Re­tail

The re­tail in­dus­try has been one of the ma­jor growth driv­ers of the In­dian econ­omy—con­tribut­ing over 10% of the coun­try’s GDP and around 8% of em­ploy­ment. 1 Swapna Pradhan ex­plores how the in­dus­try has grown till now, chal­lenges posed by the rise of on­lin

The Smart Manager - - Contents - SWAPNA PRADHAN IS PRO­FES­SOR OF RE­TAIL MAN­AGE­MENT AT WEL­INGKAR IN­STI­TUTE OF MAN­AGE­MENT DEVEL­OP­MENT AND RE­SEARCH.

Swapna Pradhan, Wel­ingkar In­sti­tute of Man­age­ment, scru­ti­nizes the In­dian re­tail sec­tor and lays bare its strengths and short­falls.

Re­tail in In­dia is dynamic as well as com­plex. The coun­try’s re­tail mar­ket stood at $672bn in 2016 and is ex­pected to touch $1.2 tril­lion by 2020.2 Unor­ga­nized or tra­di­tional re­tail makes up al­most 90% of the mar­ket while the or­ga­nized seg­ment is only 9-10% ($60bn). Be­tween 2005 and 2015, the over­all re­tail mar­ket grew at a CAGR of 12-13%, with or­ga­nized re­tail grow­ing at ~22%. The mar­ket com­prises sev­eral ver­ti­cals such as food and gro­cery, ap­parel, con­sumer durables, mo­bile and IT, home decor and fur­nish­ings, footwear, health and beauty, books, and mu­sic. Food and gro­cery is the most dom­i­nant, with al­most 65% of the cat­e­gory share; but it has the low­est or­ga­nized re­tail pen­e­tra­tion (ORP) at 3%. ORP is the high­est for con­sumer durables at 33%, fol­lowed by ap­parel at 23%, and footwear at 22%. Steady eco­nomic growth, a

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large youth pop­u­la­tion, in­crease in ur­ban­iza­tion, and greater con­sumer aware­ness have fu­elled the growth of the In­dian re­tail mar­ket. In­ter­na­tional brands and re­tail­ers have also re­posed faith in In­dia’s growth story and the coun­try was ranked sec­ond on the 2016 Global Re­tail Devel­op­ment In­dex, AT Kear­ney.

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The coun­try has also wit­nessed rapid growth in ecom­merce in the past five years, en­abled by the en­hance­ment of IT in­fras­truc­ture and pen­e­tra­tion of smart­phones. E-tail­ers have ag­gres­sively pur­sued aug­ment­ing cus­tomer ex­pe­ri­ence and fa­cil­i­tated mul­ti­ple pay­ment op­tions to deal with the lack of trust, which was a key fac­tor that stopped many from adopt­ing e-tail. The present on­line shop­ping spend in In­dia is es­ti­mated to be around $8bn and is ex­pected to cross $45bn by 2020.

growth of In­dian re­tail

Post in­de­pen­dence, re­tail in In­dia evolved to sup­port the unique needs of the coun­try given its size and com­plex­ity. Pre-lib­er­al­iza­tion, the do­mes­tic re­tail mar­ket was char­ac­ter­ized by out­lets set up by man­u­fac­tur­ers. These were largely fab­ric and ap­parel out­lets. The early

90s saw a grad­ual shift to mod­ern for­mats that in­cluded de­part­ment stores, hy­per­mar­kets, su­per­mar­kets, and spe­cialty stores across a wide range of cat­e­gories. How­ever, it was only around the turn of the cen­tury that the speed of change and growth in re­tail caught mo­men­tum. Large In­dian cor­po­rate houses saw re­tail as an op­por­tu­nity and en­tered the space with var­i­ous for­mats and prod­uct of­fer­ings. Malls started dot­ting the land­scape and many in­ter­na­tional brands started show­ing an in­ter­est in the grow­ing mar­ket. Be­tween 2006 and 2016, suc­ces­sive gov­ern­ments eased FDI norms for re­tail and as on date, 100% FDI in sin­gle-brand re­tail and up to 51% in multi-brand re­tail with prior gov­ern­ment ap­proval is per­mit­ted. Ac­cord­ing to the De­part­ment of In­dus­trial Poli­cies and Pro­mo­tion re­tail trad­ing re­ceived FDI eq­uity in­flows to­tal­ing $537.61mn dur­ing April 2000–March 2016.

