- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Top Market Opportunities
- 5 Market Drivers
- 6 Market Restraints
- 7 Industry Challenges
- 8 Technology Trends
- 9 Pricing Trends
- 10 Regulatory Trends
- 11 Market Size and Forecast
- 12 Market Outlook
- 13 Distribution Chain Analysis
- 14 Competitive Landscape
- 15 Key Market Players
- 16 Strategic Conclusion
- 17 References
Definition / Scope
Retailing refers to the process of selling goods and services directly to end customers through storefront or multiple channels of distribution. The good are sold to end consumers for personal use.
Department stores, discounters, speciality stores, mom-and-pop stores all come under different types of retailers. There are two types of retailing: organized and unorganized retailing.
In India, organized retailing refers to trading that is undertaken by licensed retailers and are registered for income and sales tax. Whereas, unorganized retailing refers to low-cost retailing which comprises of convenience stores, general store, local shops, etc.
Here are some of the different types of retailers in India:
- Malls – Malls are mainly located in metro cities and are the largest form of organized retailing. They provide products, service and entertainment under one roof, thus, enhancing the shopping experience of consumers. It ranges from 60,000 sq. ft to 7, 00,000 sq. ft and above.
- Discount Stores – These stores offer discount by selling in bulk.
- Department stores – These stores ranges from 20,000 to 50,000 sq. ft. and are opened to meet variety of consumers’ need.
- Convenience stores – These are local shops that are opened in residential areas. They sell limited range of high turnover convenience products to consumers.
- E-tailers – These are retailers who provides online buying and selling of products and services.
- Category killers – They are small speciality stores that offer various categories, such as electronics and sporting goods.
The Indian retail industry is the largest among all the industries, accounting for over 10% of the country’s Gross Domestic Product and around 8% of the total employment.
The Indian retail market is estimated to be around US$ 600 billion and one of the top five retail markets in the world by economic value. No doubt, India is one of the dynamic and fast growing retail markets in the world with 1.2 billion people. India is also among the highest in the world in terms of per capital retail store availability. The retail development is not taking place only in major cities but also in Tier II and Tier III cities of India.
The evolution of retail industry in India can be traced back to emergence of Kirana shops which were opened for the convenience of consumers. After 1980, India experienced open economy. Textiles sector with companies like Bombay Dyeing, Raymond’s first saw the emergence of retail chains.
Shortly, Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches. The latter half of the 1990s saw a flourish on entrants with a shift from manufacturers to retailers. After 1995, there was emergence of shopping centres. This provided a complete destination experience for all segments of society. Between 2000 to 2010, consumers begun to experience the quality, choice, convenience and benefits of organized retail industry.
In 2010, lager format convenience stores and supermarket accounted for 4% and were present mainly in urban areas. Gradually there was emergence of hyper and super markets trying to enhance the shopping experience of consumers. Until, 2011, Indian government didn’t welcome Foreign Direct Investments. In November 2011, India’s central government announced retail reforms for both multi-brand stores and single-brand stores which paved the way for retail innovation and competition with multi brand retailers such as Wal-Mart, Carrefour and single brand such as IKEA and Nike. In January, 2012, India approved reforms for single-brand stores welcoming anyone in the world to innovate in Indian retail market with 100% ownership but with the requirement that the single brand retailer source 30% of its goods from India. After that, government also permitted FDI up to 51% in multi brand retailing.
Today, Indian retail industry is the second largest employer in the country with almost 12 million retail stores in India.
|Base Year||2017||Researched through internet|
Top Market Opportunities
- India retail market is fairly unorganized, as the local shops are opened at the front and back of the houses. Only 2-3% of the sector is organized, indicating a huge potential for anyone entering the market.
- The online retail is gradually booming in India. There is shift from traditional store to online stores.
- Purchasing power of Indian consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes are slowly becoming lifestyle products.
- The vast middle class and its almost untapped retail industry are the key attractive forces for anyone willing to enter the market.
- India is rated the fifth most attractive emerging retail market: a potential goldmine for entrants.
- Food and apparel retailing are becoming key drivers of growth
- There is growing number of double – income households.
- Rural markets is emerging as a huge opportunity for retailers.
- Consumer preferences are improving and they are becoming quality conscious.
- As per the International Monetary Fund, India will be the fastest growing economy in 2018 with a growth rate of 7.4%.
- In the pre-GST scenario, retailers were entitled to pay around 30% indirect taxes such as VAT, CST, excise duty, service tax etc. Post-GST, it has lessened the retailer’s tax burden as it streamlines everything into single tax.
Retail market has become more robust after the entry of international retail chains. There are several factors that are driving growth in retail industry in India. The rising population, growing large young working population with median age of 24 years, nuclear families in urban areas, growing middle class income, healthy economic growth of India and increasing disposable income are some of the main factors for the growth in this market. Other factors include urbanization, increasing tourism, changing consumer taste, shifting purchasing behaviour from traditional retail stores to malls, rising purchasing power, increasing high net worth individuals.
The falling real estate price has also been driving the growth of retail sector in India. Multiplex malls and huge complexes are gaining popularity which provides entertainment, food and shopping experience under one roof.
Numerous license, permits and registration requirement make the whole process complex for anyone willing to enter the market.
Also, there are no laws such as Shops Establishment Act, Essential Commodities Act, Cold Storage Order, etc.
- There is threat for local shops and kirana shops from the entry of global retail giants in India. These global giants have the advantages of economies of scale and infrastructure along with being rich in cash. These may lead to loss of job of people in India.
