Indian Retail Scenario

Accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment retailing in India, retail is gradually making its way toward becoming the next boom industry.

The present-day retail sector in India is reflected in sprawling shopping centers, multiplex- malls and huge complexes that offer shopping, entertainment and food - all under one roof. The concept of shopping has altered in terms of format and consumer buying behavior, leading to a revolution in shopping in India. This has also contributed to large scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. The trends that are driving the growth of the retail sector in India may be low share of organized retailing, falling real estate prices, increasing disposable income and consumer aspiration and increasing expenditure for luxury items.

Another credible factor in the prospects of the retail sector in India is the increase in the young working population. This can be very well seen from hefty pay-packets, living in nuclear families in urban areas, increasing working-women population and emerging opportunities in the services sector in India. These key factors have been the growth drivers of the organized retail sector in India, which now boast of retailing almost all the luxuries of life - Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many more. With this, the retail sector in India is witnessing a revival as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores.

The retailing configuration in India is fast developing as shopping malls are increasingly becoming familiar in large cities. When it comes to development of retail space, especially the malls, the Tier II cities are no longer behind in the race. If development plans till 2007 are studied, they show the projection of 220 shopping malls, with 139 malls in metros and the remaining 81 in the Tier II cities. The government of states like Delhi and National Capital Region (NCR) are very optimistic about permitting the use of land for commercial development, thus increasing the availability of land for retail space.

India is being seen as a potential goldmine for retail investors from over the world and latest research has rated India as the top destination for retailers for an attractive emerging retail market. India’s vast middle class and its almost untapped retail industry are key attractions for global retail giants who want to enter newer markets. Even though India has well over 5 million retail outlets, the country lacks to a great extent anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity. The organized retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles, burgeoning income and favorable demographic outline.

Key Highlights

With rising consumer demand and greater disposable income, the US$ 400 billion Indian retail sector is clocking an annual growth rate of 30 per cent. This is quite evident from a report by global consultancy Northbridge Capital, according to which retail is projected to grow to US$ 700 billion by 2010. The organized business is expected to be 20 percent of the total market by then.

A McKinsey report, 'The rise of Indian Consumer Market', estimates that the Indian consumer market is likely to grow four times by 2025.

India's overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a compound annual growth rate (CAGR) of 10 per cent.

The organized retail sector, accounting for around 5 per cent of the Indian retail market, is all set to witness maximum number of large format malls and branded retail stores in South India, followed by North, West and the East in the next two years. Tier II cities like Noida, Amritsar, Kochi and Gurgaon, are emerging as the favored destinations for the retail sector with their huge growth potential.

Further, this sector is expected to invest around US$ 503.2 million in retail technology service solutions in the current financial year. This could go further up to US$ 1.26 billion in the next four to five years, at a CAGR of 40 per cent.

Moreover, many new apparel brands such as Zara, the fashion label owned by Inditex SA of Spain, UK garment chain Topshop, the Marc Ecko clothing line promoted by the US entrepreneur of the same name and the Japanese casual wear brand Uniqlo are preparing to open outlets in India.

The Road Ahead

Industry experts predict that the next phase of growth in the retail sector will emerge from the rural markets. By 2012, the rural retail market is projected to have a total of more than 50 per cent market share. The total number of shopping malls is expected to expand at a compound annual growth rate of over 18.9 per cent by 2015. According to market research report by RNCOS the Indian organized retail market is estimated to reach US$ 50 billion by 2011.

Undoubtedly, retail industry in India is at the crossroads but the future of the consumer markets is promising as the market is growing. Government policies are becoming more favorable and emerging technologies are facilitating operations in India. This expansion in the retail industry has made India - a promising destination for retail investors and at the same time has driven investments in the real estate sector. As foreign investors cautiously test the Indian Markets for investments in the retail sector, local companies and joint ventures are expected to be more advantageously positioned than the purely foreign ones in the evolving India's organized retailing industry.

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