Retain in and Around India

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Advances In Management Vol. 4 (2) Feb. (2011

Case Study:

Growing Prospective of Retail Industry in and Around IndiaSenthilkumar S.'* and Sh ivakum ar 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 [email protected]

Abstract

The Indian retail sector is witnessing

tremendous growth with the changing demographics

and an increase in thequality of life of urban people. At

this moment, it is still premature to say that the Indian

retail market will replicate thesuccess 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 hasbeen analyzed taking into

perspective the growth of the Indian economy and the

sustairiability of this sector in this scenario. RetailSector is the most booming sector in the Indian

economy. Some of the biggest players of the worldare

going toenter 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 thecities across India.

Keywords: Retail Industry, India, Growth.

Introduction

The present value of the Indian retail market' i

estimated by the India Retail Report to be around Rs

12,00,000 crore ($270 billion) and the annual growth rate i

5.7 percent. Retail market for food and grocery with a wort

of Rs. 7, 43,900 crore is the largest of the different types o

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 cen

of the country's GDP and is expected to approach 22 per cenby 2010. A report from McKinsey, The rise of Indian

Consumer Market', foresees the Indian consumer marke

growing by four times by the year 2025. The contribution o

retail sector toGDP has been manifested below:

Country Retail Sector's s hare inGDP (in %)

USA 10

Brazil 6India 12

China 8

Estimates and predictions for retail sector'

• At present, the industry is estimated to be at more than

US $400 billion bya study of McKinsey.

• The Economist Intelligence Unit (EIU) estimates the

retail market in India will increase toUS $ 608.9 billion

ill 2009 from US $394 billion in 2005.

• KPM G Report says that the organized retail would grow

at a higher rate than the GDP in thenext five years.

• The retail sector would generate employment for more

than 2.5 million people by theyear 2010.

Major Retailers inFood & 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

India^

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

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

retailer in India 'Landmark' in 2005. Trent owns over 4

lakh sq. ft retail space across the country.

RPG Group: RPGGroup isoneof the earlier entrants in

the Indian retail market, when itcame into food & grocery

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Advances In Management Vol. 4 (2) Feb. (2011)

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.

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 inIndia

Formats/Channels oforganized retail

Channe l /Format

Store

Supercenter

Hypermarket

Supermarket

Neig htbourhooci/co-nveniencestore

Cash an d carry

Discount store

Departmentstore

Speciality store

Category killer

Non-store

KioskVstalls

Vendingmachines

Order retailing(Catalogue/TV/Website)

Ooor-to-door

Type ofmerchandise

All typesofmerchandise

Mostly food

& groceryandapparels withfocus on valueproducts

Food & grocery

Daily use items

Mostly foodand grocery

Food & grocery

and fashion&accessoriesApparel andaccessories

Any one type of

merchandise

Any one type of

merchandise

Small fooditemsandaccessories

small items

Any type of

merchandise

Mostly l ow-value items

Pricing

Discountpricing

Discountpricing

Discountpricinq

Bulkbuying,heavydiscounts

Heavy

discount

Competitive

Competitive

Discountpricinq

Normal

Normal

Competitive

Normal

Six« ($ q ft)

200.000-300,000

60,000-120,000

10<000-30.000

500-3.00O

100,000-300,000

N A

20,000-100,000

SOO-5,000

30,000-100,000

20-100

-

-

-

Averages tock-

keepingunits

(SKUs)

200,000

80,000

20,000

4,000

150,000

N A

50,000

1,000

10,000

50

1 0

-

Location

Outskirts

Malls

Malls

al l localitieswithin a city

outskirts

NA

Malls

Mainmarkets.Malls

Malls, highstreets

Malls,mult iplexes,cinemahalls

Stations,commercialand officecomplexes

-

-

Example

Wal-Martsupercenter

Hypercity,Big Bazaar

Food Bazaar

Subhiksha

Metro cashand cany

Subhiksha

ShoppersStop

MobileStore

Vijay Sales

Popcorn

Chocolate

andnewspapervendingmachines

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:

. Vol. 4 (2) Feb. (201

Shop and E stablishment Act

The Income Tax Act

Standards of Weights & Measures Act

Customs Act

Provisions of the Contract Labour Act

The Companies Act

FDI scenario in IndiaIn 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 alliancewith 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). Apa

from investing in rhe cash-and-carry business. Trent will alsupport the back-end activities of Trent Ltd. Many foreig

brands have also entered India either through JVs wi

leading Indian retailers or through exclu.sive franchisees to s

up shop in India. Louis Vuitton, Marks & Spencer Pic, GA

Armani are some such operators who have entered Ind

through JVs. McDonald's, KFC, Domino's are the retaile

who have taken the franchise route. Slowly the government

opening up to the idea of permitting FDI in the Indian reta

sector; consequently there is greater momentum in the secto

Last year, owing to the global meltdown, investmen

dropped in all sectors. The government has therefore change

the guidelines for foreign investments to boost investments the current year. This move is certainly likely to improve th

investment climate in the Indian retail space.

