aspiration, with easy
access to consumer finance lending a source to
achieve these aspirations and desires. The middle
class today accounts for c. 47 percent of the total
households in the country, which has rapidly grown
over the last decade and is expected to have a similar
trend over the coming years. The Indian consumer
today is exposed to a large variety of products from
where they pick and choose till they get the right
product at the right price.
Retailing in India
i. Total Consumer Spend in theYear 03-04 - INR 9300
billion (USD 375 billion) growing over 5% annually
ii. Retail sales - 55% at INR 280 billion (USD 205
iii. Organised Retail - Only 3% but growing at 30%
iv. Organised retail to cross INR 1000 billion mark by
v. INR 200 billion investment in the pipeline
vi. Top 6 cities account for 66% of total organized
Growth of Indian Retail
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 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.
According to a report by North bride Capita, the
India retail industry is expected to grow to US$ 700
billion by 2010. By the same time, the organized sector
will be 20% of the total market share. It can be
mentioned here that, the share of organized sector in
2007 was 7.5% of the total retail market
1. An increasing number of people in India are turning
to the services sector for employment due to the
relative low compensation offered by the traditional
agriculture and manufacturing sectors. The
organized retail market is growing at 35 percent
annually while growth of unorganized retail sector
is pegged at 6 percent.
2. The Retail Business in India is currently at the point
of inflection. Rapid change with investments to the
tune of US $ 25 billion is being planned by several
Indian and multinational companies in the next 5
years. It is a huge industry in terms of size and
according to management consulting firm Techno
park Advisors Pvt. Ltd., it is valued at about US $
350 billion. Organised retail is expected to garner
about 16-18 percent of the total retail market (US
$ 65-75 billion) in the next 5 years.
3. India has topped the A.T. Kearney’s annual Global
Retail Development Index (GRDI) for the third
consecutive year, maintaining its position as the
most attractive market for retail investment. The
Indian economy has registered a growth of 8%
for 2007. The predictions for 2008 is 7.9%. The
enormous growth of the retail industry has created
a huge demand for real estate. Property developers
are creating retail real estate at an aggressive pace
and by 2010, 300 malls are estimated to be
operational in the country.
4. With over 1,000 hypermarkets and 3,000
supermarkets projected to come up by 2011, India
will need additional retail space of 700,000,000 sq ft
) as compared to today. Current
projections on construction point to a supply of just
200,000,000 sq ft (19,000,000 5. m2
), leaving a
gap of 500,000,000 sq ft (46,000,000 m2
) that needs
to be filled, at a cost of US$15–18 billion.
6. According to the ICRIER report, the retail business
in India is estimated to grow at 13% from $322
billion in 2006-07 to $590 billion in 2011-12. The
unorganized retail sector is expected to grow at
about 10% per annum with sales expected to rise
from $ 309 billion in 2006-07 to $ 496 billion in
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Major Indian Retailers
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’s 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
i. Food & Grocery: Big Bazaar, Food Bazaar
ii. Home Solutions: Hometown, Furniture Bazaar,
iii. Consumer Electronics: e-zone
iv. Shoes: Shoe Factory
v. Books, Music & Gifts: Depot
vi. Health & Beauty Care: Star, Sitara
vii. E-tailing: Futurebazaar.com
viii. Entertainment: 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 lakh 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 & grocery retailing in 1996 with its retail
Foodworld stores. Later it also opened the pharmacy
and beauty care outlets ‘Health & Glow’.
Reliance: 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’s expecting its sales to
reach Rs. 90,000 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, Peter England
are quite popular. It’s also investing in other segments
of retail. It will invest Rs. 8000-9000 crores by 2010.
Indian apparel retailers are increasing their brand
presence overseas, particularly in developed markets.
While most have identified a gap in countries in West
Asia and Africa, some majors are also looking at the
US and Europe. Arvind Brands, Madura Garments,
Spykar Lifestyle and Royal Classic Polo are busy
chalking out foreign expansion plans through the
distribution route and standalone stores as well.
Another denim wear brand, Spykar, which is now
moving towards becoming a casualwear lifestyle
brand, has launched its store in Melbourne recently.
It plans to open three stores in London by 2008.
The low-intensity entry of the diversified Mahindra
Group into retail is unique because it plans to focus
on lifestyle products. The Mahindra Group is the
fourth large Indian business group to enter the
business of retail after Reliance Industries Ltd, the
Aditya Birla Group, and Bharti Enterprises Ltd.
Retail Formats in India
Hyper marts / supermarkets: large self-
servicing outlets offering products from a variety of
Mom-and-pop stores: they are family owned
business catering to small sections; they are
individually handled retail outlets and have a personal
Departmental stores: are general retail
merchandisers offering quality products and services.
Convenience stores: are located in residential
areas with slightly higher prices goods due to the
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: are retailers providing online buying
and selling of products and services.
