Abstract

This paper provides detailed information about the growth of retailing industry in India. It
examines the growing awareness and brand consciousness among people across different
socio-economic classes in India and how the urban and semi-urban retail markets are
witnessing significant growth. It explores the role of the Government of India in the
industrys growth and the need for further reforms. In India the vast middle class and its
almost untapped retail industry are the key attractive forces for global retail giants wanting to
enter into newer markets, which in turn will help the India Retail Industry to grow faster. The
paper includes growth of retail sector in India, strategies, strength and opportunities of retail
stores, retail format in India, recent trends, and opportunities and challenges. This paper
concludes with the likely impact of the entry of global players into the Indian retailing industry.
It also highlights the challenges faced by the industry in near future.

INTRODUCTION

The India Retail Industry is the largest among all the industries, accounting for over 10 per cent
of the country GDP and around 8 per cent of the employment. The Retail Industry in India has
come forth as one of the most dynamic and fast paced industries with several players entering
the market. But all of them have not yet tasted success because of the heavy initial investments
that are required to break even with other companies and compete with them. The India Retail
Industry is gradually inching its way towards becoming the next boom industry.

The total concept and idea of shopping has undergone an attention drawing change in terms of
format and consumer buying behavior, ushering in a revolution in shopping in India. Modern
retailing has entered into the Retail market in India as is observed in the form of bustling
shopping centers, multi-storied malls and the huge complexes that offer shopping,
entertainment and food all under one roof.

A large young working population with median age of 24 years, nuclear families in urban areas,
along with increasing working women population and emerging opportunities in the services
sector are going to be the key factors in the growth of the organized Retail sector in India. The
growth pattern in organized retailing and in the consumption made by the Indian population
will follow a rising graph helping the newer businessmen to enter the India Retail Industry.

In India the vast middle class and its almost untapped retail industry are the key attractive
forces for global retail giants wanting to enter into newer markets, which in turn will help the
India Retail Industry to grow faster. Indian retail is expected to grow 25 per cent annually.
Modern retail in India could be worth US$ 175-200 billion by 2016. The Food Retail Industry in
India dominates the shopping basket. The Mobile phone Retail Industry in India is already a US$
16.7 billion business, growing at over 20 per cent per year. The future of the India Retail
Industry looks promising with the growing of the market, with the government policies
becoming more favorable and the emerging technologies facilitating operations.
THE INDIAN RETAIL SCENE

India is the country having the most unorganized retail market. Traditionally it is a family
livelihood, with their shop in the front and house at the back, while they run the retail business.
More than 99% retailer function in less than 500 square feet of shopping space. Global retail
consultants KSA Technopak have estimated that organized retailing in India is expected to
touch Rs 35,000 crore in the year 2005-06. The Indian retail sector is estimated at around Rs
900,000 crore, of which the organized sector accounts for a mere 2 per cent indicating a huge
potential market opportunity that is lying in the waiting for the consumer-savvy organized
retailer.

Purchasing power of Indian urban consumer is growing and branded merchandise in categories
like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly
becoming lifestyle products that are widely accepted by the urban Indian consumer. Indian
retailers need to advantage of this growth and aiming to grow, diversify and introduce new
formats have to pay more attention to the brand building process. The emphasis here is on
retail as a brand rather than retailers selling brands. The focus should be on branding the retail
business itself. In their preparation to face fierce competitive pressure, Indian retailers must
come to recognize the value of building their own stores as brands to reinforce their marketing
positioning, to communicate quality as well as value for money. Sustainable competitive
advantage will be dependent on translating core values combining products, image and
reputation into a coherent retail brand strategy.

There is no doubt that the Indian retail scene is booming. A number of large corporate houses
Tata, Raheja, Piramals, Goenka have already made their foray into this arena, with beauty and
health stores, supermarkets, self-service music stores, newage book stores, every-day-low-price
stores, computers and peripherals stores, office equipment stores and home/building
construction stores. Today the organized players have attacked every retail category. The
Indian retail scene has witnessed too many players in too short a time, crowding several
categories without looking at their core competencies, or having a well thought out branding
strategy.


STRATEGIES, TRENDS AND OPPORTUNITIES
Retailing in India is gradually inching its way toward becoming the next boom industry. The
whole concept of shopping has altered in terms of format and consumer buying behavior,
ushering in a revolution in shopping in India. Modern retail has entered India as seen in
sprawling shopping centres, multi-storied malls and huge complexes offer shopping,
entertainment and food all under one roof. The Indian retailing sector is at an inflexion point
where the growth of organized retailing and growth in the consumption by the Indian
population is going to take a higher growth trajectory. The Indian population is witnessing a
significant change in its demographics. A large young working population with median age of 24
years, nuclear families in urban areas, along with increasing workingwomen population and
emerging opportunities in the services sector are going to be the key growth drivers of the
organized retail sector in India.


GROWTH OF RETAIL SECTOR IN INDIA

Retail and real estate are the two booming sectors of India in the present times. And if industry
experts are to be believed, the prospects of both the sectors are mutually dependent on each
other. Retail, one of Indias largest industries, has presently emerged as one of the most
dynamic and fast paced industries of our times with several players entering the market.
Accounting for over 10 per cent of the countrys GDP and around eight per cent of the
employment retailing in India is gradually inching its way toward becoming the next boom
industry.

As the contemporary retail sector in India is reflected in sprawling shopping centers,
multiplex- malls and huge complexes offer shopping, entertainment and food all under one
roof, the concept of shopping has altered in terms of format and consumer buying behavior,
ushering in a revolution in shopping in India. This has also contributed to large-scale
investments in the real estate sector with major national and global players investing in
developing the infrastructure and construction of the retailing business. The trends that are
driving the growth of the retail sector in India are
Low share of organized retailing
Falling real estate prices
Increase in disposable income and customer aspiration
Increase in expenditure for luxury items (CHART)

Another credible factor in the prospects of the retail sector in India is the increase in the
young working population. In India, hefty pay packets, nuclear families in urban areas, along
with increasing working-women population and emerging opportunities in the services
sector. These key factors have been the growth drivers of the organized retail sector in India
which now boast of retailing almost all the preferences of life - Apparel & Accessories,
Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure
and many more. With this the retail sector in India is witnessing rejuvenation as traditional
markets make way for new formats such as departmental stores, hypermarkets,
supermarkets and specialty stores.

The retailing configuration in India is fast developing as shopping malls are increasingly
becoming familiar in large cities. When it comes to development of retail space specially the
malls, the Tier II cities are no longer behind in the race. If development plans till 2007 is
studied it shows the projection of 220 shopping malls, with 139 malls in metros and the
remaining 81 in the Tier II cities. The government of states like Delhi and National Capital
Region (NCR) are very upbeat about permitting the use of land for commercial development
thus increasing the availability of land for retail space; thus making NCR render to 50% of the
malls in India.


India is being seen as a potential goldmine for retail investors from over the world and latest
research has rated India as the top destination for retailers for an attractive emerging retail
market. Indias vast middle class and its almost untapped retail industry are key attractions
for global retail giants wanting to enter newer markets. Even though India has well over 5
million retail outlets, the country sorely lacks anything that can resemble a retailing industry
in the modern sense of the term. This presents international retailing specialists with a great
opportunity. The organized retail sector is expected to grow stronger than GDP growth in the
next five years driven by changing lifestyles, burgeoning income and favorable demographic
outline.

