INDIAN RETAIL INDUSTRY

The Indian retail industry has presently become one of the most dynamic and fast-paced sectors due
to several new players entering the market. The Indian Retail Industry has immense potential as the country
has the second largest population with affluent middle class, rapid urbanization and robust growth of the internet.
Based on researches by several eminent organizations, Indian retail landscape stands tall as the posterchild
for the consumption growth fuelled sustained growth.

Several research organisations predict the Indian retail market to grow with a CAGR ranging from 10-13% which
is higher than the projected rate of growth of GDP of the nation. This has come to be, because of several factors
which have made the retail sector a lucrative investment avenue for both domestic and multinational players.

Current snapshot of the Indian retail sector:

Pharmacy, Footwear,
Others, 5.40%
2.70% 1.20%
Furniture and
9% Furnishing,
3.60%

Consumer
Durables and
IT, 5.20% Jewellery,
8.00%

Apparel, Food and

8.70% grocery,
91% 66.30%

Organised retail Un-organised retail

Chart 1: level of organisation in Indian retail [Source: Chart 2: Revenue share of Indian retail [source: IBEF.org]
IBEF.org]

TRENDS IN INDIAN RETAILING

Growth of the Indian retail sector: The Indian Retail sector is expected to grow from US$ 622 billion in 2015 to double
than amount (~ US$1 trillion) by 20201. Certainty of growth of retail sector in India is primarily driven by the following
factors:

Income growth: Threefold Growth in average household income from ~ $6000 in 2010 to $18000 in 2020.
Urbanization: India is witnessing a rapid urbanisation process with more than 40% of the population of the
country expected to reside in the urban areas by 2020.
Nuclearization: A trend of nuclearization has also been a characteristic of India. By an estimate over 200 million
households to be nuclear by 2020, leading to increase in per capita consumption expenditure.
Attitudinal shift: As much as 75% of the population of the country would be of the generation which has grown
up in the liberalized economy, and hence have more propensity to consume, further driving consumption
upwards.

1
Retail 2020: Retrospect, Reinvent, Rewrite ; The Boston Consulting Group and Retailers Association of India, 2015
Rapid growth of Modern Trade: Modern trade is expected to triple from its current $60 billion revenue share to over
$180 billion by 2020. It is expected to grow at a CAGR of 20% 2 while Traditional retail is poised to grow with a CAGR of
~10%.

Exponential Growth of Digital: E-commerce in India is expected to grow by leaps and bounds as the market expects
them to corner a revenue share of $60-70 billion by 20193. Some of the reasons that have enabled the E-commerce
industry to grow with such a phenomenal pace are:

Increase in Internet penetration: Indian internet users are expected to increase to around 600 million by 2020,
enabled by increased accessibility, better internet infrastructure, lower costs of connectivity, Increased
proliferation of Smartphones ( from 150 million in 2015 to over 600 million in 2020)4.
Superior value proposition: Customers will climb onto the E-commerce bandwagon because of the superior
value proposition that it offers viz. broader assortment of products, discounts and greater convenience.
Better Payment and logistics Infrastructure: Many of the players have heavily invested in the development of
the payment channels and the logistic infrastructure which would propel the industry further.

Chart 3: Growth of retail in India, (Growth of modern trade outstrips growth in traditional retail)

2
Retail 2020: Retrospect, Reinvent, Rewrite ; The Boston Consulting Group and Retailers Association of India; 2015
3
Retail 2020: Retrospect, Reinvent, Rewrite ; The Boston Consulting Group and Retailers Association of India; 2015
4
Retail; India Brand Equity Foundation; Oct 2017
 Chart 4: Benefits of FDI in retail [Source: IBEF.org]

Policy support by the state: Several policy measures have been introduced by the government which has either facilitated
or will facilitate in the future, the proliferation of all types of modern and organised retail in India. Two of the most
important policy decisions are- the relaxation of FDI regulations and the recently passed GST act.

CHALLENGES IN THE IN DIAN RETAIL SECTOR

In spite of being one of the fastest growing segments the Indian retail sector is plagued with several structural constraints
which need to be addressed in order to further the growth of Modern trade, and organised trade in the country. These
constraints happen to be present on both the supply side and the demand side.

On the demand side the throughputs are still not high enough as the Indian consumer is still getting used to the Modern
trade, also the pricing and the promotion activities are seldom efficiently executed as the customers willingness to pay
is still not capitalised upon adequately.

On the supply side too there lie multiple constraints which needs to be dealt with in order to efficiently exploit the
opportunities that lie ahead. Some of the constraints are- high real estate rentals and prices, High costs of sales due to
low bargaining power with suppliers due to limitations of scale and high costs of supply chain due to poor connectivity,
stock-outs and excess inventories.
Chart 5: Structural challenges in the Indian retail sector, particularly for the growth of modern and organised retail