E-tail­ers have ag­gres­sively pur­sued aug­ment­ing cus­tomer ex­pe­ri­ence and fa­cil­i­tated mul­ti­ple pay­ment op­tions to deal with the lack of trust.

growth fac­tors

Over a pe­riod of time In­dia tran­si­tioned from an agrar­ian to a ser­vice-led econ­omy. Steady GDP growth driven by lib­er­al­iza­tion en­abled rise in in­come lev­els. This in­crease is not re­stricted to the met­ros alone—it in­cludes tier 2 and 3 cities as well. It is ex­pected that there will be a three fold in­crease in av­er­age house­hold in­come from $6,393 in 2010 to $18,448 in 2020.5 As in­come lev­els in­crease, it is es­ti­mated that de­mand for prod­ucts other than food and gro­cery would rise. In­crease in in­come is also an in­di­ca­tor of a propen­sity to con­sume and is a key driver of or­ga­nized re­tail.

The other fac­tor driv­ing the growth of re­tail is pop­u­la­tion in the work­ing age group of 16-54. As per cen­sus of 2011, more than 50% of In­dia’s to­tal pop­u­la­tion falls un­der this group, in­di­cat­ing the influence wielded by this seg­ment on con­sumer spending. More­over, lit­er­acy lev­els

too have in­creased sig­nif­i­cantly, to 74% in 2011, from 64% in 2001. The third fac­tor en­abling the growth of re­tail sec­tor is ur­ban­iza­tion. It is es­ti­mated that 40% of the pop­u­la­tion will live in ur­ban cities by 2020, up from 31% in 2010.6 This has also led to a break­away from the tra­di­tional fam­ily struc­ture and the emer­gence of nu­clear fam­i­lies. Over 200 mil­lion house­holds are ex­pected to be nu­clear by 2020—with 25-50% higher con­sump­tion per capita spend. Growth in ur­ban­iza­tion presents an op­por­tu­nity for the devel­op­ment of or­ga­nized re­tail. How­ever, a large part of the ru­ral mar­ket re­mains un­tapped by mod­ern re­tail trade.

The Gov­ern­ment of In­dia too has en­sured clar­ity in the norms for FDI in re­tail. The im­ple­men­ta­tion of GST is ex­pected to en­able eas­ier move­ment of goods across the coun­try, thereby im­prov­ing re­tail op­er­a­tions for pan-In­dia re­tail­ers.

Growth of ecom­merce and pop­u­lar­ity of web­sites is a re­al­ity that has to be faced by bricks and mor­tar re­tail­ers.

chal­lenges

In­dia is a diverse mar­ket, to say the least. Re­tail­ers to­day en­counter con­sumers who are well in­formed about prod­ucts and also have a set of ex­pec­ta­tions. They also have a lot of choices in terms of where they buy their prod­uct from. At the same time, chal­lenges per­tain­ing to in­fras­truc­ture in terms of sup­ply chain and lo­gis­tics ex­ist. Added to this is the fact that real es­tate costs in terms of ren­tals are fairly high. This of­ten af­fects the prof­itabil­ity of a store. This is in con­trast to the unor­ga­nized sec­tor where the re­tailer has some in­her­ent ad­van­tages in terms of ren­tals, and at the same time en­joys a close prox­im­ity with the cus­tomers.

Growth of ecom­merce and pop­u­lar­ity of web­sites is a re­al­ity that has to be faced by bricks and mor­tar re­tail­ers. Be­tween 2010 and 2015, in­ter­net pen­e­tra­tion in In­dia un­der­went a phe­nom­e­nal change—it took more than a decade to move from 10 mil­lion to 100 mil­lion and three years to grow from 100 to 200 mil­lion, but it took only a year to move from 300 to 400 mil­lion users. In­creased avail­abil­ity of smart­phones across price bands and com­pet­i­tive mo­bile in­ter­net tar­iffs have helped in­crease us­age. E-tail­ers of­fer con­ve­nience of buy­ing and are ag­gres­sive in creat­ing a buzz around var­i­ous prod­uct cat­e­gories. While many bricks and mor­tar re­tail­ers sell on­line, there are a few who have man­aged to in­te­grate their prod­uct of­fer­ings across chan­nels.

Win­ning in the In­dian mar­ket is about un­der­stand­ing that the con­sumers vary by re­gion, state, city, and even lo­cal­ity. It thus be­comes crit­i­cal to un­der­stand the lo­cal mar­ket and cre­ate prod­uct and ser­vice of­fer­ings, which can cater to those needs. A one-size-fits all ap­proach may not lead to suc­cess. ■

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