|
Opportunity India Retail
by R S Roy03-16-2007 |
page 1 |
Article:
Standing on the threshold of a retail revolution and witnessing a fast
changing retail landscape, India is all set to experience the phenomenon of a
global village. India presents a grand opportunity to the world at large, to use
it as a business hub. A 'Vibrant Economy', India tops A T Kearney's list of
emerging markets for global retailers. The 2nd fastest growing economy in the
world, the 3rd largest economy in terms of GDP in the next 5 years and the 4th
largest economy in PPP terms after USA, China & Japan, India is rated among the
top 10 FDI destinations.
advertisement
With a stable Government with 2nd stage reforms in place, India can be
reasonably proud of having put in place some of the most widely accepted
Corporate Ethics (Labour Laws, Child Labour Regulations, Environmental
Protection Lobby, Intellectual Property Rights, and Social Responsibility) and
major tax reforms including implementation of VAT, all of which make India a
perfect destination for business expansion.
India is the fastest-growing market in Asia Pacific for international tourist
spending, according to latest Visa Asia Pacific release. The economy is growing
by over 8 per cent a year and India's growth rate can actually exceed that of
China by 2015. The Indian economy is expected to grow larger than Britain's by
2022 and Japan's by 2032 to become the third-largest economy in the world after
China and US and finally become the second largest economy after China by 2050.
Investments
A report by investment banker Goldman Sachs, credits India with the potential
to deliver the fastest growth over the next 50 years. According to Standard &
Poor's, foreign direct investment (FDI) to India is likely to grow the fastest
in next few years. As targeted FDI is to hit $13 billion in the 12 months ending
March 2007, more than double India's previous best of $5.5 billion hit in the
previous year.
India is investing over US $130 billion in infrastructure by the end of this
decade. Indian retail industry itself has attracted investment of over INR 200
billion (over $4 billion) in creating infrastructure, systems & shop-fit. The
additional retail space is expected to add INR 300 billion ($ 6.67 billion) of
business to organised retail.
India's stock market continues to rise at unprecedented levels and foreign
investors are flooding in. The quantum of investments is likely to skyrocket as
the inherent attractiveness of the segment lures more and more investors to earn
large profits.
The Indian Consumer
With the largest young population in the world - over 890 million people
below 45 years of age! India is indeed a resplendent market. India has more
English speaking people than in the whole of Europe taken together. Its 300
million odd middle class, the "Real" consumers, is catching the attention of the
world. As the economy grows so does India's middle class. It is estimated that
70 million Indians earn a salary of over INR 800,000 ($18,000) a year, a figure
that is set to rise to 140 million by 2011. The number of effective consumers is
expected to swell to over 600 million by 2010 - sufficient to establish India as
one of the largest consumer markets of the world.
Private Consumption & Retail
With the changing face of retail, the Indian consumer is in for a rapid
transformation. While the consumer spending continues to grow at double digit
figures, leading retailers have recorded an increase in sales between 50 to 100
percent in the calendar year 2006 over the previous year.
According to India Retail Report 2007, the total private consumption touched
INR 20,000 billion (US $ 445 billion) at current prices in the calendar year
2006 with organised sector accounting for INR55,000 crore ($12.4 billion)
business increasing its share to 4.6 per cent of the total Indian Retail Value
that stood at INR12,000 billion ($270 billion). Moving forward, organized
retailing is projected to grow at the rate of about 37 per cent in 2007 and 42
per cent in 2008. Organised retail in India has the potential to add over INR
2,000 billion ($45 billion) business by the Year 2010.
The consumer spending is ultimately pushing the economy into a growth-and-liberalisation
mode. The Indian market is becoming bolder by the day, with the economy now
expected to grow at over 8 per cent and average salaries being hiked by about 15
per cent, there will be lot more consumption.