Discount stores: these are factory outlets that
give discount on the MRP.
Vending: it is a relatively new entry, in the retail
sector. Here beverages, snacks and other small items
can be bought via vending machine.
Category killers: small specialty stores that 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: are retail chains dealing in
specific categories and provide deep assortment.
Mumbai’s Crossword Book Store and RPG’s Music
World is a couple of examples.
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Indian retail formats can be classified into two
distinct categories: traditional and modern.
Traditional Formats include: -
i. Kiranas: Traditional Mom and Pop Stores
iii. Street Markets
iv. Exclusive / Multiple Brand Outlets
Modern Formats include: -
i. Supermarkets such as Food world
ii. Hypermarkets such as Big Bazar, Giant, Shoprite,
iii. Department Stores such as Shoppers Stop,
Lifestyle, Pantaloons, Pyramids, Trent
iv. Speciality Chains such as Ikea
v. Company Owned / Operated such as Bata, Sony
Regulations in Retail Industry
The policy environment is currently seen to be
unfavourable to organised retailing. Some of the
impediments to growth of retail include the following:
Restrictions on FDI:
Recent indications that the government is
considering foreign direct investment in retail trade
have sparked off a debate on the advisability and
consequence of this policy. At present, foreign direct
investment (FDI) in pure retailing is not permitted
under Indian law. Some of the areas in retailing that
will be affected by FDI are as follows: -
i. Creating Additional Jobs
ii. Diminution of Kirana Shops and Retail Stores
iii. Access to Larger Financial Resources
iv. Benefit to Consumers
v. Supplier Quality Enhancements
vi. Enhanced Supply Chain
vii. Increased Exports
viii. WTOs Cross Retaliation
Entry of MNCs
The world’s largest retailer by sales, Wal-Mart
Stores Inc and Sunil Mittal’s Bharti Enterprises have
entered into a joint venture agreement and they are
planning to open 10 to 15 cash-and-carry facilities
over seven years. The first of the stores, which will
sell groceries, consumer appliances and fruits and
vegetables to retailers and small businesses, is slated
to open in north India by the end of 2008.
Carrefour, the world’s second largest retailer by
sales, is planning to setup two business entities in the
country one for its cash-and-carry business and the
other a master franchisee which will lend its banner,
technical services and know how to an Indian
company for direct-to-consumer retail.
The world’s fifth largest retailer by sales, Costco
Wholesale Corp (Costco) known for its warehouse
club model is also interested in coming to India and
waiting for the right opportunity. Opposition to the
retailers’ plans have argued that livelihoods of small
scale and rural vendors would be threatened.
However, studies have found that only a limited
number of small vendors will be affected and that
the benefits of market expansion far outweigh the
impact of the new stores.
Tesco Plc., plans to set up shop in India with a
wholesale cash-and-carry business and will help
Indian conglomerate Tata group to grow its
The Revolution Ahead
The last few years have seen rapid transformation
in many areas like: -
Scalable and profitable retail models are well
established for most of the categories. Indian
consumers are rapidly evolving and accepting modern
formats overwhelmingly. Retail space is no more a
constraint for growth.
Challenges Facing Indian Retail Industry
i. The tax structure in India favours small retail
ii. Lack of adequate infrastructure facilities
iii. High cost of real estate
iv. Dissimilarity in consumer groups
v. Restrictions in Foreign Direct Investment
vi. Shortage of retail study options
vii. Shortage of trained manpower
viii. Low retail management skill
Verdict on FDI: Market is an important asset.
It needs to be protected the way other assets are
protected. However, it is clear that FDI in retail trade
will lead to incremental economic benefits and not
substitute on-going activities. Any strategy in the
direction of FDI should ensure that domestic players
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are not unduly displaced and sufficient opportunities
are available for the growth of domestic players.
Therefore, the strategy should be controlled release
of restrictions on FDI. Percentage of FDI allowed
should be increased in small amounts and for specific
commodities at every step. Constructive suggestions
and inputs from all stakeholders should be taken in
shaping the policy.
Land and property Laws: There is a shortage
of good quality retail space, and rents are high for
what is available. Compounding these shortages are
the following problems: -
i. Only Indians can own property in India, which
complimenting the restrictions placed on FDI,
restrict the entry of foreign players.
ii. Stamp duties on property deals are significant. The
lease alone can cost up to 6-10 per cent of sales
while it’s just 3-5 per cent globally.
iii. The initial urban planning of cities was done with
smaller plots in mind which along with rigid building
and zoning laws make it difficult for procurement
of retail space.
iv. The urban land ceiling act and rent control acts
have distorted property markets in cities, leading
to exceptionally high property prices.
Labour Laws: The labour laws instituted to
protect store workers are not flexible enough to
support the modern formats of retailing. These
rigidities in the law constrain the operations of modern
retail outlets. Working hours are restricted, with shops
required to close one day of the week and the hiring
of part-time employees is difficult.
