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•     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.

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