Opportunity for Global Players
Favourable demographic and psychographic changes relating to India's consumer
class, international exposure, availability of quality retail space, wider
availability of products and brand communication are some of the factors that
are driving the retail in India. Over the last few years, many international
retailers have entered the Indian market on the strength of rising affluence
levels of the young Indian population along with the heightened awareness of
global brands, international shopping experiences and the increased availability
of retail real estate space.
Development of India as a sourcing hub shall further make India as an
attractive retail opportunity for the global retailers. Retailers like Wal-Mart,
GAP, Tesco, JC Penney, H&M, Karstadt-Quelle, Sears (Kmart), etc stepping up
their sourcing requirements from India and moving from third-party buying
offices to establishing their own wholly owned / wholly managed sourcing &
buying offices shall further make India an attractive retail opportunity for the
global players.
Manufacturers in industries such as FMCG, consumer durables, paints etc are
waking up to the growing clout of the retailers as a shift in bargaining power
from the former to the latter becomes more discernible. Already, a number of
manufacturers in India, in line with trends in developed markets, have set up
dedicated units to service the retail channel. Also, instead of viewing
retailers with suspicion, or as a 'necessary evil' as was the case earlier,
manufacturers are beginning to acknowledge them as channel members to be
partnered with for providing solutions to the end-consumer more effectively.
Though lucrative opportunities exist across product categories, food and
grocery, nevertheless, presents the most significant potential in the Indian
context as consumer spending is highest on food. Further, 'wet groceries' i.e.
fresh fruits and vegetables is the most promising segment within food and
grocery as very few organized retailers have tapped this opportunity in spite of
wet groceries being the preferred choice of most Indian households.
The next level of opportunities in terms of product retail expansion lies in
categories such as apparel, jewellery and accessories, consumer durables,
catering services and home improvement. These sectors have already witnessed the
emergence of organized formats though more players are expected to join the
bandwagon. Some of the niche categories like Books, Music and Gifts offer
interesting opportunities for the retail players.
Currently the fashion sector in India commands a lion's share in the
organised retail pie. This is in line with the retail evolution in other parts
of the world, where fashion led the retail development in the early stages of
evolution and was followed by other categories like Food & Grocery, Durables
etc. Fashion across lifestyle categories makes up for over 50 per cent of
organised retail and with the kind of retail space growth that India is
witnessing we can certainly foresee a very healthy prospect for the fashion
industry.
As nations become richer, their people start appreciating luxury goods and
fine dining. India has over one million such people and this number is expected
to triple by 2010. A recent report divides consumers for luxury goods into four
categories - luxuriated: source of affluence is largely traditional and
inherited; New rich: adequate spending power and are acquiring orientation to
luxury; Getting there: acquiring spending power and spend mainly on education,
housing and large automobiles; Mid-affluent: are also acquiring orientation to
luxury but unlikely to indulge beyond a limit.
The most important categories for luxury goods consumers are housing, travel,
education, higher end automobiles, electronics and other home improvement
products besides fashion, lifestyle and fine dining. The most important reason
for luxury retail not taking off in India so far has been the lack of luxury
retail environment. The presence has been primarily confined to luxury hotels'
with shopping plazas.
Right Time to Think India
India is beginning to make news worldwide. It's just the right time to think
India. There's a new sense of confidence in Indian business. This confidence
arises from the growing success of Indian enterprise in the face of competition
in an increasing number of sectors. There is today more steel in the resolve of
Indian enterprise.
The India growth story is going stronger than ever. More than a third of
India Inc., or almost 34 per cent, have achieved a 'super growth' status in the
past year, says a Grant Thornton survey. India's merchandise exports grew by 23
per cent to touch record levels of $102.7 billion during the financial year
2005-06 and it is estimated to cross $120 billion by FY 2006-07, according to
the Ministry of Commerce and Industry.
The upsurge in exports despite high oil prices, points to the intrinsic
strength of the Indian export sector. On the employment front, it is expected
that an additional 25 million jobs will be created by the end of this decade as
a result of export growth.
The India Story has been having an effect at home too. Being part of the
Story has become a much-sought-after career option. Candidates in the top
business and engineering schools in the country are refusing job offers abroad,
since jobs in India are now offering global compensation.
