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Indian Modern Retail:
The Ne xt Decade
modern retail in india has indeed come a long way in the last 10 years, but what will it look
like in the year 2020? How will it evolve and what shape will it take? Which formats are more
likely to succeed by then? Here is the future of Indian modern retail and what is needed to
give it a new direction that will put it on a firm growth path over the next decade

By Harminder Sahni and Gaurav Marchanda

      The Indian retail sector has been      However, there are several factors    plans into India on hold, citing the
one of the central drivers of the Indian   that can possibly diminish the          global downturn, the slowing Indian
economy over the past decade. In           potential exhibited by this sector.     economy and the policy instability in
2010, it was valued at $435 bn. While      Unlike the growth witnessed by the      the country.
still mostly unorganised, the sector       Indian economy in the past decade,
is expected to augment at a CAGR of        India’s GDP growth slipped to            The value of total retail market in India, in USD bn
around 12 percent over the next ten        around 6 percent in the 4th quarter      1200
years, reaching an estimated size of       of 2011 (compared to 6.9 percent         1000                                           957
                                                                                                              CAGR: 12%
over $950 bn by 2020. During this          y-o-y in 3Q11)), flagging genuine
period, traditional retail is expected     concerns over the economy’s              800
to grow at around 5 percent while          prospects. This trend, combined
organised retail is expected to grow at    with the global economic slowdown,       600
                                                                                                     435
a much faster rate of 25 percent per       has put significant doubts around
                                                                                    400
annum. This also means that by 2020,       the plans of several international
organised retail would contribute to       retailers for Indian retail. In fact,    200
around 20 percent to the total value of    recently, some major global retailers
the retail sales in India.                 have decided to put their expansion      0
                                                                                                      2010                         2020

114 . images retail . august 2012
vision 2020

      Organised retail would account for 20% of the             quickly crowding Indian metros, some                           them less investment-intensive
              Indian retail market by 2020                      have been focussing their expansion                            destinations for opening stores,
          2010                              2020                plans on the non-metros, and with                              which leads to a faster break-even
           7%                                                   good reason. In the next few years,                            for real-estate developers and
                                                                modern retail is expected to grow                              retailers both.
                                         20%
                                                                50–60 percent annually in tier II and                         However, retailers looking at smaller
                                                                III cities, compared to only around 30                      Indian cities for expansion should be
            93%                                                 percent in the metros. It is estimated                      wary of several challenges, including
                                         80%
                                                                that by 2014, almost half of the malls                      lack of quality workforce and
                                                                in India would be present in tier I and                     infrastructure, and logistical issues.
         Organised retail               Unorganised retail
                                                                lower cities, with 80 percent of new
                                                                mall development in the next couple                         Online retail to lead pan-India
    While this trend is worrying, its                           of years taking place in non-metros.                        access
 implications should not be over-                                  The rapid growth of retail in tier                       India is set to become the third
 burdening. The fact remains that                               I and lower cities has been one of                          largest nation of Internet users in the
 India presents a key investment                                the most surprising and interesting                         next two years. This, coupled with
 opportunity, especially in the current                         aspects of the Indian retail story.                         the rising consumer confidence in
 economic context, and should stay in                           Several factors are driving this trend:                     online retail, is driving the growth
 favor of international retailers, given                        •• The metros account for around 30                         of e-commerce (or e-tailing) in the
 its massive consumer base, rapidly                                 percent of the total consumption in                     country. With a significant number
 growing income, and a significant                                  India. This figure is set to decrease                   of Indian consumers turning Internet
 movement towards consumerism. It is                                with the rapid dissemination of                         users, and, eventually, online
 projected that between 2010–2020, 1.3                              income in the country.                                  shoppers, selling through the online
 bn additional people in the world will                         •• The availability of quality retail                       channel is set to redefine retail.
 have disposable incomes of greater                                 spaces in the metros is lagging                            Online retail is here to stay, and
 than $5,000. This will introduce an                                behind demand. This has pushed                          is bound to force retail managers
 entirely new population base that will                             retail rentals sky-high, making it                      to rethink their strategy for tapping
 contribute significantly to consumer                               difficult for most retailers to break                   the Indian consumer’s wallet. The
 spending. Over 20 percent of these                                 even in these cities.                                   potential for online retail varies across
 new consumers will come from India.                            •• Smaller cities provide a low-cost                        different sectors. As is evident from
    We believe that in the coming years,                            advantage, especially in land,                          the graph on the next page, online
 four major trends would shape the                                  construction, manpower and                              retail in India currently lags behind
 Indian retail scenario. Retailers who                              facilities management. This makes                       significantly in the apparel sector,
 most effectively exploit these would                                                                                       compared to the global average
 emerge as major players in the Indian                                                  % share of malls by 2014            growth rates. Apparel thus represents
 retail sector by 2020 and beyond.                               Metros                 54%
                                                                                                                            major growth potential for the future.
                                                                                                                               A significant aspect of the booming
 India beyond the top 20 cities                                  Tier-1                 18%                                 Indian e-retail is that the main
 While most retailers have been                                  Tier-2 and lower       28%                                 demand for it in the coming years is
 rushing to capture opportunities in the                        Source: Malls of India, 2011                                expected to come from the tier II and

