The Indian retail industry is one of the most vibrant industries in the country. It is currently ranked at 20th position among the top 30 developing countries identified by management consulting firm AT Kearney in its 2014 Global Retail Development Index (GRDI).
India remains an appealing, long-term retail destination for several reasons starting with its demography – half of India’s population is less than 30 years of age and roughly one-third of the population lives in cities. The disposable income of Indians is increasing - allowing them to spend more and try new products, brands, and categories.
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.
India’s retail market is likely to touch a whopping Rs 47 trillion (US$ 738.71 billion) by 2016-17, expanding at a compounded annual growth rate of 15 per cent, a Yes Bank-Assocham study says.
The retail market, which comprises both organised and unorganised segments, stood at Rs. 23 lakh crore in 2011-12.
“Favourable demographics, increasing urbanisation, nuclearisation of families, rising affluence amid consumers, growing preference for branded products and higher aspirations are other factors which will drive retail consumption in India
Further, Indian online retail market is estimated to grow over 4-fold to touch USD 14.5 billion by 2018 on account of rapid expansion of e-commerce in the country.
According to research and consultancy firm RNCOS, the online retail market is projected to grow at a compound annual rate of 40-45 per cent during 2014-18.
“The Indian online retail market has been striding leaps and bounds over the past few years on account of digital revolution. The trend is expected to continue as the online retail market in India is estimated to touch the mark of USD 14.5 billion by 2018,” a report by RNCOS said.
The Indian retail industry in the single brand segment has received FDI equity inflows to the tune of US$ 159.17 million in the period April 2000—September 2014, according to the Department of Industrial Policies and Promotion (DIPP).
The Indian e-commerce industry is expected to touch US$ 30-40 billion by 2020, from just US$ 3-4 billion at present, according to Google. The retail market in India would have a size of US$ 1 trillion by 2020 according to Mr Nitin Bawankule, Indian Director for e-commerce and online classifieds at Google India.
Due to changing demographics, the retail industry in India is on a growing trend. Presently, a large and growing middle class in India is not only buying luxury goods and services but also redefining the luxury market. About 40 per cent of the luxury goods purchase in India occurs from the non-metros which in itself is a healthy sign for the countries investing in this sector.
Furthermore, with the trend of e-commerce picking up, many online retailers have launched their business in the country. These online retailers have also started to use the medium of online mobile apps to increase their reach to the customers.
With the rising need for consumer goods in different sectors including consumer electronics and home appliances, many companies have invested in the Indian retail space in the past few months. Some of them are:
Ms Nirmala Sitharaman, Union Minister of Commerce and Industry, Government of India has stressed on India building a culture of branding and marketing its products to the rest of the world. The ministry is also willing to take steps to start a Free Trade Agreement (FTA) with the European Union (EU).
The Government of India has taken various initiatives to improve the retail industry in India. Some of these initiatives are:
The Foreign Investment Promotion Board (FIPB) has cleared five retail proposals worth around Rs 420 crore (US$ 66.01 million) from companies such as Bestseller, Puma SA and Flemingo. Additionally, the board cleared three 100 per cent single-brand retail proposals worth Rs 222.5 crore (US$ 34.97 million), suggesting renewed interest in India’s growing retail market.
IKEA has entered into a memorandum of understanding (MoU) with the Government of Telangana to set up its first store in India at Hyderabad. IKEA retail outlets have a standard design and each location entails an investment of around Rs 500-600 crore (US$ 78.59-94.31 million).
The Government of India is also in the final phase of talks with the states for the Goods and Services Tax Bill to be implemented. This Bill is seen as a key to facilitating industrial growth and improving the business climate in the country.
The organised retail sector in India, although dominated by those players who have been in this space for almost a decade, is expected to observe some notable changes in the times to come. Some of the factors which are expected to affect this trend are higher incomes, young shoppers, urbanisation and the increased use of credit cards.
Furthermore, e-commerce and online delivery modes are expected to be some of the most popular trends in the retail industry in India in the near future.
Exchange Rate Used: INR 1 = US$ 0.0157 as on December 26, 2014
References:Media Reports, Press Releases, Deloitte report, Department of Industrial Policy and Promotion website, Union Budget 2014-15