Overview of Indian Retail Sector

Retail Sector is the most booming sector in the Indian economy. Some of the biggest
players of the world are going to enter the industry soon. It is on the threshold of
bringing the next big revolution after the IT sector. Although organized retail market
is not so strong as of now, it is expected to grow manifolds by the year 2010. The
sector contributes 10% of the GDP, and is estimated to show 20% annual growth rate
by the end of the decade as against the current growth rate of 8.5%. A CRISIL report
says that the Indian retail market is the most fragmented in the world and that only
2% of the entire retailing business is in the organized sector. This suggests that the
potential for growth is immense. There are about 300 new malls, 1500 supermarkets
and 325 departmental stores currently being built in the cities across India.
Estimates and predictions for retail sector:

• At present, the industry is estimated to be at more than US$ 400 billion by a

study of McKinsey.
• The Economist Intelligence Unit (EIU) estimates the retail market in India will
increase to US$608.9 billion in 2009 from US$394 billion in 2005.
• KPMG Report says that the organized retail would grow at a higher rate than the
GDP in the next five years.
• The retail sector would generate employment for more than 2.5 million people
by the year 2010, predicts an analysis by Ma Foi Management Consultants Ltd.

Some of the players present in the industry:

Archies, Bata India Ltd, Big Bazaar, Crossword, Ebony Retail Holdings Ltd., Fabmall,
Food Bazaar, Globus Stores Pvt. Ltd., Health and Glow, Liberty Shoes Ltd., MTR Foods
Ltd., Music World Entertainment Ltd., Pantaloon Retail India Ltd., Shoppers Stop, Style
SPA Furniture Ltd, Subhiksha, Titan Industries, Lifestyle, etc.

New entrants entering the market soon will be Reliance Retail Ltd, Wal-Mart Stores,
Carrefour, Tesco, Boots Group, etc.
 Overview of Indian Retail Sector

Evolution of the Sector

Weekly Markets, Village and Rural Melas

Source of entertainment
Rural and historic reach

Convenience stores, Mom-and-pop / Kirana shops

Neighborhood stores/convenience
Traditional and pervasive reach

PDS outlets, Khadi stores, Cooperatives

Government supported
Availability/low costs/distribution

Exclusive Brand outlets, Hypermarkets and Supermarkets, Department stores and

 Overview of Indian Retail Sector
Shopping malls.

Shopping experience/ efficiency

Modern formats/ international

Modern Format retailers

Supermarkets
Hypermarkets
Department Stores
Specialty Chains
Company Owned Company Operated

Traditional Format Retailers

Kiranas: Traditional Mom and Pop Stores

Kiosks
Street Markets
Exclusive /Multiple Brand Outlets

Traditional vis a vis Modern Format Retailers

The retail boom will face a strong competition from the 12 million mom-and-pop
stores. These are easily accessible and provide services like free home delivery and
goods at credit, which is not possible with hypermarkets and supermarkets. Buying
from Malls, Supermarkets and Department stores like Subhiksha, Marks & Spencers,
etc. provide a different environment where one can pick and choose from a variety of
products. Owing to the entry of such big players, the small shopkeepers fear losing
their business. Reliance Retail Ltd. has been inviting such people to join in its Dairy
business as franchisees.
 Overview of Indian Retail Sector
Challenges
The industry is facing a shortage of middle management level professionals. Major
retailers are hiring aggressively from the similar and smaller organizations by
offering better packages. They are creating various levels of management and
hiring on a spree. Some of the areas such as technology, supply chain, distribution,
logistics, marketing, product development and research are becoming very critical
for the success of the organizations. All of these would lead to the recruitment of
highly professional people who specialize in these fields. There is also a trend for
hiring hotel management graduates, though now many retail schools are coming
up, and Pantaloon has set up links with major business schools from where it would
be selecting the right candidates.
The sector is likely to produce 2 million jobs in the coming 3 years. There also exists
a possibility that the retail sector would become a poaching ground once a number of
domestic and international players enter the industry.

Supply Chain Management

The retail scenario is characterized by logistical challenges, constant changes in
consumer preferences and evolution of new retail formats. All this increases the
challenges faced by the industry. Various strategies are to be implemented to
improve core business processes, such as logistics, innovation, transparency,
distribution and inventory, management of point sale (POS) data. Retail majors are
under serious pressure to improve their supply chain systems and distribution
channels and reach the levels of quality and service desired by the consumers.

Frauds in Retail
It is one of the primary challenges the companies would have to face. Frauds,
including vendor frauds, thefts, shoplifting and inaccuracy in supervision and
administration are the challenges that are difficult to handle. This is so even after the
use of security techniques, such as CCTVs and POS systems. As the size of the sector
would increase, this would increase the number of thefts, frauds and discrepancies in
the system.

