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WORLD SERIES – RETAIL IN INDIA

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WORLD SERIES – RETAIL IN INDIA

Every month, we travel to a different country to discover what the retail landscape is like in a different pocket of the planet. This month we are in India, observing how a colourful land full of spice stalls, bartering and small businesses is adapting to the technological revolution in retail.

Over the last two decades, the Indian retail market has witnessed phenomenal changes, evolving rapidly from traditional shops to large multi-format stores in malls offering a global experience. Retail is an important part of the Indian economy, accounting for over 10% of the country’s Gross Domestic Product (GDP) and around 8% of the employment.

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The market is expected to continue booming, increasing by 60% to reach US$ 1.1 trillion by 2020, on the back of factors like rising incomes and lifestyle changes by middle-class and increased digital connectivity. That makes India the world’s fifth-largest global destination in the retail space.

The Opportunities for Retailers

Rapid Growth of Internet Usage

The tech-driven lifestyle in India has seen phenomenal growth in the past five years, with internet users growing at a compounded annual rate of 13% to a staggering 720 million. At this rate, India will soon close in on China, which tops the global charts with a user base of 910 million people.

Luxury is Increasingly Luring

The luxury market of India is expected to grow to US$30 billion by the end of 2018 from US$23.8 billion in 2017, supported by growing exposure of international brands amongst Indian youth and higher purchasing power of the upper class in tier 2 and 3 cities.

Changes in Policies Have Liberated the Market

Changes in FDI policies has repositioned the Indian retail sector on the global map, attracting a large number of global retailers into the Indian diaspora and further fuelling growth of organised retail in the country. It’s this which has attracted giants like Walmart to make a foray into India.

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Huge Cultural Diversity 

Although the many languages, cultures and customs of India in one respect create a challenge for new retailers, the existence of many “markets” also offers opportunities. Niche, start-up brands that put data and digital first can really get under the skin of their target market. It is vital to realise that given the diverse customer segments, different pockets of opportunities will require an agile approach.

The Challenge for Retailers

It’s Still a Relatively Small Percentage of People Shopping Online

Despite the rapid increase in people gaining access to the internet, only 2-3% of people are actually shopping online. Indian retail is dominated by traditional physical stores, which are estimated to account for about 76%, followed by corporate retail chains at 17% and pure online retail at 7%. Any retailer wanting to break into the market must consider the physical store as a must in their portfolio.

Unorganised Retail Rules

90% of all retail in India is classified in the ‘unorganised’ sector, that includes everything from the local kirana shop and restaurant to the general and provision stores to the single-owner manned medical store and the local dhobi – even the hand cart and pavement vendors. The unorganised retailers thrive due to an extensive last-mile distribution network and long-term relationships. The key for new players is not necessarily the disruption of the unorganised sector but having access to retail stores that provide organised players with the same distribution networks

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Lack of Quality Real Estate in High Tier Cities

One of the primary challenges that retailers face in India is a lack of quality real estate locations at reasonable prices in Tier 1 and 2 cities of the country. The classification of Indian cities is a ranking system used by the Government of India to allocate House Rent Allowance (HRA) to public servants employed in different cities in India.  At the moment, presence and expansion of organised retailers is very dense in certain urban areas with little room to grow.

More Reading:

https://www.insider-trends.com/whats-happening-in-mumbais-retail-scene/

http://www.vmsd.com/content/retailing-india-teching-shopping-seriously 

https://economictimes.indiatimes.com/industry/services/retail/retail-markets-in-india-opportunities-in-a-dynamic-world/articleshow/66534560.cms

https://www.euromonitor.com/retailing-in-india/report

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