Advances In Management

Vol. 4 (2) Feb. (2011)

Case Study:

Growing Prospective of Retail Industry in and Around India

Senthilkumar S.'* and Shivakumar P.^
1 Dept. of Management Studies, Sri Ganesh School of Business Management, Attur Main Road, Mettupatti, Salem-636111. Tamilnadu, INDIA 2. Dept. of Management Studies, Periyar Institute of Management Studies (PRIMS), Periyar University, Salem-636011, Tamilnadu, INDIA *senthilkmrl 14@gmail.com

Abstract
The Indian retail sector is witnessing tremendous growth with the changing demographics and an increase in the quality of life of urban people. At this moment, it is still premature to say that the Indian retail market will replicate the success stories of names such as Walt-Mart Stores, Sainsbury and Tesco but at least the winds are blowing in the direction of growth. Tire Indian retail industry has been analyzed taking into perspective the growth of the Indian economy and the sustairiability of this sector in this scenario. Retail Sector is the most booming sector in the Indian economy. Some of the biggest players of the world are going to enter the industry soon. It is on the threshold of bringing the next big revolution afler the IT sector. Although organized retail market is not so strong as of now, it is expected to grow manifolds by the year 2010, The sector contributes 10% of the GDP and is estimated to show 20% annual growth rate by the end of the decade as against the current growth rate of 8.5%, A CRISIL report says that the Indian retail market is the most fragmented in the world and that only 2% of the entire retailing business is in the organized sector. This suggests that the potential for growth is immense. There are about 300 new malls, 1500 supermarkets and 325 departmental stores currently being built in the cities across India. Keywords: Retail Industry, India, Growth.

Introduction
The present value of the Indian retail market' is estimated by the India Retail Report to be around Rs. 12,00,000 crore ($ 270 billion) and the annual growth rate is 5.7 percent. Retail market for food and grocery with a worth of Rs. 7, 43,900 crore is the largest of the different types of retail industries present in India. Furthermore around 15 million retail outlets help India win the crown of having the highest retail outlet density in the world. According to Indian Brand Equity Foundation, retail trade accounts for 12 per cent of the country's GDP and is expected to approach 22 per cent by 2010. A report from McKinsey, The rise of Indian Consumer Market', foresees the Indian consumer market growing by four times by the year 2025. The contribution of retail sector to GDP has been manifested below: Country Retail Sector's share in GDP (in %) USA 10 India 12 Brazil 6 China 8

Estimates and predictions for retail sector'

At present, the industry is estimated to be at more than US $ 400 billion by a study of McKinsey. The Economist Intelligence Unit (EIU) estimates the retail market in India will increase to US $ 608.9 billion ill 2009 from US $ 394 billion in 2005. KPMG Report says that the organized retail would grow at a higher rate than the GDP in the next five years. The retail sector would generate employment for more than 2.5 million people by the year 2010.

Major Retailers in India^

Food & Grocery: Big Bazaar, Food Bazaar Consumer Electronics: e-zone Entertainment: Bowling Co. Books, Music & Gifts: Depot Fashion and accessories Home and office improvement Electronic retailers Pharmaceutical retailers Time wear retailers Indian retail industry with its subsidiary Trent, which operates Westside and Star India Bazaar. Established in 1998, it also acquired the largest book and music (58) Home Solutions: Hometown, Furniture Bazaar Shoes: Shoe Factory E-tailing: Futurebazaar.com Health & Beauty Care: Star, Sitara Footwear retailers Telecom retailers Catering service retailers Jewellery retailers Books, music and gifts retailer in India 'Landmark' in 2005. Trent owns over 4 lakh sq. ft retail space across the country. RPG Group: RPG Group is one of the earlier entrants in the Indian retail market, when it came into food & grocery

Advances In Management
retailing in 1996 with its retail Foodworld stores. Later it also opened the pharmacy and beauty care outlets 'Health & Glow'. Reliance: Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Fresh stores and Reliance Mart are quite popular in the Indian retail market. It is expecting its sales to reach Rs. 90,000 crores by 2010.

Vol. 4 (2) Feb. (2011)

AV Birla Group: AV Birla Group has a strong presence in Indian apparel retailing. The brands like Louis Phillipe, Allen Solly, Van Heusen, Peter England are quite popular. It's also investing in other segments of retail. It will invest Rs. 8000-9000 crores by 2010.

