GROWTH OF

RETAIL
SECTOR
IN
INDIAN
ECONOMY
Submitted To :
SIVAPRAKASH CS

Submitted By:
LINDA SALIM
REG NO:0905124
S2 MBA(2009-11 BATCH)
ICM, POOJAPPURA

Date : 20/05/2010
 GROWTH OF RETAIL SECTOR IN INDIAN ECONOMY

Introduction
The Retail Sector of Indian Economy is going through the phase of tremendous
transformation. It is the largest sector in India after agriculture, accounting for over 10
per cent of the country’s GDP and around 8 per cent of the employment. India has the
most unorganized retail market in the world.
----Organized retailing refers to trading activities undertaken by licensed retailers, that is,
those who are registered for sales tax, income tax, etc. These include the corporate-
backed hypermarkets and retail chains, and also the privately owned large retail
businesses. Currently, the organized retail sector accounts for only 2 per cent indicating a
huge potential market opportunity. India is being seen as most attractive market by retail
investors from all over the world.
----Unorganized retailing, on the other hand, refers to the traditional formats of low-cost
retailing, for example, the local kirana shops, owner manned general stores, paan/beedi
shops, convenience stores, hand cart and pavement vendors, etc.

Regulations prevent most foreign investment in retailing. Moreover, over thirty

regulations such as "signboard licences" and "anti-hoarding measures" may have to be
complied before a store can open doors. There are taxes for moving goods to states, from
states, and even within states.

History
The traditional format of retailing was of neighborhood ‘KIRANA.’ With the passage of
time chain stores run by Khadi and Village Industries Commission came up. Textile
companies like Raymonds, Grasim, Bombay Dyeing etc witnessed the opening of retail
chains. Later Titan by opening watches showrooms successfully created an organized
retailing concept. And since late 1990’s, new companies like- Big Bazaar, Food World,
Subhiksha, Crossword, Planet-M etc came up with modern retailing concept.

Evolution of the Sector

Weekly Markets, Village and Rural Melas

 Source of entertainment
 Rural and historic reach

Convenience stores, Mom-and-pop / Kirana shops

 Neighborhood stores/convenience
 Traditional and pervasive reach

PDS outlets, Khadi stores, Cooperatives

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 Government supported
 Availability/low costs/distribution

Exclusive Brand outlets, Hypermarkets and Supermarkets, Department stores and

Shopping malls.
 Shopping experience/ efficiency
 Modern formats/ international

Modern Format retailers

Supermarkets
Hypermarkets
Department Stores
Specialty Chains
Company Owned Company Operated

Traditional Format Retailers

Kiranas: Traditional Mom and Pop Stores
Kiosks
Street Markets
Exclusive /Multiple Brand Outlets

Indian Retail Market

Indian market has high complexities in terms of a wide geographic spread and distinct
consumer preferences varying by each region necessitating a need for localization even
within the geographic zones. Indian retail space per capita at 2 sq ft (0.19 m2)/ person is
lowest in the world Indian retail density of 6 percent is highest in the world. 1.8 million
households in India have an annual income of over 45 lakh.

Delving further into consumer buying habits, purchase decisions can be separated into
two categories: status-oriented and indulgence-oriented.

Status category- Consumers in this category buy because they need to maintain a
position in their social group. CTVs/LCDs, refrigerators, washing machines,
dishwashers, microwave ovens and DVD players fall in this Category. During festival
shopping season, it is primarily the status-oriented segment that contributes largely to the
retailer’s cash register.

Indulgence-oriented- Here buying happens with those who want to enjoy life better with
products that meet their requirements. Indulgence-oriented products include plasma TVs,
state-of-the-art home theatre systems, iPods, high-end digital cameras, camcorders, and
gaming consoles.

