The Indian retail market, which is the fifth largest retail destination globally, has been ranked as the most attractive emerging market for investment in the retail sector by AT Kearney's eighth annual Global Retail Development Index (GRDI), in 2009. As per a study conducted by the Indian Council for Research on International Economic Relations (ICRIER), the retail sector is expected to contribute to 22 per cent of India's GDP by 2010.

With rising consumer demand and greater disposable income, the US$ 400 billion Indian retail sector is clocking an annual growth rate of 30 per cent. It is projected to grow to US$ 700 billion by 2010, according to a report by global consultancy Northbridge Capital. The organised business is expected to be 20 per cent of the total market by then. In 2008, the share of organised retail was 7.5 per cent or US$ 300 million of the total retail market.

A McKinsey report, 'The rise of Indian Consumer Market', estimates that the Indian consumer market is likely to grow four times by 2025. Commercial real estate services company, CB Richard Ellis' findings state that India's retail market has moved up to the 39th most preferred retail destination in the world in 2009, up from 44 last year.

Banks, capital goods, engineering, fast moving consumer goods (FMCG), software services, oil, marketing, power, two-wheelers and telecom companies are leading the sales and profit growth of India Inc in the fourth quarter of 2008-09. India continues to be among the most attractive countries for global retailers. Foreign direct investment (FDI) inflows as on September 2009, in single-brand retail trading, stood at approximately US$ 47.43 million, according to the Department of Industrial Policy and Promotion (DIPP).

India's overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a compound annual growth rate (CAGR) of 10 per cent. As a democratic country with high growth rates, consumer spending has risen sharply as the youth population (more than 33 percent of the country is below the age of 15) has seen a significant increase in its disposable income. Consumer spending rose an impressive 75 per cent in the past four years alone. Also, organised retail, which is pegged at around US$ 8.14 billion, is expected to grow at a CAGR of 40 per cent to touch US$ 107 billion by 2013.

The organised retail sector, which currently accounts for around 5 per cent of the Indian retail market, is all set to witness maximum number of large format malls and branded retail stores in South India, followed by North, West and the East in the next two years. Tier II cities like Noida, Amritsar, Kochi and Gurgaon, are emerging as the favoured destinations for the retail sector with their huge growth potential.

Further, this sector is expected to invest around US$ 503.2 million in retail technology service solutions in the current financial year. This could go further up to US$ 1.26 billion in the next four to five years, at a CAGR of 40 per cent.

India has emerged the third most attractive market destination for apparel retailers, according to a study by global management consulting firm AT Kearney. The Northbridge Capital report states that apparel is the "largest organised retail category", accounting for 39 per cent of the organised market. It is growing at the rate of 12 to 15 per cent annually. Organised apparel retail is projected to touch US$ 200 million by 2010 from the current worth of US$ 120 million, the report noted.

Experts agree that apparel, along with food and grocery, is leading the growth of organised retailing in India. The results of the past quarter support these findings.

Buoyed by improved consumer spending, sales of listed retailers increased by 12 per cent in the September 2009 quarter compared with the same period in 2008. This is higher than the 8.2 per cent posted in the June 2009 quarter. While the previous quarter saw value retailers such as Koutons Retail and Pantaloon leading sales recovery, this time around, sales of lifestyle and premium retailers led the growth trend. Two out of every three retailers managed an increase of at least 10 per cent, compared to about one in three in the June 2009 quarter.

Premium players such as Shoppers' Stop and Gitanjali Gems clocked strong growth of 11 and 31.7 per cent, respectively. Shoppers' Stop saw same-store sales growth move back into positive territory at 1.8 per cent. Operating profit margins moved up steadily to 9.93 per cent, almost a 122 per cent improvement since the December 2008 quarter.

• Luxury Goods Retail, which currently sells its products in India under a franchise agreement, has been allowed to directly retail Gucci products in the country. Gucci Group NV, Netherlands is investing US$ 225,867 to pick up 51 per cent stake in the venture.
• Australia's Retail Food Group is planning to enter the Indian market in 2010. It has ambitious investment plans which aim to clock revenue of US$ 87 million from the country within five years from start of operations. In 20 years, they expect the Indian operations to be bigger than their Australian business.
• Lifestyle International, part of the Dubai-based US$ 1.5 billion Landmark Group, plans to have over 50 stores across India by 2012–13. These will include 35 Lifestyle stores for retailing apparel, cosmetics and footwear, besides 15 Home Centres that sell home furnishing goods.
• Watch maker, Timex India, is looking at increasing its presence in the country by adding another 52 stores by March 2011 at an investment of US$ 1.3 million taking its total store count to 120. The company has recorded revenue of US$ 15.9 million and a net profit of US$ 1.2 million, during the first six months of the current fiscal, ending September 30, 2009.
• Wills Lifestyle plans to expand its operations by opening 100 new stores in the next three years. It also plans to concentrate on online buyers.
• Pantaloon Retail India (PRIL) is planning to invest US$ 77.88 million this fiscal to add up to 2.4 million sq ft retail space at its existing operations. Pantaloon Retail is also looking to hive off its value retail chain, Big Bazaar, into a separate subsidiary, which may eventually go for an initial public offer (IPO). PRIL proposes to open 155 Big Bazaar stores by 2014, increasing its total network to 275 stores.
• Aditya Birla Retail which operates the More chain of supermarkets and hypermarkets is scaling up its private labels business as an independent strategic business unit (SBU) and profit centre. This may be spun off as a separate entity as private labels business account for over 19-20 per cent sales of More supermarkets and hypermarkets.

Policy Initiatives

• 100 per cent FDI is allowed in cash-and-carry wholesale formats. Franchisee arrangements are also permitted in retail trade.
• 51 per cent FDI is allowed in single-brand retailing.

Road Ahead

According to industry experts, the next phase of growth is expected to come from rural markets.

According to a new market research report by RNCOS titled, 'Booming Retail Sector in India', organised retail market in India is expected to reach US$ 50 billion by 2011.

• Number of shopping malls is expected to increase at a CAGR of more than 18.9 per cent from 2007 to 2015.
• Rural market is projected to dominate the retail industry landscape in India by 2012 with total market share of above 50 per cent.
• Organised retailing of mobile handset and accessories is expected to reach close to US$ 990 million by 2010.
• Driven by the expanding retail market, the third party logistics market is forecasted to reach US$ 20 billion by 2011.

Exchange rate used:
1 USD = 46.83 INR (as on November)