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The Indian retail industry is one of the fastest growing markets in the world due to economic growth. Retail industry in India is expected to grow to US$ 950 billion by 2018, registering a compound annual growth rate (CAGR) of 8.9 per cent during 2000-18. The online retail market is expected to grow from US$ 3.1 billion to US$ 22 billion (from 10 per cent to more than 15 per cent of the organised retail market) during FY13-FY18.

India is the fifth largest preferred retail destination globally. The sector is experiencing exponential growth, with retail development taking place not just in major cities and metros, but also in Tier-II and Tier-III cities. Healthy economic growth, changing demographic profile, increasing disposable incomes, changing consumer tastes and preferences are other factors driving growth in the organised retail market in India. Increasing participation from foreign and private players has given a boost to the retail infrastructure. India’s price competitiveness attracts large retail players to use it as a sourcing base.

India had the highest number of retail outlets in the world at over 13 million retail outlets in 2014. It also has the highest number of outlets (11,903) per million inhabitants. The various major retail formats in India include Departmental stores, Hypermarkets, Supermarkets/ convenience stores, Specialty stores and Cash & carry stores.

The Government has introduced reforms to attract foreign direct investment (FDI) and to boost investor sentiment. Government has approved 51 per cent FDI in multi-brand retail and increased FDI limit to 100 per cent (from 51 per cent) in single brand retail. In market potential, India ranks seventh (after United States, China, Canada, UK, Brazil and Germany).

The Indian retail industry is one of the fastest growing markets in the world due to

Hypermarkets would be the largest retail segment, accounting for 21 per cent of total retail space by 2013-14.


The Indian retail industry has presently emerged as one of the most dynamic and fast paced industries as several players have started to enter the market. It accounts for over 10 per cent of the country’s gross domestic product (GDP) and around eight per cent of the employment in India. The country is today the fifth largest global destination in the world for retail.

Several corporates have planned to exploit the opportunities in the Indian retail space, such as Reliance Industries Ltd (RIL), which has lined up capital expenditure of Rs 1.8 trillion (US$ 28.94 billion) for the next three years for its petrochemicals, telecom and retail ventures.

With the growth in the retail industry, the corresponding demand for real estate is also being created. Further, with the online medium of retail gaining more and more acceptance, there is a tremendous growth opportunity for retail companies, both domestic and international.

Market Size

India’s retail market is expected to double to US$ 1 trillion by 2020 from US$ 600 billion in 2015 driven by income growth, urbanisation and attitudinal shifts, highlighted the Boston Consulting Group and Retailers Association of India’s report titled, ‘Retail 2020: Retrospect, Reinvent, Rewrite’.

While the overall retail market will grow at 12 per cent per annum, modern trade will grow twice as fast at 20 per cent per annum, and traditional trade at 10 per cent, according to a report titled Retail 2020: Retrospect, Reinvent, Rewrite by Boston Consulting Group and Retailers Association of India.

The retail spending in the top seven Indian cities of India currently amounts to Rs 3.58 trillion (US$ 57.56 billion), with organised retail penetration at 19 per cent in 2014. It is expected that the online retail will be at par with the physical stores in five years

India is expected to become the world’s fastest growing e-commerce market on the back of robust investment activity in the sector and the rapid increase in internet users. It is expected that India’s e-commerce market will grow from US$ 2.9 billion in 2013 to over US$ 100 billion by 2020.

E-tailers are betting on more Indians switching to shopping online, with a projection of 200 million new consumers by 2017, according to a report released last year by Accel India,


The Indian retail industry in the single brand segment has received foreign direct investment (FDI) equity inflows to the tune of US$ 275.38 million in the period April 2000—January 2015, according to the Department of Industrial Policies and Promotion (DIPP).

With the rising need for consumer goods in different sectors including consumer electronics and home appliances, many companies have invested in the Indian retail space in the past few months. Some of them are:

Paytm plans to set up 30,000 to 50,000 retail outlets where its customers can load cash on their digital wallets. The company is also looking to enrol retailers - mostly

kirana stores - as merchants for accepting digital payments.

Mobile wallet company MobiKwik has partnered with to provide mobile payment services to Jabong's customers.