INDUSTRY EVOLUTION
Traditionally retailing in India can be traced to
The emergence of the neighborhood Kirana stores catering to the convenience of the
consumers
Era of government support for rural retail: Indigenous franchise model of store chains
run by Khadi & Village Industries Commission
1980s experienced slow change as India began to open up economy.
Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim
first saw the emergence of retail chains
Later Titan successfully created an organized retailing concept and established a series
of showrooms for its premium watches
The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures
to Pure Retailers.
For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music
World in music; Crossword and Fountainhead in books.
Post 1995 onwards saw an emergence of shopping centers
Mainly in urban areas, with facilities like car parking
Targeted to provide a complete destination experience for all segments of society
Emergence of hyper and super markets trying to provide customer with - Value, Variety
and Volume
Expanding target consumer segment: The Sachet revolution - example of reaching to the
bottom of the pyramid.
At year end of 2000 the size of the Indian organized retail industry is estimated at Rs.
13,000 crore
RETAILING FORMAT IN INDIA

Malls:
The largest form of organized retailing today. Located mainly in metro cities, in proximity to
urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal
shopping experience with an amalgamation of product, service and entertainment, all under a
common roof. Examples include Shoppers Stop, Piramyd, and Pantaloon.
Specialty Stores:

Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword, RPG's
Music World and the Times Group's music chain Planet M, are focusing on specific market
segments and have established themselves strongly in their sectors.

Discount Stores:

As the name suggests, discount stores or factory outlets, offer discounts on the MRP through
selling in bulk reaching economies of scale or excess stock left over at the season. The product
category can range from a variety of perishable/ non-perishable goods.
Department Stores:

Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs.
Further classified into localized departments such as clothing, toys, home, groceries, etc.

Departmental Stores are expected to take over the apparel business from exclusive brand
showrooms. Among these, the biggest success is K Raheja's Shoppers Stop, which started in
Mumbai and now has more than seven large stores (over 30,000 sq. ft) across India and even
has its own in store brand for clothes called Stop.

Hyper marts/Supermarkets:

Large self-service outlets, catering to varied shopper needs are termed as Supermarkets.
These are located in or near residential high streets. These stores today contribute to 30% of
all food & grocery organized retail sales. Super Markets can further be classified in to mini
supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500
sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales.

Convenience Stores:

These are relatively small stores 400-2,000 sq. feet located near residential areas. They stock
a limited range of high-turnover convenience products and are usually open for extended
periods during the day, seven days a week. Prices are slightly higher due to the convenience
premium

MBO:

Multi Brand outlets, also known as Category Killers, offer several brands across a single
product category. These usually do well in busy market places and Metros.

INDIAS NUMBER OF DOMESTIC GROCERY CHAINS AND EARLY FOREIGN ENTRANTS

RECENT TRENDS
Retailing in India is witnessing a huge revamping exercise as can be seen in the graph
India is rated the fifth most attractive emerging retail market: a potential goldmine.
Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes
up 3 percent or US$ 6.4 billion
As per a report by KPMG the annual growth of department stores is estimated at 24%
Ranked second in a Global Retail Development Index of 30 developing countries drawn
up by AT Kearney.
Multiple drivers leading to a consumption boom:
o Favorable demographics
o Growth in income
o Increasing population of women
o Raising aspirations: Value added goods sales
Food and apparel retailing key drivers of growth
Organized retailing in India has been largely an urban
Phenomenon with affluent classes and growing number of double-income households.
More successful in cities in the south and west of India. Reasons range from differences
in consumer buying behavior to cost of real estate and taxation laws.
Rural markets emerging as a huge opportunity for retailers reflected in the share of the
rural market across most categories of consumption
o ITC is experimenting with retailing through its e-Choupal and Choupal Sagar
rural hypermarkets.
o HLL is using its Project Shakti initiative leveraging women self-help groups
to explore the rural market.
o Mahamaza is leveraging technology and network marketing concepts to act as
an aggregator and serve the rural markets.
IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically
change buying behavior across the globe.
E-tailing slowly making its presence felt.
RETAIL SALES IN INDIA


CHALLENGES & OPPORTUNITIES

Retailing has seen such a transformation over the past decade that its very definition has
undergone a sea change. No longer can a manufacturer rely on sales to take place by
ensuring mere availability of his product. Today, retailing is about so much more than mere
merchandising. Its about casting customers in a story, reflecting their desires and aspirations,
and forging long-lasting relationships. As the Indian consumer evolves they expects more and
more at each and every time when they steps into a store. Retail today has changed from
selling a product or a service to selling a hope, an aspiration and above all an experience that
a consumer would like to repeat.

For manufacturers and service providers the emerging opportunities in urban markets seem
to lie in capturing and delivering better value to the customers through retail. For instance, in
Chennai CavinKares, LimeLite, Marico, Kaya Skin Clinic and Apollo Hospitals Apollo
Pharmacies are examples, to name a few, where manufacturers/service providers combine
their own manufactured products and services with those of others to generate value hither
to unknown. The last mile connect seems to be increasingly lively and experiential. Also,
manufacturers and service providers face an exploding rural market yet only marginally
tapped due to difficulties in rural retailing. Only innovative concepts and models may survive
the test of time and investments.
However, manufacturers and service providers will also increasingly face a host of specialist
retailers, who are characterized by use of modern management techniques, backed with
seemingly unlimited financial resources. Organized retail appears inevitable.

Retailing in India is currently estimated to be a US$ 200 billion industry, of which organized
retailing makes up a paltry 3 percent or US$ 6.4 billion. By 2010, organized retail is projected
to reach US$ 23 billion. For retail industry in India, things have never looked better and
brighter. Challenges to the manufacturers and service providers would abound when market
power shifts to organized retail.

CONCLUSION

The retail sector has played a phenomenal role throughout the world in increasing
productivity of consumer goods and services. It is also the second largest industry in US in
terms of numbers of employees and establishments. There is no denying the fact that most of
the developed economies are very much relying on their retail sector as a locomotive of
growth. The India Retail Industry is the largest among all the industries, accounting for over
10 per cent of the country GDP and around 8 per cent of the employment. The Retail Industry
in India has come forth as one of the most dynamic and fast paced industries with several
players entering the market. But all of them have not yet tasted success because of the heavy
initial investments that are required to break even with other companies and compete with
them. The India Retail Industry is gradually inching its way towards becoming the next boom
industry.