Challenges with Infrastructure and Logistics

The lack of proper infrastructure and distribution channels in the country results in
 Overview of Indian Retail Sector
Evolution of the Indian Retail Sector
The origins of retailing in India can be traced back to the emergence of
Kirana stores and mom-and-pop stores. These stores used to cater to the
local people. Eventually the government supported the rural retail and
many indigenous franchise stores came up with the help of Khadi & Village
Industries Commission. The economy began to open up in the 1980s
resulting in the change of retailing. The first few companies to come up with
retail chains were in textile sector, for example, Bombay Dyeing, S Kumar's,
Raymonds, etc. Later Titan launched retail showrooms in the organized
retail sector. With the passage of time new entrants moved on from
manufacturing to pure retailing.
Retail outlets such as Foodworld in FMCG, Planet M and Musicworld in Music,
Crossword in books entered the market before 1995. Shopping malls emerged
in the urban areas giving a world-class experience to the customers.
Eventually hypermarkets and supermarkets emerged. The evolution of the
sector includes the continuous improvement in the supply chain
management, distribution channels, technology, back-end operations, etc.
this would finally lead to more of consolidation, mergers and acquisitions and
huge investments.

Phases in the evolution of retail sector

Weekly Markets, Village and Rural Melas

Source of entertainment and commercial exchange

Convenience stores, Mom-and-pop / Kirana shops

Neighborhood stores/convenience
 Overview of Indian Retail Sector
Traditional and pervasive reach

PDS outlets, Khadi stores, Cooperatives

Government supported
Availability/low costs/distribution

Exclusive brand outlets, hypermarkets and supermarkets, department stores

and shopping malls

Shopping experience/ efficiency

Modern formats/ international

Percentage of Organised Retail across the world

 Overview of Indian Retail Sector

International Retailers in India

Major retail players like Walmart, Tommy Hilfiger, Carrefour, Marks &
Spencer, Nike, etc. are going to foray into the booming retail industry
in India. Indian fashion industry would see the advent of fashion brand
DKNY through a franchisee agreement with S. Kumar's. In the food &
beverages sector, McDonald's is going to penetrate the markets
through 100 new outlets across the country. Encouraged by the huge
success of Pizza Hut, McDonald's, and Dominos, another organization
known as Starbucks has expressed its interest in opening up outlets in
India through franchising. There are various kinds of restrictions on FDI
in the Indian retail sector, but organizations can enter the industry
through Strategic License agreements, Franchising and Cash and carry
wholesale trading.
The recent initiatives taken by the government to open up the sector for
foreign players have lured many companies to enter the industry. Big players
like Reliance Retail, Walmart-Bharti combination, Tesco, AV Birla group and
Future group are all gearing up for huge investments and aggressive business
 Overview of Indian Retail Sector
strategies. The government is considering the introduction of multi brand
specialty formats like consumer electronics, building, sports goods and
construction and stationery. The government has allowed 51 percent foreign
direct investment (FDI) in single brand retail outlets. Reliance Retail has
announced its plan to open 5000 stores over the next 5 years. Many
companies like Lee Cooper, Starbucks and Walmart have put forward their
FDI proposals to the government.

At present, the 12 million mom-and-pop and kirana stores dominating the

retail landscape suffer from certain limitations, such as small size of
operations, low cost format and pervasive use of tax evasion techniques.
They also suffer from capital shortage, labour and real estate problems. Some
experts believe that the influx of major retail chains would wipe out millions
of these shops. This might leave a lot of people jobless. Legal, political,
infrastructural, cultural and educational constraints would have to be
considered if the sector truly desires to achieve the kind of future it has
planned for itself.

Retail Formats
The following kinds of retail formats are found in India:

• Mom-and-pop stores: These are generally family-owned businesses catering to

small sections of society. They are small, individually run and handled retail
outlets.
• Category killers: Small specialty stores have expanded to offer a range of
categories. They have widened their vision in terms of the number of
categories. They are called category killers as they specialize in their fields,
such as electronics (Best Buy) and sporting goods (Sport Authority).

• Department stores: These are the general merchandise retailers offering

various kinds of quality products and services.
These do not offer full service category products and some carry a selective product line. K
Raheja's Shoppers Stop is a good example of department stores. Other examples are
Lifestyle and Westside. These stores have further categories, such as home and décor,
 Overview of Indian Retail Sector
clothing, groceries, toys, etc.

• Malls: These are the largest form of retail formats. They provide an ideal shopping
experience by providing a mix of all kinds of products and services, food and
entertainment under one roof. Examples are Sahara Mall, TDI Mall in Delhi.

• Specialty Stores: The retail chains, which deal in specific categories and provide deep
assortment in them are specialty stores. Examples are RPG's Music World, Mumbai's
bookstore Crossword, etc.

• Discount stores: These are the stores or factory outlets that provide discount on the
MRP items. They focus on mass selling and reaching economies of scale or selling the
stock left after the season is over.
• Hypermarkets/ Supermarkets: These are generally large self-service outlets, offering a
variety of categories with deep assortments. These stores contribute 30% of all food
and grocery organized retail sales. Example: Big Bazaar.
• Convenience stores: They are comparatively smaller stores located near residential
areas. They are open for an extended period of the day and have a limited variety of
stock and convenience products. Prices are slightly higher due to the convenience
given to the customers.
• E-tailers: These are retailers that provide online facility of buying and selling products
and services via Internet. They provide a picture and description of the product. A lot
of such retailers are booming in the industry, as this method provides convenience
and a wide variety for customer. But it does not provide a feel of the product and is
sometimes not authentic. Examples are Amazon.com, Ebay.com, etc.

• Vending: This kind of retailing is making incursions into the industry. Smaller products
such as beverages, snacks are some the items that can be bought through vending
machines. At present, it is not very common in India.