Accounting for around 14-15 per cent of the gross domestic product (GDP), the Indian retail industry is estimated to be worth around US$ 500 billion currently. Home to one of the top five retail markets in the world, India offers immense scope of growth and opportunities in this arena. As of now, almost 90 per cent of the Indian retail sector is controlled by tiny family-run shops i.e. the unorganised segment. Thus, organised retailers have a lot of room for further penetration in this flourishing economy. In 2010, larger format convenience stores and supermarkets accounted for about 4 per cent of the industry, and these were present only in large urban centres. Now the trend is changing, and such concepts are mushrooming in smaller cities and towns as well. Organised retail segment is expanding at 20 per cent a year, driven by the emergence of shopping centers and malls and growing middle class.
India allowed overseas investment in its supermarket sector in September 2012. Since then, the retail landscape is witnessing a flurry of foreign investments. Some of the facts, recent statistics and developments related to the same are discussed hereafter.
Indian consumers are demonstrating an increasing interest in online shopping, thanks to the surging number of online users. The growing online retail market has become a very lucrative business for international majors as well. For instance, internet giant Amazon, which was dedicated to the biggest markets until now, has commenced an India-centric website in June 2013.
India has surpassed Japan to become the world’s third largest Internet user after China and the United States with almost 74 million Internet users, stated global digital measurement and analytics firm comScore.
In addition to that, online retail web sites have witnessed a 65 per cent rise in the traffic from the previous year, according to a survey by the Associated Chambers of Commerce and Industry of India (Assocham).
The survey indicated that the market for online shopping in India, estimated to be around Rs 52, 000 crore (US$ 8.19 billion), is expanding at a very fast pace. The trend is not only catching up in metros, but in smaller towns and cities as well.
International luxury products major are also very bullish on Indian retail market.
In order to attract more of foreign funds and woo global majors such as Wal-Mart ad Carrefour, the Government has further liberalised rules for international investment in multi-brand retail formats.
Foreign retailers will now be allowed to open stores in cities that have a population of less than one million. Earlier, supermarkets could only commence their operations in 53 cities; the ones with more than a million of population. A relaxation was permitted only in case of states that did not have a single city with a population of one million. The initiative will now facilitate opening of stores in cities such as Gurgaon and Aurangabad.
Meanwhile, the Government of India has recently approved 18 FDI foreign direct investment (FDI) proposals worth US$ 173 million in the single brand retail segment during April 2010 and May 2013. Out of these, five proposals worth US$ 137.68 million were approved during the first two months of 2013-14.
Fashion brand Promod, France-based crockery maker Le Creuset, accessories firm Fossil Inc and French sports giant Decathlon are some of the firms which have received approvals to open retail stores under the single-brand retail policy.
The Government had raised the FDI cap in single-brand retail to 100 per cent from 51 per cent in January 2012.
The domestic retail market is projected to be worth US$ 1.3 trillion by 2020, stated Mr KV Thomas, the Consumer Affairs Minister. Future prospects pose a tremendous growth opportunity for retail players- domestic as well as foreign. He further mentioned that the consumer behaviour is also experiencing a transition due to upcoming western concepts like online shopping and direct selling.
Another report by Booz & Co and RAI expects that the overall Indian retail sector would grow 9 per cent in 2012-16, with organised retail growing at 24 per cent or three times the pace of traditional retail (which is expected to expand at 8 per cent).
Deloitte also seconds this forecast and expects that organised retail, which constitutes 8 per cent of the total retail market, will gain a higher share in the growing pie of the retail market in India. Various estimates put the share of organised retail as 20 per cent by 2020.
Exchange Rate Used: INR 1 = US$ 0.01575 as on September 15, 2013
References: Media Reports, Press Releases, Deloitte report, FDI statistics from Department of Industrial Policy and Promotion website.