Retail formats in India Formats/Channels of organized retail

Channel/ Format Store Supercenter All types of merchandise Mostly food & grocery and apparels with focus on value products Food & grocery Discount pricing Discount pricing Discount pricinq 200.000300,000 60,000120,000 10<00030.000 5003.00O Bulk buying, heavy discounts Heavy discount Competitive 100,000300,000 200,000 Outskirts Wal-Mart supercenter Hypercity, Big Bazaar Food Bazaar Type of merchandise Pricing Six ($q f t ) Average stockkeeping units (SKUs) Location Example

Hypermarket

80,000

Malls

Supermarket

20,000 4,000

Malls

Neig htbour hooci/ co-nvenience Daily use items store Cash and carry Mostly food and grocery Food & grocery and fashion & accessories Apparel and accessories

all localities within a city Subhiksha outskirts Metro cash and cany

150,000

Discount store Department store Speciality store Category killer Non-store KioskVstalls

NA

NA

NA

Subhiksha Shoppers Stop Mobile Store Vijay Sales

20,000100,000 SOO5,000 30,000100,000

50,000 1,000 10,000

Malls Main markets. Malls Malls, high streets

Any one type of Competitive merchandise Any one type of Discount merchandise pricinq Small food items and accessories

Normal

20-100

50

Vending machines Order retailing (Catalogue/TV/ Website) Ooor-to-door

small items

Normal

10

Malls, multiplexes, Popcorn cinema halls Chocolate Stations, and commercial newspaper and office vending complexes machines
-

Any type of merchandise Mostly lowvalue items

Competitive Normal

Argos Amway

Regulatory Framework
The Indian government has not focused on retail as an industry. Until now, there are no specific rules and

regulations that are to be followed by retail companies. However, there are certain laws that the retailers need to follow, which are general in nature and which pertain to the establishment of stores and the conduct of activities. These

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Advances In Management
laws are as follows: Shop and Establishment Act The Income Tax Act Standards of Weights & Measures Act Customs Act

. Vol. 4 (2) Feb. (2011)

Provisions of the Contract Labour Act The Companies Act

FDI scenario in India

In 1991, the Indian government introduced the economic policy to attract foreign investments and since then, it has amended the policy from time to time in various sectors to allow higher levels of foreign participation. The government policy in retail sector allows 100% foreign investment in wholesale cash-and-carry and single-brand retailing but prohibits investments in retail trading. In 1997, the government imposed restrictions on FDI in retail .sector but in 2006. these were lifted and opened in single-brand retailing and in cash-and-carry formats. The cash-and-carry business is the easiest mode of entry for foreign retailers into India. Many global players like Metro and Shoprite have already entered the market. Wal-mart has forged an alliance with Bharti for a cash-and-carry business and Bharti is concentrating on front-end retail. Similarly, Tesco has entered

India through an alliance with Trent (Tata Group). Apart from investing in rhe cash-and-carry business. Trent will also support the back-end activities of Trent Ltd. Many foreign brands have also entered India either through JVs with leading Indian retailers or through exclu.sive franchisees to set up shop in India. Louis Vuitton, Marks & Spencer Pic, GAS. Armani are some such operators who have entered India through JVs. McDonald's, KFC, Domino's are the retailers who have taken the franchise route. Slowly the government is opening up to the idea of permitting FDI in the Indian retail sector; consequently there is greater momentum in the sector. Last year, owing to the global meltdown, investments dropped in all sectors. The government has therefore changed the guidelines for foreign investments to boost investments in the current year. This move is certainly likely to improve the investment climate in the Indian retail space.

Percentage of Organized Retail across the world^

0%

20%

40%

60%

80% Indonesia

100% China 80%> India

US
Unorganised Organised

Taiwan

Malaysia . Thailand

15% 85%

19% 81%

45% 55%

60% 40%

70%
30% .

97% 3%

20%

Global Retail Scenario

Retailing has played a major role in the global economy. In developed markets, retailing is one of the most prominent industries. In 2008, the US retail sector contributed 31% to the GDP at current market prices. In developed economies, organized retail has a 75-80% share in total retail as compared with developing economies, where unorganized retail has a dominant share.

Global retail sales was estimated to be around US$ 12 trillion in 2007; however, in 2008, the slowdown in the global economy, especially in the US and credit crunch, decreased consumer spending. On a global level, the economy performed robustly till 2007, but the US crisis spread over to Europe in early 2008 and its impact was felt in the Asia-Pacific region by mid-2008. India has the highest number of retail outlets in the world at over 13 million retail outlets and the average size of one store is 50-100 square feet.

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Advances In Management
It also has the highe.st number of outlets (11,903) per million inhabitants. The per capita retail space in India is among the

, .^

Vol. 4 (2) Feb. (2011)

lowest in the world, though tbe per capita retail store is the highest. Majority of these stores are located in rural areas.

Leading global retail players by revenue

s.
N.
1 2 3 4

Company Name Wal-Mart Stores Carrefour Tesco Metro Group Seven & 1 (ii) Kroger AEON (i) Target Schwarz Group Costco
US

Country

Banner Sales 2007 in US $ million 39S305 142,229 103,573 102,942 84,375 73,633 73,416 71,125 70,969 69,704

No. of outlets, 2007 7,331 13,419 3,750 2,541 22,590 3,672 14,803 1,591 8,575
518

France UK Gerntiany

5
6 7 8 9 10

Japan
US

Japan
US

Germany
US

Note: Banner consists of food and non-food sales.

