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Retail Industry in India

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The Indian retail industry is divided into   and   sectors.
Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who
are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets
and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on
the other hand, refers to the traditional formats of low-cost retailing, for example,  
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India¶s retail sector is wearing new clothes and with a three-year compounded
annual    !""! , retail is the fastest growing sector in the Indian economy.
Traditional markets are making way for new formats such as departmental stores, hypermarkets,
supermarkets and specialty stores. Western-style malls have begun appearing in metros and
second-rung cities alike, introducing the Indian consumer to an unparalleled shopping
experience.

The Indian retail sector is highly fragmented with #$  of its business being run by
the  %   like the traditional family run stores and corner stores. The organized
retail however is at a very nascent stage though attempts are being made to increase its
proportion to 9-10 per cent by the year 2010 bringing in a huge opportunity for prospective new
players. The sector is the largest source of employment after agriculture, and has deep
penetration into rural India generating more than 10 per cent of India¶s GDP.

· Even though India has well over 5 million retail outlets of all sizes and styles (or non-styles),
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.

· It was only in the year 2000 that the global management consultancy &' (put a figure
to it: Rs. 400,000 crore (1 crore = 10 million) which will increase to Rs. 800,000 crore by the
year 2005 ± an annual increase of 20 per cent.
· Retailing in India is thoroughly unorganised. There is no supply chain management perspective.
According to a survey b y AT Kearney, an overwhelming proportion of the Rs. 400,000 crore
retail market is UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is
organised.

· As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet in area.
This means that India per capita retailingspace is about 2 square feet (compared to 16 square feet
in the United States). India's per capita retailing space is thus the lowest in the world (Source:
KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt Salmon Associates).

· Just over 8 per cent of India's population is engaged in retailing (compared to 20 per cent in the
United States). There is no data onthis sector's contribution to the GDP.

· From a size of only Rs.20,000 crore, the ORGANISED retail industry will grow to Rs. 160,000
crore by 2005. The TOTAL retail market, however, as indicated above will grow 20 per cent
annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by 2005 a
  
 
 

· Given the size, and the geographical, cultural and socio-economic diversity of India, there is no
role model for Indian suppliers and retailers to adapt or expand in the Indian context.

· The first challenge facing the organised retail industry in India is: competition from the
unorganised sector. Traditional retailing has established in India for some centuries. It is a low
cost structure, mostly owner-operated, has negligible real estate and labour costs and little or no
taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage
for the traditional retailing sector.

· In contrast, players in the organised sector have big expenses to meet, and yet have to keep
prices low enough to be able to compete with the traditional sector. High costs for the organised
sector arises from: higher labour costs, social security to employees, high quality real estate,
much bigger premises, comfort facilities such as airconditioning,back-up power supply, taxes
etc. Organised retailing also has to cope with the middle class psychology that the bigger and
brighter a sales outlet is, the more expensive it will be.

· The above should not be seen as a gloomy foreboding from global retail operators. International
retail majors such as Benetton, Dairy Farm and Levis have already entered the market. Lifestyles
in India are changing and the concept of "value for money" is picking up.

· India's first true shopping mall ± complete with food courts, recreation facilities and large car
parking space ± was inaugurated as lately as in 1999 in Mumbai. (this mall is called
"Crossroads").

· Local companies and local-foreign joint ventures are expected to more advantageously
positioned than the purely foreign ones in the fledgling organised India's retailing industry.

· These drawbacks present opportunity to international and/or professionally managed Indian

corporations to pioneer a modern retailing industry in India and benefit from it.

· The prospects are very encouraging. The first steps towards sophisticated retailing are being
taken, and "Crossroads" is the best example of this awakening. More such malls have been
planned in the other big cities of India.

· An FDI Confidence Index survey done by & ' (, retailindustry is one of the most
attractive sectors for FDI (foreign direct investment) in India and foreign retail chains would
make an impact circa 2003.

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India has kept the retail sector largely closed to outsiders to safeguard the livelihood of nearly 15
million small storeowners and only allows 51 per cent foreign investment in singlebrand retail
with prior Government permission. FDI is also allowed in the wholesale business. Single-brand
retailers such as Louis Vuitton, Fendi, LLadro, Nike and Toyota can
operate now on their own. Metro is already operating through the cash-and-carry wholesale
mode.
 The policy makers continue to explore areas where FDI can be invited without hurting the
interest of local retail community. Government is considering opening up of the retail
trading for select sectors such as electronic goods, stationery, sports goods, and building
equipment.
Foreign direct investment (FDI) in retail space, specialized goods retailing like sports goods,
electronics and stationery is also being contemplated. The Government has to walk a tightrope to
ensure a `level playing field' for everyone. The policy of permitting 51 per cent FDI in single-
brand product retailing has led to the entry of only a few global brands such as Nike (footwear),
Louis Vuitton (shoes, travel accessories, watches, ties, textiles ready-to wear), Lladro (porcelain
goods), Fendi (luxury products), Damro (knock-down furniture), Argenterie Greggio (silverware,
cutlery, traditional home accessories and gift items) and Toyota (retail trading of cars), into retail
trading. A 12-billion euro French luxury industry is also eyeing the domestic luxury segment to
make a presence through retailing directly.