The world is now looking at India as the nation of the future. More
significantly, India is well on its way to emerging as a first-world economy in
the fields of information technology (IT), biotechnology, pharmaceuticals and
the automotive sector, pushing the thrust now on to the retail sector to
facilitate the creation of a new surging modern India.
The real estate boom in India will not only propel the economy to sustainable
heights, but will also generate employment for several millions. It is strongly
expected that the growing Indian economy and growing opportunities will ensure
that the foundation is laid for India's tryst with destiny and for it to be
fully integrated into the world economy.
FDI or No FDI, India needs more retailers
Government's favourable talks on Foreign Direct Investment (FDI) has ignited
ambitions in many of the global players to be among the first movers into a
virgin retail territory i.e. India. So far India allows 51 per cent foreign
investment in single-brand retail with prior government permission. FDI is also
allowed in the wholesale business. Single-brand retailers such as Louis Vuitton,
Fendi, LLadro, Nike and Toyota can operate now on their own. Metro is already
operating through the cash-and-carry wholesale mode. In the new scheme of things
there could be various entry options for foreign players of different size,
formats and offerings tying up with Indian companies.
The issue of FDI has been debated time and again as the Indian Government has
been under pressure to open up further. The policy makers continue to explore
areas where FDI can be invited without hurting the interest of local retail
community. Some of the sectors where he the Government is considering FDI
allowance are retailing of electronic goods, Office equipments/stationery,
sports goods, and building material.
Large Indian retailers have announced launching of separate companies to
facilitate entries of global brands through franchise and license arrangements.
FDI or No FDI, India's growing retail space sure wants more retailers.
Considering the cost of building a brand or a retail concept, it will be wise of
Indian companies to tie up with more and more global brands and for retailers to
expand the Indian market and give more variety of products to Indian consumers.
Identifying growth areas, crossing barriers, creating new markets - satisfying
classes as well as reaching the masses we need to expand the horizon of Indian
retail.
Retail Space Growth
- 100 mn sq ft of quality shopping centre space by 2007-08
- To generate retail sales of over Rs. 50,000 cr ($ 11 bn)
- Rs. 20,000+ cr ($ 4 bn+) investment in pipeline for retail infrastructure,
systems & shop-fit
- Space for 15,000+ new outlets, 100 hypermarkets, 500 department stores and 2000
supermarkets
Over 10,000 small and big existing outlets to undergo complete facelift
By the Year 2010-11 this space will grow to 300 million sq. ft. offering
business worth over $17 billion for Design, Shop Fit and support systems.
Plans of Some of the Large Retailers
- Pantaloon : Expansion into all possible formats of retail across categories
and segments. 30 mn sq.ft by FY10, foray in insurance, real estate and consumer
finance the turnover is expected to touch Rs. 30,000 cr ($ 6.67 bn) in FY10-11.
- Reliance : Rs. 30,000 cr ($ 6.67 bn) investment to set up multiple retail
formats with expected sales of Rs. 90,000+ cr ($ 20 bn) by 2009-10
- RPG : Planning IPO, 450+ MusicWorld, 50+ Spencer's Hyper covering 4 mn sq ft by
2010
- Lifestyle : Rs. 450+ cr ($ 90 mn) investment in next 5 years to expand on Max
Hypermarkets & value retail stores, Home & Lifestyle Centres.
- Rahejas : Shoppers' Stop, Crossword, Inorbit Mall, 'Home Stop' and recently
lunched hypermarket named 'Hypercity'. 55 hypermarkets across India, by 2015.
- Subhiksha : 750 stores and Rs. 650+ cr ($ 145 mn) sales by March 2007.
- Piramyd : 1.75 mn sq ft of retail space and 150 stores in next 5 years.
- Trent : Trent to open 27 more stores across its retail formats adding 1 mn sq ft
of space in the next 12 DLF malls.
