Last Updated: August 20, 2014
CEO, Marks & Spencer Reliance India
Updated: June, 2014
SECTORAL REPORT | April, 2014
India is the fifth largest retail destination globally. The Indian retail industry has experienced tremendous growth over the last decade with a significant shift towards organised retailing format and development taking place not just in major cities and metros, but also in Tier II and Tier III cities. The overall retail market in India is likely to reach Rs 47 trillion (US$ 792.84 billion) by FY 17.
As India’s retail industry aggressively expands itself, great demand for real estate is 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. Favourable demographics, increasing urbanisation, nuclear families, rising affluence amid consumers, growing preference for branded products and higher aspirations are other factors which will drive retail consumption in India. Both organised and unorganised retail are bound not only to coexist but also achieve rapid and sustained growth in the coming years.
The Indian retail market, currently estimated at around US$ 490 billion, is project to grow at a compound annual growth rate (CAGR) of 6 per cent to reach US$ 865 billion by 2023. 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. The online retail industry in the country touched US$ 12.6 billion in 2013, according to a recent report by the Internet and Mobile Association of India (IAMAI).
The foreign direct investment (FDI) inflows in single-brand retail trading during the period April 2000 – March 2014 stood at US$ 106.66 million, as per data released by Department of Industrial Policy and Promotion (DIPP).
The Indian online retail industry is on the rise and has attracted a cumulative funding of US$ 1,650.5 million since 2009. Out of the total funding, 65 per cent has gone to horizontals and 25 per cent to fashion & apparels including jewellery. Flipkart & Myntra, who are now a single entity (though they will operate differently), have together garnered 40 per cent of the total funding invested in Indian e-commerce so far, according to Juxt Data.
The following are the key investments and developments in the Indian retail industry:
The Government of India has allowed 100 per cent FDI in Single-Brand Retail Trading (SBRT) and has allowed 51 per cent FDI in Multi-Brand Retail Trading (MBRT). Just recently, the Competition Commission of India (CCI) approved the proposal of Tesco buying 50 per cent equity in Trent, which is the first-ever FDI proposal in multi-brand retail trade.
According to the extant policy, foreign retailers investing more than 51 per cent can open outlets across the country on the condition that 30 per cent of their sourced sales would come from small to medium-sized domestic enterprises. Further, global chains will now need to invest only 50 per cent of the initial compulsory investment of US$ 100 million in setting up cold storages and warehouses in India.
The Confederation of All India Traders (CAIT) has signed a Memorandum of Understanding (MoU) with eBay to train domestic retailers to use the online market space as an additional tool for expanding their business. The agreement will enable Indian traders to export via eBay to 201 countries and sell at 4,306 Indian locations.
India remains a largely untapped and unorganised retail market, with several international retail companies yet to commence operations in the country. India holds a substantial advantage over other emerging retail destinations owing to its strong domestic consumption and low rate of market penetration by overseas retailers.
“India's new middle class is increasingly becoming brand conscious and willing to spend on quality goods, a trend which is creating numerous business opportunities for mid-range international brands. With political and economic sentiments already showing signs of improvement, we believe this is the right time for international retailers to look at India for expansion into the region," as per Mr Anshuman Magazine, Chairman and Managing Director, CB Richard Ellis (CBRE), South Asia.
E-commerce is also expected to be the next major area for retail growth in India. E-commerce companies are increasingly going beyond digital marketing and targeting offline customers as well. With this growth in the e-commerce industry, online retail is estimated to reach US$ 70 billion by 2020 from US$ 0.6 billion in 2011.
The opportunities in food and grocery retail are immense, given that it constitutes about 69 per cent of the country’s total retail market, according to panel members at the seventh Food and Grocery Forum India.
Exchange Rate Used: INR 1 = US$ 0.01687 as on June 04, 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.