 The Global retail development index rankings, 2011
 2011        Country                            Region                  Market             Country risk    Market      Time pressure   GRDI score       Change in rank
 rank                                                               attractiveness           (25%)        saturation      (25%)                        compared to 2010
                                                                        (25%)                               (25%)
 1           Brazil                             Latin America             100.0                79.4         42.9           63.9           71.5                +4
 2           Uruguay                            Latin America             85.0                 73.8         63.6           39.6           65.5                +6
 3           Chile                              Latin America             84.3                 100.0        30.3           44.3           64.7                +3
 4           India                              Asia                      28.9                 59.9         63.1          100.0           63.0                 -1
 5           Kuwait                             MENA                      80.4                 80.6         57.3           27.1           61.3                 -3
 6           China                              Asia                      49.5                 76.5         31.0           87.7           61.2                 -5
 7           Saudi Arabia                       MENA                      70.9                 80.7         50.6           35.7           59.5                 -3
 8           Peru                               Latin America             39.8                 61.5         72.0           59.5           58.2                +1
 9           United Arab Emirates               MENA                      87.6                 88.9         12.6           42.9           58.0                 -2
 10          Trukey                             MENA                      83.8                 65.5         45.0           37.0           57.8                +8
Source: GRDI, a 10 year retrospective, AT Kearney

                                                                                                                                           august 2012 . images retail . 115
vision 2020

 Retail rents in Indian metros 2011                                                                        III cities. In fact, around 70 percent of India’s
 City                 Area                                               Rent (INR/sq. feet per month)     e-commerce business even today happens
                                                                                                           outside the top 10 cities, a recent report by
 New Delhi            Khan Market                                                     1,200
                                                                                                           eBay says. Several factors drive this trend:
 Mumbai               Linking Road                                                     666                 •• Low brand penetration through physical
 Bangalore            Brigade Road                                                     428                     stores in the non-metros;
                                                                                                           •• Large variety offered by online retailers, not
 Kolkata              Park Street                                                      340
                                                                                                               only in terms of diversity of brands but also
 Chennai              Khader Nawaz Khan Road                                           180                     in designs, styles, and categories; and
 Hyderabad            Banjara Hills Road No. 1, 2 & 3                                  126                 •• Price differential between online retailers
Source: Cushman & Wakefield Research                                                                           and physical stores.

  The online retail market in India is growing at a rapid pace, diven by a rapid growth
                            in online shoppers in the country

                             Value, Online retail market in india, in Rs crores
                     8000
                                                                         7000
                                                CAGR: 37%