- Trinethra : Recently acquired by the AV Birla group, Trinethra (currently with
two formats - Trinethra and Fabmall) plans 220 stores with a turnover of over Rs.
300 cr ($667 mn) this fiscal.
- Vishal Group : Plans include an IPO and investment close to Rs. 1250 cr ($ 278
mn) by 2010, targeting 220 outlets, taking its cumulative retail space to 5 mn
sq ft and sales turnover of Rs. 5000 cr ($ 1 bn+). With 50+ new stores getting
ready in the current fiscal the chain is investing Rs. 300 cr (66.67 mn) with
sales target of over Rs. 700 cr ($155.6 mn).
- Bharati Group : Plans Rs. 31,500 cr (US$ 7 bn) investment in creating retail
network in the country including 100 hypermalls and several hundred small
stores.
FDI and Global Retailers
- 51% FDI allowed in single brand retailing
- FDI Laws relatively liberal in wholesale trade
- Metro AG and Shoprite already operating
- More Foreign Retailers eyeing possibilities in wholesale
- Tesco and Carrefour expected to operate soon
- Wal-Mart has already sined a JV with the Bharti Group
- Woolworths (Dick Smith Electronics - durable retail arm) recently started their
operations through a
- JV with Tatas with plans to open 60 Croma stores by 2009.
- French retailer Geant is also expected to begin operations in India soon.
Government of India is considering opening up of certain retail sectors for
foreign direct investment (FDI). The four sectors are electronic goods, Office
equipments & stationery, sports goods, and building equipment.
The Retail Evolution
With escalating consumerism, unprecedented awareness, and a youth-heavy
customer base, India is the 'Promised Land' for the Global brands and retailers.
Faced with fast saturating Western markets they are beginning to recognise the
Indian consumer mass as the world's most probable unexplored gold mine.
A T Kearney's Global Retail Development Index' gives a clear message to
global retailers on India: Move now or forego prime locations and market
positions that will become saturated quickly. Global retailers that missed out
on capturing first-mover advantage in China can make up for it in India. The
retail market is changing fast, along with the lifestyles and buying habits of
India's burgeoning population. As people look for ways to spend their money,
global retailers should be looking for prime locations.
Opportunity India Retail
Highlights from India Retail report 2007
IMAGES F&R Research
- India tops the annual list of most attractive countries for international
retail expansion, according to AT Kearney's Global Retail Development Index 2006
- The USD 270-billion Indian retail market is growing at the rate of 13 per cent
-- and the organized segment grew nearly 48 per cent in 2006 at prevailing
prices.
- Projected growth rate for the organized segment is about 40 per cent for year
2007 and with major global players and Indian corporate houses entering the fray
this growth is likely to touch 45 per cent per annum over the next three years.
- At 2003-04 constant prices the size of the organised retail market is thus
expected to be in excess of Rs.200,000 crore by year 2010, which will make its
contribution to total retail sales at about 15 per cent. Currently only 4.6 per
cent of the market is organised.
- Food and grocery retail is by far the single largest block, estimated to be
worth Rs 743,900 crore -- at the moment, more than 99 per cent of this segment
is claimed by kirana stores
- For organized players, the gaps of unused o pportunities are glaring.
- Problem areas: high real estate prices, loosely-knit distribution networks in
the country's hinterland, underdeveloped supply chain logistics, shortage of
skilled personnel
- The significance of rural retailing as a formidable segment cannot be lost on
any player looking for organic growth. The urban-rural split in consumer
spending is 9:11. Of the estimated $270-billion Indian retail market, almost
half lies in rural India
- According to recent studies conducted by National Council of Applied Economic
Research (NCAER), rural India is home to 720 million consumers spread across
627,000 villages
- Of course, India will have to arrive at its unique formats of retailing in
order to tap the market optimally, but successful global models and time-tested
practices can be studied to assimilate and adapt indigenously
- Reliance is hiring overseas talent to build up its management capabilities --
it has appointed Peter Bracher from Asda Wal-Mart as special adviser for
Reliance Fresh stores, and Kevin Pleass from Tesco, UK, to coordinate store
design and construction
Space -- and the freedom to grow
- Greater availability of quality retail space with increase in organized retail
- An estimated 100 million square feet of quality shopping centre space by
2007-08; to generate retail sales of over Rs 50,000 crore ($11 billion)
- Concurrent with the growth in organized retail, the present two square
feet-per-capita retailing space will rise 15-20 per cent by 2010
- By 2010 about 300 million square feet of additional retail space likely to be
generated.
