Organized Retailing in Urban Indiaby Udit Jain on June 19, 2007
Organized Retailing in Urban India
India’s upbeat economy presents enormous opportunity. The mood in Indian retailing is bursting with optimism, with the hope that the government will introduce favorable legislative relaxation in real estate and partial FDI reforms in retailing. This will encourage retailing to remain in investment mode. Domestic retailers are likely to exploit the improving economic environment as well as the relatively stable political situation and increase their presence. Industry conglomerates such as Reliance are proposing to invest heavily in retailing and are seeking avenues to establish and expand as they prepare to take retailing in India by storm.
The Indian economy is likely to continue its steady growth with enhanced share in global trade and steady agricultural outputs. Booming employment opportunities, rising urban disposable incomes and credit card ownerships, changing lifestyles and demographic profiles all are showing a favorable skew towards a rising consumerism culture, boding well for retailing growth. Consumer spending is clearly set to accelerate its pace. India is expected to become the most populous country globally by 2050, surpassing China. This points to an enormous nascent consumer base and a potential gold mine for retailing in India. Over the next few years, Indian retailing is expected to expand at a constant value CAGR of 6 percent, approaching Rs5 trillion by 2010. Estimates of the size of the retail sector vary, with recent calculations putting the annual value of Indian retailing anywhere between US$180 billion and US$292 billion in 2003.
Expanding at 8 percent in current value terms over 2004, retailing took a big leap forward in 2005. This was due to strong GDP growth and a stable economic climate that fuelled consumer optimism. Ascending consumer disposable incomes backed by low interest rates and higher ownership of credit cards allowed for inflated spending within key consumer groups in urban and rural India. The AC Nielsen Online Omnibus Survey 2005 rates India in the highest category of Aspiration Index in Asia, along with China, Indonesia and Thailand.
The existing Indian retail sector is largely made up of the unorganized sector. This sector consists of small family-owned stores, located in residential areas, with a shop floor of less than 500 square feet. At present the organized sector accounts for only 2 to 4 percent of the total market although this is expected to rise by 20 to 25 percent by 2010. Many of the companies believe that the potential size of this market is underestimated. They consider that there are considerable opportunities for organized retailers in rural territories that need to be addressed. Companies expect retail growth in the coming five years to be surpass the GDP growth.
Fastest growing retail segments in India
Food and Grocery-91
Furniture and Fixtures-27
Footwear and Leather-18
Watch and Jewelery-18
Source:KPMG in India retail survey 2005
The structure of retailing is also developing rapidly. Shopping malls are becoming increasingly common in large cities. The number of department stores is growing much faster than overall retail, at an annual 24 percent. Supermarkets have been taking an increasing share of general food and grocery. Several builders have announced plans for at least 150 new shopping malls by 2008.
Grocery retailers continued to be the staple of retailing in 2005, accounting for 3/4 of overall retailing value sales as shown in Figure 4.1. Moderate growth of 7 percent in current value terms for grocery retailers in 2005 over the previous year.