                     4000

                                         2000



                     0
                                        2011                       2015 (e)                                 Online retailing or e-tailing could be one of the biggest trends in
                                 Active online shoppers in india, in lakhs                                  the retail sector in the coming years
                                                                     380
                     400
                                                                                                           Mall development to make or break
                                                CAGR: 43%
                                                                                                           organised retail
                                                                                                           The rapid growth of the Indian retail sector
                                                                                                           has led to increased demand for retail spaces.
                     200                                                                                   This, along with the rapid initial successes
                                                                                                           of malls in the country, has resulted in a
                                         90                                                                huge shift in focus towards investment into
                                                                                                           mall development across India. Several mall
                                                                                                           projects have kick-started in several cities over
                     0                                                                                     the past few years.
                                        2011                        2015 (e)                                 However, there are signs that India’s
Source: Industry Reports and COMSCORE Media Matrix                                                         mall growth story is not as rosy as earlier
                                                                                                           anticipated. While the existing malls have
                   Leading online retail categories, by growth rate, 2010-11                               witnessed significantly high footfalls (often
                    Computer software                               12.4%                                  comparable to the developed retail markets),
                                                                                   16.8%                   the conversion rates and the actual business
                 Consumer electronics                                              16.8%                   generated has been low. During 2010–11,
                                                                           14.0%
                                                                                                           India’s existing malls saw a dip in customer
                   Computer hardware                                               16.5%
                                                                   11.6%                                   footfall of around 8–10 percent, in tandem
                 Comparison shopping                                                           21.6%       with a 15–20 percent drop in conversion rates.
                                                                 10.4%                                     The worst hit were premium malls, which
                                                               9.3%
                                    Books               7.1%
                                                                                                           have severely suffered due to the unfulfilled
                                                  4.4%                                                     anticipation of the global single-brand retailers
               Flowers/gifts/greetings                6.0%                                                 entering the Indian market.
                           Retail-Movies
                                                  4.4%                                                       Further, in 2012, it is estimated that there was
                                                 4.1%                                          Worldwide
                                                                                                           a deferment of more than 30 percent of retail
                                                3.8%                                           India
             Luxury goods/accessories           3.7%                                                       mall space against the projected supply for
                                                                                       18.3%               the first half of the year. The overall vacancy
                                 Apparel        3.7%                                                       rate for major cities during H1 2012 was 19.6
Source: Industry Reports and COMSCORE Media Matrix

116 . images retail . august 2012
vision 2020

 New Malls in India by 2014                                                                                       Three key categories that are going
 Additional malls                               200 malls                                                       to witness the most growth include
                                                                                                                food retail, consumer electronics,
 Additional built up area                       150 mnsq feet (increase by nearly 200%)
                                                                                                                and apparel. These should be the key
 Additional gross leasable area                 81 mnsq feet (increase of 138%)                                 target categories for retailers.
Source: Malls of India, 2011                                                                                      Food Retail: The food category,
                                                                                                                which constitutes over half of the
 Prime Retail Rent, High street vs.Malls in Delhi NCR, March 2012                                               monthly consumption expenditure
 High street                           Rent (INR/sq. feet per month)                y-o-y change                of Indian households, is expected
                                                                                                                to benefit significantly through the
 Khan Market                                      1,200                                ~0.0%
                                                                                                                advent of modern retail. It includes
 Connaught Place                                   650                                  8.3%                    food grocery retail and is expected
 South Extension I & II                            600                                  9.1%                    to grow beyond the $700 bn mark by
                                                                                                                2020, making India the fourth largest
 Greater Kailash I, M Block                        550                                 10.0%
                                                                                                                food retail market globally.
 Karol Bagh                                        350                                  7.7%                      Currently, about 70 percent of
 BasantLok                                         250                                 ~0.0%                    spending on food in India is on agri
 Malls                                                                                                          products, over half of which comprise
                                                                                                                fruits and vegetables. This is the key
 South Delhi                                       450                                 ~0.0%                    target category for new entrants in the
 West Delhi                                        250                                 ~0.0%                    market. Several retailers such as Safal,
 Noida                                             250                                 ~0.0%                    Easy Day, Reliance Fresh, Spencer’s,
                                                                                                                and Food Bazaar have entered food
 Gurgaon                                           210                                 ~0.0%
                                                                                                                and grocery retailing. Most of these
Source: Cushman & Wakefield Research                                                                            are playing around the “freshness”

