Industry profile_global and indian retail industry

Industry profile_global and indian retail industry

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  CHAPTER 1 INDUSTRYPROFILE 1.1 RETAIL INDUSTRY IN INDIA India is the fifth largest retail destination globally. The Indian retail industry has experienced tremendous growth over the last decade with a significant shift towards organized retailing format and development taking place not just in major cities and metros, but also in Tier II and Tier III cities. The overall retail market in India is likely to reach Rs 47 trillion (US$ 792.84 billion) by FY 17. India is the 5th largest retail market in the world. The country ranks fourth among the surveyed 30 countries in terms of global retail development. The current market size of Indian retail industry is about US$ 500 billion (source IBEF).Indian retail industry is expected to grow at a rate of 15% to 20% per annum. According to report by Deloitte, The retail industry is expected to increase to US$ 750-850 billion by 2015. Retailing has played a major role the world over in increasing productivity across a wide range of consumer goods and services. In the developed countries, the organised retail industry accounts for almost 80% of the total retail trade. In contrast, in India organised retail trade accounts for merely 8- 10% of the total retail trade. This highlights a lot of scope for further penetration of organized retail in India. The retail sector can be divided into two segments – Value retailing and lifestyle retailing. Value retailing deals with high volume business but typically having considerably low margin and Lifestyle retailing, a high margin-low volume business. The sector is further divided into various categories, depending on the types of products offered. Food dominates market consumption with 60% share followed by fashion. The relatively low contribution of other categories indicates opportunity for organised retail growth in these segments, especially with India being one of the world's youngest markets. Traditionally the retail industry in India was largely unorganized, comprising of drug stores, medium, and small grocery stores. Most of the organized retailing in India have started recently and is concentrating mainly in metropolitan cities. The scope for further penetration
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  of organised retailorsin India is due to changing consumer expectations, growing middle class, higher disposable income, preference for luxury goods, and change in the demographic mix, etc. The convenience of shopping with multiplicity of choice under one roof (Shop-in- Shop), and the increase of mall culture etc. are factors appreciated by the new generation. These factors are expected to drive organized retail growth in India over the long run. As India’s retail industry aggressively expands itself, great demand for real estate is being created. Further, with the online medium of retail gaining more and more acceptance, there is a tremendous growth opportunity for retail companies, both domestic and international. Favourable demographics, increasing urbanizations, nuclear families, rising affluence amid consumers, growing preference for branded products and higher aspirations are other factors which will drive retail consumption in India. Both organized and unorganized retail are bound not only to coexist but also achieve rapid and sustained growth in the coming years. 1.2 DEVELOPMENTS OF RETAIL BUSINESS IN INDIA The foreign direct investment (FDI) inflows in single-brand retail trading during the period April 2000 – March 2014 stood at US$ 106.66 million, as per data released by Department of Industrial Policy and Promotion (DIPP). The industry players are strongly in favour of entry of foreign retailers into the country. This will help them in funding their operations and expansion plans. The expertise brought in by the foreign retailers will also improve the way the Indian retailers operate. It is expected to bring in more efficiency in the supply chain functions of retailers. Luxury retailing is gaining importance in India. This includes fragrances, gourmet retailing, accessories, and jewellery among many others. Indian consumer is ready to splurge on luxury items and is increasingly doing so. The Indian luxury market is expected to grow at a rate of 25% per annum. This will make India the 12th largest luxury retail market in the world. Rural retailing is another area of prime focus for many retailers. Rural India accounts for 2/5th of the total consumption in India. Thus, the industry players do not want to be left out and are devising strategies especially for the rural consume. The Indian online retail industry is on the rise and has attracted a cumulative funding of US$ 1,650.5 million since 2009. Out of the total funding, 65 per cent has gone to horizontals and 25 per cent to fashion & apparels including jewellery. Flipkart & Myntra, who are now a
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  single entity (thoughthey will operate differently), have together garnered 40 per cent of the total funding invested in Indian e-commerce so far, according to Juxt Data. The key developments and investments occurred in India are mentioned below.  Marks and Spencer (M&S) plans to go up to 100 outlets in India within the next two years following a 13 per cent growth in their sales in the Indian market.  Flipkart.com has recently acquired fashion e-retailer Myntra.com for a sum of around US$ 3 billion. This deal will help Flipkart garner a larger market share in the e- commerce segment.  Metro AG plans to increase the number of its wholesale stores in India from 16 to 50 by 2020 and make the country one of its focus expansion markets.  Reliance Industries plans to open 2,000 exclusive outlets, Digital Xpress Mini, in FY 15 to sell the company's telecom services, smart phones, tablets and also accessories of other brands.  Private equity (PE) firm Texas Pacific Group (TPG) Growth and India's Smile Group will jointly invest US$ 100 million to help internet and e-commerce companies build and scale their businesses across the Asia–Pacific region and West Asia.  Ilex-London plans to invest around Rs 5 crore (US$ 843,397.17) over the next five years to open 10 exclusive stores in India. Stores will have an average size of 500–600 square feet (sq ft), with an investment of around Rs 5 million (US$ 84,332.95) per store (Source IJR) 1.3 RETAIL FORMATS IN INDIA  Hyper marts/supermarkets: large self- servicing outlets offering products from a variety of categories. Hypermarkets would be the largest retail segment, accounting for 21 per cent of total retail space by 2013–14  Mom-and-pop stores: They are family owned business catering to small sections; they are individually handled retail outlets and have a personal touch.  Departmental stores: are general retail merchandisers offering quality products and services.
