Retailing in India


By

Namratha G
Nazia Hasan
Research Associate
Badruka Institute of Foreign Trade
Kachiguda, Hyderabad
 


Introduction

Retail means selling goods and services in small quantities directly selling to customers. Retailing consists of all activities involved in marketing of goods and services directly to consumer for their personnel family and household use.

The Indian retailing industry is becoming intensely competitive, as more and more payers are Vying for the same set of customers. The major retail players are Pantaloon Retail, Shoppers Stop, Reliance,etc..,

Retailing is one of the biggest sectors and it is witnessing revolution in India. The new entrant in retailing in India signifies the beginning of retail revolution. India's retail market is expected to grow tremendously in next few years. According to AT Kearney, The Windows of Opportunity shows that Retailing in India was at opening stage in 1995 and now it is in peaking stage in 2006. India's retail market is expected to grow tremendously in next few years. India shows US$330 billion retail market that is expected to grow 10% a year, with modern retailing just beginning. India ranks first in 2005.  In fact, in 2005 and 2006, India is the most compelling opportunity for retailers, because now India is in peaking stage.

This window of opportunity is useful for executives who plan their market-specific strategies; the four stages are as follows:

Opening:

An opening market is one that is just entering the GRDI, that is, in this stage all, which are outside the top 30 markets, falls in this stage. At this stage, retailers should monitor and performing high-level assessments, they should plan for their entry strategies. India in the late 1990's is a good example in the opening stage, while in 2006, Kazakhstan is the country in opening stage* See figure a.

Peaking:

In peaking stage, the market is developing quickly and also ready for modern retailing. Countries, which are in Peaking stage, are India, Ukraine and Vietnam. Retailers entering this stage have the best chance for long-term success. Retailers at this stage should enter through local representations, sourcing offices and new stores. Wal-Mart success in china in the late 1990's and early 2000's gives us the importance of committing to a promising high-growth market at right time.

Declining:

In this stage the market is still big and growing, but the space for new entrants will become tighter and retailers should act quickly at this stage because retailers at this stage have limited time to explore, and laso their margin for error is thin. In general , they should act according to the established rules and should be open to face the competition from international retailers.

Closing:

The window of opportunity is closing fast and modern retail share is reaching 40 to 60 percent. Though the opportunity is closing the existing retailers can enter with new formats such as discount models or non-food formats such as consumer electronics and apparel.

Window of opportunity ends for about 5 to 10years before a market enters the closing phase and reaches saturation level. India for example, was in the opening stage in 1995 and entered peaking stage in the year 2003 and reached number 1 rank in2005.

Unorganized retailing in India

In India, the most of the retail sector is unorganized. In India, the retail business contributes around 11 percent of GDP. Of this, the organized retail sector accounts only for about 3 percent share, and the remaining share is contributed by the unorganized sector. The main challenge facing the organized sector is the competition from unorganized sector. Unorganized retailing has been there in India for centuries, theses are named as mom-pop stores. The main advantage in unorganized retailing is consumer familiarity that runs from generation to generation. It is a low cost structure, they are mostly operated by owners, has very low real estate and labor costs and has low taxes to pay.

Organized retailing in India

In late 1990's the retail sector has witnessed a level of transformation. Retailing is being perceived as a beginner and as an attractive commercial business for organized business i.e. the pure retailer is starting to emerge now. Organized retail business in India is very small but has tremendous scope. The total in 2005 stood at $225 billion, accounting for about 11% of GDP. In this total market, the organized retail accounts for only $8 billion of total revenue. According to A T Kearney, the organized retailing is expected to be more than $23 billion revenue by 2010.

In organized retailing will grow faster than unorganized sector and the growth speed will be responsible for its high market share, which is expected to be $ 17 billion by 2010-11.

Retailing will show good prospects in cities like Mumbai, Delhi, Chennai, kolkata, Banglore and Kanpur. After Dubai, Singapore and Hong Kong, In India Delhi will be the next big retail destination, According to Confederation of Indian Industries whose findings have shown that Delhi has the good resources and good conditions for the retail sector. Out of the total earnings of the Government of Delhi Rs 11,000 crore, Rs 6,500 crore is achieved from the retail sector.