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The retail sector has been at the helm of Indias growth story. The sector has evolved
dramatically from traditional village fairs, street hawkers to resplendent malls and plush
outlets, growing from strength to strength. According to the Indian Council for Research on
International Economic Relations (ICRIER), India is the seventh-largest retail market in the
world, and is expected to grow at a CAGR of over 13% till FY12. In FY07 retail sales reached Rs
13,300 bn and amounting to around 33% of Indias GDP at current market prices1. According
to the Central Statistical Organisation (CSO) estimates, the total domestic trade (both retail and
wholesale) constituted 13.0% of countrys GDP in 1999-2000, which has gone up to 15.1% in
FY07.
What is retailing?
Retailing is a distribution channel function, where one organisation buys products from
supplying firms or manufactures products themselves, and then sells these directly to
consumers.
In majority of retail situations, the organisation, from whom a consumer buys, is a reseller of
products obtained from others, and not the product manufacturer. However, some
manufacturers do operate their own retail outlets in a corporate channel arrangement.
Retailers offer many benefits to suppliers and customers as resellers. Consumers, for instance,
are able to purchase small quantities of an assortment of products at a reasonably affordable
price. Similarly, suppliers get an opportunity to reach their target market, build product
demand through retail promotions, and provide consumer feedback to the product marketer.
During the last few years, the Indian retail market has seen considerable growth in the
organised segment. Major domestic players have entered the retail arena and have ambitious
plans to expand in the future years across verticals, formats, and cities. For example,
companies like Reliance, Tata, Bharti, Adani Enterprise, have been investing considerably in the
booming Indian retail sector. Besides, a number of transnational corporations have also set up
retail chains in collaboration with big Indian companies.
The Indian retail sector is highly fragmented and the unorganised sector has around 13 million
retail outlets that account for around 95-96% of the total Indian retail industry. However, going
forward, the organised sectors growth potential will increase due to globalisation, high
economic growth, and changing lifestyle. Moreover, high consumer spending over the years by
the young population (more than 31% of the country is below 14 years) and sharp rise in
disposable income are driving the Indian organised retail sectors growth. Even small towns
and cities are witnessing a major shift in consumer lifestyle and preferences, and have thus
emerged as attractive markets for retailers to expand their presence.
Although the growth potential in the sector is immense, it is not without challenges that could
slow the pace of growth for new entrants. Rigid regulations, real estate costs, high personnel
costs, lack of basic infrastructure, shrinkage, and highly competitive domestic retailer groups
are some such challenges. Additionally, resource constraints at shopping mall projects are also
delaying completion and disrupting many retailers entry strategies.
Global Retail Scenario
Retailing has played a major role in the global economy. In developed markets, retailing is one
of the most prominent industries. In 2008, the US retail sector contributed 31% to the GDP at
current market prices. In developed economies, organised retail has a 75-80% share in total
retail as compared with developing economies, where un-organised retail has a dominant
share.

Global retail sales was estimated to be around US$ 12 trillion in 20072; however, in 2008, the
slowdown in the global economy, especially in the US, and credit crunch, decreased consumer
spending. On a global level, the economy performed robustly till 2007, but the US crisis spread
over to Europe in early 2008, and its impact was felt in the Asia-Pacific region by mid-2008.
India has the highest number of retail outlets in the world at over 13 million retail outlets, and
the average size of one store is 50-100 square feet. It also has the highest number of outlets
(11,903) per million inhabitants. The per capita retail space in India is among the lowest in the
world, though the per capita retail store is the highest. Majority of these stores are located in
rural areas.

Evolution of organised retail
The share of organised retail in developed countries is much higher than developing countries
like India. In 20063, the share of organised retail in the US was around 85%, in Japan it was
66%, in the UK it was 80%, while in developing countries like India, China and Russia it was 6%,
20% and 33%, respectively. The concept of organised retail had occurred much later in
developing economies than the developed economies. Modern day retail came into existence
in three successive waves. The first wave took place in the early to mid-1990s in South
America, East Asia excluding China, North Central Europe and South Africa. The second wave of
organised retail occurred during mid-to-late 1990s in Mexico, Central America, South-east Asia
and South Central Europe. The third wave of organised retail boom started in the late 1990s
and early 2000 in some parts of Africa, Central and South America, South-east Asia, China,
India and Russia and continues to grow at a rapid pace.
Rising household expenditure in BRIC countries drives organised retail
The household expenditure in Brazil, Russia, India and China, or the BRIC countries, is growing
at a faster rate than the developed countries like the US, UK, Japan, Germany, and France,
indicating the higher growth potential for the retail sector in these countries that have a large
consumer base. Household expenditure (at constant prices) in developed countries like the US,
UK, Germany, and Japan has witnessed an average annual growth of 3.2%, 2.5%, 0.2%, and
1.0%, respectively, during 2004-2007, but the expenditure in the BRIC countries has been much
higher. The developed countries are witnessing a continuous fall in domestic demand and high
dependence on export earnings, which are the reasons for lower household expenditure. In
current times, the global demand is weakening, owing to economic slowdown, and this worry
is looming large over the retail sector.

The consumer market in the developed countries is saturating, and therefore, big retail
companies in those countries are increasingly expanding their footprint in emerging countries
like India, China, and Russia. Even though 100% FDI is not permitted in the retail sector, India
continues to attract leading global retailers to start retail business through local alliances. For
example, recently, Wal-Mart has opened its first store at Amritsar (Punjab) in a joint venture
(JV) with Bharti Enterprises, and it is also planning to expand its footprint to other parts of
India. The fact that the penetration of organised retail in BRIC countries is much lower than the
developed countries is acting as an added advantage for these retail giants.
Major global retail markets
This section provides a brief overview on the retail industry in major global markets on the
basis of phases of retail lifecycle. Organised retailing in most economies typically passes
through four distinct phases:
In the first phase, new entrants create awareness of modern formats like hypermarket,
supermarket, department stores etc and raise consumer expectations
In the second phase, consumers demand more modern formats as the markets develop,
thereby leading to a strong growth
In the third phase, the high rate of growth leads to a stage of mature market
In the final phase, the domestic market reaches a saturation point leading to limited
growth, so retailers explore and evaluate new markets across the globe
USA
The US retail market is the largest retail market in the world, and the organised sector
constitutes over 85% of the total retail sales. In 2008, the US retail industry recorded sales of
US$ 4,404.7 billion, amounting to 31% of the national GDP at current prices. The US retailing is
divided into three categories: department stores, mass merchandisers, and specialty stores.
Consumers in the US have now become more value-conscious, which has led to an increase in
the sales of discount stores that make mass merchandisers as the largest category. Online
retailing also has been gaining popularity in the US, but the recent slowdown in the economy
and financial crisis have shrunk consumer spending, which is likely to reflect in the retail sales
figures of 2008. As domestic markets in the developed countries have saturated and
opportunities in emerging markets are rising, organised retailers from those countries have
been turning to new markets.
UK
The UK retail sales were valued at 278 billion in 2008 with 197,990 establishments. The
industry contributed to 8% of the national GDP in 20084. The retail industry in the UK provides
employment to 2.8 million people, which constitutes 11% of the total workforce; however, the
recent global economic slowdown has affected the UK market also. As the financial system in
the UK is facing problems, and has resulted in a sluggish economy, consumer spending has also
reduced.
China
China opened up its economy to the world in 1980s which led the growth of the organised
retail market in the country, which constituted 20% of the total retail sales of US$ 785 billion in
20065. Chinas retail industry is also growing at a phenomenal rate and plays a vital role in the
global retail scenario due to its large and burgeoning population, large cities, and increasing
purchasing power of local population.
Retail in India: Industry Structure
The retail industry in India is highly fragmented and unorganised. Earlier on retailing in India
was mostly done through family-owned small stores with limited merchandise, popularly
known as kirana or mom-and-pop stores. In those times, food and grocery were shopped from
clusters of open kiosks and stalls called mandis. There were also occasional fairs and festivals
where people went to shop. In the twentieth century, infusion of western concepts brought
about changes in the structure of retailing. There were some traditional retail chains like Nilgiri
and Akbarallys that were set up on the lines of western retail concepts of supermarkets. The
government set up the public distribution system (PDS) outlets to sell subsidised food and
started the Khadi Gram Udyog to sell clothes made of cotton fabric. During this time, high
streets like Linking Road and Fashion Street emerged in Mumbai. Some manufacturers like
Bombay Dyeing started forward integrating to sell their own merchandise. Shopping centres or
complex came into existence, which was a primitive form of todays malls.
Since liberalisation in early 1990s, many Indian players like Shoppers Stop, Pantaloon Retail
India Ltd (PRIL), Spencer Retail ventured into the organised retail sector and have grown by
many folds since then. These were the pioneers of the organised Indian retail formats. With
the opening up of foreign direct investment in single-brand retail and cashand-carry formats,
a new chapter unfolded in the retail space. Many single-brand retailers like Louis Vuitton and
Tommy Hilfiger took advantage of this opportunity. The cash-and-carry format has proved to
be an entry route for global multichannel retailing giants like Metro, Wal-Mart and Tesco.
Booming Indian economy spurs consumption
The Indian economy posted a remarkable CAGR growth of 8.9% during FY04-FY08, which
increased the per capita income and in turn, the disposable income of a large section of the
population. Growth in the retail trade depends on the fundamentals of an economy. The Indian
economy grew at a robust rate over the last five years, riding high on the high growth in the
service sector (10.5%) and the manufacturing sector (9.4%) as compared with 7.4% and 4.1%
during FY99-FY03. The rise in per capita income and the resultant rise in disposable income
stimulated consumption during this five-year period, thereby resulting in a spurt in retail trade.
Furthermore, according to the Mckinsey Global Institute (MGI), the average real household
disposable income is likely to grow by 5.3% during 2005-2025 and reach Rs 318,896 per annum
as compared with 3.6% in the previous 20 years, which indicates the huge potential for the
retail sector in India.