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   Convenience stores:Located in residential areas with slightly higher prices goods due to the convenience offered.  Shopping malls: The biggest form of retail in India, malls offers customers a mix of all types of products and services including entertainment and food under a single roof.  E-trailers: Retailers providing online buying and selling of products and services.  Discount stores: These are factory outlets that give discount on the MRP.  Vending: It is a relatively new entry, in the retail sector. Here beverages, snacks and other small items can be bought via vending machine.  Category killers: Small specialty stores that offer a variety of categories. They are known as category killers as they focus on specific categories, such as electronics and sporting goods. This is also known as Multi Brand Outlets or MBO's.  Specialty stores: Retail chains dealing in specific categories and provide deep assortment. Ex: Mumbai's Crossword Book Store and RPG's Music World 1.4 MAJOR RETAILERS IN INDIA  FUTURE RETAIL LIMITED (FRL): Future Retail Limited (formally known as Future Value Retail Limited) is one of the largest retailers in India. Future Retail ltd is owned by the Future Group. Future Retail Ltd is an entity that operates its retail business across the country. Some of their retail businesses are: BIG BAZAAR CENTRAL BRAND FACTORY CONVERSE BIG APPLE 13 PLANET SPORTS  PANTALOONS FASHION AND RETAIL LIMITED: Pantaloons Fashion and Retail Limited is an Indian premium clothing retail chain. The first Pantaloons store was launched in Gariahat, Kolkata in 1997 as of November 2013 there are
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  76 Pantaloons storesin 44 cities. Pantaloons were previously controlled by the FUTURE GROUP but have now been taken over by Aditya Birla Nuvo Limited.  TATA GROUP: Tata group is another major player in Indian retail industry with its subsidiary Trent, which operates Westside and Star India Bazaar. Established in 1998, it also acquired the largest book and music retailer in India “Landmark” in 2005. Trent owns over 4 lakh sq. ft retail space across the country.  RPG GROUP: RPG Group is one of the earlier entrants in the Indian retail market, when it came into food & grocery retailing in 1996 with its retail Food world stores. Later it also opened the pharmacy and beauty care outlets “Health & Glow”.  RELIANCE: Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Fresh stores and Reliance Mart are quite popular in the Indian retail market.  AV BIRLA: AV Birla Group has a strong presence in Indian apparel retailing. The brands like Louis Philippe, Allen Solly, Van Heusen, Peter England are quite popular. It's also investing in other segments of retail. 1.5 CHALLENGES IN THE RETAIL SECTOR  Shortage of skilled manpower Trained manpower shortage is a challenge facing the organized retail sector in India. The Indian retailers have difficulty in finding trained person and also have to pay more in order to retain them. This again brings down the Indian retailers profit levels. Manpower is not equipped with even the basic level of retail specific and customer service skills, which adds to their incompetence vis-à-vis the organized sector. A cohesive effort to develop skills within the sector can have a significant potential impact on productivity and competitiveness, both within the sector and on the wider economy.  Lack of Industry status The Government should grant the much needed ’industry status’ to the sector so that the sops that come with it helps promote both big & small retailers thereby help in procurement of organized financing and fiscal incentives  Lack of Retail space
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  The biggest challengefacing the Indian organized retail sector is the lack of retail space. With real estate prices escalating due to increase in demand from the Indian organized retail sector, it is posing a challenge to its growth. In most cities, it is difficult to find suitable properties in central locations for retail, primarily due to fragmented private holdings, infrequent auctioning of large government owned vacant lands and litigation disputes between owners, all this leading to Indian retailers having to shell out more for retail space it is affecting their overall profitabilit y.  Entry of Global retail giants The Indian government has allowed 51% foreign direct investment (FDI) in the India retail sector to one brand shops only. This has made the entry of global retail giants to organized retail sector in India difficult. This is a challenge being faced by the Indian organized retail sector  Policy induced barriers Organized retail in India is managed by both the Ministries of Commerce & Consumer Affairs. A single agency can take care of retail operations more effectively, especially with regard to addressing the grievances of retailers. The development of the retail sector can take place at a faster pace if a comprehensive legislation is enacted. 1.6 TRENDS IN RETAIL INDUSTRY Changing mind set of customers: The customer mind set is gradually shifting from low price to better convenience, high value and a better shopping experience Easy customer credit: Emergence of concepts such as quick and easy loans, EMIs, loan through credit cards, has made purchasing possible for Indian consumers, for products such as consumer durables Higher brand consciousness: There is high brand consciousness among the youth; 60% of India‘s population is below the age of 30 leading to popularization of brands and products
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  market breakup ofretail industry in India 60 Graph 1.1 4 5 1.7 MARKET SIZE The Indian retail market, currently estimated at around US$ 490 billion, is project to grow at a compound annual growth rate (CAGR) of 6 per cent to reach US$ 865 billion by 2023. Food and grocery is the largest category within the retail sector with 60 per cent share followed by the apparel and mobile segment. Organized retail, which constituted seven per cent of total retail in 2011–12 is estimated to grow at a CAGR of 24 per cent and attain 10.2 per cent share of total retail by 2016–17, according to a study titled 'FDI in Retail: Advantage Farmers' conducted by an industrial body. India has about one million online retailers – small and large – which sell their products through various e-commerce portals. The online retail industry in the country touched US$ 12.6 billion in 2013, according to a recent report by the Internet and Mobile Association of India (IAMAI). $201 BN $238BN Graph 1.2 8 6 4 3 11 food and grocery apparel mobile and telicom food service jewellery consumer electronics pharmasy others $507BN $424BN $321BN $368BN $278BN $204 BN 0 100 200 300 400 500 600 1998 2000 2002 2004 2006 2008 2010 2012