Essay: Retail Sector Indian

Retail Sector Indian

The Retail Sector, off-late, has been at the helm of the great Indian growth story. India has moved a long way from traditional village fairs, street hawkers to mesmerizing malls and plush outlets. India is the seventh largest retail market in the world which is slated to double itself in the next five years.

Industry Structure and Size

The Indian retail sector could be broadly segmented into organized and unorganized sectors. The size of Indian Retail is estimated to be US$ 322 bn. It is the largest sector in terms of size after agriculture. But the share of organized retail is just 4.1 % at $13.2 bn. This could be attributed to high fragmentation of retail trade throughout the country. India has around 15.8 million retail trade establishments in the country which employs 27% of the total work force. Approximately, every fourth employee in the country is related to retailing.

Industry Structure

Source: D & B Industry Research Service

The unorganized retail mainly constitutes of mom-n-pop stores which could be found in a residential compound or in village center. These are mainly household run businesses which have limited merchandise catering to consumers in its vicinity. Then there are haats or village fairs which happen periodically and offer discretionary merchandise like clothing, footwear and leisure. Mandis are market places for food & grocery especially perishable goods like fruits and vegetables. Street hawkers could be found roaming around in streets of cities and towns closely following the door to door model. Kiosks & stalls could be found in a main market or side of a street. These are usually temporary establishments and almost always illegal.

The organized sector largely constitute of a retailer with a planned investment and business policy. An organized retailer not only sells a product but offers a value package to the customer. Value can be in terms of a service or convenience it provides.

Every retailer has its own way of offering merchandise depending on their business model. The different formats which they cater to are mostly categorized by the size of the outlet, the type of merchandise being sold, and the services offered.

• Hypermarkets: – Hypermarkets are big-box formats with an average size of 40000 sq.ft. and house multiple lines of products such as food & grocery, general merchandise, sports goods and apparels. Hypermarkets are mammoth outlets less in number but cater to a large area (3-5 kms). HyperCITY, RPG Spencer’s and Shoprite Hyper are some major players in this format.

• Supermarkets/convenience stores: – The average size ranges from 1000-2000 sqft. It is a smaller version of hypermarket, holds multiple lines of merchandise but limited in number as compared to a hypermarket. Supermarkets are spread across a city, greater in number but cater to a smaller area (1-2 kms). Foodworld, Food Bazaar and Spinach are some major players in this format.

• Discount Stores: – Focus of these stores is to offer merchandise less than the market price and look to gain profit from volumes. These stores keep merchandise majorly on basis of its sale-ability. Usually a no-thrill no frill store with simple surroundings and provide less service. Big Bazaar and Subhiksha are some famous examples.

• Specialty Stores: – These stores usually ‘specialize’ in one line/category of merchandise. Since concerned with only one type merchandise, are able to offer a wider range of product at a lesser price. Example includes Next and Vijay Sales.

• Department Stores: – These are typically lifestyle stores where apparels constitute the largest share of merchandise and keeps products other than food & grocery. These offer high service to the consumer. The density of merchandise is much less than other formats since the merchandise is supposed to be kept in a presentable manner. Notable examples are Shoppers Stop, Westside, Trent and Globus.

Format	No. of Stores	Area (‘000 sq.ft.)	Share in Total Space (%)
Supermarkets / convenience stores	4,751	4,751	15.5
Hypermarkets	75	3,000	9.8
Discount stores	1,472	1,472	4.8
Specialty stores	20,612	16,490	53.7
Department stores	166	4,980	16.2
Total	27,076	30,693	100

Share of Formats in Organized Retail Space

Source: ICRIER

• Supply Side

Verticals

The retailing industry in India could be broadly bucketed by the category of merchandise that is offered. The buckets are:-

• Food & Grocery: – The size of food and grocery retailing was US$ 191.7 bn in 2006-2007 out of which the share of organized retailing is only 0.7%. This could be attributed to the fact that most of the buying is still done in mandis and nearby kirana shops. Nevertheless, the organized food & grocery retailing is growing at a CAGR of 16.5 % in the past four years and seen to be a vertical with tremendous growth potential.

• Beverages: – The size of this vertical was US$ 11.4 bn in 2006-2007 out of which the share of organized retailing is 3%. This category may be small but is one of the fastest growing with a CAGR of 34.7%.The aggressive marketing of beverages companies leading to intensified competition is one of the major factors of the overall growth of the vertical.

• Clothing and Footwear: -The size of this vertical was US$ 30 bn in 2006-2007 out of which the share of organized retailing is 19%. This is the most organized vertical when it comes to retailing and still growing at a CAGR of 14.4% in the organized sector.

• Furniture, furnishing, appliances and services: – The size of this vertical was US$ 21.8 bn in 2006-2007 out of which the share of organized retailing is 10.2%. Given the rise in disposable incomes, this is one the fastest growing verticals with a CAGR of 24.4%

Source: ICRIER

Non-institutional healthcare: – The size of this vertical was US$ 25.6 bn in 2006-2007 out of which the share of organized retailing is only 0.5% owing to high fragmentation. This vertical largely constitutes of pharmacy retailing where there are not many national retail chains other than The Medicine Shoppe which have a pan India presence.

