Retail
By 2018, the Indian retail sector is likely to grow at a CAGR of 13 per cent to reach US$ 950 billion.

Retail Industry in India

Latest update: September, 2014

Market size of Indian retail industry

The total market size was US$ 490 billion in 2013, registering a CAGR of 6.1 per cent since 1998.

Market size of Indian retail industry

Indian retail industry break-up by revenues

In 2013, food & grocery accounted for nearly 69 per cent of total revenues in the retail sector, followed by apparel (8 per cent).

Indian retail industry break-up by revenues

Investment options in organised retail India

Real estate's retail component is an attractive opportunity, which is currently attracting 29 per cent of total investment in real estate.

Investment options in organised retail India

Mall space breakup in India

Hypermarkets would be the largest retail segment, accounting for 21 per cent of total retail space by 2013-14.

Mall space breakup in India

Updated: September, 2014

SECTORAL REPORT | October, 2014

Introduction

The Indian retail industry has presently emerged as one of the most dynamic and fast paced industries as several players have started to enter the market. It accounts for over 10 per cent of the country’s gross domestic product (GDP) and around eight per cent of the employment in India. The country is today the fifth largest global destination in the world for retail.

Several corporates have planned to exploit the opportunities in the Indian retail space, such as Reliance Industries Ltd (RIL), which has lined up capital expenditure of Rs 1.8 trillion (US$ 29.41 billion) for the next three years for its petrochemicals, telecom and retail ventures.

With the growth in the retail industry, the corresponding demand for real estate is also being created. Further, with the online medium of retail gaining more and more acceptance, there is a tremendous growth opportunity for retail companies, both domestic and international.

Market size

In 2013, the Indian retail sector was estimated at US$ 520 billion and was among the largest employers in the country. By 2018, the Indian retail sector is likely to grow at a compound annual growth rate (CAGR) of 13 per cent to reach US$ 950 billion. Food and grocery is the largest category within the retail sector with 60 per cent share followed by the apparel and mobile segment.

Organised retail, which constituted seven per cent of total retail in 2011-12 is estimated to grow at a CAGR of 24 per cent and attain 10.2 per cent share of total retail by 2016-17, according to a study titled 'FDI in Retail: Advantage Farmers' conducted by an industrial body.

India has about one million online retailers - small and large - which sell their products through various e-commerce portals. Presently, these online retailers have started to use the medium of online mobile apps to increase their reach to the customers. Several e-commerce firms - Myntra, Flipkart, Jabong, etc., have launched their own mobile apps. Flipkart plans to use their US$ 1 billion funds raised to acquire companies in mobile applications.

According to the TCS Gen-Y 2013-14 survey, a total of 68 per cent of teenagers shop online, while 91 per cent own mobiles in smaller metros. Mobile phones and tablets were the most popular gadgets among teenagers, highlighted the survey.

Investments

The foreign direct investment (FDI) inflows in single-brand retail trading during the period April 2000 - July 2014 stood at Rs 842.53 crore (US$ 137.70 million), as per data released by the Department of Industrial Policy and Promotion (DIPP).

Some of the other notable investments and developments in the Indian retail sector in the recent past are as follows:

  • IKEA has entered into a memorandum of understanding (MoU) with the Government of Telangana to set up its first store in India at Hyderabad.
  • Liberty Shoes has planned to improve its retail presence as it plans to double the revenue to Rs 1,000 crore (US$ 165.38 million) within three years.
  • Walmart Stores invested Rs 623 crore (US$ 101.82 million) into its Indian cash-and-carry operations in June 2014 to expand its network, thereby taking its total investment in the country to nearly Rs 2,000 crore (US$ 326.91 million).
  • Online marketplace Infibeam looks to build an online presence for large retail clients in West Asia with its technology platform Buildabazaar. The company has partnered with Axiom Telecom and will handle its e-commerce business.
  • Argentina-based luxury brand La Martina - a polo lifestyle company known for its apparel, technical equipment and accessories - has started operations with its maiden store in New Delhi. La Martina has also diversified the brand to add general fashion products for ladies, men and kids.
  • Japan-based Uniqlo plans to open up to 1,000 stores in India in the coming years to tap into the growing consumption story and has announced a strategy to source garments from the country. Uniqlo, which started as a chain of suburban roadside stores in Japan, is targeting close to 1,500 stores across the globe by the end of August.
  • The combined entity of Flipkart and Myntra plans to launch a fashion incubator, a first-of-its-kind move by an Indian startup, in its aggressive push to gain complete dominance of the fast-growing online apparel category.
  • UK-based Tesco in equal partnership with the Tata Group's Trent plans to open six to eight new stores in Maharashtra and Karnataka under three of its formats this financial year. The stores will take the total number of Tesco-Trent outlets in the country to 20.

Government Initiatives

The Government of India has taken several initiatives to boost the Indian retail sector. For instance, the Ministry of Labour, Government of India has recently signed a Memorandum of Understanding (MoU) with Flipkart to provide short-term training to its new employees through its skill development initiative.

The changes in foreign direct investment (FDI) norms along with the relaxation of certain regulations by the government are also seen as positive moves to attract more foreign investments and enhance foreign trade. The government has allowed 100 per cent FDI in Single-Brand Retail Trading (SBRT) and 51 per cent FDI in Multi-Brand Retail Trading (MBRT).

In the Union Budget 2014-15, the Government of India announced a reduction in the excise duty from 12 per cent to six per cent on footwear with retail price exceeding Rs 500 (US$ 8.17) per pair but not exceeding Rs 1,000 (US$ 16.34) per pair.

The Government of India has also proposed the Goods and Services Tax (GST). Once implemented it will simplify the supply chain and bring down prices. This will help to boost the Indian retail sector.

It has also formulated specific regulations for foreign investors; for instance, global chains planning to set up cold storages and warehouses in India will now need to invest only 50 per cent of the initial compulsory investment of US$ 100 million.

Road Ahead

Driven by a combination of demand, supply and regulatory factors, the Indian retail sector is set to grow rapidly with a gradual shift toward organised retailing formats. Organised retail penetration is expected to increase from 7.5 per cent in 2013 to 10 per cent in 2018 at a robust CAGR of 19-20 per cent during that period.

Tier-II and Tier-III cities such as Jaipur, Nagpur, Ludhiana, Vadodara, Aurangabad, Kochi, etc., are emerging as the new ‘hot spots’ of consumption. Organised retailers are increasingly setting up stores in these smaller cities with increasing focus on profitable growth in the sector. E-commerce is also expected to be the next major area for retail growth in India. Along with this, achieving profitable growth and inventory management are also some major areas of focus in the times ahead for the retail companies in India.

Exchange Rate Used: INR 1 = US$ 0.0163 as on September 25, 2014

References: Media Reports, Press Releases, Deloitte report, Department of Industrial Policy and Promotion website, Union Budget 2014-15

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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