- The price-sensitive Indian shoppers prefer Big box stores such as Big Bazaar specifically for the discounts. Most of the shoppers also prefer the convenience and access offered by the local grocery store and hence, retail chains such as Reliance Fresh, Subhiksha and more closed down operations in some of their locations.
- The retail giants will have to focus on various operations while reaching out to the Indian consumers. They have to effectively build their expertise to attract customers with fresh and exotic vegetables and organic produce.
- The rising inflation rates in India have increased the supply chain cost in the Indian good and groceries.
- Today retailing is much more than merchandising. It is more about providing good experience to consumers throughout the whole process of shopping.
- There is shortage of skilled man power. There are very few courses specific to the retail sector and retail training is also limited.
- There is lack of “industry status” in India due to which organized retail in India faces difficulties in procurement of organized financing and fiscal incentives.
- Organized retail in India is managed by both Ministries of Commerce and Consumer Affairs. There is a need to govern retail operations through a single apex body.
- The enormous growth of the retail industry has created a huge demand for real estate. Property developers are creating retail real estate at an aggressive pace.
- Frauds, theft, inaccuracy in administration are some the challenges that retail industry have to handle.
Physical stores are being replaced by e-tailing. The purchasing behaviour of Indian people is shifting from physical stores to buying from the internet.
India’s price competitiveness attracts large retail players to use it as a sourcing base. Global retailers such as Wal-Mart, GAP, Tesco are increasing their sourcing from India.
- The government of India has introduced reforms to attract Foreign Direct Investment (FDI) in retail industry. The government has approved 51% FDI in multi brand retail and 100% in single brand retail under the automatic route which is expected to give a boost to ease of doing business in India.
- Liberal retail policies and removal of trade barriers and restriction on foreign investment and linkage to World Trade Organization (WTO) are helping the retail sector growth in India.
- Government is allowing 100% foreign ownership in B2B e-commerce business. There has been effort to boost cashless payments.
Market Size and Forecast
- India retail industry is expected to grow to US$ 1,100 trillion by 2020 from US$ 680 billion in 2017.
- The online retail market is expected to grow from US$ 18 billion to US$ 60 billion from 2017 and 2020. It is forecasted to grow at CAGR of over 30% from 2016 to 2021.
- Online retail sale is forecasted to grow at the rate of 31% to reach US$ 32.70 billion in 2018. Revenue generated from online retail is projected to grow to US$ 60 billion by 2020.
- Organized retail penetration is expected to increase from 7% in FY 2016-17 to 10% in 2020.
- India is expected to become the world’s third largest consumer economy, reaching US$ 400 billion in consumption by 2025.
The market size of retail industry in India over the past few years is increasing. The market was US$ 200 billion in the year 2000, increased to US$ 680 billion in the year 2016 and is expected to increase to US$ 1,100 billion by 2020.The CAGR is 7.80% up to the year 2016.
In the year 2016, 93% of the retail industry was unorganized and 7% was organized. The sector composition of organized sector is expected to increase to 10% by 2020.
Distribution Chain Analysis
In India, a firm can deliver its products to the user through a variety of channels. Online retail market is expected to be at par with physical stores in the coming years. The distribution channel mainly involves redistribution stockist, wholesalers and retailers.
For example, A FMCG company could have about 40 to 80 redistribution stockists (RS). These RS will sell the products to the wholesalers. Finally, RS and wholesalers will service the retailers throughout the country.
Margins for retailers are very small and it takes a few years for a store to break even after it starts operating.
There are about 12-15 million retailers in India, out of which 8-10 million are hawkers, 4-5 million are grocery outlets and 1 million are urban grocery outlets. Over 96% of the retail is unorganized.
Key Market Players
Pantaloons – Pantaloon Retail India Ltd. are a large Indian retailer, part of the Future Group, and operates in multiple retail formats in both value and lifestyle, segments of the Indian consumer market. The company has over 1,000 stores across 71 cities in India and employs over 30,000 people. As of 2010, it was the India’s largest listed retailer by market capitalization and revenue. The company’s brands include Pantaloons, a chain of fashion outlets, Big Bazar, etc.
Reliance – Reliance Retail Ltd. is a subsidiary company of Reliance Industries. It is the India’s second largest retailer that offers food, groceries, apparel, footwear, electronic goods and so on.
Shoppers Stop – Shoppers Stop is an Indian department store chain promoted by K Raheja Corp Group, started in the year 1991. It offers a range of branded apparel, and private label under categories such as fashion jewellery, apparel, footwear, leather products, etc. It retails products of domestic and international brands such as Louis Philippe, Pepe, Nike, LEGO, Mattel, etc.
Landmark Group – The Landmark group provides a value-driven product range for the entire family through a diverse portfolio of core retail brands. Other key players of the market are Aditya Birla Group, Bharti Retail, Globus, Spencer’s Retail, etc.
Some of the major foreign players who have entered the India market are:
- Carrefour opened its first cash-and-carry store in India in New Delhi.
- Germany based Metro Cash & Carry opened 6 wholesale centres in the country.
- Wal-Mart in joint venture with Bharti Retail plans to invest US$ 2.5 billion over the next five years.
The future of Indian retail industry looks promising. The retail market is growing exponentially, as economic growth brings more of India’s people into consuming classes. Hence, India presents a large market opportunity given the size of population and increasing purchasing power of consumers.