The Indian retail industry is large and growing rapidly. It accounts for 37% of India's GDP and is the second largest employer. Organized retail only accounts for 5% of the total retail market, indicating significant growth potential. Factors like increasing disposable income, urbanization, real estate development, and an improved regulatory environment are driving the growth of the organized retail sector in India. Retailers will need to scale up operations and experiment with new formats to capitalize on this opportunity.

1. Retailing

2. Facts
• The Indian retail industry, at about USD 300
billion, accounts for nearly 37% of India's GDP.
It is the eighth largest retail market in the world.
• The retail market is poised for explosive growth
and is estimated to more than double by 2015.
The GDP is projected to have an annual growth
rate of 8%. That does mean higher growth for
Indian retail industry due to increase in
disposable income levels.

3. Employer
• It is the second largest employer after agriculture.
• At least 2.5 million additional direct jobs are likely
to be created in the next five years. Hyper-
competition is expected to set in by 2008-9 as the
footprint of the top six players starts significant
overlapping in top 20 30 towns. This indicates a
significant impact on other retailers and branded
players – creating new opportunities and threats.

4. Some facts
• Globally, India has the highest absolute
number and the highest per capita number
of retail outlets. With an estimated 11.2
million outlets.
• India has the largest retail outlet density
in the world. Besides, the country is also
dotted with low-cost kiosks and pushcarts.

5. The retail sector
• Indian retail is at present witnessing oversupply
from unorganized formats and is one of the most
fragmented industries in the world. It has an
average of 280-persons per outlet as against the
global average of 1,800-persons per outlet.
• Ninety six percent of the 11 million plus outlets
are smaller than 500 ft² in area. Per capita
retailing space in India is about 2 ft² (compared
to 16 ft² in the US), the lowest in the world.

6. The retail sector
• According to a survey by AT Kearney, only
a $5 billion segment of the $180 billion
retail market is organized, the rest being
unorganized.

7. Modern retail format
• In India too, there are visible signs of
growing affordability with mindsets
showing the willingness to spend as also a
remarkable shift in the shopping habits.

8. The Indian distribution

9. Traditional
The numerous intermediaries like traders,
wholesalers, retailers and commission
agents, in the supply chain lead to huge
cost addition with almost no value
addition. Consumer Price is 3.5 times of
farm gate price due to high margin buildup
at every intermediary and wastage.
.

10. Opportunities
• There would be multiple benefits for the
middle-class consumers (and lower
income consumers). These can be
summed up as reduction of prices in
typical monthly “basic needs” shopping bill
by at least 10% within next 24-30 months

11. HIGH PRIVATE CONSUMPTION
• The high private consumption is one of the
major factors for the growing retail
industry. Over 62% of the private
consumption share is towards the retail
sector, of which 55% is the contribution
from the rural areas, indicating the
increasing significance of retail presence
in rural areas.

13. Compressed cycle
• Inventors or early adopters like USA and UK
have to invent the wheel, i.e. create a market
and go through the grind of success and failure
in building models – this results in a long
evolution cycle for industries in these
geographies. While USA’s retail industry took
four decades (1950s onwards) to experiment
with models like big box, lifestyle centers,
multiplexes, etc, China took two decades. India,
will take an even lesser period (one decade) to
accomplish the same.

14. Developing nations – just
customize the wheel
• The evolution cycles are quite different
for developing nations as they are wary
of accepting a new concept and are
generally late entrants. Players can
therefore choose a particular concept
by drawing upon global experiences
and need not go through the rigmarole
of concept experimentation. This results
in simultaneous emergence of multiple
formats, which in turn leads to a shorter
evolution cycle.

15. Shrinks the evolution cycle
• Another factor that shrink the evolution cycle
is the vast rural urban divide, like in China.
The per capita income in urban centers of
India is twice that in rural areas. While in
India the metros are already into
development phase. in select metros, it is in
early infancy in smaller towns. This gives rise
to a complex situation, wherein pan-India
players have to tackle multiple stages of the
evolution cycle simultaneously.