- Mall development has been steady -- currently there are about 200 operational
malls (including some on the verge of completion), and this number is expected
to rise to almost 600 by the year 2010. Of the new malls coming up, 40 per cent
are concentrated in the smaller cities
- According to an ICICI study, malls are estimated to become a Rs 38,447-crore
($8.3 billion) sector by 2010
- Space for 15,000+ new outlets, 100 hypermarkets, 500 department stores and
2,000 supermarkets
- Organized retailing in small-town India is growing at 50-60 per cent a year
compared to 35-40 per cent in the large cities
- About 200 tier-III cities with population of less than 2 million and another
500 rural towns have the potential to be the hub for rural markets, where organised retailing can effectively set base - each of these 700 centres will on
an average be catering to about 1000 villages
- Pantaloon plans nearly 30 million square feet by 2010; RPG plans four million
square feet by 2010; Piramyd plans 1.75 million square feet of retail space in
next five years; Trent to add one million square feet of space in the next 12
DLF malls; Vishal Group to take its cumulative retail space to five million
square feet by 2010
- Reliance means to go to 784 cities and towns in India by 2010, involving 100
million square feet of retail space
- Bharti - Wal-Mart too have announced grandiose plans with Metro targeting more
centres for its Cash-n-Carry format
Managing the growth
- Retail opportunity in India is expected to grow manifold by 2010 with
investments in the sector slated to go up nearly 12 times to $30 billion over
the next five years -- and this is likely a conservative estimate
- With the development of organized retail, the penetration of modern retail
formats will cut deeper
- National and regional players are expanding across formats and categories
- Among the fastest growing organized retail categories are: Health & Beauty
care services (59% per annum), Food & Grocery (43%), Entertainment, Catering
Services (42% each), Footwear, Mobile Phones (36% each), and Apparel & Fashion
Accessories and Jewellery (32% each)
- Sales through modern formats are increasing; among the fastest-growing formats
are specialty and supermarket (45 per cent), hypermarket (36 per cent), discount
store (27 per cent), department store (18 per cent), convenience store and
e-retailing (9 per cent)
- At the same time, indigenous formats addressed at the rural market are turning
out to be lucrative; prominent examples include ITC's Choupal Sagar, DSCL's
Hariyali Kisaan Bazaar and Godrej Group's Godrej Aadhar
- Organized retail is a function of strong supply chain and robust physical
infrastructure
- Basic supply chain framework takes care of operational performance at each
nodal point -- from order to delivery
- Expanding retail players have to continuously upgrade back-end, front-end and
supply chain dynamics in order to provide a standard of value and services to
customers
- Between them, corporate bigwigs such as Reliance, AV Birla Group, Tata Group,
Godrej, Bharti, Mahindra, ITC Group and Wadia Group will be investing close to
Rs one trillion in the business of retail over the next five years
- Reliance Retail is investing Rs 30,000 crore ($6.67 billion) in setting up
multiple retail formats backed by a 68-strong distribution network, with
expected sales of over Rs 100,000 crore ($22 billion) by 2009-10
- Even as multinational retailers are firming up their India entry strategies,
franchising is emerging as the preferred option. Franchisee activity is expected
to pick up in tier-II cities
- According to a Frost & Sullivan research, the overall Indian third-party
logistics (3PL) market, estimated at about US$890.3 billion in 2005, is expected
to grow at a compound annual growth rate of 21.9 per cent to reach US$3,556.7
million in 2012
Technology interface
- Foreign retailers have shown that managing operations innovatively can provide
a significant competitive advantage to retailers. Thus, Wal-Mart leverages IT to
track supply chain processes like cross-docking. Similarly, Tesco has
high-reliability delivery systems in place
- A leading retail chain could be managing as many as 400,000 products. It is