Total number of outlets in select countries (in '000)

Country India China Brazil Russia USA UK Fiance Germany 2002 11,689.0 5,463.7 976.1 437.S 923.S 314.6 416.9 288.0 2003 12,049.8 5,208.1 1,006.6 447.4 923.7 312.0 411.7 286.2 2004 12,408.8 4,854.1 1,071.5 456.3 934.3 308,3 409.2 284.2 2005 12,770.8 4,635.7 1,122.9 466.0 945.8 302.1 407.1 283.0 2006 13,122.1 4,503.2 1.157.6 475.1 946.S 298.3 406.7 281.8 2007 13,448.5 4,496.3 1,188.3 480.8 946.2 295.1 406.5 281.8

Household expenditure in BRIC countries at constant prices (percentage growth)

Evolution of organized retail

The share of organized retail in developed countries i.s much higher than developing countries like India. In 2006 the share of organized retail in the US was around 85%, in Japan it was 66%, in the UK it was 80%, while in developing

countries like India, China and Russia it was 6%, 20% and 33% respectively. The concept of organized retail had occurred much later in developing economies than the developed economies. Modern day retail came into existence in three successive waves. The first wave took place in the

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Advances In Management

^^-^m

Vol. 4 (2) Feb. (2011) 2010. By the same time, the organized sector will be 20% of the total market share. It can be mentioned here that the share of organized sector in 2007 was 7.5% of the total retail market. Currently, organized retail is in a nascent stage of growth in India as it just has a 5.9% share in the total India retail trade.

Development Index (GRDI) of AT Kearney," India retail industry is the most promising emerging market for investment. In 2007, the retail trade in India had a share of 810% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2010. According to a report by Northbride Capita, the India retail industry is expected to grow to US $ 700 billion by

Rising disposable income of Indian middle-class^

Changing consumer preferences and shopping habits Consumption of essentiat commodities is falling
4S40530252015 10 28 2i 3S 36

Changing demographics Comparative median age in 2008

43

39

nr pvoo FYoi iv
Orav> tml. futl * powi iMi fVICW

ma

nw

nws m rro? rvoa

S ~ 0-

1
tndii Bnzil

r
Chin

\
US

i: himitur. pplamc * futnuh

U<

Ciermr>y

m 00$

Increase in working population

Indii population pyramid 2008-2020

Spurt in urbanization
Percentage of urban to total population

M 1
M too "AD IM U* Kit m lJ M t.' '".3

.0

lis

m tm

Rise in MPCE level in urban areas

Percentage of urban population below different levels of MPCE during FY05-07

Easy credit availability - a boon for organized retail

Credit card transactions growth FY04 - FY09

1
100

-1

ta ta -

40 -

1 1

0 (

soo

1000

1500

2000

2100

3000
V04 PfOS FVO FVOT

Monthly PercAfMU &iipndrturo (lUl

...

FYi --*.- rro7

Volum In mn -jn

Amoum ft) bn RHI

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Advances In Management
However, in recent years, organized retailing has been growing at a robust rate due to rise in the number of shopping malls as well as in the number of organized retail formats. The key factors of growth of organized retail in modern India are discussed in the following points.'

Vol. 4 (2) Feb. (2011) trajectory. The Indian population is witnessing a significant change in its demographics. A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector are going to be the key growth drivers of the organized retail sector in India.

The Future
The retail industry in India is currently growing at a great pace and is expected to go up to US$ 833 billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year 2018 at a CAGR of 10%. As the country has got a high growth rate, the consumer spending has also gone up and is also expected to go up further in the future. In the last four years, the consumer spending in India climbed up to 75%. As a result, the India retail industry is expected to grow further in the future days. By the year 2013, the organized .sector is also expected to grow at a CAGR of 40%.^

References
1. www.naukrihub.com/india/retail/overview 2. http://business.mapsofmdia.com/india-retall-industry 3. Omar and Ogenyi E.. "Organized Retailing in the Global Competitive". Journal of Strategic Marketing. 6 (1). 65. March (1998) 4. Arvind. "An overview of Indian Retail Industry". Joumal of PR log, 4, 13 (2008) 5. Khatri Kapil. "The Future Prospects of Retail Industry", European Joumal of Marketing. 41 (11). 14 (2007) 6. Gaskill Adam, "The influence of consumption values on Retailing", Auckland University of Technology, MB, 6 (2004) 7. www.dnb.co.in/lndianRetailIndustry/overview.asp 8. Neethi Mohan V.. "Indian Retail Industry: Strategies. Trends and Opportunities". MDI Management Journal. 5 (2), 97-111 (2002) 9. 8th Annual Global Retail Development Index (GRDI). Kearney.

Conclusion
Retailing in India is gradually inching its way toward becoming the next boom industry. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. Modern retail has entered India as seen in sprawling shopping centers, multi-storied malls and huge complexes offer shopping, entertainment and food all under one roof The Indian retailing sector is at an infiexion point where the growth of organized retailing and growth in the consumption by the Indian population is going to take a higher growth

(Received 4* November 2010, accepted 28"^ December 2010)

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