An overview of Indian Retail Industry

Brief of Indian Retail Industry, ways to enter in Indian Retail Industry, FDI, Favourable condition and threats in Indian Retail Industry
By: Arvind
 
 
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Industry:
* Retail

Aug. 4, 2009 - PRLog -- Table of content

   Industry Overview

   Retailing in India

   FDI in Retail format

   Favourable Condition for retail

   Other barriers for Organised retail

   Retailing Formats in India

Overview   

In terms of value, the Indian Retail industry is worth $300 billion. Its contribution to the Gross Domestic Product is about 10%, the highest compared to all other Indian Industries. The retail sector has also contributed to 8% of the employment of the country. The organised retail sector is expected to triple its size by 2010. The food and grocery retail sector is expected to multiply five times in the same time frame. The government policies are being..........

Retailing in India: the present scenario

The present value of the Indian retail market is estimated by the India Retail Report to be around Rs. 12,00,000 crore($270 billion) and the annual growth rate is 5.7 percent. Retail market for food and grocery with a worth of Rs. 7, 43,900 crore is the largest of the different types of retail industries present in India. Furthermore around 15 million retail outlets help India win the crown of having the highest retail outlet density in the world.
According to Indian Brand Equity Foundation, retail trade accounts for 12 per cent of the country's GDP and is expected to approach 22 per cent by 2010. A report from McKinsey, 'The rise of Indian Consumer Market', foresees the Indian consumer market growing by four times by the year 2025.

The contribution of retail sector to GDP has been manifested below:
Country   Retail Sector's share in GDP (in %)
India   12
USA   10
China   8
Brazil   6
Retailing Format in India

Malls:

Malls are the largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft to 7, 00,000 sq ft and above. They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof. Examples include Shoppers Stop, Piramyd, and Pantaloon.

Specialty Stores:

Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword, RPG's Music World and the Times Group's music chain Planet M, are focusing on specific market segments and have established themselves strongly in their sectors.

Discount Stores:

As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in bulk reaching economies of scale or excess stock left over at the season. The product category can range from a variety of perishable/ non-perishable goods.

Department Stores:

Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs. Further classified into localized departments such as clothing, toys, home, groceries, etc.
Departmental Stores are expected to take over the apparel business from exclusive brand showrooms. Among these, the biggest success is K Raheja's Shoppers Stop, which started in Mumbai and now has more than seven large stores (over 30,000 sq. ft) across India and even has its own in store brand for clothes called Stop.

Hyper marts/Supermarkets:

Large self-service outlets, catering to varied shopper needs are termed as Supermarkets. These are located in or near residential high streets. These stores today contribute to 30% of all food & grocery organized retail sales. Super Markets can further be classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales.

Convenience Stores:

These are relatively small stores 400-2,000 sq. feet located near residential areas. They stock a limited range of high-turnover convenience products and are usually open for extended periods during the day, seven days a week. Prices are slightly higher due to the convenience premium


MBO’s:   

Multi Brand outlets, also known as Category Killers, offer several brands across a single product category. These usually do well in busy market places and Metros


Cash & Carry
Cash and carry is a form of trade in which goods are sold from a wholesale warehouse operated either on a self-service basis, or on the basis of samples. Though wholesalers buy primarily from manufacturers and sell mostly to retailers, industrial users and other wholesalers, they also perform many value added functions


FDI in Indian Retail Industry
In the present scenario, 51% Foreign Direct Investment is permitted in India only through single brand retailing and FDI upto 100 per cent allowed under the automatic route for cash and carry wholesale

Since FDI is allowed only in single brand retailing - the multi-brand multiple product retailers like Wal-Mart and Tesco cannot sell directly to consumers. This is where the Indian partner comes in. They enter in India by tie up with Indian players.
Available Route for foreign player to enter in Indian Retail Market
Strategic License Agreement
A foreign player can be entering this route by licensing agreement with a domestic retailer or partnering with Indian promoter owned companies.
Cash-and-Carry Wholesale Retailing
Since FDI is 100 percent in this format which involves building of a large distribution network
Distribution
A foreign company can set up a distribution office in India and supply products to local retailers. Franchisee outlets can also set up in this route
Franchisee Route
The entry route, which includes the master franchise and the regional franchise routes, is widely used, with a number of international brands to set a presence in India


Manufacturing
A company can establish its manufacturing unit in India along with standalone retailing outlets.
Joint Venture
International firms can enter into agreements with domestic players and set up base in India. Share of MNCs is restricted to 49 per cent in this route.


International Player and via they enter in India.....   



Advantage of Increasing FDI
The global retailers taken together buy about $60 billion of goods each year from China for exports. Contrast this with India where less than $1 billion of exports are accounted for by global retailers (mostly metro dairy farm). Increasing FDI will increase India’s exports.

FDI would bring about modern infrastructure that would help to boost the productivity of the organised retail sector in India


Demerits of FDI
The most important factor against FDI driven “modern retailing” is that it is labour displacing to the extent that it can only expand by destroying the traditional retail sector. Till such time we are in a position to create jobs on a large scale in manufacturing, it would make eminent sense that any policy that results in the e,....................................


Conditions Favours Retail in India
The trends that favouring retail in India are
1. Rise in the purchasing power of Indians- the rise in the per capita income in the last few years has been magnificent. This has led to the generation of insatiable wants of the upper and middle class. The demand of new as well as second hand durables has risen throughout the country thus providing the incentive for taking up retailing.
2. Favorable to farmers- retailing has helped in removing the middlemen and has thus enhanced the remuneration to farmers. This is a new revolution in the agricultural sector in India and will go a long way in amending the condition of agriculture, a major concern
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Barriers to FDI   
FDI not permitted in pure retailing
Franchisee arrangement allowed   
Absence of global players
Limited exposure to best practices
Lack of Industry Status   
Government does not recognize the industry   
Restricted availability of finance
Restricts growth and scaling up
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End
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