VIEWS: 65 PAGES: 1 POSTED ON: 11/6/2010
RETAIL • 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 slowdown. 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.
Pages to are hidden for
"Retail"Please download to view full document