DataWind has partnered with HomeShop18 to expand its retail footprint in the country. Under the partnership, HomeShop18 and DataWind will jointly launch special sales programs across broadcast, mobile and internet media to create greater access of the latter's tablet range.

Amazon Inc and Flipkart India will invest nearly Rs 2,300 crore (US$ 369.87 million) in the near term as they plans to acquire more customers in the country's fast-growing online retail market.

FashionAndYou has opened three distribution hubs in Surat, Mumbai and Bengaluru to hasten deliveries. Abu Dhabi-based Lulu Group plans to invest Rs 2,500 crore (US$ 401.98 million) in a fruit and vegetable processing unit, an integrated meat processing unit and a modern shopping mall in Hyderabad, Telangana.

Government Initiatives

Ms Nirmala Sitharaman, Union Minister of Commerce and Industry, Government of India has stressed on India building a culture of branding and marketing its products to the rest of the world. The ministry is also willing to take steps to start a Free Trade Agreement (FTA) with the European Union (EU).

The Government of India has taken various initiatives to improve the retail industry in India. Some of these initiatives are:

The Foreign Investment Promotion Board (FIPB) has cleared five retail proposals worth around Rs 420 crore (US$ 67.53 million) from companies such as Bestseller,

Puma SA and Flemingo. Additionally, the board cleared three 100 per cent single-brand retail proposals worth Rs 222.5 crore (US$ 35.77 million), suggesting renewed interest in India’s growing retail market. IKEA has entered into a memorandum of understanding (MoU) with the Government of Telangana to set up its first store in India at Hyderabad. IKEA retail outlets have a

standard design and each location entails an investment of around Rs 500-600 crore (US$ 80.38-96.46 million). The Government of India is also in the final phase of talks with the states for the Goods and Services Tax Bill to be implemented. This Bill is seen as a key to facilitating

industrial growth and improving the business climate in the country.

Road Ahead

The share of e-Commerce is growing steadily. Customers have an ever increasing choice of products at the lowest rates. E-Commerce is probably creating the biggest disruption in the retail industry and this trend will continue in the year to come. Almost everything is sold on the internet now and this means that pretty much all of the retail industry faces the challenge of either being a part of e-commerce or taking it head on.

For better prospects of this industry, as a whole, both organized and unorganized retail companies should work together to improve the overall retail industry, while generating new benefits for their own customers.

Also, the retailers should take advantage of digital retail channels (e-commerce), which would enable them to spend less money on real estate while reaching more customers in tier-2 and tier-3 cities. Nevertheless, the long term outlook for the industry remains to be positive on the back of rising incomes, favourable demographics, entry of foreign players and increasing urbanization.

Exchange Rate Used: INR 1 = US$ 0.016 as on March 24, 2015

The Indian Retail sector has come off age and has gone through major transformation over the last decade with a noticeable shift towards organised retailing. A T Kearney, a US Based global management consulting firm has ranked India as the fourth most attractive nation for retail investment among 30 flourishing markets.

The retail market is expected to reach a whooping Rs. 47 lakh crore by 2016-17, as it expands at a compounded annual growth rate of 15 per cent, accordingy to the ‘Yes Bank - Assocham’ study.

The retail market, (including organised and unorganised retail), was at Rs. 23 lakh crore in 2011-12. According to the study, organised retail, that comprised just seven per cent of the overall retail market in 2011-12, is expected to grow at a CAGR of 24 per cent and attain 10.2 per cent share of the total retail sector by 2016-17.

In terms of sheer space, the organised retail supply in 2013 was about 4.7 million square feet (sq ft). This showed a 78 per cent increase over the total mall supply of just 2.5 million sq ft in 2012.

“Favourable demographics, increasing urbanisation, nuclearisation of families, rising affluence amid consumers, growing preference for branded products and higher aspirations are other factors which will drive retail consumption in India,” said DS Rawat, Assocham Secretary General.

Retail classification

Retail industry can be broadly classified into two categories namely- organised and unorganised retail.

Organized retail - Organised traders/retailers, who are licensed for trading activities and registered to pay taxes to the government.