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Rural Retailing
India's huge rural market has also attracted retail investments and is seen as a viable
opportunity for growth by corporate India.ITC launched the countries first rural mall
"Chaupal Sagar" with diverse products being offered ranging from FMCG to electronics
appliance to automobiles, with a view to provide farmers a one stop center for all their
consumption requirements. Many more new trends could possibly be tried in rural
markets to unearth the huge potential.

Modern Retail Structure

It includes-

 Malls: The largest form of organized retailing today. Located mainly in metro
cities, in proximity to urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft
and above. They lend an ideal shopping experience with an amalgamation of
product, service and entertainment, all under a common roof. Examples include
Shoppers Stop, Piramyd, Pantaloon.

 Specialty Stores: Chains such as the Bangalore based Kids Kemp, the Mumbai
books retailer Crossword, RPG's Music World and the Times Group's music
chain Planet M, are focusing on specific market segments and have established
themselves strongly in their sectors.

 Discount Stores: As the name suggests, discount stores or factory outlets, offer
discounts on the MRP through selling in bulk reaching economies of scale or
excess stock left over at the season. The product category can range from a
variety of perishable/ non perishable goods

 Department Stores: Large stores ranging from 20000-50000 sq. ft, catering to a
variety of consumer needs. Further classified into localized departments such as
clothing, toys, home, groceries, etc.

 Department Stores: Departmental Stores are expected to take over the apparel
business from exclusive brand showrooms. Among these, the biggest success is K
Raheja's Shoppers Stop, which started in Mumbai and now has more than seven
large stores (over 30,000 sq. ft) across India and even has its own in store brand
for clothes called Stop!.

 Hypermarts/Supermarkets: Large self service outlets, catering to varied

shopper needs are termed as Supermarkets. These are located in or near
residential high streets. These stores today contribute to 30% of all food &
grocery organized retail sales. Super Markets can further be classified in to mini
supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging
from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and
personal sales.

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  Convenience Stores: These are relatively small stores 400-2,000 sq. feet located
near residential areas. They stock a limited range of high-turnover convenience
products and are usually open for extended periods during the day, seven days a
week. Prices are slightly higher due to the convenience premium.

 MBO’s : Multi Brand outlets, also known as Category Killers, offer several
brands across a single product category. These usually do well in busy market
places and Metros. Example :Globus

Growth of Retail Sector

The following are the reasons for growth of retail sector in India-
Increase in disposable income of consumers
Increase in consuming desire
Low share of organized retailing.

Purchasing power of Indian urban consumer is growing and branded merchandise in

categories like Apparels, Accessories, Food, and even Jewellery, are slowly becoming
lifestyle products. Retailers are taking benefit of this growth and accordingly are aiming
to expand.India's retail industry, which is currently valued at nearly $350 billion, is
expected to double in size by 2015. The Indian Retail Industry is gradually moving ahead
towards becoming the next boom industry.Modern Large-Format retail, efficiently
connects the producers and the consumers and is helpful to both in the long run.

Most competitive spot in modern retailing

The most competitive spot in modern retailing is undoubtedly the food and mobile. In
both, there is a cut throat competition. The players try to offer the lowest possible price to
drive sales. The major players in food retailing are- Kishore Biyani’s Food Bazaar,
Piramyd’s Tru Mart, Reliance Fresh, Aditya Birla Groups More, ITC’c Choupal,
Subhiksha. The players in the newly discovered and fast growing mobile retailing based
on modern retailing formats include- Vodafone-Essar’s Mobile Store, Spice Telecom’s
Hot Spot, Future Groups M- Bazaar, Subhiksha Mobile.

Expected Investments
Reliance Retail will invest US$5.5 billion by 2010-2011.
Bharti-Wal-Mart will invest US$2.5 billion by 2015.
Metro AG is investing US$400 million over the next three years.
Targeting an emerging segment of night shoppers, New Delhi-based round-the-clock
convenience chain Twenty Four Seven Retail Stores Pvt. Ltd plans to invest US$200
million in the next five years.