percent, marginally higher than the
previous quarters (Source: A report by
Cushman & Wakefield). This situation
is further substantiated by the fact
that while rental values across most
mall destinations within these cities
remained largely stable, high streets
recorded a higher increase in rentals,
rubbishing claims of malls replacing
high streets as the primary retail
destination, at least for the time being.
   A key reason for this prevalent
downswing in demand for malls is the
lack of quality mall spaces in India.
Poor tenant mix and planning have
resulted in insufficient mall traffic and
low conversion rate. According to a
study by Jones Lang LaSalle Meghraj,
over 90 percent of malls in India                         The food category is expected to grow over $700 bn in value by 2020
are not at par with the international
standards. Research further shows                     appropriate infrastructure facilities                     and “organic produce” themes.
that in the top seven cities of India,                and better facility management.                              The prospects of increasing
around 51 percent of the existing malls                                                                         international investment into the
are of “superior grade,” 37 percent are               Food, Apparel and Electronics to                          category would further boost its
of “average grade” and 12 percent are                 drive growth                                              potential. Currently in India, only
of “poor grade.”                                      While growth in the Indian retail                         about 7 percent of the total agriculture
   As a result, it can be concluded that              sector is bound to create opportunities                   produce gets processed, compared
retail space management, especially                   in most of the categories, some of                        to over 50 percent in the US. This
mall management, is going to be a                     these are positioned to gain more                         further substantiates the huge growth
major driving factor in Indian retail in              than others in the coming years. (See                     potential of this category in the
the near future. This means focusing                  table on next page for the projected                      country. The food processing industry
more on key issues such as the ideal                  growth for different categories in India                  is currently witnessing a 20 percent
tenant mix, positioning of the mall,                  between 2011–20).                                         annual growth rate in India.

                                                                                                                                august 2012 . images retail . 117
vision 2020

                                                                                                                     LG, Sony, Samsung and Apple setting
 Categories                          Total Market 2011,      Estimated size 2020         Change in value (2011-20)
                                           USD bn                  USD bn                                            up outlets. Also, there is a definite
                                                                                                                     focus on the category by online
 Food                                       320                       760                          440
                                                                                                                     retailers like Flipkart and Indiatimes.
 Consumer Electronics                       35                        130                           95                  Apparel: Apparel is bound to
 Apparel                                    40                        130                           90               witness significant growth in the
                                                                                                                     coming years, as the sector is going
 Jewellery & Watches                        30                         85                           55
                                                                                                                     to attract a high proportion of the
 Health & Beauty                            25                         75                           50               increased spend by the Indian
 Miscellaneous                              22                         65                           43               consumer. At $33, India currently
 Furniture & Furnishing                     20                         60                           40
                                                                                                                     has one of the lowest per-capita
                                                                                                                     consumption of apparel in the world.
 Footwear                                    8                         25                           17                  However, there is a strong growth
Source: NSSO Consumer Expenditure Report                                                                             in the apparel industry as both
                                                                                                                     Indian and global brands wise up
   In the food retail category (“eating                   dominate this category. In 2009–10,                        to its potential. Global retailers
out”), the fast-food formats account                      the market for LCD TVs in India                            like Tommy Hilfiger, Zara, Marks
for about 50 percent of the overall                       expanded from 1.5 million to 2.8                           & Spencer, and Mango are actively
