An Overview of B-CITIES Retail Sector The retail sector has helped in giving strong impetus to overall economic growth as a significant driver of the growth of services sector, which contributes as much as 54 per cent of GDP. It has strong backward and forward linkages with other sectors like agriculture and industry through stimulating demand for goods and through mass marketing, packaging, storage and transport. Moreover, it creates considerable direct and indirect employment in the economy. Also, the consumers have benefited in terms of wide range of products available in a market.
Size of the B-CITIES Retail Sector The emergence of new formats and the evolution of modern retail in B-CITIES has attracted attention in recent years. [The data sets published by different authorities are not strictly comparable as they are based on surveys, but they give some idea of the trends and prospects.] The retail sector, currently, is said to contribute 10 per cent of Indias GDP (Confederation of Indian Industry), and is expected to grow at a robust rate of 36 per cent per annum by the2
end of 2008 (Associated Chambers of Commerce and Industry of India, ASSOCHAM). This growth would expand the size of the market to over Rs 14, 79,000 crore from its current level of Rs 5, 88,000 crore. The B-CITIES retail market is estimated at Rs 9,300 billion and is expected to grow at a compounded rate of 30 per cent over the next five years (Retailers Association of India). Moreover, the retail sector employs over 7 per cent (21 million) of the national workforce (Aggarwal, 2000), the second only to agriculture. The retail density more than doubled between 1978 and 1996 and the number of outlets per 1000 people at an all India level, increased from 3.7 in 1978 to 5.6 in 1996. For the urban sector alone, the shop density increased from 4 per 1000 people in 1978 to 7.6 per 1000 people in 1996 (Venugopal, 2001). Because of their small size, Indian retailers have very little bargaining power with manufacturers, unlike in the case of retailers in developed countries, (Sarma, 2000).
Structure of B-CITIES Retail Sector
The retail sector is classified broadly into two: Organised Retail sector and, Unorganised Retail Sector \ ORGANIZED RETAIL SECTOR The organised segment is mainly characterized by typically large number of retailers, greater enforcement of taxation mechanisms and better labour law monitoring systems. It is not just a stocking and selling, but is more about efficient supply chain management, developing vender relationships, quality customer service, efficient merchandising and timely promotional campaigns. It, however, constitutes a very little share of at around 3 per cent (Rs 300 billion) of the total retail market. (In China 20 per cent of the retail is organized and in the ASEAN countries it is more than 40 per cent Ministry for Commerce & Industry, February 2005) According to the Retailers Association of India, the share of organised sector to the overall retailing market in India is expected
to grow from 3 per cent to 20 per cent in the next 10 years. The KSA Technopaks estimate is that by 2005, the organised retail sector would be employing in excess of 2, 50, 000 individuals directly and perhaps 8-10 times as many indirectly in the supply chain. The organised retailing has been successful in metropolitan cities so far, more so in the south and west India. It is expected that the tier II cities would take another 5 years to absorb modern retailing opportunities. Moreover, the case for Indian retailers to explore rural markets is also strong due to the size of rural population and agricultural income growth in last couple of years. A clear indicator of this potential is the share of rural market across most categories of consumption.
UN-ORGANIZED RETAIL SECTOR
The unorganised sector, on the other hand, which represents 97 per cent of the total retail market is mainly characterised by typically small retailers, more prone to tax evasion and lack of labour law supervision. India is one of the largest unorganised retail markets in5
the world and more than 96 per cent of the retailers work in less than 500 sq ft of area.
Components of Retail Sector in B-CITIES The major components of the retail sector are: Food and Grocery, Fast Moving Consumer Goods (FMCGs), Consumer Durables, Apparel, Footwear and leather, Watches, Jewellery, and Health and Beauty The anatomy of the retail market has shown that the clothing and textiles constitutes 39 per cent of the organised retail pie, followed by food and grocery, which accounts for 11 percent of the total retail market.
However, according to the survey conducted by KPMG for Federation of Indian Chamber of Commerce and Industry (FICCI), among these, the food and grocery is expected to witness the fastest growth followed by clothing as the second-fastest growing segment.
