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Retailing in india


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Retailing in india

  1. 1. Retailing in IndiaINTRODUCTION Retailing is the transaction between the seller and consumer for personal consumption .Itdoes not include transaction between the manufacturer, corporate purchase, government purchaseand other wholesale purchase. A retailer stocks the goods from the manufacturer and then sellsthe same to the end user for a marginal profit. In the supply chain that also consists ofmanufacturing and distribution, retailing is the last link before the product reaches the consumer. Post liberalization the Retail sector in India is herald as one of the sunrise industries. Ithas never been better for the retail sector in India. Today within the booming service sector,retailing is the single biggest contributor in terms of GDP to the National Income. According to a research report named „Retail Sector in India‟ by Research and Markets,Indian retail sector accounts for 22 per cent of the countrys gross domestic product (GDP) andcontributes to 8 per cent of the total employment. The report further highlighted thathypermarkets (currently accounting for 14 per cent of mall space) will witness immense progressin the Indian landscape.Retailing itself can be further divided into organized and unorganized sector. Organized Sector organized retailing came into its own in tandem with the retail boom.It coincided with the high growth in the Indian economy, resulting in greater purchasing poweramongst the middle class, which in turn went on a purchasing spree. Other factors like consumerawareness, investments by venture capitalists and private equity firms have also contributed tothe growth of organized retail. However, the process of acquiring license is still a bottleneck forthe development of Indian retailing. Unorganized sector The unorganized sector is still dominant in India, since it has theadvantage of low investment need. Since retailing is the process of connecting the supplier andconsumer, pricing of products is very important in a price conscious market like India.Unorganized retailers play an importantrole in this regard and are a vital part of the supply chain. If unorganized retail segment positionsitself correctly, it can carve a niche for itself in Indias booming retail sector.
  2. 2. The Retail Industry in India has come forth as one of the most dynamic and fast pacedindustries with several players entering the market. However, all of them have not yet tastedsuccess because of the heavy initial investments that are required to break even with othercompanies and compete with them. The India Retail Industry is gradually inching its way towards becoming the next boomindustry. A large young working population with median age of 24 years, nuclear families inurban areas, along with increasing workingwomen population and emerging opportunities in theservices sector are going to be the key factors in the growth of the organized Retail sector inIndia. The growth pattern in organized retailing and in the consumption made by the Indianpopulation will follow a rising graph helping the newer businesspersons to enter the India RetailIndustry. In India, the vast middle class and its almost untapped retail industry are the keyattractive forces for global retail giants wanting to enter into newer markets, which in turn willhelp the India Retail Industry to grow faster. Indian retail is expected to grow 25 per cent annually. Modern retail in India could beworth US$ 175-200 billion by 2016. The Food Retail Industry in India dominates the shoppingbasket. The Mobile phone Retail Industry in India is already a US$ 16.7 billion business,growing at over 20 per cent per year. The future of the India Retail Industry looks promisingwith the growing of the market, with the government policies becoming more favorable and theemerging technologies facilitating operations.GROWTH OF INDIAN RETAIL INDUSTRY The Indian retail industry has scaled impeccable growth over the last decade with anamiable acceptance to organized retailing formats. The industry is maturing towards modernconcept of retailing, cornering the conventional unorganized family-owned businesses.India has been ranked as the fourth most attractive nation for retail investment among 30emerging markets by theUS-based global management-consulting firm, A T Kearney, in itsGlobal Retail Development Index (GRDI) 2011. AT Kearney has also conducted a different study, which says that organized retailersshould follow hypermarket concept to penetrate through India‟ s US$ 435 billion industry.According to the report, given the gigantic size of the Indian retail market, it is no surprise that
  3. 3. many Middle East retailers, most recently Lulu, have announced their interests to extend theirretail operations to India. The Rs 18,673 billion (US$ 401 billion) Indian retail market entails only 6 per cent ofitself as organized retail segment as of 2010, according to Booz and Co (India) Pvt. Ltd. Hence,there is a great potential to be explored by domestic and international players. The Business Monitor International (BMI) India Retail Report for the fourth-quarter of2011 forecasts that the total retail sales will grow from US$ 411.28 billion in 2011 to US$804.06 billion by 2015. The report has underlined factors like economic growth, populationexpansion, increasing wealth of individuals and rapid construction of organized retailinfrastructure as major drivers for the optimistic forecast figures. In 2007, the retail trade in India had a share of 8-10% in