market, while full-service restaurants                    million units. Another fast-growing                        scouting locations to open more stores
make up another 25 percent.                               segment in this category is home                           across the country while others like
   One of the main beneficiaries of                       theatres, which grew from 0.24                             H&M, Mossimo Dutti and GAP are
the fast-catching-up “mall culture” in                    million units to 0.30 million units                        evaluating the Indian market. Again,
the country, especially in the metros,                    (a growth of 25 percent) during the                        the category is set to benefit from
is the foodservice industry due to the                    same period. The sale of microwaves                        the growth of e-commerce, which is
emergence of “eating out” as a major                      is growing fast too at an estimated                        bound to provide a strong impetus to
leisure activity for Indian families.                     rate of 21.6 percent yearly. Further,                      the sector in the near future.
Not surprisingly, food courts in malls                    the value sales of mobile handsets is
are expected to grow briskly at 35–40                     estimated to be growing at around 15                       what the crystal ball says
percent annually in the coming few                        percent every year.                                        Despite several challenges related
years.                                                       Consumer electronics retailing has                      to government regulations,
   Food retail has emerged as one of the                  received significant investments in                        infrastructure, retail space availability,
biggest attractions of the Indian retail                  recent years, especially from large-                       costs, and quality and availability of
sector. Several international foodservice                 format retailers such as Croma,                            professional talent, Indian organised
giants like Starbucks (which targets                      Reliance Digital, eZone and Next,                          retail is bound to grow really well over
to open around 50 locations in India                      which are attempting to capture the                        the next decade.
by 2013) and Dunkin’ Donuts (plans                        surge in demand. Some of these are                           Retailers who learn to look beyond
to set up around 80–100 outlets in the                    now experimenting with smaller size                        the 20 top cities of India, pro-actively
next five years) along with others like                   stores and a wider range of products                       exploit the potential of online retail,
Muffin Break, Berrylite, Quiznos and                      to penetrate deeper into the market                        closely follow the mall developments
Ci Gusta! are all set to tap into the                     and expand their market share.                             across the country, and sharpen their
large growth potential of the country’s                      The sector has witnessed increased                      focus on food, apparel and electronics,
food retail sector.                                       investments from large multi-brand                         they will create businesses of a
   Consumer Electronics: The rising                       outlet (MBOs) chains and e-commerce                        significant scale and be able to give
income levels, increasing number                          players, especially in the mobile                          stupendous returns to their investors
of double-income families, easy                           handsets category, with brands like                        on their investments.
availability of credit, changing
lifestyles and the enhanced consumer                       Country       Apparel market           Per capita          ABOUT THE AUTHOR
awareness, all have led to a rapid                                       size, USD bn in           apparel
expansion of the consumer electronics                                         2011               consumption,
category in India. Other growth factors                                                         USDbn in 2011
                                                                                                                                   Harminder Sahni is the managing
include low-penetration levels of the                      UK                      64                 1015                         director of the Gurgaon-based
industry and the growing availability                                                                                              management consulting firm
                                                           USA                     310                   988
of products through retail stores as                                                                                               Wazir Advisors (http://wazir.in)
well as online retail.                                     France                  50                    762
   At the gross level, the consumer                        Japan                   95                    746
electronics category has been growing                      China                   88                    65
at a CAGR of around 16 percent in
                                                           India                   40                    33
value terms. Color TVs, with sales                                                                                                 Gaurav Marchanda is a
driven by flat-screen LCD models,                         Source: Wazir Analysis                                                   Consultant with Wazir Advisors