Private Final Consumption Expenditure, per capita income and retail sales are positively
related
The private final consumption expenditure (PFCE) and GDP growth are indicative of the growth
in the retail sector. In the past consumers, especially young consumers in the age group of 15-
34, increased their consumption expenditure with an increase in their earnings; these young
consumers totalled around 400 million and constituted 35% of the total population. Due to the
consequent boom in the Indian retail sector many foreign and Indian players entered the
Indian retail sector.

The chart above shows that during FY95-FY00, the PFCE (constant prices) increased by 5.4%
per annum. Later on, from FY01 to FY03, PCFE declined to 4.0%. Again during FY03-FY07, it
went up to 6.2% per annum. During these time periods, the retail sales, the per capita income,
and the real GDP growth followed a similar trend as the PFCE, which made it evident that there
is a positive correlation between real GDP and PFCE on the retail sector. During FY08, the PFCE
as a percentage of GDP at factor cost at constant prices remained very high at 62.2%; hence,
the overall retail sector growth received a major impetus during this period.
There have been striking changes in Indias consumption pattern over the past 50 years owing
to the ever-increasing media exposure, changes in lifestyle, growing urbanisation, coupled with
an increase in the education levels among others. The Indian retail industry has matured
tremendously over the years, and has become more process-driven, standardised,
qualityassured, and brand-driven.
Size of the Indian retail industry
In 2007, the total Indian retail industry was valued at Rs 13,300 billion (estimate), and the
organised segment constituted 5.9% of the value at Rs 783 billion. In the segment, the clothing
and accessories sales had a majority share of 38.1% followed by the food and grocery segment
at 11.5% and electronics segment at 9.1%. The organised retail industry grew at a CAGR of 33%
during 2004-2007. Even though the organised retail segment has a minuscule share in the total
industry, it has enormous potential considering the rising urbanisation, the efficient supply-
chain, the readily-available retail space, and modern technology, which help in reducing
consumer prices to a great extent.