the GDP (Gross DomesticProduct) of the country. In 2009, it rose to 12%. According to a research report named „RetailSector in India‟ by Research and Markets, Indian retail sector accounts for 22 per cent of thecountrys gross domestic product (GDP) and contributes to 8 per cent of the total employment.The report further highlighted that hypermarkets (currently accounting for 14 per cent of mallspace) will witness immense progress in the Indian landscapeRetail: Key Developments & Major Investments According to a report by research firm CB Richard Ellis India, organized retailers addedover 6 million square feet of retail mall space across India in the first six months of 2011;primarily due to aggressive expansion.For instance, Kishore Biryani-controlled Pantaloon Retail added 2.26 million square feet (sq. ft.)of retail space during the fiscal 2011 and booked over 9 million sq. ft of retail space to fructify itsexpansion plans in future. Cumulative foreign direct investment (FDI) inflows in single-brand retail trading duringApril 2000 to June 2011 stood at US$ 69.26 million, according to the Department of IndustrialPolicy and Promotion (DIPP).Driven by changing consumption patterns, favorable demographics, expanding middle class andgreater government support, retailers are eagerly foraying into untapped avenues of Indianmarkets by making huge investment plans. For instance- Jubilant Food Works Ltd, which operates fast food chain of Dominos Pizza in India, will invest over Rs 70 crores in the FY12 on new stores and commissaries.
  4. 4. Reliance Industries‟ Reliance Retail (that runs supermarket and hypermarket chains) is planning massive expansion across the country by doubling the number of stores in several specialty formats in 2011. The brand „More‟ , operated by Aditya Birla Retail, will open 12 hypermarkets and 150 supermarkets in fiscal 2012. After the expansion, its supermarket stores tally will reach 715. Shoppers Stop Ltd, which has 43 departmental stores and 10 hypermarkets under the brand Hypercity, plans to open four more hypermarkets and 10 departmental stores in 2011.Government Initiatives: The government has moved a step closer to allow FDI in multi brand retailing in Indiaafter the Committee of Secretaries (CoS) gave its nod to permit 51 per cent of FDI in the sector.The recommendation will now head to the cabinet committee on economic affairs, which willtake a final decision on rules to be impose and the level of FDI to be allowed. It also increased to100 per cent from a cap of 51 per cent the level of foreign direct investment allowed in single-brand retailers. The regulation may soon pave way for foreign players like Wal-Mart, Carrefourand Cheshunt, who have been vying for an opportunity to enter India.ChallengesTo become a truly flourishing industry, retailing needs to cross the following hurdles: The industry is facing a severe shortage of talented professionals, especially at the middle management level.Most Indian retail players are under serious pressure to make their supply chains more efficientin order to deliver the levels of quality and service that consumers are demanding. Lack of adequate infrastructure has led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices. Stringent labor laws govern the number of hours worked and minimum wages to be paid leading to limited flexibility of operations and employment of part-time employees. Further, multiple clearances are required by the same company for opening new outlets adding to the costs incurred and time taken to expand presence in the country.
  5. 5. The retail sector does not have „industry‟ status yet making it difficult for retailers to raise finance from banks to fund their expansion plans. Even though India has well over 5 million retail outlets of different sizes and styles, it still has a long way to go before it can truly have a retail industry at par with International standards. This is where Indian companies and International brands have a huge role to play. Indian retailing is still dominating by the unorganized sector and there is still a lack of efficient supply chain management. India must concentrate on improving the supply chain management, which in turn would bring down inventory cost, which can then be passed on to the consumer in the form of low pricing. Most of the retail outlets in India have outlets that are less than 500 square feet in area. This is very small by International Standards. Indias huge size and socio economic and cultural diversity means there is no established model or consumption pattern throughout the country. Manufacturers and retailers will have to devise strategies for different sectors and segments which by itself would be challenging. The drawbacks provide a huge opportunity for the retail industry. The entry of foreign majors like Benetton, Dairy Farm and Levis underline the opportunity for the industry in India.Future of Retailing in India The retail industry in India is currently growing at a great pace and is expect to go up toUS$ 833 billion by the year 2013. It is further expect to reach US$ 1.3 trillion by the year 2018at a CAGR of 10%. As the country has a high growth rates, the consumer spending has also goneup and is also expected to go up further in the future. In the last four year, the consumer spendingin India climbed up to 75%. As a result, the India retail industry is expected to grow further inthe future days. By the year 2013, the organized sector is also expected to grow at a CAGR of 40%.Industry experts predict that the next phase of growth in the retail sector will emerge from therural markets.