FDI in Retail Sector

FDI in retail trading is not encouraged in any form. Trading is permitted under automatic
route with FDI up to 51% provided it is primarily limited to export activities, and the
undertaking is an export house/trading house/super trading house/star trading house.
However, under the FIPB route 100% FDI is permitted in case of trading companies for
the following activities:

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• exports;
• bulk imports with ex-port/ex-bonded warehouse sales;
• cash and carry wholesale trading;
• other import of goods or services provided at least 75% of it is for procurement and sale
of goods and services among the companies of the same group and not for third party use
or onward transfer/distribution/sales.

Scope for development through retailing

Retail Space: A Scope for Real Estate Sector
With new boom in the retail industry, the country has identified new scope for real estate
development. The already revolutionizing urbanization and growing demand for finished
products has necessitated development of new space for retail outlets.

Creating Employment opportunities: Retail is among the fastest growing industries in

India. It is moving towards modernization and consolidation, generating employment for
innumerable people. Some of the profiles that the sector provides include: sales, Store
manager (SM) / Assistant Store managers (ASM), Retail manager, Retail buyers etc.

Challenges
The Indian Retail sector is constantly shakened with cut throat competition. It also has
the following problems:

• Even though India has well over 5 million retail outlets of different sizes and
styles, it still has a long way to go before it can truly have a retail industry at par
with International standards.
• Indian retailing is still dominated by the unorganized sector and there is still a
lack of efficient supply chain management which can reduce cost.
• Most of the retail outlets in India have outlets that are less than 500 square feet in
area. This is very small by International Standards.
• India's huge size and socio economic and cultural diversity means there is no
established model or consumption pattern throughout the country.

Future trends

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 • Organized retailing is dominated by large conglomerates like TATA's, ITC, RPG
group, Piramals and Rahejas apart from the various MNC's. This trend is
expected to continue in future.
• Textile and Garment companies like Raymond, Madura Garments and Arvind
Denims have achieved forward integration by opening their own retail outlets for
their branded garments.
• Inflation and the global meltdown have had an effect on the growth of retailing in
India. Experts believe the retail industry should focus on distinction, branding,
after sales service, exploring commoditization, share of purchasing power and
innovation to tide over the crisis.
• Lifestyle International, a division of Landmark Group, plans to have more than 50
stores across India by 2012–13.
• Shoppers Stop has plans to invest Rs250 crore to open 15 new supermarkets in
the coming three years.
• Pantaloon Retail India (PRIL) plans to invest US$ 77.88 million this fiscal to add
up to existing 2.4 million sq ft retail space. PRIL intends to set up 155 Big Bazaar
stores by 2014, raising its total network to 275 stores.
• Timex India will open another 52 stores by March 2011 at an investment of US$
1.3 million taking its total store count to 120.
• Australia's Retail Food Group is planning to enter the Indian market in 2010. It
has plans to clock US$ 87 million revenue in five years.

Road Ahead
According to a new market research report by RNCOS titled, 'Booming Retail Sector in
India', organised retail market in India is expected to reach US$ 50 billion by 2011.
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. Also…

• Number of shopping malls is expected to increase at a CAGR of more than 18.9

per cent from 2007 to 2015.
• Rural market is projected to dominate the retail industry landscape in India by
2012 with total market share of above 50 per cent.
• Organised retailing of mobile handset and accessories is expected to reach close
to US$ 990 million by 2010.
• The third party logistics market is forecasted to reach US$ 20 billion by 2011.

Conclusion
Retail sector is one of India's fastest growing sectors with a 5 per cent compounded
annual growth rate. It accounts for over 10 per cent of the India's GDP and around eight
per cent of the employment. India's huge middle class base and its untapped retail
industry are key attractions for global retail giants planning to enter newer markets.
Driven by changing lifestyles, strong income growth and favorable demographic
patterns, Indian retail is expected to grow 25 per cent annually. It is expected that retail in
India could be worth US$ 175-200 billion by 2016.

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