Percentage of Organized Retail across the world^

0% 20% 40% 60% 80% 100%

U n o r g a n i s e d

Orga n i s e d

US

15%

85%

T a i w a n

19%

81%

Ma l a ys i a

45%

55%

. Tha i l a nd

60%

40%

Indone s i a

70%

3 0 % .

C h i n a

80%>

20 %

India

97%

3 %

Global Retail Scenario

Retailing has played a major role in the global

economy. In developed markets, retailing is one of the mostprominent industries. In 2008 , the U S retail sector contributed

3 1% 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 unorganizedretail has a dominant share.

Global retail sales was estimated to be around US

12 trillion in 2007; however, in 2008, the slowdown in th

global economy, especially in the US and credit crunch

decreased consumer spending. On a global level, theconomy performed robustly till 2007, but the US crisi

spread over to Europe in early 2008 and its impact was felt i

the Asia-Pacific region by mid-2008. India has the highes

number of retail outlets in the world at over 13 million retaioutlets and the average size of one store is 50-1 00 square fee

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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

5

6

7

8

9

1 0

Company Name

Wal-Mart StoresCarrefour

Tesco

M e t ro G roup

Seven & 1 (ii)

Kroger

AEON (i)

Target

Schwarz Group

Costco

Country

USFranc e

UK

Gernt iany

Japan

US

Japan

US

Germany

US

Banner Sales 2007in US $ million

39S305142,229

103,573

102,942

84,375

73,633

73,416

71,125

70,969

69,704

No. ofoutlets, 2007

7,33113,419

3,750

2,541

22,590

3,672

14,803

1,591

8,575

5 1 8

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

FianceGermany

2002

11,689.0

5,463.7

976.1

437.S

923.S

314.6

416.9288.0

2003

12,049.8

5,208.1

1,006.6

447.4

923.7

312.0

411.7286.2

2004

12,408.8

4,854.1

1,071.5

456.3

934.3

308,3

409.2284.2

2005

12,770.8

4,635.7

1,122.9

466.0

945.8

302.1

407.1283.0

2006

13,122.1

4,503.2

1.157.6

475.1

946.S

298.3

406.7281.8

2007

13,448.5

4,496.3

1,188.3

480.8

946.2

295.1

406.5281.8

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% an

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 Managem ent ^^-^m

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 8-

1 0 % in the GDP (Gross Domestic Product) of the country. In

2009, it rose to 12%. It is also expected to reach 22% by

2 0 1 0 . According to a report by Northbride Capita, the India

retail industry is expected to grow to US $ 700 billion by

Vol. 4 (2) Feb. (201

2 0 1 0 . By the same time, the organized sector will be 20%

the total market share. It can be mentioned here that the shaof organized sector in 2007 was 7.5% of the total ret

market. Currently, organized retail is in a nascent stage

growth in India as it just has a 5.9% sh are in the total Ind

retail trade.

Rising disposable income of Indian middle-class^

Changing consumer preferences and shopping habits Changing demographics

Consumption of essentiat commodit ies is fa l l ing

n r» pvoo FYoi iv « m a nw nws m » rro? rvoa

Orav> tm l. futl * pow»i i : himitur». »pplam c» * futn uh«

iM i »fVICW

Comparative m edian age in 2008

4S -

4 0 -

Î 5 -

3 0 -

2 5 -

2 0 -

15 -

10 -

S ~

0 -

3S 3639 «

43

282i

1 r \ rtndii Bnzil Chin« US

f 1 1

U< Cierm»r>y

m ¡00$

Increase in working population Spurt in urbanization

I n d i i p o p u l a t io n p y r a m i d 2 0 0 8 - 2 0 2 0

M too "AD IM Kit m

U*

M 1

lûJ M t .' '".3

m tm

îi « »0 «.0 »0 ¿0 lis

Percentage of urban to total population

Rise in MPCE level in urban areas Easy credit availability - a boon for organized retail

Percentage of urban population below different levels ofMPC E during FY05-07

11

11

1 00 -1

ta -

ta -

40 -

0 •( soo 1000 1500 2000 2100

Mon thly PercAfMU &iip«ndrturo (lUl

— . » . . FYi» - - * . - rro7

3000

Credit card transactions growth FY04 - FY09

•V04 PfOS FVO«

Volum« In mn -jn

FVOT

Amoum ft) bn R H I

(64)



Advances In Management Vol. 4 (2) Feb. (2011)

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.'

The FutureThe 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%.^

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 consumerbuying 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

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.

References1. 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 consum ption 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 andOpportunities". MDI Management Journal. 5 (2), 97-111 (2002)

9. 8th Annual Global Retail Developm ent Index (GRD I). Kearney.

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

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