The landscape of retail in India has come a long way from ‘traditional retailing’ to ‘modern retailing’ and now ‘online retailing’. Two factors that remain constant in India’s retail story are Change and Customisation. Some of the factual reasons for retail being a growing sector are: 96% of unorganised retail have high growth potential; online retailing is gaining widespread popularity; opening up of the sector to FDI. In 2013, India’s retail market was estimated at US$520 billion and is expected to grow at a CAGR of 13% to reach around US$950 billion by 2018. While these numbers look quite impressive, India’s organised retail accounts for a mere 7-8% of total retail.
Although the retail industry in India is still largely unorganised, the growth opportunities are aplenty. Retail is seen as one of the most promising sectors for India’s Inc. Big business houses like Aditya Birla, Reliance and Tata are making huge investments in this sector. While on one hand, Aditya Birla Group has bought a stake in Pantaloons, and is pumping in some Rs 500 crore in retail while collaborating all the retail businesses to the reap the benefit of synergy, the Tata group in joint venture with Tesco has built Amritsar’s first retail project Trillium Mall. Meanwhile, Reliance has aggressively tied up with international brands and is establishing Reliance Retail Express stores across the country. Other than these big names, international retailers like Zara have turned in impressive performances in the first two years of operations. Retail giants like Pantaloons, Shopper’s Stop and Big Bazaar are adopting various profitable strategies with limited expansion across the country, and international retail chains like Tesco are establishing their footprints in the Indian retail sector.
Online Retailing: Gearing Up For More
In India’s retail growth era, one of the concepts that have further gained popularity is online retailing. The new era of online retailing is growing at a staggering 30-35% per annum with a number of entrants in the market. Based on research, we see an increasing presence of online retailers in Tier-II and Tier-III cities like Surat, Ahmedabad, Baroda, Chandigarh, Coimbatore, Pune, Kolkata, Hyderabad, Cochin, Nagpur, Indore, Amritsar, Ludhiana, etc. The e-retailing market in India is estimated at Rs 5,513 crores in FY13 with a CAGR of 30.5% (FY08-FY13). It constitutes 0.2% of the total retail market and 2.3% of organised retail in India and is highly fragmented with a few large players at the top, engaged in a race for high valuation, aggressive growth and fierce competition. The industry has also witnessed consolidation with the largest acquisition of Myntra by Flipkart and high valuation of Flipkart (approx. US$7 billion). The trend is likely to continue in the future given the presence of the giant e-retailing entity Amazon in India, likely opening up of B2C segment to FDI and start-ups raising capital from private equity investors. Though most e-retailing firms have been established after raising PE funds and thereby gaining high valuations, three most important factors that our ESPL experts believe would define the success of the online retailers in the future are: (i) sustainable growth in terms of profitability; (ii) innovation in services and products; and (iii) simultaneous capturing of market share not by giving deep discounts but by following user-friendly experience management practices. With online retail gaining popularity, prices of commercial warehouses prices have gone up. Also, in the Food & Beverages segment agriculture-based companies are setting up grocery retail chains, which will create price competitiveness in this segment and the retail market as a whole. Another area, which would contribute towards the growth of retail in India, is FDI in retail. The new government may have some reservations on allowing FDI in multi-brand retail but overall seems to be working towards relaxing some aspects of the FDI policy, which could enable more international retailers to invest in the country. Recently, the Confederation of All India Traders (CAIT) signed a Memorandum of Understanding with eBay to train domestic retailers to use the online market space as an additional tool for expanding their business. The agreement will enable Indian traders to export via eBay to 201 countries and sell at 4,306 Indian locations. Currently, FDI policies in India restrict e-commerce companies from offering services directly to retail consumers and 100 per cent FDI is allowed only in B2B e-commerce.
An integrated supply chain, robust logistics and advanced technology, which should ideally be the backbone of retail, remain key challenges for the retail industry in India. Most of the retail giants including online retailers face challenges in these areas, more so when it comes to logistics, which reduce the effectiveness of their internal and external business processes. Another area that needs to be looked into is increasing awareness of the industry of the changing market conditions in order to take better and informed business decisions. Research findings are regarded as important tools by international retailers in their decision making process; high quality research is a prerequisite in the Indian retail space.
The India retail industry is poised for high growth, powered by e-retailing, new business ventures in Food & Beverages segment, increase in exports by retail players, more favourable government policies, new technologies, and robust research. In the coming times, this industry will play a key part in the country’s GDP growth and employment creation, even as its various constituents enter the organised fold The views expressed in this article are highly personal, based on the research conducted by ESPL
Ruchi Sally Director, Elargir Solutions (P) Ltd
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