• Leisure Retailing: – This vertical constitutes of sports goods, entertainment and books retailing. The size of this vertical is US$ 8.7 bn out of which the share of organized retailing is 16%. It is one the fastest growing verticals in organized retail owing to growth of strong players such as Planet sports, Crosswords, Landmark and multiplexes such as Inox and Fame cinemas.

• Personal Care: – The size of this vertical was US$ 13.6 bn in 2006-2007 out of which the share of organized retailing is 4.2%. Not surprising though, this is the fastest growing vertical in organized retail with a CAGR of 46.9%. The increased effort to look and feel good by the Indian consumer and the rise of organized retail players such as Lakme and Revlon are the major reasons of the organized growth.

• Jewellery, Time-ware and Eye-ware: –
  The size of this vertical was US$ 19.1 bn in 2006-2007 out of which the share of organized retailing is 5.6%. Emergence of organized players with a dedicated section on time-ware and eye-ware has led to the growth of this vertical at a CAGR of 40.9% in the organized sector.

• Demand Side

Organized retail has been growing at a CAGR of 20% from the past four years. Retail is undoubtedly one of the most prospective sectors in India in terms of sheer growth potential. There are a number of factors which are responsible for the growth of the sector.

• Changing Consumer and his lifestyle: – Clearly, the retail juggernaut has the consumer at its helm. In earlier generations, the consumer used to buy items as a means of survival. But now there is a notable change wherein consumer spending is targeted towards pleasure. Design and quality is also acquiring significance. This could be majorly attributed to the young and vibrant population of India. India has one the youngest population; about 55% is below the age of 24.It is likely that a young population wants to look and feel good. Also, there has been 20% increase in the number of working women in the last decade. Women are the decision makers of the family hence are likely to shop more when they have their own money to spend. There has been a significant increase in the no Double-Income-No-Kids (DINK) families owing to young population. This results in more disposable income left for discretionary spending.

Indian are said to have a greater aspiration quotient than most. That is why the influence of international travel, media and the Internet. These have played an important part in the changing lifestyle of the Indian consumer.

The growth in personal disposable income has outpaced consumption growth in food and grocery by 9%. Thus every year consumer has 9% more money to spend on discretionary items such as clothing, footwear entertainment and leisure activities. This is the single biggest reason for growth. The willingness to spend is coupled with availability of resources to spend. This makes a deadly combination due to which retail can head only one way in the near future-that is NORTH.

CAGR of Disposable Income and Consumption in Food and Grocery

	2000	2001	2002	2003	2004	2005	2006	CAGR
Private Final Consumption in Food & Grocery	570005	543894	579689	545349	570900	562447	581293	0.33
Personal Disposable Income	16200640	17732510	19548380	20691440	22963230	25001930	28051990	9.58

Source: D&B Industry Research Service (in INR mn)

Easy availability of credit: – No money? No problem is the motto of today. In the last six years, number of credit cards has increased more than 4 times. Sales using a credit card is estimated to be US$ 10 bn. Banks have eased the credit cards issue norms hence giving more spending power to the consumer.

• Availability of Merchandise: – Premium brands which were once available only in few select outlets are now available in one’s neighborhood. Currently, consumer India has a gamut of 300 apparel brands to choose from. Brands which adorn the high-streets of London could be found in a neighborhood mall and at affordable prices.

• Government Policies and Regulations: –

India is one of the arduous countries for doing business. India ranks 120 in the World Bank’s Doing Business Rankings 2008. Why? Because of stringent government regulations. In case of a hypermarket retailer, there are 42 licenses it has to acquire to open a single outlet. The government policies do slow down the rate of expansion of retailer hence the retail sector as a whole.

Following is the list of acts (indicative) which are related to the retail sector.

The Shop and Establishment Act

Sale of goods Act

Consumer Protection Act

Copyright Act

Property Laws

Labor Laws

Foreign Direct Investment: -Currently foreign direct investment is open; 51% in single brand outlets and 100% in cash-and-carry formats. But the government restricts FDI in multi-line retailing thereby restricting the direct entry of worlds’ best and biggest retailers such as Wal-Mart and Tesco. Entry of these retailers has some big positives for the Indian retail sector in terms of incorporation of best practices and intensifying of competition among the retailers. How ever there is a lob side to it as well. The international retailers’ entry could destroy more jobs than it would generate largely due to automation of systems and fear of unorganized players going out of business.

But this could be avoided if the retail sector is given industry status by the government. Industry status would entail better opportunities for the unorganized players. The industry would be monitored and structured properly. Retail, which is as of a now de-jure (sector is structured by convention and commonly observed practices) could be transformed into a de-facto industry.

• Outlook

Retail is undoubtedly one of the sunrise sectors of India and the least organized one as well which gives it a tremendous growth potential for the future.

Retail Sector in India is forecasted to grow at 13% annually from US$ 322 bn in 2006-07 to US$ 590 bn in the next five years. The unorganized retail sector is expected to grow at about 10% p.a. with its size growing from US$ 309 billion in 2006-07 to US$ 496 bn. Share of organized retail which is a 4% of total retail sector is forecasted to grow at 45-50% p.a. and quadruple its share in total retail trade to 16 per cent by 2011-12.

Given the rate of growth continues retail trade in India will become a major driving force for the Indian economy as a whole. The outlook for this sector is positive.