‘India is at the cusp of a great retail revolution’ says Thomas Verghese, CEO, Aditya Birla Retail. The words reflect the euphoria and the mood of the retailers in India. It also echoes the sentiments of most of the retailers who were present at the recently concluded Indian Retail Forum 2011summit. Mayura Shanbaug spoke to the market leaders and comes forth with the view that its going to be an exciting play tomorrow...
A solid foundation for “modern retail has been laid out in India over the last decade or so with big brands now existing in all formats such as department stores, hypermarkets and even home stores. Pointing out that new retail categories are emerging in India, Founder & CEO of the Future Group, Kishore Biyani says, “Specialty retail has seen a boom and is growing. Consumers are willing to experimenting with newer products and services, even if they are priced more.
Hypermarkets and home stores are showing growth. It is about getting scales and then hitting profitability. The rate of change is more important than just change.
The advent of modern retail has made consumption grow in different categories in India.”
But, a euphoric mood at a time when two thirds of the world is going through an economic crisis of some form or the other seems strange. “Yes, there has been a fall in the economic growth of the world. India too has been affected by it. The entire world is currently plagued with problems, from the debt stricken Greece and Italy to social unrest in the Middle East and natural disasters in Japan, but the Bricks countries continue to provide a silver lining to the global gloom,” says Bijou Kurien, President & CEO of Reliance Retail, Lifestyle. “Interest rates are high in India but very low in the rest of the world, triggering fund flows from the developed countries to the developing ones. This has led to supply side inflation in India,” he said. “There is a huge opportunity in the country to grow consumption levels. The per capita retail space is ten timesmore in the US than in India and two times more in Brazil, which gives us an idea of the kind of opportunity that exists for the Indian shopping centre developers,” he added.
The Figures
According to the figures, the retail space has grown to 12 million square feet by 2011 from 4 million square feet compared to last year. E-commerce is estimated to grow at 8 to 9%. The Fashion Apparel segment is growing at 12-13%. The branded footwear market estimated at Rs. 550 crore is expected to grow at a healthier 20-22%. Growing at the rate of 30%, the Indian food retail is going to be the major driving force for the retail industry. Currently, the retail food sector is approximately US $ 80-90 billion and is expected to rise to US$ 150 billion by 2025.
Behind The Figures…
“The next ten years are going to be very fascinating for India. The Indian economy is extremely resilient, with its growth led by private consumption,” says Ireena Vittal, Principal, Mckinsey & Co.
She pointed out five trends witnessed in the Indian retail sector: (See Box). To cope with these trends, she says “Indian retailers should start making more granular choices, continue to actively shape the market by differentiated offers to grow categories, build flexibility in the business plans, retail talent and create learning teams.”
Kurien emphasizes that growth in India is a reality, driven by rising incomes, growing economy and the demographic dividend. “With India set to topple Japan as the world's third largest economy by 2012, it has become imperative for foreign firms to expand into India to tap into the opportunity the country offers,” he says. “We see optimism in every opportunity and that is the way we also see India,” he stressed.
“The next decade for Indian retail is going to be most defining. The product offerings are going to be much more different than what they are now. We are going to see a huge change in merchandising on the shelf for retailers. There are huge investments in supply chain and technology currently happening in the retail companies in the country,” says Verghese.
“Food supply chains are in the process of being built up. We are not there yet, but people are trying to come up with innovative supply chain solutions. Loyalty programs have worked wonders for retailers, with consumers wanting more,” Biyani added.
Who is buying?
According to the outlook report on Retail Real Estate by Jones Lang LaSalle, till the end of 3Q10, NCR-Delhi and Mumbai together constituted 70% of the total space (contributed by shopping centers) in India. However, in the new supply of 65 shopping centers encompassing a total retail space of 24 million square feet to become operational during the next five quarters, Mumbai and NCR-Delhi account for only 51% retail space leaving the rest to the emerging markets of Tier II and Tier III cities. The Tier III cities in India are the next destinations for retailers due to increased consumer spending and changing consumer preferences in these cities, states the report.
Salil Chaturvedi, MD, Provogue says that aspiration levels are high in tier II and III cities. “The improved transportation will only help companies getting into the market. However customers in tier II and III cities need more help on the shop floor and more education of products. Self service shops will not work. People need to understand the social structure of these places before getting in,” he adds. “The psychology of the people is different in different parts of India and so a company must understand their behaviour first,” he said.
The Indian retail footprint is rapidly expanding and adding technology in the tier II and III cities,” says Ramesh Jayaraman, MD, Tyco India.
FDI in Multi Brand Retail
“FDI will be a game changer for Indian retail, but an even bigger boost will be the GST which I see getting implemented in the next 12 to 18 months,” says Biyani.
Echoing similar sentiments Verghese says, “FDI in multi-brand retail will act as a catalyst and provide funds to deliver world-class stores in India.”
Dr Rajiv Kumar, Secretary General, FICCI, strongly supports opening up Indian multi-brand retail to FDI, calling it a positive game and a win-win situation for Indian as well as foreign retailers. “By 2020, the Indian retail industry will grow by 400%. The growth will be such that both single-brand and multi-brand formats will continue to expand and co-exist. There is a fear that large international retailers would import cheaper goods into India due to which the domestic retailers would suffer. This can easily be sorted by regulatory procedures, “he said.
Kumar stressed that the benefits of opening up to FDI are quite clear and it is high time that a policy decision gets taken by the government. However, he feels it will be at least two years before there is any further movement from the government.
FDI or no FDI, Tax reforms or No tax reforms, Thomas Verghese sums up the mood of the nation on the verge of retail boom perfectly. He says, “Indian consumers have evolved and they have long been changing and following global trends, driven by tools such as social media…The next few years will make it difficult for retailers to cope up with the huge demand that is going to be generated in the country. Retailers have to be prepared for this…”
India Trends
- Shoppers are getting richer faster;
- Many more India’s are emerging geographically and digitally as economies of various states achieve a critical mass;
- Customer habits are changing driven by increasingly narrow upgraded cycles;
- Volatility is the new normal in the Indian retail landscape
- Retail industry is going to see more fragmentation before consolidation
Market Masters
The next ten years are going to be very fascinating for India.
Ireena Vittal, Principal, Mckinsey & Co
FDI in multi-brand retail will act as a catalyst and provide funds to deliver world-class stores in India.
Thomas Verghese, CEO, Aditya Birla Retail
Banks need to recognize the sector's potential and formulate friendly interest rates to promote and facilitate the retail sector.
Dharmesh Jain, CMD, Nirmal Lifestyle
The Indian retail footprint is rapidly expanding and adding technology in the tier II and III cities.
Ramesh Jayaraman, MD, Tyco India
The advent of modern retail has made consumption grow in different categories in India.”
Kishore Biyani, Founder & CEO, Future Group
The next few years will make it difficult for retailers to cope up with the huge demand that is going to be generated in the country. Retailers have to be prepared for this…
Bijou Kurien, President & CEO, Reliance Retail, Lifestyle
By 2020, the Indian retail industry will grow by 400%.
Dr Rajiv Kumar, Secretary General, FICCI