Furthermore, with the entry of big foreign players, the Indian organised retail market has
become more competitive in terms of implementing newer business models on the
operational format, and pricing, and in terms of efficiency. The organised retail sector will
largely benefit in terms of productivity and growth if sectors like agriculture, food processing,
and textile are encouraged further. The above-mentioned sectors would receive a remarkable
boost if they would supply to big Indian and foreign retail players, which will ensure their
growth in tandem with the retail sector. Moreover, the organised retail sector will directly and
indirectly improve the countrys employment scenario.
Many Indian retail players have already started purchasing supplies directly from farmers and
other suppliers, which has invariably eliminated the supply-chain complexities and large
number of intermediaries, and has resultantly lowered prices for consumers. Furthermore, the
amendment of the Agriculture Product Marketing Act (APMC) has revamped the farm produce
supply chain.
Industry segmentation
Organised retail can be segmented in two ways - segmentation by verticals and by channels.
Verticals are segmented on the basis of the type of merchandise offered; similar merchandise
can be clubbed together to form a vertical, for instance food and grocery. Channels are the
means through which retailers sell their merchandise; for example, store channels of retailing
that comprise different formats like hypermarkets, supermarkets and department stores and
non-store formats like online retailing, vending and kiosks.
Major retail segments
Food and grocery:
In 2007, the food and grocery segment was valued at Rs 7,920 billion, and it enjoyed a
dominant market share of 62% in the total Indian retail sector; however, there was a
completely opposite scenario in the organised retail segment. The food and grocery segment is
the second-largest in the organised retail and has an 11.5% share that is valued at Rs 90 billion.
Initially this segment grew at a slow pace due to the presence of an established retailing
system led by kirana stores, a highly-fragmented food supply chain, and the lack of a
developed food processing industry. Nilgiri was one of the earliest retailers that started a chain
or stores in different parts of the country. However, the growth of Nilgiris stores was limited
as it was challenged by a weak supply chain and an under-developed food processing industry.
Post-liberalisation, organised retailers saw a renewed opportunity in the food and grocery
segment.
Few food and grocery retailers
Food Bazaar: PRIL ventured into food retailing with Food Bazaar in Apr 2002. Initially it was a
part of Big Bazaar but later on it started operating as a standalone outlet in addition to being a
part of Big Bazaar. The store offers a wide range of fruits, vegetables, FMCG products and
ready-to-cook products. It uses a concessionaire model for wet groceries, and it sources staples
from APMC or farmers (where the state permits). Food Bazaar attracts high footfalls due to
innovative initiatives like live-grinding, live bakery, fresh juice corner etc.
In Aug 2007, the store ventured into another retail format that served the food and grocery
segment called the KB Fair Price shop. This store is modelled on the concept of low-frills
neighbourhood store of 1,000-1,600 square feet. The Fair Price store follows a pricing model
that is 20% lower than the prevailing market price.
More: Aditya Birla Retail Ltd forayed into the retail business in 2006 by acquiring Trinethra
Super Market Ltd, the south-India based retail chain. In May 2007, the company launched its
own brand of stores called More in Pune. The supermarket store has a minimum size of 2,500
square feet and offers fruits, vegetables, staples, personal care, general merchandise,
pharmacy, poultry and dairy products.
Reliance Retail: Reliance Retail Ltd, a subsidiary of Reliance Industries Ltd, has an aggressive
plan to expand its retail network across India. It entered the food and grocery segment in
November 2006 through its convenience store format Reliance Fresh. The store offers a range
of fruits, vegetables, personal care, home care and kitchen utensils. It focuses on building a
strong relationship with the agri-business value chain and sources directly from wholesalers.
Fashion and accessories
Fashion and accessories is the largest category in organised retail and had a 38.1% share
valued at Rs 298 bn in 2007. In terms of total retail, this category held the second position with
a 9.5% share valued at Rs 1,313 bn. The segment has driven the retail boom in India and has
opened many opportunities for large as well as global retailers to enter the segment. Despite
the high rental, many global retailers like Gas, Gucci, Levis, Benetton, Marks and Spencer have
opened their stores in India, and also have plans to increase their presence.
The mens wear segment had the highest share of 40.2% in the Rs 1,313-billion fashion and
accessories market in 2007 while the womens category accounted for 34.8%, followed by the
kids wear and uniform category at 24.9%. Demand in the branded apparel segment is
increasing as consumers are upgrading to premium brands due to changing preferences. The
premium segment has seen the fastest growth in value owing to the rising preference for
formals at Indian workplaces, the new offerings from international brands, and the increasing
willingness on the part of consumers to pay a premium for quality. The apparel retailers are
also pushing themselves to the accessories segment to attract more customers.
Few fashion and accessories retailers
Pantaloons: The first Pantaloon store was opened at Gariahat in 1997 in 8,000-square-feet
area. Over the years, the store has undergone several transitions. When it was launched, the
store mostly sold external brands. Gradually, it started retailing an eclectic mix of external
brands as well as private labels. Initially, it positioned itself as a family store targeted across
age and gender groups but later it shifted its focus towards being a fashion store and gave
more emphasis on the youth. As on Dec 2008, Pantaloons had around 44 stores spread across
major cities in India.
Shoppers Stop: Shoppers Stop is one of the largest retailers in India. It primarily caters to the
lifestyle segment and offers customers both domestic and international brands. The store
recently revamped its branding by introducing a new symbol. Shoppers Stop has lifestyle
retailing as its core housing brand across categories like apparels and accessories. The store
operated at 26 locations in 12 cities as on Dec 2008.
Koutons: Koutons Retail is a leading manufacturer of readymade and fashion wear brand. It
was established as Charlie Creation Pvt Ltd in 1991 for manufacturing and exporting garments.
Later in 1998 Koutons was established to provide affordable mens wear to the masses.
Koutons also entered the womens segment in Apr 2008 by launching its brand Les Femme,
which caters to young women in the 16-34 years age group and includes apparels like t-shirts,
partywear, lycra, semi-formal shirts, denims, capri pants etc. Koutons has also launched its
brand Les femme for women & Koutons Junior for kids. Few renowned brand of Koutons
are: Koutons mens wear, Les Femme, Koutons Junior and Charlie Outlaw.
Footwear
In 2007, the footwear segment had a 1.1% share in the total retail market and was valued at Rs
160 billion while it had a 9.9% share in the organised market and was valued at Rs 77.5 billion.
In the same year the organised footwear market recorded a fantastic growth of 49% over 2006
while the overall retail market grew by just 16.4%. The changes in consumer behaviour and
attitudes reflected in the increasing demand for newer styles and different types of footwear.
The market currently offers many brands that cater to every target segment. The Indian
footwear market is moving at a brisk pace presently to cater to the domestic demand.
Moreover, the influx of international brands is inducing the otherwise price-conscious
customers to shell out more bucks for their favourite brands.
The footwear market is experiencing a changing consumer preference for casual and younger
style due to media penetration and due to the increasing awareness about international trends
and lifestyle. There already are a large number of players, both domestic and international, in
the semi-formal, formal and casual segment but the casual segment dominates the Indian
footwear market with a 75% share. Branded sports wear is also growing at a faster rate than
the other segments and the key players in this segment are Adidas, Reebok, Nike, Puma et al.
Few footwear retailers
Reebok: In 1995, Reebok forayed into the Indian retail market. Today Reebok is one of the
frontrunners in the Indian sports wear industry. Reeboks offerings include apparels, footwear
and fitness equipment and products. Its footwear offerings are mostly in the trainers and
sneakers segment. Reebok recently has introduced its new lifestyle vertical Reebok Classic.
Bata: Bata India is one of the most well-known and largest footwear retailers in India. The
retailer manufactures and markets different types of footwear that includes rubber, canvas,
leather, and plastic footwear. It markets footwear under the brand names of North Star,
Power, Ambassador, Marie Claire besides dealing in international brands like Dr Scholl and
Hush Puppies. Bata has a strong distribution network structure of wholesalers and distributors.
Khadims: Khadims forayed into footwear retailing in 1993 and is one of the most renowned
retailers in east India. Khadims markets its own products besides few others and specialises in
womens and childrens footwear. The retailer has a presence in multi-brand outlets (MBOs)
across the country in addition to its own exclusive outlets.
Home and office improvement
In 2007, the home and office-related retail segment was valued at Rs 455 billion in the total
retail market while it was valued at Rs 50 billion in the organised retail market. In the same
year the segment had a 6.4% share in the organised retail. Home and office improvement is
another important segment of the organised retail as people have started spending more on
discretionary items. Presently the segment is growing at an impressive rate. Due to the salary
hikes and rise in the double-income households, the lifestyle needs of the young and
flourishing India are surging and consequently, consumers are going for renovation of their
homes. The concomitant rise in investments in furniture, home accessories and furnishings,
has added to the segments boom.
Few home and office improvement retailers
Godrej Lifespace: On Apr 1, 2003, Godrej & Boyce Manufacturing Company Ltd launched a
new retail division. The division was established to present a new concept in retailing by
displaying and selling under one roof the Godrej range of home and office furniture,
appliances, security equipment and locks. Later in 2005, the showrooms were branded as
Godrej Lifespace Stores.
Home Stop: Home Stop is one of the premium home improvement stores that offers a wide
range of merchandise. It stocks various national and international brands that cover all the
home needs like home dcor, furniture, bath accessories, draperies and health equipment.
Home Stop currently operates three Home Stop stores, one each in Mumbai, Bangalore and
New Delhi.
Home Town: Home Solution Retail (India) Ltd (HSRIL), a subsidiary company of Pantaloon
Retail, is designed to cater to the home furnishing and improvement market. The format is
designed as a one-stop destination that offers a complete range in consumer electronics,
furniture and other home products. HSRIL operates five retail formats: Collection-i, Furniture
Bazaar, Electronics Bazaar, Home Town and e-zone.
Electronics In 2007, the electronics segment had a 4% share in the total retail segment and was
valued at Rs 575 billion while it had a 9.1% share in the organised electronic retail segment
valued at Rs 71 billion. The electronics market has seen a proliferation of brands and product
categories in recent years. All international brands from Japan, Korea, the US, Europe and
China have been launched in India and have been trying to build a pan-India dealer network.
The lifestyle category has seen higher growth in India on the back of changing consumer
preferences and a consumption boom.
Few electronic retailers
eZone: eZone is an electronics specialty retail format from HSRIL by Kishore Biyani-led Future
Group. The first eZone store was launched in 2006 in Indore and was followed with a second
one in Bangalore. eZone offers a range of personal products like computers, laptops, handy
cams, MP3 players and mobile phones, entertainment products like plasma/LCD, flat TVs,
home theatre systems, DVD players, and stereosystems, home products like refrigerators, air
conditioners, washing machines and microwave ovens, among other kitchen appliances.
Viveks: In 1965, B A Lakshmi Narayana Setty founded Viveks in a 200-square-feet-shop in
Chennai. Today Viveks is one of the largest consumer electronics and home appliances retail
chains in India. Viveks Ltd is a public limited company that runs two retail brands Viveks and
Jainsons. The store was transformed into a public company from a family-run company when
14 stores of Jainsons were bought over in 1999. Later on in 2001 two stores of Premier and in
2002 Spencers Super Store were purchased. Viveks has recently absorbed Spencers into the