Taxes: Effective corporate tax rate is 36.59% for
a local company and 41.82% for a foreign company.
Even essential basic foodstuffs are taxed. The varying
sales tax rate across states makes supply chain
management an even more difficult task for retailers.
However, with the introduction of Value Added Tax
(VAT) across all states, some of the sales tax
anomalies in the supply chain could get correct over
a period of time.
Supply chain: Finance Minister Pranab Mukherjee
had in his 2010-11 budget speech said “... the second
element of the strategy relates to reduction of
significant wastages in storage as well as in the
operations of the existing food supply chains in the
country. This needs to be addressed.” India is the
seventh largest country (land mass: 3.2 million sq.
Kms.) with varying climatic conditions over the
country. Taste and preferences of people vary strongly
all across the country. Catering to people in 35 states
and union territories is equivalent to catering to people
in 35 countries, leading to complexities in
merchandise/ inventory management. Infrastructure
has been developing at a rapid pace over the past
decade but has still a significant ground to cover the
planned expenditure of c. US$ 1 trillion in the 12th
five year plan will help bridging this gap. There exists
a need for retail to concentrate on developing a strong
back-end support especially for perishable products
to help reduce wastages which is estimated to be at
40 percent of national produce.
Channel conflicts: Globally, retailers maintain a
direct relationship with their suppliers. Due to the
complex taxation structure and geographic spread of
the country, most FMCG companies have developed
regional distribution and re-distribution network.
Cutting out the distribution network will hurt operating
structures of distributors, who as an industry body in
the past have opposed FMCG companies selling
directly to retailers. There exists a need for a retailer
to work closely with the suppliers in an attempt to
shorten the supply chain network resulting in saving
time and money.
Location and rental: Finding the right location
with the right rental for stores has been a challenge
for all retailers. Rent forms a large portion of the total
expenditure (c. 6 to 11 percent of the revenue) in
retailer’s income statement and can more often than
not convert a profitable store into loss making. The
challenge for a retailer would be to find the right
location for their stores either in malls or as a
standalone store to be able to generate enough
footfalls. A retailer could evaluate option of setting
up a property development/ management arm that
would be able to source/ develop stores at lower
Unique Indian customer: The Indian consumer
experiencing modern retail has now warmed up to
this idea. Buying habits have still not changed, where
people prefer to buy most of the fruits and vegetables
on a daily basis. The Indian consumers have a strong
preference for freshly cooked food over packaged
food mainly attributed to dietary patterns, poor
electricity supply, low penetration of refrigerators and
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a family structure where one of the primary roles of
the housewife is feeding the family. There is also an
impact on the basket size because of non-availability
of personal transport facilities, due to which the
consumers prefer to buy smaller quantities from stores
conveniently located near their homes.
Regulatory: Currently, indirect taxation structure
is complex in India with varying tax rates, multiplicity
of taxes and multiple tax enforcement authorities.
Goods and Service Tax likely to be implemented in
2011 will replace a host of levies like excise, sales
tax, value-added tax, entertainment tax and luxury tax.
This is likely to have an impact on the supply chain
model and cost structure of distributive trade, followed
by consumer packaged goods companies. Opening a
new store requires a lot of licences, which have to be
obtained from different government departments
leading to considerable lead time in opening up of the
stores. A push has been made by existing retailers to
get the government to have a single window clearance
for getting all the licences at one place to speed up
Private Labels: Private labels enable retailers to
offer products at a better price point attracting
footfalls to the store. This in turn not only translates
to better margins by cutting out middlemen but also
enhances retailers bargaining power with supplier.
Penetration of private labels in emerging markets is
expected to be about 6% of retail sales (Source: India
Retail Report) which in India is estimated to be about
10 – 12%. The concept is still at a very nascent stage
in India given the age of modern retail in India. Few
players have introduced private labels in the category
of Food & Grocery, Apparels, Consumer Durables
etc. but reservations still exists towards acceptance
of these products with the Indian consumer. Private
labels offering competitive pricing proposition has
helped to generate interest and a slow but steady
acceptance from the Indian consumer.
According to Authors point of view to overcome
some of the challenges faced by modern retail, the
following steps should be taken
Retailers should create a calendar for customers
with shop’s name and address on it and distribute to
the customers and Print the products or services
offered on the back of the business cards and always
carry business cards and give them freely and ask
permission to leave them in places at target market
and Join a trade association or organization or
Chamber of Commerce related to the industry.
Conduct monthly clinics about a product or service
you offer or schedule semi-annual seminars on
related “how-to” information about the industry and
Print a tagline for the business on letterhead, fax
cover sheets, e-mails and invoices and Develop a
website to showcase the products, services and
location. Use a memorable URL and include it on all
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