Unorganized retail – It consists of unauthorized small shops - conventional Kirana shops, general stores, corner shops among various other small retail outlets - but remain as the radiating force of Indian retail industry.

Market Dynamics

In the past few years, Indian Retail sector has seen tremendous growth in the organised segment. Major domestic players have stepped into the retail arena with long term, ambitious plans to expand their business across verticals, cities and formats.

Companies like Tata, Reliance, Adani Enterprise and Bharti have been investing considerably in the booming Indian Retail market. Along with these giant retailers, a number of transnational brands have also entered into the market to set up retail chains in close association with bigger Indian companies.

High consumer spending over the years by the young population (more than 31% of the country is below 14 years) and sharp rise in disposable income are driving the Indian organised retail sector’s growth. Even Tier I & Tier II cities and towns are witnessing a major shift in consumer preferences and lifestyles, the result of which, they have emerged as attractive markets for retailers to expand their presence.

The Indian retail sector is highly fragmented and the unorganised sector has around 13 million retail outlets that account for around 95-96% of the total Indian retail industry. However, going forward, the organised sector’s growth potential is expected to increase due to globalisation, high economic growth, and improved lifestyle.

Although the growth potential in the sector is immense, there are obstacles too, that could slow the pace of growth for new entrants. Rigid regulations, high personnel costs, real estate costs, lack of basic infrastructure, and highly competitive domestic retailer groups are some such challenges.

Key drivers of the Indian Retail Industry

Emergence of nuclear families

An increase in the double-income households trend

Large working population

Reasonable Real estate prices

Increase in disposable income and customer aspiration

Demand as well as increase in expenditure for luxury items

Growing preference for branded products and higher aspirations

Growing liberalization of the FDI policy in the past decade

Increasing urbanisation,

Rising affluence amid consumers


A long way to meet international standards

Lack of efficient supply-chain management

Lack of required retail space

No fixed consumption pattern

Shortage of trained manpower

Lack of proper infrastructure and distribution channel

Emerging sectors/trends in Indian retailing

Within retail, the emerging sectors would be food and grocery, apparel, electronics, e-commerce, fashion and lifestyle.

Incorporation of technology in the organised retail segment has been something to reckon with in the past few years. Use of computers for merchandise planning and management, control of inventory costs and supplies and replenishment of goods done electronically, internal store billing, etc has changed the face of product retailing.

Online retail business is the next gen format which has high potential for growth in the near future. After conquering physical stores, retailers are now foraying into the domain of e-retailing. The retail industry is all set to test waters over the online medium, by selling products through websites. Food and grocery stores comprises the largest chunk of the Indian retail market.

An emerging trend in this segment is the virtual formats where customer orders are taken online through web portals which are delivered at the door step the very same day or the following day. This trend has been catching up with most of the large sized retail chains that have their websites.

The Road Ahead…

According to panel members at the seventh Food and Grocery Forum India, the opportunities in food and grocery retail in India are immense, given that it constitutes about 69 per cent of India’s total retail market. The Indian retail market, currently estimated at $490 billion, is project to grow at a compounded annual growth rate of 6 per cent to reach $865 billion by 2023. Modern retail with a penetration of only 5% is expected to grow about six times from the current 27 billion USD to 220 billion USD, across all categories and segments.

Organised Retail is emerging as the new phenomenon in India and despite the slump, the market is growing exponentially. As economic growth brings more of India’s people into the consuming classes and organized retail lures more and more existing shoppers, by 2015, more than 300 million shoppers are likely to patronize organized retail chains.

Consumer markets in emerging market economies like India are growing rapidly owing to robust economic growth. India's modern consumption level is set to double within five years to US$ 1.5 trillion from the present level of US$ 750 billion.

The growing middle class is an important factor contributing to the growth of retail in India. By 2030, it is estimated that 91 million households will be ‘middle class’, up from 21 million today. Also by 2030, 570 million people are expected to live in cities, nearly twice the population of the United States today.

Thus, with tremendous potential and huge population, India is set for high growth in consumer expenditure. With India's large ‘young’ population and high domestic consumption, the macro trends for the sector look favorable.