Premier brand. Viveks grew from three stores in 1995 to more than 35 stores as on Dec 2008.
Catering services In 2007, the catering service in organised retail showed a tremendous growth
of 44.7% over the previous year. It was valued at Rs 713 billion in the total retail market and at
Rs 57 billion in the organised retail market. The catering services market is divided into fast
food, cafes and restaurants and others. India is a buoyant market for this segment with over a
billion people with different food habits, religious festivals, and various regions. Each region
has its own traditional food, dietary habits and its own food specialities. In recent times many
international food chains have entered India, which has made this segment more dynamic and
its growth, fast-paced. The key growth drivers of the segment in India are: the changes in
Indian demographics, young working population, nuclear families, rise in double-income
household etc.
Few catering service retailers
Yum! Restaurants: Yum! Restaurants is present in India through its brands Pizza Hut and KFC.
In 1995, KFC, which mainly serves chicken products, set foot in India. After taking into account
the vegetarian population of India, KFC recently modified its menu and launched a vegetarian
fare, which now constitutes 40% of the product categories. Pizza Hut entered India in 1996 and
as on Dec 2008, there were 147 Pizza Hut and 45 KFC stores across 35 and 14 cities,
respectively.
McDonalds: McDonalds is a 50:50 joint venture partnership in India between McDonalds
Corporation (USA) and two Indian businessmen. Hardcastle Restaurants Pvt Ltd owns and
operates McDonalds restaurants in West India while Connaught Plaza Restaurants Pvt Ltd
owns and operates these food outlets in the North.
Caf Coffee Day: Caf Coffee Day is a division of Indias largest coffee conglomerate
Amalgamated Bean Coffee Trading Company. Caf Coffee Day sources coffee from 5,000 acres
of estates and is the second-largest coffee shop in Asia. It has ventured into formats such as
music cafes, book cafes, highway cafes, lounge cafes, garden cafes and cyber cafes.
Telecom
In 2008 the telecom market in India was worth Rs 272 billion and had a 1.8% share in the total
retail market while it had a 3.4% share in the organised retail segment and was valued at Rs 27
billion. The mobile and accessories segment exhibited tremendous growth in 2007. The Indian
telecom sector emerged as the second-largest wireless network in the world after China with
the recent spate in number of wireless subscribers.
Few telecom retailers
The Mobile Store: The Mobile Store, promoted by the Essar Group, is one of the countrys
largest mobile retailers. Its a one-stop mobile solution shop that offers telecom products like
mobiles, accessories, mobile connections and recharges, mobile bill payments, handset repairs,
handset exchange, music and gaming devices and DTH, all under one roof, in a world-class
shopping ambience. The shop had more than 1,300 stores spread across 200 cities as on Dec
2008.
MobileNXT: Bangalore-based MobileNXT Teleservices Pvt Ltd has a pan-India presence and
operates in the following three major retail formats: standalone stores, store-within-a-store,
and enterprise stores. This store is eyeing a pan-India network and hence has initiated a tie-up
with Shoppers Stop, Star Bazaar, Mega Mart, and Landmark stores, for setting up store-
withina- store in their outlets across the country. As on Dec 2008, the company was operating
more than 36 stores that were spread across major cities in India.
Pharmaceuticals
In 2007, the pharmaceuticals market had a 3.5% share and was valued at Rs 488 billion in the
total retail market; however, its share in the organised retail market accounted for merely
2.0% share at Rs 15.4 billion during the same period. The organised pharmaceutical retailer is
known to implement innovative concepts and global standards to provide customers with an
experience that is completely different from what an unorganised retailer offers.
Few pharmaceutical retailers
Apollo Pharmacy: In 1983, Apollo Pharmacy, a division of Apollo Hospital Enterprise Ltd,
entered retailing by opening up its first store in Chennai. The retailer also took initiatives to
provide medicines to the rural regions by tying up with ITCs e-choupal and Godrej Aadhaar.
Apollo has also started expanding through the franchise route. It has recently launched a new
concept, NurseStation, at its pharmacy outlets, where the nurses are available to attend the
patients at their houses, or refer them to an Apollo Clinic nearby. As on Dec 2008, Apollo was
operating at over 890 outlets across the country.
MedPlus: In 2006, MedPlus Health Services Private Ltd was incorporated in Hyderabad to cater
into the health care segment. The company has established a large number of pharmacy
outlets chain across major cities in various states of the country, and are majority of those are
spread across four southern states. It has over 600 pharmacy outlets spread across 63 cities/
towns in the country.
Beauty and wellness In 2007, the beauty and wellness segment grew at a tremendous rate of
65% over the previous year in the organised retail market. Its share in the total retail market,
however, was just 0.3% and was valued at Rs 46 billion. In the organised market, the segment
showed tremendous growth due to the rise in service sector employment.
Few beauty and wellness retailers
Reliance Wellness: In Oct 2007, Reliance Retail Ltd, owned by Mukesh Ambani, entered the
beauty and wellness segment by opening its first store at Hyderabad. This store offers a wide
range of products under the health foods, personal care, healthcare, and pharmaceuticals
categories.
Himalaya Drugs: The Himalaya Drug Company operates both exclusive retail outlet formats
and shop-within-a-shop outlets. The stores offer an entire range of Himalaya drugs from
pharmaceuticals, personal care, to baby care and animal healthcare products at competitive
prices. The company emphasises on service, trained personnel and a quality shopping
experience in their stores. Himalaya has also launched its online shopping website to make all
its products conveniently available to its customers 24/7 and to reach a wider market, where
its stores are not present.
Jewellery
In 2007, jewellery retail was worth Rs 694 billion and accounted for 5% of the total retail
market. In the organised retail market, jewellery retail merely had a 2.9% share at Rs 23 billion.
In the same year jewellery retail in the organised retail market recorded high growth of 36.9%
over 2006 as compared with 15.3% recorded in the total retail market.
Few jewellery retailers
Gitanjali: Gitanjali Gems Ltd (GGL) is one of the largest, integrated diamond and jewellery
manufacturer and retailer in India. It sources rough diamonds from primary and secondary
source suppliers in the international market, cuts and polishes the rough diamonds and exports
the diamonds to its international markets. GGL sells diamonds and other jewellery through
retail operations in India as well as in international markets. Its brand extensions include Gili,
Asmi, Sangini, DDamas, Giantti, Nakshatra, Collection G, Gold Expressions, Vivah Gold & Kiah.
Tanishq: In mid-1990s Titan Industries Ltd - promoted by the TATA Group - entered jewellery
retailing through Tanishq. Tanishq has set up production and sourcing bases by researching the
jewellery crafts of India. Its factory, located at Hosur, Tamil Nadu, is spread across 135,000
square feet and is equipped with all modern machinery and latest equipment. As on Dec 2008,
there were 115 Tanishq stores spread across major cities in India.
Reliance Jewels: Reliance Retail Ltd entered jewellery retailing by opening its first store in
Bangalore. The company aims to make Reliance Jewels a one-stop destination that offers
consumers a wide range of gold and diamond jewellery.
Timewear
In 2007, the Indian watches market enjoyed a 2.9% share in the overall organised retail market
as compared with merely 0.3% in the total retail market. The market size of the watch market
was valued at Rs 44 billion in the same year. The size of this market has expanded due to the
changes in consumer preference and the growing market for international watches in India.
International players like Tag Huer, Rado, Omega, Rolex have even signed up Indian celebrities
as brand ambassadors to tap the market.
Few timewear retailers
Citizen: Citizen has 38 exclusive outlets in 27 cities across India. The Exclusive Branded Outlets
(EBOs) called First Citizen house the latest international range of Citizen Watches and display
over 800 different watches. Besides, Citizen Watches are also available at Lifestyle, Shoppers
Stop and more than 250 Citizen Corners (MBOs) across the country.
Titan: Titan is one of the largest manufacturers of watches in India. It offers product ranges
that include the flagship brand Titan, Edge, Fastrack, Nebula, Raga, Steel, Regalia, Flip, Sonata,
which is available in Titan and exclusive Sonata stores. As on Dec 2008, there were 245
exclusive Titan showrooms (World of Titan) across 122 Indian cities in India.
Books, music and gifts
Books, music and gift retailing were the earliest segments that witnessed a consolidation of
business into organised formats. The combined share of this segment was 1.1% of the total
retail market at Rs 164 billion in 2007. Organised retailers like Planet M, Music World, and
Landmark dominated the music segment. Archies, a prominent gift retailer, has a presence on
both high streets as well as in malls.
The books and publishing business continues to thrive due to greater literacy levels and rapidly
growing middle class and higher middle class population, English-speaking middle-class
population. Moreover, new format chains like Crossword, Landmark, Oxford, and now,
Odyssey, that fit into the leisure aspirations of people, are located conveniently, and offer an
ambience conducive to browsing and book buying. As a result, the segment has been growing
further.
Crossword: Crossword was established in Oct 1992, is Indias leading bookstore chain and a
wholly-owned subsidiary of Shoppers Stop Ltd. The company sells books and other products
under the Crossword brand. Crossword sells a wide variety of products like magazines, CD
ROMs, music, stationery and toys apart from books. Crossword provides customers with cafes,
reading tables and cloak facilities at each of its outlets. Crossword customers can also shop for
books using dial-a-book, fax-a-book and email-a-book facilities offered by the company. Its
other services include gift vouchers, apart from the return, exchange & refunds policy being
followed by the company. Crossword bookstores are presently located in Mumbai, Bengaluru,
Ahmedabad, New Delhi, Pune, Nagpur, Vadodara, Kolkata, Chennai, Jaipur and Hyderabad.
Entertainment In 2007, the entertainment segment was worth Rs 456 billion and had a 3.2%
share in the total retail industry. This segment has been driven by the increasing base of young
population in India, whose entertainment needs has been surging with the influx of malls and
multiplexes that provide leisure retail, gaming, and cinema. Players in the segment are likely to
gain greater market share as the consumer spend on entertainment is increasing. PVR cinemas,
Fun Cinemas, Inox are the major players in the entertainment retailing space.
Overview of formats/channels The Indian retail industry is categorised into different retail
formats on the basis of the retail operation. The formats are basically defined on the basis of
the size of the outlet, the pricing strategy followed, the type of merchandise sold, and also the
location. Given below is a list of formats on the basis of the above-mentioned characteristics:
Hypermarkets: Hypermarkets are big-box formats with an average size that ranges between
60,000-120,000 square feet, and they stock multiple lines of products such as food and
grocery, general merchandise, sports goods, and apparels. Hypermarkets are mammoth
outlets that are fewer in number but cater to a larger area (3-5 kilometre). HyperCITY, Big
Bazaar, RPG Spencers and Shoprite Hyper are some major players in this format.
Supermarkets: The average size of supermarkets range from 10,000-30,000 square feet. They
are a smaller version of hypermarkets that holds multiple lines of merchandise but is limited in
number when compared with supermarkets. Supermarkets are spread across the city, are
greater in number, but cater to a smaller area (1-2 kilometer). Foodworld, Food Bazaar and
Spinach are some major players in this format.
Convenience stores: Convenience stores offer easy purchase experience through easily
accessible store locations. The stores are basically small in size (500-3,000 square feet), which
allows quick shopping and fast checkouts. Subhiksha and Reliance Fresh are some major
players in this format.
Cash-and-carry outlets: Cash-and-carry outlet is strictly not a retail format, but considering the
business dynamics it follows it can qualify for a retail format. In a retail business usually a
consumer has to purchase one or more products but under this format, the consumers have to
buy a minimum volume of products or value specified by the cash-and-carry retailer. In this
format the buyers are basically small retailers or catering service providers who purchase in
bulk quantities. This stores size ranges from 100,000 square feet to 300,000 square feet. At
present, Metro is a major player that falls under this format. Wal-marts alliance with Bharti
and Tescos with Trent will also come under the cash-and-carry format.

