Indian Retail Industry – A Kaleidoscopic Vision

Prof. Dr. JP Sharma

Dept. Of EAFM, Univ. Of Rajasthan

Retail Overview of Indian Sector

Retailing is defined as set of activities or steps undertaken to sell a product or services to a

consumer for personal, family or household use. It is responsible for matching individual
demand with the supplies of the manufacturers.

Retailing is not only an integral part of our economic structure but also shapes, and is shaped
by, our way of life. While trading of goods has always been a part of traditional societies, in
recent times the buying and selling of product has become much more formalized and brand
dominated activity

Retail is an upcoming sector in the Indian economy. So much action and hype has taken place
in especially past 4- 5 years that it looks almost impossible to ignore the changes happening
around. It is most arguably the next big revolution after the IT sector. Notwithstanding the
current economical events organized retail market is expected to grow manifolds by the year
2018. 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.

Immense growth in this sector is resultant of many factors i.e.; changing lifestyles, nuclear
families , consumers looking for variety and entertainment value while buying , burgeoning
middle class and demographics .

The retail industry in India is currently growing at a great pace and is expected to go up to
US$ 833 billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year
2018 at a CAGR of 10%. As the country has got a high growth rates, the consumer spending
has also gone up and is also expected to go up further in the future. In the last four year, the
consumer spending in India climbed up to 75%. As a result, the India retail industry is
expected to grow further in the future days. By the year 2013, the organized sector is also
expected to grow at a CAGR of 40%.

The Indian retail industry is the fifth largest in the world. Comprising of organized and
unorganized sectors, India retail industry is one of the fastest growing industries in India,
especially over the last few years. Though initially, the retail industry in India was mostly
unorganized, however with the change of tastes and preferences of the consumers, the
industry is getting more popular these days and getting organized as well. With growing
market demand, the industry is expected to grow at a pace of 25-30% annually. The India
retail industry is expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000 crore by
the year 2010.

Challenges facing Indian retail industry

Despite all the euphoric overtures shown by this sector, this sector is not devoid of some
serious challenges, which are stated as below.

• The tax structure in India favours small retail business

• Lack of adequate infrastructure facilities
• High cost of real estate
• Dissimilarity in consumer groups
• Restrictions in Foreign Direct Investment
• Shortage of retail study options
• Shortage of trained manpower
• Low retail management skill

Organized retailers, for their part, worry about losing out to their micro, unorganized
competitors. In India, unlike in the industrialized countries, labour is typically not the critical
cost factor in establishing a business, and this may make a business model based on replacing
labour with technology vulnerable. While we may take it as a boon for small (unorganised)
retailers, it shouldn’t be mistaken that the country would be benefitting from retail revolution
only if the sector gets organised. The benefits would range from better tax collection,
employment generation, development of other sectors of economy etc.

Real estate prices in India’s urban areas are skyrocketing. One of Delhi’s local shopping
districts, Khan Market, is ranked the 24th most expensive street in the world, up by 17 spots
from last year. The efficiency gains of organized retail may not be sufficient to counteract
these costs. In addition, large retail franchises depend on reliable and integrated
infrastructure. Telecommunications modernization has been a success story in India. The
other critical sectors, notably roads, ports, air cargo facilities, and electric power, are seeing
increased investment but are still well below international standards. Organized retailers, like
other businesses, face the constraints of red tape and intrusive government regulations. A
2003 study estimated that new retail stores require an average of 15 different licenses from
different national and state governing bodies. Also, environmental regulations, generally not
very stringent in India, have fallen more heavily on the retail sector. All these challenges gets
compounded when retailers have to deal with various tax regimes of states and extreme
disparity of customer preferences and shopping behaviour across various geographies in the
same country.
Vision through Kaleidoscope:

Success breeds success, and that’s what the mantra seems to be in offing for us , as far as
overcoming few challenges are concerned.
Bringing more modern and organized retail operators into India will spur the modernization
of the economy as a whole. This will significantly modernized retail sector and will be an
additional incentive for, both government and business, to accelerate improvements in
infrastructure. It will provide an opportunity to upgrade the skills of workers in businesses in
the retail sector. And even if the foreign retail presence is largely confined to the cities, one
should not underestimate its psychological impact on the way Indians look at the progress of
their own economy.

New retail initiatives will not only bring new concepts of retailing but, will also help in
capacity creation for future growth. One of the few initiatives that have spurred growth in US
and European market are ‘Private Labels’. Retailers have augmented their businesses by
working hard on developing their own labels, this in-turn has helped in generating more
demand, reaching out to larger customer base by offering desired products, and it has also
resulted in more manufacturing and other marketing capacity enhancements.

Retailers will have to invest in generating HR skills as retail industry requires various
professionals, especially trained for retail industry. This will lead to growth in education and
training sector. Taking cue from the West, companies may enter in partnerships with various
B- Schools and other educational/training institute so as fulfil their Human Resource needs.
This will lessen the cost of hiring and training of the professionals and at the same time will
help in creating an edge over other retailers.

Retailers cannot afford to lose sight of various marketing initiatives needed to be undertaken
so as to enhance retail buying. Retail is an industry wherein, a customer is almost, seduced to
the store by using various category management and visual merchandise techniques. He is
helped in taking buying decisions in the store with the help of various marketing and selling
initiatives. All these techniques require great deal of marketing skills and trained marketing
and communication professionals. Retailers will have to develop these skills very fast so as to
make organised retail an attractive option for the customers to flock into. Retailer will have to
create newer retail formats keeping in view the customer needs, supply chain issues, real
estate issues. Though, there seems to be no perfect answer to this but, it definitely calls for
some experimentation, research and risk taking on retailer’s part, so as to create value for the
customers.

Real estate, which seems to be a hindrance in retail growth, also needs some innovative
solutions. Retailer might have to get in long term partnerships, on profit sharing basis, so as
to off-set the cost, especially in initial days. One good example is of DLF who has entered in
a long term understanding with many a retailer to create a win – win partnership.

Conclusion

Above mentioned argument clearly states that the opportunities in retail sector outnumber the
number of challenges it faces. Retailers with long term, commitment, vision, openness
towards innovation, zeal to constantly deliver value to the customer and above all, faith in
Indian economy will succeed.

The message to the current and prospective retailer is quiet clear – ‘Keep Walking’

References

1) KSA- Technopak, India Infoline Sector Report.

2) CII – McKinsey Survey, India Infoline Sector Report

3) ET- Knowledge Series – “Changing Gears: Retail In India, The

4)Economics Times Intelligence Group.

5)The Strategist , Business Standard, September2, 2003

6)Milestones, An ORG- Marg Publication

7)Praxis Business Line , ‘ Searching For Space’ , Jan 2002

8)Indian Retail Report -2007

9) Swapna Pradhan, Retailing Management, Tata McGraw Hill,

2004, New Delhi

10) Chetan Bajaj, Rajnish Tuli, Nidhi V Srivastava, Retail

Management, Oxford University Press, 2005, New Delhi

11) Center for Strategic and International Studies , July 2007 ,

Washington D.C

12) Indian Insight ; Indian Retail Industry , Cygnus , 2008 ,

Hyderabad , India
13) www.cpasind.com

14)www.atimes.com