India has emerged as the fifth most favourable destination for international retailers, outpacing UAE, Russia, Indonesia and Saudi Arabia, according to A T Kearney’s Global Retail Development Index (GRDI) 2012. However, there is a lot more to be done on both fronts before they reach closer to the finish line.
Businesses across sectors have been coming up with unique solutions to meet the demands of the Indian market. Retail sector has been no different. Retailers across the country have realised that the consumer is looking for quality goods at efficient pricing.
Massive Opportunities in Retail in India
Factors such as large market size, low organised retail penetration and increasing personal incomes make India an exciting and dynamic retail destination. With a market size of US$ 450 bn in 2012, the retail market in India is expected to be US$ 574 bn by 2015.
The retail market in India has grown at a compounded annual growth rate (CAGR) of 5.9 per cent since 1998. While close to 60 per cent of the total market belongs to the food and grocery retail chains, the other broad segments includes categories such as clothing and fashion stand at 9.9 per cent. Beauty and wellness account for 4 per cent, electronics for 6.4 per cent and furniture and furnishings for 3.4 per cent.
But even at such a robust growth rate, the organised retail is just a small fraction of the total retail industry in India. At the end of 2011-12, the share of organised retail stood at 5 per cent share of the total retail market in terms of penetration and the rest 95 per cent is penetrated by the unorganised retailers with over 12 million mom-and-pop stores.
Clearly, there is a huge opportunity for organised retailers to prosper in the Indian market. It is believed that the share of organised retail will go up to 9 per cent by the end of 2015-16 and 20 per cent by the end of 2020-21.
Banking on the FDI Movement
Till now, FDI up to 100 per cent was allowed for cash and carry wholesale trading and export trading under the automatic route, and FDI up to 51 per cent was allowed in single-brand retail, with prior government approvals. However, the Cabinet Committee on Economic Affairs (CCEA) recently permitted FDI up to 51 per cent in multi-brand retailing with prior Government approval and 100 per cent in single brand retailing thus further liberalising the sector.
Many global single-brand retail chains have entered into the country forging joint ventures with the local retailers over the past few years, the new guidelines will help them expand at a fast pace and would speed up the plans of many other retailers, who are yet to make their presence felt in the Indian retail market.
Foreign multi-brand retailers present in India through cash-and-carry route are expected to roll out consumer facing formats in the short to medium term, according to a research paper by consultancy firm KPMG.
FDI guidelines in the Indian retail sector are likely to create 10 million jobs over the next 10 years, according to a report from Indian Staffing Federation (ISF). The report also mentioned that the new job opportunities in the sector will make it the largest sector in organised employment.
Prima facie, FDI in multi-brand retail would benefit capital constrained retailers, accelerating the pace of investment in the supply chain to meet demands of increasing scale and enhancing efficiencies (offering competitive prices), besides expertise of foreign retailers, JP Morgan said in a note.
India is Building Retail on Profitable Ecosystem
In order to protect the interest of the small and medium enterprises, the Government has set up a system where international retailers will push the local businesses by sourcing locally, both for single-brand and multi-brand retail.
For instance, in the case of multi-brand retail, at least 30 per cent of the value of procurement of the manufactured or processed products shall be sourced from Indian small industries (which have a total investment in plant and machinery not exceeding US$ 1 mn). Similarly, for single-brand retail, the FDI proposals that are looking at investing beyond 51 per cent in the country, should source 31 per cent of the value of goods from India and preferably from small and medium enterprises, villages and cottage industries, artisans and craftsmen in all sectors.
Not a sMall Story
As far as mall space requirement of the country is concerned, India will need an additional 45 million sq.ft. of space by 2013-14 in cities such as Delhi, Mumbai, Kolkata and Chennai, according to research from Technopak advisors and Cushman & Wakefield. In addition, cities such as Bengaluru, Pune, Hyderabad and Ahmedabad will require 21 million sq.ft. by 2013-14.
While 21 per cent of this space will be taken up by hypermarkets, apparel stores will account for 19 per cent of the total requirement. Other segments like multiplexes, gaming and food court will take 14 per cent, departmental stores will take 10 per cent, restaurants will take 8 per cent and super markets will take 9 per cent.
The Way Forward for Indian Retail
The low share of organised retail and the huge potential of India’s retail market coupled with the rising disposable income make India a destination which is tough to miss for any global retailer. Consumer markets in emerging economies such as India are growing rapidly owing to robust economic growth. The retail industry is highly competitive because of ever changing consumer preferences and the need for marketing differentiation.
(Source: An article by India Brand Equity Foundation (IBEF) in India Retail Report 2013)