The organized sector is expected to grow faster than GDP growth in next few years driven by favorable demographic patterns, changing lifestyles, and strong income growth. This organized retail sector mix includes supermarkets, hypermarkets discounted stores and specialty stores, departmental stores. For example, Spencer network has 69 stores, which includes seven Spencer hypermarkets, three Spencer super markets and 49 Spencer Dailys.  Now the company is planning to open 20 stores in 10 cities in six months.  The top 10 retailers account only for 2% of total market, today modern retailing is expected to enter a boom phase, which has major players and these players might capture 10% of total market, within next five years. The retail sales in India for future are shown below (data from 2005-2008 is based on estimates):

Growth drivers in India for retail sector

  • Rising incomes and improvements in infrastructure are enlarging consumer markets and accelerating the convergence of consumer tastes.
  • Liberalization of the Indian economy
  • Increase in spending Percapita Income.
  • Advent of dual income families also helps in the growth of retail sector.
  • Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.
  • Consumer preference for shopping in new environs
  • The Internet revolution is making the Indian consumer more accessible to the growing influences of domestic and foreign retail chains. Reach of satellite T.V. channels is helping in creating awareness about global products for local markets.
  • About 47% of India's population is under the age of 20; and this will increase to 55% by 2015. This young population, which is technology-savvy, watch more than 50 TV satellite channels, and display the highest propensity to spend, will immensely contribute to the growth of the retail sector in the country.
  • Availability of quality real estate and mall management practices
  • Foreign companies' attraction to India is the billion-plus population.

Employment opportunities in retail sector in India

India's retail industry is the second largest sector, after agriculture, which provides employment. According to Associated Chambers of Commerce and Industry of India (ASSOCHAM), the retail sector will create 50,000 jobs in next few years.

Retail companies are starting retail manamgent courses in partnership with management institutes, roping in talent from other sectors and developing comprehensive career growth and loyalty plans for existing employees.

Top players like Pantaloon Retail India Limited, Trent, Shopper's Stop, RPG Group and ebony are virtually on their toes.

Consider the plans of largest player, The Pantaloon Retail India Ltd, the company has developed a comprehensive strategy, where in it expects that in 2years, it will not recruit any new managers from outside.

"The estimated need is 1 lakh of employees till 2011", said Mr. Sanjoy Jog, HR Head at Pantaloon Retail India Ltd. Pantaloon has the concept of partnership with educational Institute to run retail courses across the entire chain. The company has tied up with 11-B schools including K J Somaiya , Welinkars, Narsee Monjre and IISWBM. "The students joins the course and they are given an appointment letter by Pantaloon to become employees" said Mr. Jog, Pantaloon. Pantaloon is also planning to tie up with Ahmedabad-based National Institute of Design to start a course in visual merchandising. "The apex body of Indian organized retailers, Retailers Association of India( RAI) is also lending help hand to tide over the shortage of employees in organized retail sector.

Trent has also started in-house learning programmes and now goes to under graduate colleges to recruit students.

Since, the job market is hugely receptive to this with more and more business schools focusing on the sector and large retailers setting up retail academics.

Challenges of Retailing in India

In India the Retailing industry has a long way to go,and to become a truly flourishing industry, retailing needs to cross the following hurdles:

* The first challenge facing the organized retail sector is the competition from unorganized sector.
* In retail sector, Automatic approval is not allowed for foreign investment.
* Taxation, which favors small retail businesses.
* Developed supply chain and integrated IT management is absent in retail sector.
* Lack of trained work force.
* Low skill level for retailing management.
* Intrinsic complexity of retailing- rapid price changes, threat of product obsolescence and low margins.
* Organized retail sector has to pay huge taxes, which is negligible for small retail business.

Conclusion

Many agencies have estimated differently about the size of organized retail market in 2010. The one thing that is common amongst these estimates is that Indian organized retail market will be very big in 2010. The status of the retail industry will depend mostly on external factors lke Government regulations and policies and real estate prices, besides the activities of retailers and demands of the customers also show impact on retail industry.
 


Namratha G
Nazia Hasan
Research Associate
Badruka Institute of Foreign Trade
Kachiguda, Hyderabad
 

Source: E-mail September 23, 2006

     

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