16. Compressed evolution cycle
• Even at abysmally low penetration of 3%,
India has witnessed overlapping of
multiple models. Being a late entrant, the
evolution cycle of Indian retail is
compressed, as seen in China earlier. In
the development phase, players are
finding it imperative to simultaneously go
for speed, enhancement of business
models and operating efficiency to
capitalize on the opportunity.

17. Indian Organized Retail enters
Development phase

18. Multiplicity of formats
• Given that Indian retailers have begun
experimenting with different categories,
growth will happen across categories with
all models witnessing a rapid scale up.

19. Indian organized retailers need to
perk up their abilities
• Mandated by a compressed evolution cycle,
entry of large players like Reliance Industries
and an imminent entry of global retailers,
incumbent Indian retailers are finding it pertinent
to equip themselves with the ability to ramp up
fast, experiment with models and achieve
operational efficiency – all at the same time.
These capabilities would enable them to
simultaneously tackle all the stages of evolution.

20. Indian organized retailers need to
perk up their abilities

21. Drivers of growth
• Increasing consuming class
• Urbanization
• Real Estate Growth
• Regulatory framework
• Growth in economy

22. Consumerism
• India has one of the youngest populations in the
world with median age of 24 years and more
than half the population having grown up in the
post liberalization era.
• The Indian youth has no guilt of consumption,
and is more ambitious and confident. Not only
this, rising affordability (as the economy is
growing at 8%), ever-increasing numbers are
being added to the consuming class. The
consuming class is expected to increase from
280m in 2002 to 686m in 2010

23. Increase in consuming class
• The consuming class in India, i.e. with annual
income of over Rs 90,000 and more, is
estimated to burgeon from 28% in 2002 to 48%
in 2010.
• When the newly rich population becomes
upwardly mobile, standard of living goes up and
aspirations shoot. Therefore, besides horizontal
expansion, the consumer base is also growing
vertically (i.e. increasing wealth in all segments),
which is – in turn – driving growth

24. Urbanisation
• India has been witnessing significant migration of rural
population to urban India (population residing in cities up
from 26% in 1991 to 32% now), which is growing at 4%
annually. By 2015, urban population will have expanded
to 435m from 330m currently.
• With better job opportunities and higher pay levels, per
capita income in urban India is 2 that in rural India. In the
last decade, India has turned into a services sector hub
with IT, banking, financial services and media being at
the forefront of the trend, and creating surplus wealth in
the hands of a huge consuming class

25. Real Estate Growth
• In retail, real estate needs are quite different from those
for residential and commercial property segments. Real
estate market in India has for long been dominated by
unorganized players, who do not have experience in
property development specifically for retail. This is also
reflected in the exterior focused design and improper
tenant mix, resulting in higher rental burdens and
eventually failure of the mall.
• However, there is a discernible shift underway in the
space. While the government is easing land regulations
and releasing more land for retail purpose, investment in
real estate by organized players is on an increase.

26. Real Estate Growth
• Also, retailers – who understand the business well – have now
forayed into property development for retail purposes. For instance,
Rahejas, DLF, Pantaloon, Provogue, etc are now active in retail
development and mall management services.
• Other factors that will ensure enhanced availability of retail property
is entry of foreign players and a provision for 100% FDI under the
automatic route for real estate development for townships over 25
acres of land or commercial and retail development / commercial
purpose on floor space of over 500,000 sq. ft.
• It is estimates based on stated plans of Indian retailers, the industry
will 75m sq. ft of retail space operational by end 2007.

27. Regulatory framework
• Besides funding and quality infrastructure the
government has finally realized the
importance of the same and is making
necessary regulatory amendments, though
the pace leaves much to desire.
• Issues already addressed by the government
are implementation of VAT (thus leaving no
room for tax evasion by traditional players),
releasing more land for retail development
(textile mills in Mumbai allowed development
for commercial and retail purposes), allowing
100% FDI in real estate and permitting 51%
foreign investment by a single-brand retailer.

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