• Currently, India is the fifth largest retail market in the world. start their expansion plans towards the end of FY09. They
The market size in 2008 was estimated at US$ 511 bn (Source: are also looking to renegotiate rentals and bring down their
IBEF, CB Richard Ellis' findings). Retailing has played a major overall costs. Few of them are adopting a revenue sharing
role the world over in increasing productivity across a wide model. In a revenue sharing model, a certain percentage of
range of consumer goods and services. In the developed the sales are paid to the mall owner or developer. This works
countries, the retail industry has developed into a full-fledged out as a win-win model for both parties concerned.
industry where the organised sector accounts for almost 80%
of the total retail trade. In contrast to this, in India organised KEY POINTS
retail trade accounts for merely 5% of the total retail trade and
this highlights tremendous scope for growth of the retail sector. Supply: Players are now moving to Tier I and Tier II cities to
• The sector can be broadly divided into two segments: Value increase penetration and explore untapped markets as Tier I
retailing, which is typically a low margin-high volume business cities have been explored enough and have reached a
(primarily food and groceries) and Lifestyle retailing, a high saturation level.
margin-low volume business (primarily apparel, footwear, etc). Demand: Healthy economic growth, changing demographic
The sector is further divided into various categories, depending profile, increasing disposable incomes, changing consumer
on the types of products offered. Textile & apparels dominate mindset are some of the key factors that are driving and will
the market followed by food & beverages. The low contribution continue to drive growth in the organised retail market in India.
of other categories indicates opportunity for organised retail
Barriers to entry: Reforms by India in opening up its
growth in these segments.
economy have greatly improved trade prospects, but major
barriers still exist such as regulatory issues, supply chain
ORGANISED RETAIL PIE complexities, inefficient infrastructure, automatic approval not
being allowed for foreign investment in retail.
Segment % contribution
Bargaining power of suppliers: It varies depending upon
Textile and apparel 38.9
the target segment, the format they follow and the products
Food and beverages 10.5 offered. The unorganised sector has a dominant position.
Consumer durables 9.0 There are few players who have edge over others on
account of being established players and enjoying brand
Home solutions 6.7 distinction.
Jwellery and watches 6.3 Bargaining power of customers: High due to availability
Books, music and gifts 3.2 of wide choice.
Pharma 2.1 Competition: High. Competition is characterised by many
Others 23.3 factors, including assortment, products, price, quality,
service, location, reputation, credit and availability of retail
• Historically, Indians have not been the ones to splurge on luxury space etc. New entrants (business houses and international
items. Transition from traditional retail to organised retailing players if foreign participation is further liberalised) are
was expected to take place on the back of changing consumer expected to further intensify the competition.
mindset, changing demographic mix, etc. Organised retail was
expected to receive investments to the tune of US$ 25 bn
over the next 4 to 5 years. But the financial crisis that impacted CURRENT SCENARIO AND PROSPECTS
economic growth put breaks on the retail sector growth. • Retailing in India has witnessed tremendous growth in the last
However, the time constraint and the convenience of shopping few years. Organised retail that touched around US$ 20 bn in
with multiplicity of choice under one roof are factors, which size in 2007 ((Source: IBEF) is on a high growth path and is
are appreciated by the new generation. These factors are expected to continue to grow at the rate of 40% over the next
expected to be the growth drivers of organised retailing in the few years. However, in the medium term the sector growth
country over the long run. rate has slowed down to 7% to 10% owing to the economic
FY09 • While there is immense potential, the growth prospects of the
sector might face hurdles owing to factors such as restrictions
• The year witnessed lot of activities such as closure of stores,
on FDI (foreign direct investment), lack of a uniform tax
deferment of expansion plans, foreign players winding
structure across states and increasing pressure on
operations etc. For instance, Argos pulled out of the franchisee
infrastructure (logistics issue). Going forward, we believe
agreement with Shopper's Stop and Hypercity Retail India and
that accretion to income levels and the consequent rise in
discontinued its trial operations - Hypercity Agros, catalogue
disposable incomes will fuel growth of the retailing sector.
and internet retailing. While a few retailers struggled to carry
out day to day operations and were re-evaluating expansion • Basically retail is a volume game. Going forward, with the
plans, others sought to join hands with international players competition intensifying and the costs scaling up, the players
for supply chain expertise to strengthen their backend who are able to cater to the needs of the consumers and
activities. grow volumes by ensuring footfalls, while being able to reduce
costs will have the competitive advantage.
• The retail players lined up huge expansion plans. They were
not only expanding retail footprint but were also venturing into • Despite it being a tough year for the retail sector, India tops
new formats, style of retailing to expand customer base and the rankings of A.T. Kearney's Global Retail Development Index.
extend reach. The huge capex plans exerted pressure on net As compared to other emerging markets, India has a more
margins with increase in interest and depreciation costs. stable and stronger economy and the penetration levels are
Retailers raised capital either by diluting equity or leveraging low. Due to these reasons, India is still the most attractive
their balance sheets. The decline in rentals (up to 50% destination for international retailers looking at expanding into
compared to their peak in FY08) enthused retailers to kick emerging markets.