118 . images retail . august 2012

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Vision 2020 gaurav marchanda

  • 1. vision 2020 Indian Modern Retail: The Ne xt Decade modern retail in india has indeed come a long way in the last 10 years, but what will it look like in the year 2020? How will it evolve and what shape will it take? Which formats are more likely to succeed by then? Here is the future of Indian modern retail and what is needed to give it a new direction that will put it on a firm growth path over the next decade By Harminder Sahni and Gaurav Marchanda The Indian retail sector has been However, there are several factors plans into India on hold, citing the one of the central drivers of the Indian that can possibly diminish the global downturn, the slowing Indian economy over the past decade. In potential exhibited by this sector. economy and the policy instability in 2010, it was valued at $435 bn. While Unlike the growth witnessed by the the country. still mostly unorganised, the sector Indian economy in the past decade, is expected to augment at a CAGR of India’s GDP growth slipped to The value of total retail market in India, in USD bn around 12 percent over the next ten around 6 percent in the 4th quarter 1200 years, reaching an estimated size of of 2011 (compared to 6.9 percent 1000 957 CAGR: 12% over $950 bn by 2020. During this y-o-y in 3Q11)), flagging genuine period, traditional retail is expected concerns over the economy’s 800 to grow at around 5 percent while prospects. This trend, combined organised retail is expected to grow at with the global economic slowdown, 600 435 a much faster rate of 25 percent per has put significant doubts around 400 annum. This also means that by 2020, the plans of several international organised retail would contribute to retailers for Indian retail. In fact, 200 around 20 percent to the total value of recently, some major global retailers the retail sales in India. have decided to put their expansion 0 2010 2020 114 . images retail . august 2012
  • 2. vision 2020 Organised retail would account for 20% of the quickly crowding Indian metros, some them less investment-intensive Indian retail market by 2020 have been focussing their expansion destinations for opening stores, 2010 2020 plans on the non-metros, and with which leads to a faster break-even 7% good reason. In the next few years, for real-estate developers and modern retail is expected to grow retailers both. 20% 50–60 percent annually in tier II and However, retailers looking at smaller III cities, compared to only around 30 Indian cities for expansion should be 93% percent in the metros. It is estimated wary of several challenges, including 80% that by 2014, almost half of the malls lack of quality workforce and in India would be present in tier I and infrastructure, and logistical issues. Organised retail Unorganised retail lower cities, with 80 percent of new mall development in the next couple Online retail to lead pan-India While this trend is worrying, its of years taking place in non-metros. access implications should not be over- The rapid growth of retail in tier India is set to become the third burdening. The fact remains that I and lower cities has been one of largest nation of Internet users in the India presents a key investment the most surprising and interesting next two years. This, coupled with opportunity, especially in the current aspects of the Indian retail story. the rising consumer confidence in economic context, and should stay in Several factors are driving this trend: online retail, is driving the growth favor of international retailers, given •• The metros account for around 30 of e-commerce (or e-tailing) in the its massive consumer base, rapidly percent of the total consumption in country. With a significant number growing income, and a significant India. This figure is set to decrease of Indian consumers turning Internet movement towards consumerism. It is with the rapid dissemination of users, and, eventually, online projected that between 2010–2020, 1.3 income in the country. shoppers, selling through the online bn additional people in the world will •• The availability of quality retail channel is set to redefine retail. have disposable incomes of greater spaces in the metros is lagging Online retail is here to stay, and than $5,000. This will introduce an behind demand. This has pushed is bound to force retail managers entirely new population base that will retail rentals sky-high, making it to rethink their strategy for tapping contribute significantly to consumer difficult for most retailers to break the Indian consumer’s wallet. The spending. Over 20 percent of these even in these cities. potential for online retail varies across new consumers will come from India. •• Smaller cities provide a low-cost different sectors. As is evident from We believe that in the coming years, advantage, especially in land, the graph on the next page, online four major trends would shape the construction, manpower and retail in India currently lags behind Indian retail scenario. Retailers who facilities management. This makes significantly in the apparel sector, most effectively exploit these would compared to the global average emerge as major players in the Indian % share of malls by 2014 growth rates. Apparel thus represents retail sector by 2020 and beyond. Metros 54% major growth potential for the future. A significant aspect of the booming India beyond the top 20 cities Tier-1 18% Indian e-retail is that the main While most retailers have been Tier-2 and lower 28% demand for it in the coming years is rushing to capture opportunities in the Source: Malls of India, 2011 expected to come from the tier II and The Global retail development index rankings, 2011 2011 Country Region Market Country risk Market Time pressure GRDI score Change in rank rank attractiveness (25%) saturation (25%) compared to 2010 (25%) (25%) 1 Brazil Latin America 100.0 79.4 42.9 63.9 71.5 +4 2 Uruguay Latin America 85.0 73.8 63.6 39.6 65.5 +6 3 Chile Latin America 84.3 100.0 30.3 44.3 64.7 +3 4 India Asia 28.9 59.9 63.1 100.0 63.0 -1 5 Kuwait MENA 80.4 80.6 57.3 27.1 61.3 -3 6 China Asia 49.5 76.5 31.0 87.7 61.2 -5 7 Saudi Arabia MENA 70.9 80.7 50.6 35.7 59.5 -3 8 Peru Latin America 39.8 61.5 72.0 59.5 58.2 +1 9 United Arab Emirates MENA 87.6 88.9 12.6 42.9 58.0 -2 10 Trukey MENA 83.8 65.5 45.0 37.0 57.8 +8 Source: GRDI, a 10 year retrospective, AT Kearney august 2012 . images retail . 115