Key Players in the B-CITIES Retail Sector The main players in the sector are classified as big corporate houses, dedicated brand outlets and multi-brand outlets. Some of the market leaders are: 1) Corporate Houses: Tatas (Tata Trent), RPG Group (Food World, Health & Glow), ITC (Life Style), Rahejas (Shoppers Stop), Hiranandani (Haike) 2) Dedicated Brand Outlets: Arrow, Nike, Reebok, Zodiac, Louis Phillip etc. 3) Multi Brand Outlets: Vijay Sales, Apana Bazaar, Videos etc. 4) Manufacturers/ Exporters: Pantaloons, Bata, Weekender etc. Among these, the formats like supermarkets (e.g. Food Bazaars) have the highest potential for growth in India followed by hypermarkets (e.g. Big Bazaar, Spencers).
Rural-Urban Share in Retail Sector A distinctive feature of organised retailing in India is that it is largely an urban phenomenon. Organised retail has been more successful in metros and cities, more so in the south and west of India. The reasons for this regional variation range from differences in consumer buying behaviour to cost of real estate and taxation laws. Nonetheless, the case for Indian retailers to explore rural markets is strong. Factoring the size of the rural population and agricultural income share of rural market across major growth in rural India, the rural market is certainly an opportunity for retailers with an innovative retail proposition. A clear indicator of this potential is the current categories of consumption.
Table 1: Share in Retail Market: Urban vs. Rural (per cent) Segment Rural Urban Food 64 36 Clothing and Footwear 61 39 Misc Consumer Goods 57 43 Consumer Durables 50 50 Consumer Services 44 56 Entertainment 33 67 Source: NSSO and KPMG Analysis
Growth and Future Prospects With the economy growing at a robust rate at near 8 per cent, the retail sector has also been witnessing notable growth due to an unprecedented consumption boom. The multiple factors driving this boom are: First, favourable demography with roughly 60 per cent of the total population below 30 years of age group. Higher disposable incomes of young middle class consumers due to employment in IT, management and increasing number of working women, Change in consumption pattern with high aspiration levels. The AC Nielsen Online Omnibus Survey 2005 has rated India in the highest category of Aspiration Index (especially in consumer durables segment) in Asia along with China, Indonesia and Thailand. Easier consumer credit with low interest rates and, Aggressive marketing by companies
A notable growth in the retail sector is characterised by the performance of various retail segments:
Growth in Major Retail Segments (i) Apparel Industry The robust performance of an apparel industry has been largely an outcome of a buoyant growth of the textile industry. The Indian textile industry has increasingly benefited since the post-quota regime [The multi-fibre arrangement (MFA), which governed global trade in textiles and clothing since 1974, came to an end in December 2004)] in terms of higher textiles export, especially due to the demand from UK and US retailers. Though, according to Directorate General of Commercial Intelligence and Statistics (DGCIS), the textiles and apparel exports have decelerated in 2005, according to the import data from US and UK , the exports have grown by 15 per cent in 2005 to about US $ 15 billion. Nevertheless, currently the overall apparel market is worth Rs 88,000 crore and though the share of branded segment may be
limited, is growing at a healthy 25 per cent. Moreover, in the home textile market, India currently exports about Rs 21,000 crore of home textile products to the US alone and the share of domestic market is about one third of it.
(ii) Food and Grocery The food industry is the second largest growing industry after the clothing segment. According to the FICCI study, the size of the food and beverages industry is Rs 3,58,000 crore and it is expected to grow between 8 to 8.5 per cent in value terms during 2005-06. The highest growth is expected in the semi-processed or readymade food segment, which is estimated, to grow by 22 per cent. Other segments, which are expected to expand rapidly, are fruit juices, pulp and concentrate (18 per cent), followed by sauces (17 per cent) and branded milk products (15 per cent). The FICCI has urged the government to have pro-active approach for helping the industry to achieve the lower cost, quality improvement and better performance in the competitive environment.
(iii) FMCG (Fast Moving Consumer Goods) In the last couple of years, the FMCG segment has grown at a rapid pace, especially due to increasing number of big FMCG outlets like Big Bazaar. According to the AC Nielsen India study, the Rs 48,000 crore FMCG industry grew by 5.3 per cent in value terms in 2005 over th