  6. 6. By 2012 the rural retail market is projected to have a total of more than 50 per centmarket share. The total number of shopping malls is expected to expand at a compound annualgrowth rate of over 18.9 per cent by 2015. According to market research, report by RNCOS theIndian organized retail market is estimated to reach US$ 50 billion by 2011.Global consultancy firm PricewaterhouseCoopers (PwC) expects Indian retail sector to be worthUS$ 900 billion by 2014 in its report „Strong and Steady 2011‟ . AT Kearney‟ s study on global retailing trend found that India is the least competitive aswell as least saturated of all major global markets. This implies that there are significantly lowentry barriers for players trying to setup base in India, in terms of the competitive landscape. Thereport further stated that global players would take advantage of the more favorable FDI rulesthat are likely in India and enter the country through partnerships or franchises with localretailers. A good talent pool, unlimited opportunities, huge markets and availability of quality rawmaterials at cheaper costs is expected to make India overtake the world‟ s best retail economiesby 2042, according to industry players. The retail industry in India will be a major employment generator in the future. Currentlythe market share of organized modern retail is just 8 percent of the total retail industry, therebyleaving a huge untapped opportunity. Food and groceries is considered to be the largest segment in organized retail, followedby apparel, footwear and consumer electronics. “Over the next five years, we expect organizedfood retail (through convenience stores, supermarkets, and hypermarkets) to grow by over fourtimes from the current US$ 8 billion,” said Raghav Gupta, Principal, Booz and Co.( ExchangeRate Used: INR 1 = US$ 0.021, (as on September 9, 2011) ) The cabinet decision allowing 51 percent FDI in multi-brand retail and 100 percent FDIin single-brand retail is likely to catalyze joint ventures (JVs) between Indian and foreignorganized retailers. Depending on whether they buy into existing retail chains or set up new JVs,the share of foreign retailers in multi-brand organized retail will remain moderate and is expectedto vary between 10-20 percent by 2015-16. The FDI proposal offers good prospects for large established Indian retailers. FDI wouldenable these players attract capital for driving their expansion plans and in addition, benefit fromscale, cost efficiencies and technology brought in by foreign retailers.
  7. 7. Positive effects of FDI: By allowing FDI in retailing, agriculture sector will be benefited and at the same timefarmers can get better prices for their produce.It results in increasing the employment opportunities and the consumers get the goods ataffordable prices. Competition among retailers increase, the customers get the quality goods atcheaper prices. Consumers have wide choice while purchasing the various products and services.Introduction of FDI in single and multi brand retailing will lead to increase demand, which inturn will catalyze more investment opportunities in organized retail. The organized retail real estate market will spread more uniformly and more lucrativelyfor all concerned.Adverse effects of FDI: If retailing sector, the largest source of employment after agriculture, is to open FDI, theindigenous retailers can‟ t sustain the tough competition as a result of their huge investments.60%-65 % of the Indian population is directly or indirectly linked with retailing. If theGovernment allows 100% FDI in retailing, majority of the population looses their self-employment and leads to drop in their socio economic status.With its failure to provide additional employment, manufacturing cannot be the alternativesource of employment for those who lose their employment in retailing. FDI‟ s being able to invest crores of rupees and sells the products at cheaper priceswhich is ruining the traditional markets but also culture. It influences the buying behavior of thecustomers.Substitution for FDI:The best alternative for FDI is, Government may think of encouraging indigenous companiesinto retailing. Tax holidays and other tax incentives can be used to lure leading corporate housesinto retailing.