  • 3. vision 2020 Retail rents in Indian metros 2011 III cities. In fact, around 70 percent of India’s City Area Rent (INR/sq. feet per month) e-commerce business even today happens outside the top 10 cities, a recent report by New Delhi Khan Market 1,200 eBay says. Several factors drive this trend: Mumbai Linking Road 666 •• Low brand penetration through physical Bangalore Brigade Road 428 stores in the non-metros; •• Large variety offered by online retailers, not Kolkata Park Street 340 only in terms of diversity of brands but also Chennai Khader Nawaz Khan Road 180 in designs, styles, and categories; and Hyderabad Banjara Hills Road No. 1, 2 & 3 126 •• Price differential between online retailers Source: Cushman & Wakefield Research and physical stores. The online retail market in India is growing at a rapid pace, diven by a rapid growth in online shoppers in the country Value, Online retail market in india, in Rs crores 8000 7000 CAGR: 37% 4000 2000 0 2011 2015 (e) Online retailing or e-tailing could be one of the biggest trends in Active online shoppers in india, in lakhs the retail sector in the coming years 380 400 Mall development to make or break CAGR: 43% organised retail The rapid growth of the Indian retail sector has led to increased demand for retail spaces. 200 This, along with the rapid initial successes of malls in the country, has resulted in a 90 huge shift in focus towards investment into mall development across India. Several mall projects have kick-started in several cities over 0 the past few years. 2011 2015 (e) However, there are signs that India’s Source: Industry Reports and COMSCORE Media Matrix mall growth story is not as rosy as earlier anticipated. While the existing malls have Leading online retail categories, by growth rate, 2010-11 witnessed significantly high footfalls (often Computer software 12.4% comparable to the developed retail markets), 16.8% the conversion rates and the actual business Consumer electronics 16.8% generated has been low. During 2010–11, 14.0% India’s existing malls saw a dip in customer Computer hardware 16.5% 11.6% footfall of around 8–10 percent, in tandem Comparison shopping 21.6% with a 15–20 percent drop in conversion rates. 10.4% The worst hit were premium malls, which 9.3% Books 7.1% have severely suffered due to the unfulfilled 4.4% anticipation of the global single-brand retailers Flowers/gifts/greetings 6.0% entering the Indian market. Retail-Movies 4.4% Further, in 2012, it is estimated that there was 4.1% Worldwide a deferment of more than 30 percent of retail 3.8% India Luxury goods/accessories 3.7% mall space against the projected supply for 18.3% the first half of the year. The overall vacancy Apparel 3.7% rate for major cities during H1 2012 was 19.6 Source: Industry Reports and COMSCORE Media Matrix 116 . images retail . august 2012
  • 4. vision 2020 New Malls in India by 2014 Three key categories that are going Additional malls 200 malls to witness the most growth include food retail, consumer electronics, Additional built up area 150 mnsq feet (increase by nearly 200%) and apparel. These should be the key Additional gross leasable area 81 mnsq feet (increase of 138%) target categories for retailers. Source: Malls of India, 2011 Food Retail: The food category, which constitutes over half of the Prime Retail Rent, High street vs.Malls in Delhi NCR, March 2012 monthly consumption expenditure High street Rent (INR/sq. feet per month) y-o-y change of Indian households, is expected to benefit significantly through the Khan Market 1,200 ~0.0% advent of modern retail. It includes Connaught Place 650 8.3% food grocery retail and is expected South Extension I & II 600 9.1% to grow beyond the $700 bn mark by 2020, making India the fourth largest Greater Kailash I, M Block 550 10.0% food retail market globally. Karol Bagh 350 7.7% Currently, about 70 percent of BasantLok 250 ~0.0% spending on food in India is on agri Malls products, over half of which comprise fruits and vegetables. This is the key South Delhi 450 ~0.0% target category for new entrants in the West Delhi 250 ~0.0% market. Several retailers such as Safal, Noida 250 ~0.0% Easy Day, Reliance Fresh, Spencer’s, and Food Bazaar have entered food Gurgaon 210 ~0.0% and grocery retailing. Most of these Source: Cushman & Wakefield Research are playing around the “freshness” percent, marginally higher than the previous quarters (Source: A report by Cushman & Wakefield). This situation is further substantiated by the fact that while rental values across most mall destinations within these cities remained largely stable, high streets recorded a higher increase in rentals, rubbishing claims of malls replacing high streets as the primary retail destination, at least for the time being. A key reason for this prevalent downswing in demand for malls is the lack of quality mall spaces in India. Poor tenant mix and planning have resulted in insufficient mall traffic and low conversion rate. According to a study by Jones Lang LaSalle Meghraj, over 90 percent of malls in India The food category is expected to grow over $700 bn in value by 2020 are not at par with the international standards. Research further shows appropriate infrastructure facilities and “organic produce” themes. that in the top seven cities of India, and better facility management. The prospects of increasing around 51 percent of the existing malls