Discount stores: The focus of these stores is to offer merchandise at a price that is lower than
the market price, and to gain profit from volumes. These stores keep merchandise mainly on
the basis of its saleability. Usually these are no-frill stores with simple surroundings and less
service. Big Bazaar and Subhiksha are some famous examples.
Specialty stores: These stores usually specialise in one line/category of merchandise. As these
stores are concerned with only one type of merchandise, they are able to offer a wider range
of products at a lower price. Examples: Next and Vijay Sales.
Department stores: These stores are typically lifestyle stores where most of the merchandise
constitutes apparels and products other than food and grocery. These stores offer high quality
service to consumers. These stores stock lesser merchandise than other formats since the
merchandise is stored in a presentable manner. Notable examples are Shoppers Stop,
Westside, Trent, and Globus.
Category killers: Many major retail chains have adapted small specialty store concepts and
have expanded themselves to create large specialty stores. These expanded, large speciality
stores are known as category killers. Ezone, which specialises in electronics, and Staples,
which specialises in office stationery, are examples of category killers.

Regulatory Framework
The Indian government has not focussed on retail as an industry. Until now, there are no
specific rules and regulations that are to be followed by retail companies. However, there are
certain laws that the retailers need to follow, which are general in nature and which pertain to
the establishment of stores and the conduct of activities. These laws are as follows:
Shop and Establishment Act
Standards of Weights and Measures Act
Provisions of the Contract Labour (Regulations and Abolition) Act
The Income Tax Act
Customs Act
The Companies Act
Apart from the above Acts, the companies also follow certain regional rules and regulations on
the basis of the stores location. In some regions regulations are imposed on the organised
retailers to restrict their expansion and to promote regional retailers; for instance, the Tamil
Nadu government imposed a 10% surcharge on organised retailers; the West Bengal
government has been asking mall developers to reserve 10% space for unorganised retailers.
Retailers are also required to take necessary approvals from local bodies to carry on with their
business. There is no single window for clearances, and companies have to go to different
agencies to get approvals, which is one of the biggest hurdles that the segment faces.
FDI scenario in India
In 1991, the Indian government introduced the economic policy to attract foreign investments
and since then, it has amended the policy from time to time in various sectors to allow higher
levels of foreign participation. The government policy in retail sector allows 100% foreign
investment in wholesale cash-and-carry and single-brand retailing but prohibits investments in
retail trading. In 1997, the government imposed restrictions on FDI in retail sector but in 2006,
these were lifted and opened in single-brand retailing and in cash-and-carry formats.
The cash-and-carry business is the easiest mode of entry for foreign retailers into India. Many
global players like Metro and Shoprite have already entered the market. Wal-mart has forged
an alliance with Bharti for a cash-and-carry business, and Bharti is concentrating on front-end
retail. Similarly, Tesco has entered India through an alliance with Trent (Tata Group). Apart
from investing in the cash-and-carry business, Trent will also support the back-end activities of
Trent Ltd.
Many foreign brands have also entered India either through JVs with leading Indian retailers or
through exclusive franchisees to set up shop in India. Louis Vuitton, Marks & Spencer Plc, GAS,
Armani are some such operators who have entered India through JVs. McDonalds, KFC,
Dominos are the retailers who have taken the franchise route.
Slowly the government is opening up to the idea of permitting FDI in the Indian retail sector;
consequently there is greater momentum in the sector. Last year, owing to the global
meltdown, investments dropped in all sectors. The government has therefore changed the
guidelines for foreign investments to boost investments in the current year. This move is
certainly likely to improve the investment climate in the Indian retail space.
Growth Drivers
Currently, organised retail is in a nascent stage of growth in India as it just has a 5.9% share in
the total India retail trade. However, in recent years, organised retailing has been growing at a
robust rate due to rise in the number of shopping malls as well as in the number of organised
retail formats. The key factors of growth of organised retail in modern India are discussed in
the following pages.
Rising disposable income of Indian middle-class
The Indian middle-class can be categorised into seekers and strivers, which is the consuming
class and the prime target segment for retailers in India. In 2005, these two categories together
constituted around 6.4% of total households in India but accounted for 20% of the disposable
income. By 2015, the middle class is expected to constitute around 25% of total households
and account for 44% of the total disposable income, and by 2025, the respective figures are
likely to go up to 46% and 58%. The Indian middle-class population and their growing
disposable income levels will drive the future growth of organised retail in India
6
.
Changing consumer preferences and shopping habits
The prime reason for a paradigm shift in the shopping attitude of the Indian consumer is the
change in their preferences and tastes. Due to the increasing use of IT and telecom, Indian
consumers have become aware of brands and shops for lifestyle and value brands according to
the need and occasion. Consumers will continue to drive the growth in the organised retail by
expanding the market and compelling retailers to widen their offerings in terms of brands and
in terms of variety.