not possible to manage such volume and magnitude without a sound and detailed IT
policy
- Existing and imminent competition from global stalwarts will have to be met
squarely, and for this the technology and systems infrastructure is an
imperative
- Key benefits of IT implementation include: operations integration; timely flow
of information and faster decision making; reduction in design-to-delivery time;
reduction in processing costs; real-time monitoring and control; security of
operations
- A streamlined supply chain can cut down cost on warehousing and saves cost by
more than 20 per cent
- In addition to collecting sales data (POS) and ordering and tracking inventory
(merchandise systems), companies can also add customer profiling to the roster
of IT-enabled functions
- In the context of a Rs 55,000-crore organized retail sector - projected
to grow at over 40 per cent annually for the next four years -- the scope
for logistics support is tremendous, to state the very obvious
- Reliance Retail is investing Rs 8,000 crore in backward integration, market
development and location sourcing; a vital link in the chain are its rural
business hubs (RBH)
- Bangalore-based Jubilant Group is investing substantially on in-house supply
chain so they are enabled to deliver fresh produce from their captive farms to
the Jumbo hypermarket shelves within 24 hours
- Indian retail is attracting some of the leading global logistics support
providers that promise to deliver an assortment of catalogued foreign products
to the retail store within seven days
- Currently, logistics support to the retail sector is largely being outsourced
to specialist service providers and only a few of the large players have focused
on developing in-house supply chain and logistics systems
Shop-fit and support
- At least 300 million square feet of quality retail space by year 2011; will
need new and progressive ideas in design, shop-fit and retail support systems
- Rs 20,000 crore+ ($4 billion+) investment in pipeline for retail
infrastructure, systems and shop-fit
- Over 10,000 small and big existing outlets to undergo complete facelift
- Indian retail offers $17 billion plus business for design, shop-fit and
support systems
- At the moment, design/shop-fit business shopping centre developers, brands and
retailers do not have many choices
- Participation from the Indian subcontinent in Global Shop and Euro Shop is
minimal
Just the beginning, yet.
- In AT Kearney's 2006 Global Retail Development Index (GRDI), for the second
consecutive year India remains the top retail investment destination among the
30 emerging markets across the world
? In the next five years, India should have retail entities strong enough to
compete with the best in the world
- Investments in retail slated to go up nearly 12 times to $30 billion over the
next five years
- Scope for organized retail: over Rs 200,000 crore ($45 billion) by 2010
- Leading retailers' sales growth: 50-100 per cent in 2005-06
- Existing players like Pantaloon Retail, RPG Retail, Shoppers' Stop, Lifestyle,
and Trent are expanding rapidly with multiple formats; corporate major Reliance
has entered the retail fray
- Among others, corporate majors like ITC, Reliance, Raheja and Tata, as well as
large retailers like Jubilant Group and Pantaloon Retail are infusing prolific
capital into the organized retail sector
- Single-brand retailers such as Louis Vuitton, Fendi, LLadro, Nike and Toyota
can operate on their own now; Metro is expanding its cash-and-carry wholesale
format while Wal-Mart is getting set to power the back-end of Bharti's Retail
venture
- Full-fledged foreign direct investment expected to be allowed in multi-brand
specialty formats like consumer electronics, sports goods, building and
construction equipment, and stationery
- Ever-new retailing concepts are emerging, especially in the food retail sector
where both urban and rural areas stand to benefit
- Formats such as department stores, hypermarkets, supermarkets and specialty
stores are finding increasingly more acceptance in the Indian consumer's psyche;
malls , the grand bastion of modern shopping, have also broken through to the
second-rung cities.
Contact Person:
R S Roy
India Retail Forum
Email: rsroy@indiaretailing.com
URL: www.indiaretailing.com
|