international investment into the are of “superior grade,” 37 percent are Food, Apparel and Electronics to category would further boost its of “average grade” and 12 percent are drive growth potential. Currently in India, only of “poor grade.” While growth in the Indian retail about 7 percent of the total agriculture As a result, it can be concluded that sector is bound to create opportunities produce gets processed, compared retail space management, especially in most of the categories, some of to over 50 percent in the US. This mall management, is going to be a these are positioned to gain more further substantiates the huge growth major driving factor in Indian retail in than others in the coming years. (See potential of this category in the the near future. This means focusing table on next page for the projected country. The food processing industry more on key issues such as the ideal growth for different categories in India is currently witnessing a 20 percent tenant mix, positioning of the mall, between 2011–20). annual growth rate in India. august 2012 . images retail . 117
  • 5. vision 2020 LG, Sony, Samsung and Apple setting Categories Total Market 2011, Estimated size 2020 Change in value (2011-20) USD bn USD bn up outlets. Also, there is a definite focus on the category by online Food 320 760 440 retailers like Flipkart and Indiatimes. Consumer Electronics 35 130 95 Apparel: Apparel is bound to Apparel 40 130 90 witness significant growth in the coming years, as the sector is going Jewellery & Watches 30 85 55 to attract a high proportion of the Health & Beauty 25 75 50 increased spend by the Indian Miscellaneous 22 65 43 consumer. At $33, India currently Furniture & Furnishing 20 60 40 has one of the lowest per-capita consumption of apparel in the world. Footwear 8 25 17 However, there is a strong growth Source: NSSO Consumer Expenditure Report in the apparel industry as both Indian and global brands wise up In the food retail category (“eating dominate this category. In 2009–10, to its potential. Global retailers out”), the fast-food formats account the market for LCD TVs in India like Tommy Hilfiger, Zara, Marks for about 50 percent of the overall expanded from 1.5 million to 2.8 & Spencer, and Mango are actively market, while full-service restaurants million units. Another fast-growing scouting locations to open more stores make up another 25 percent. segment in this category is home across the country while others like One of the main beneficiaries of theatres, which grew from 0.24 H&M, Mossimo Dutti and GAP are the fast-catching-up “mall culture” in million units to 0.30 million units evaluating the Indian market. Again, the country, especially in the metros, (a growth of 25 percent) during the the category is set to benefit from is the foodservice industry due to the same period. The sale of microwaves the growth of e-commerce, which is emergence of “eating out” as a major is growing fast too at an estimated bound to provide a strong impetus to leisure activity for Indian families. rate of 21.6 percent yearly. Further, the sector in the near future. Not surprisingly, food courts in malls the value sales of mobile handsets is are expected to grow briskly at 35–40 estimated to be growing at around 15 what the crystal ball says percent annually in the coming few percent every year. Despite several challenges related years. Consumer electronics retailing has to government regulations, Food retail has emerged as one of the received significant investments in infrastructure, retail space availability, biggest attractions of the Indian retail recent years, especially from large- costs, and quality and availability of sector. Several international foodservice format retailers such as Croma, professional talent, Indian organised giants like Starbucks (which targets Reliance Digital, eZone and Next, retail is bound to grow really well over to open around 50 locations in India which are attempting to capture the the next decade. by 2013) and Dunkin’ Donuts (plans surge in demand. Some of these are Retailers who learn to look beyond to set up around 80–100 outlets in the now experimenting with smaller size the 20 top cities of India, pro-actively next five years) along with others like stores and a wider range of products exploit the potential of online retail, Muffin Break, Berrylite, Quiznos and to penetrate deeper into the market closely follow the mall developments Ci Gusta! are all set to tap into the and expand their market share. across the country, and sharpen their large growth potential of the country’s The sector has witnessed increased focus on food, apparel and electronics, food retail sector. investments from large multi-brand they will create businesses of a Consumer Electronics: The rising outlet (MBOs) chains and e-commerce significant scale and be able to give income levels, increasing number players, especially in the mobile stupendous returns to their investors of double-income families, easy handsets category, with brands like on their investments. availability of credit, changing lifestyles and the enhanced consumer Country Apparel market Per capita ABOUT THE AUTHOR awareness, all have led to a rapid size, USD bn in apparel expansion of the consumer electronics 2011 consumption, category in India. Other growth factors USDbn in 2011 Harminder Sahni is the managing include low-penetration levels of the UK 64 1015 director of the Gurgaon-based industry and the growing availability management consulting firm USA 310 988 of products through retail stores as Wazir Advisors (http://wazir.in) well as online retail. France 50 762 At the gross level, the consumer Japan 95 746 electronics category has been growing China 88 65 at a CAGR of around 16 percent in India 40 33 value terms. Color TVs, with sales Gaurav Marchanda is a driven by flat-screen LCD models, Source: Wazir Analysis Consultant with Wazir Advisors 118 . images retail . august 2012