The spending on essential commodities has been steadily falling over the years, whereas the
consumption of discretionary products has been growing at a healthy pace. If the composition
of PFCE is studied, one can notice that the share of food, beverages and tobacco in the total
PFCE has declined from 53.0% in FY90 to 42.2% in FY08. On the other hand, the share of
communication, entertainment, personal care consumption has been rising over the years.
Changes in lifestyle have brought about a paradigm shift in consumption, which will
undoubtedly continue to drive retail growth in segments like beauty, healthcare, telecom, and
entertainment. Moreover, the rising reach of media coverage is increasing consumer
awareness about products, their prices and services, which is likely to further encourage
growth in the organised retail segment.
Changing demographics India is one of the youngest and largest consumer markets in the
world with a median age of around 25 years, which is the lowest as compared with other
countries. According to estimates, Indias median age would be 28 by 2020. It is expected that
over 53% of the population will be under the age of 30 by 2020, which means that the
potential for the Indian retail segment will be enormous. Another plus about this population is
that they will be more dynamic than the previous generations because their consumption is
driven by wants rather than needs. Thus, the organised retailing, which thrives on lifestyle
products, is expected to receive a boost because of the young population by 2020.

Increase in working population
India is the second-largest country in the world in terms of population, and is the
largestconsumer markets in the world owing to its favourable demographics. In 2008 Indias
working population (in the 15-49 years age group) constituted around 53% of the population as
compared with 48.6% in the UK, 49% in the US, and 53% in Russia. Further, the increase in the
number of working women has fuelled the growth in sales of discretionary items. There has
been a 20% increase in the number of working women in the last decade.

Spurt in urbanisation
Historically cities and towns have been the driving force of overall economic and social
development. Currently over 335 million people of India reside in cities and towns, which
translates to around 30% of the total population7. The rapid growth in urbanisation has
facilitated organised retailing in India, and has caused the speedy migration of population into
major tier I and tier II cities, which have a significant share in the retail sales of the country.

The urban populations contribution in Indias GDP shot up from 29% in 1951 to 60% in 2001
and is expected to increase to 70% by 20118, as migration to cities and towns grows rapidly in
anticipation of higher income opportunities provided by these epicentres. Moreover, the
continuous development in urban areas has invariably attracted substantial inflows of capital
both from domestic and foreign investments have led to the transition of urban areas. As the
Indian organised retail is mainly concentrated in the urban areas, its growth (urban areas) is
imperative for the organised retail in the country.
Notably, the urban areas are Indias growth centres and they are growing rapidly over the last
couple of years as compared to the world average as well countries like Brazil, the US and UK
among others. For instance, during 1995-2000, annual urban growth in India was 2.35% as
compared to the world average of 2.07%. Furtherance, the annual urban growth in India would
touch 2.6% during 2020-25, while globally it would fall consistently to reach 1.6%, China 1.36%
from 3.1% during 1995-2000, followed by Brazil to 0.82%9. Though, percentage of urban
population to total population in India (29%) is comparatively quite low against the world
average (48.6%), as well as countries such as Brazil (84%), China (40%), the US (81%) and Russia
(73%), it is however noticeable that total urban population in India was far more than the total
population of the entire US in 2005 and by 2025, it is expected that Indias total urban
population would constitute around 6.7% of the total world population. This would undeniably
emerge as the Indias largest market for organised retail, and therefore the challenge for the
retail players to leverage the full potential of flourishing urban areas.

Furthermore, due to the rapid infrastructure development in major tier I, II and III cities, many
rural inhabitants are attracted to cities, which increase the urban per capita income and in turn
offers unbound opportunities for the organised retail segment. Increased globalisation has also
played a big role in the development of urban areas.
Rise in MPCE level in urban areas
The aggregate urban consumption in India has been growing steadily over the past few years
as the economy has been continuously flourishing during this period, owing to a rise in urban
population as well as a rapid per capita income growth. In FY05, 56.0% of the urban population
was below the MPCE level of Rs 930, while in FY07 the percentage of population under the
MPCE level of Rs 930 decreased to 46.1%.

The average MPCE for the urban population in FY07 was Rs 1,312 up from Rs 1,105 in FY05, on
the other hand, the average MPCE for rural population in FY07 was Rs 695 up from Rs 579 in
FY07
10
.
The NSS report clearly suggested that the consumption pattern in urban areas differed from
the rural areas. While the food items constituted 52.2% of the rural areas consumption in FY07
and the non-food items accounted for the remaining share, in the urban areas, the share of
food items in consumption was 39.4% and the non-food items accounted for the rest.
Organised retail concentration in tier II and III cities
Initially the retail revolution began in the big tier I cities in India; however, as tier I cities are
relatively saturated now, retailers, especially value retailers, are finding their way to smaller
tier II and tier III cities as well. The changing landscape of the Indian retail segment and the
increasing competition has also forced retailers to tap growth opportunities in tier II and III
cities in India.
Internet drives awareness and online purchases
There has been a substantial increase in the number of Indians who use the Internet and a
concomitant increase in the number of online purchases. Indians have started using the
Internet not only for increasing awareness but also to shop online, which has opened a whole
new channel of retailing in the Indian retail scenario. Online retailing offers consumers the
convenience of ordering merchandise to their doorstep. Recently, Future Group, which owns
Pantaloon, has initiated a measure to capitalise on the online opportunity through
futurebazaar.com. A similar venture flipkart.com is also proving the new channel to be highly
viable, especially since it eliminates the biggest cost of the physical store.
Easy credit availability a boon for organised retail
The higher penetration of credit cards in India has also boosted the growth of the organised
retail sector; in fact, the young populations increasing fancy for plastic money has further
fuelled their purchasing power. Even though the organised retail sector is at a nascent stage
(constituted 5.9% of the total retail industry in 2007), it is growing at a rapid pace. Moreover,
the spurt in issuance of credit cards and loans by both Indian as well as foreign banks has
further boosted the segments growth. According to the RBI, as on FY09, the total number of
outstanding credit and debit cards in India was 24.7 million and 137.4 million respectively.

Retail investment
Investments in the retail sector have improved since FDI has been allowed in single-brand and
cash-and-carry formats. According to the Technopak estimates, investments in the organised
retail will touch US$ 35 billion in the next five years or so. Investments allow organised players
in retail to expand at a very high rate. All key retailers in India have expansion plans over the
next 3-4 years; for instance, Pantaloon has an ambitious expansion plan to take its retail space
up to 30 million square feet by 2011. Likewise, Vishal Retail is expected to take its total store
count to 500 with an estimated retail space of around 10 million square feet by 2011.
Availability of quality real estate
According to industry sources, mall space in India has grown from a meagre 1.0 million square
feet in 2002 to about 57.3 million square feet by the end of 2008; tier I cities are expected to
account for around 73% of the mall space and the rest is likely to be equally divided between
tier II and tier III cities.

4
British Retail Consortium
5
ICRIER Report