INDIAN RETAILING SCENARIO

Introduction
Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of
several new players. Total consumption expenditure is expected to reach nearly US$ 3,600 billion by 2020
from US$ 1,824 billion in 2017. It accounts for over 10% of the country’s gross domestic product (GDP) and
around eight% of the employment. India is the world’s fifth-largest global destination in the retail space.
India ranked 73 in the United Nations Conference on Trade and Development's Business-to-Consumer (B2C)
E-commerce Index 2019. India is the world’s fifth-largest global destination in the retail space and ranked 63
in World Bank’s Doing Business 2020.
India is the world’s fifth largest global destination in the retail space. In FDI Confidence Index, India ranked
16 (after US, Canada, Germany, United Kingdom, China, Japan, France, Australia, Switzerland, and Italy).

Market Size
As per Forrester Research, in 2020, India's retail sector was estimated at US$ 883 billion, with grocery retail
accounting for US$ 608 billion. The market is projected to reach ~US$ 1.3 trillion by 2024.
Revenue of India’s offline retailers, also known as brick and mortar (B&M) retailers, is expected to increase
by Rs. 10,000-12,000 crore (US$ 1.39-2.77 billion) in FY20.
According to the Retailers Association of India (RAI), the retail industry achieved 93% of pre-COVID sales
in February 2021; consumer durables and quick service restaurants (QSR) increased by 15% and 18%
respectively.
After an unprecedented decline of 19% in the January-March 2020 quarter, the FMCG industry displayed
signs of recovery in the July-September 2020 quarter with a y-o-y growth of 1.6%. The growth witnessed in
the fast-moving consumer goods (FMCG) sector was also a reflection of positivity recorded in the overall
macroeconomic scenario amid opening of the economy and easing of lockdown restrictions.

Development Scenario
The Indian retail trading has received Foreign Direct Investment (FDI) equity inflow totalling US$ 3.44 billion
during April 2000-December 2020, according to Department for Promotion of Industry and Internal Trade
(DPIIT).
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.
India’s retail sector attracted US$ 6.2 billion from various private equity and venture capital funds in 2020.
In February 2021, Greyweave, a hand-made carpets and rugs brand, announced to invest Rs. 75 lakh (US$
102,875.65) for the firm's offline expansion plan.
In March 2021, Realme announced to expand retail footprint in India with flagship stores; it is planning to
launch its first flagship store (over a 10,000 sq. ft. area) in Gujarat.
On March 25, 2021, Xiaomi introduced a new initiative ‘Develop with Mi’ (GWM). GWM plans to have
30,000 touchpoints in a year and 6,000+ retail stores in the next two years.
In March 2021, ASICS expanded its retail concept in India with a new store in Bengaluru.
In March 2021, Vivo announced plan to open ~100 exclusive retail stores across India in 2021; aims to cross
the 650-store mark in India by 2021.
In March 2021, Unicorn, a premium Apple reseller, announced plan to launch 4-6 new flagship stores in India
by FY22.
In March 2021, Mi India launched a Rs. 100-crore (US$ 13.62 million) support plan over the next two years
for its retail partners.

Government Initiatives
The Government of India has taken various initiatives to improve the retail industry in India. Some of them
are listed below:
 • Government may change Foreign Direct Investment (FDI) rules in food processing in a bid to permit
E-commerce companies and foreign retailers to sell Made in India consumer products.
• Government of India has allowed 100% FDI in online retail of goods and services through the
automatic route, thereby providing clarity on the existing businesses of E-commerce companies
operating in India.
• The government’s focus to improve digital infrastructure in Tier 2 and Tier 3 markets would be
favourable to the sector.

Road Ahead
E-commerce is expanding steadily in the country. Customers have the ever-increasing choice of products at
the lowest rates. E-commerce is probably creating the biggest revolution in retail industry, and this trend is
likely to continue in the years to come. Retailers should leverage digital retail channels (E-commerce), which
would enable them to spend less money on real estate while reaching out to more customers in tier II and tier
III cities.
By 2024, India's e-commerce industry is expected to increase by 84% to US$ 111 billion, driven by mobile
shopping, which is projected to grow at 21% annually over the next four years. In 2020, the most common
payment methods online were digital wallets (40%), followed by credit cards (15%) and debit cards (15%).
Online penetration of retail is expected to reach 10.7% by 2024 versus 4.7% in 2019.
Nevertheless, long-term outlook for the industry looks positive, supported by rising income, favourable
demographics, entry of foreign players, and increasing urbanisation.

Trends in Retailing:

The Retail Industry is changing rapidly due to various reasons

1. Spatial convenience: Number of working women has fuelled an intense demand for
convenience. The quest for convenience on the part of consumers is shown by
o frantic growth of convenience store fuelled by the entry of Petroleum
marketers AM/PM store
o Exploding Popularity of online shopping operators
o Diversification of vending machine into food /clothing and videotapes.
2. Increased power of retailer: At one time, Colgate dominated retailers. Now the retailers
tend to dominate them. The reasons for this reversal are many. Retailers have many new
products from which to choose when deciding what to stock on their shelves. Further
the IT has diffused throughout retailing to such an extent that virtually all major retailer
can capture item-by-item data via scanning devices at that electronic point of sale
terminal. This knowledge of information has permitted retailers to calculate the (DPP)
Direct Portfolio of Individual Items, track what moves and what does not move well in
their stores. So the Manufacturers struggled to get space in the shelves of retailers. They
offer Pricing concession, slotting allowance etc., to promote products.
3. Growing Diversity of Retail formats:
Consumers can now purchase same merchandise from wide variety of retailers. They are Dept.
store, speciality store, convenience store, category killer, Mass merchandiser, Hypermarket.

o Mom and Pop Stores and Traditional Kirana stores: A small independent store
across product categories is very common retail format in India. Particularly in
small townships
o E- commerce: The amount of retail business conducted on the Internet is
growing every year. Companies like Amazon. Com and First and second.com
which helped pioneer the retail e-commerce. Fabmart.com
o Department store with varied merchandising operations.
 o Franchise: Territory rights are also sold to franchisees. Various distribution and
other services are provided by contract to franchisees for fee. Ex.
McDonalds, Blockbuster Video
o Warehouse club- wholesale club: Appeal is to price conscious shopper. Size is
60000 sq. ft. or more. Product selection is limited and products are usuallysold
in bulk size.
o Mail order catalog: Non-store selling through the use of literature sent to
potential customer. Usually has a central distribution centre for receiving and
shipping direct to the customer.
o Speciality Discounter –Category killer:

Offers merchandise in one line ( e.g. sporting goods, office supplies; children merchandise )
with great depth of product selection at discounted prices. Stores usually range in size from
50,000 to 75000 square feet.

Emergence of region specific formats: In deptl store format, while most A class cites and metros
have larger stores of 50000 sq ft sizes, stores in B Class towns have stabilized in the 25000-
35,000 sq. feet range. Most players have started operating these 2 formats across various cities,
which has helped them to standardise the merchandise offering across the chain.

Entry of International Players: A large no. of international players has evinced interest in India
despite the absence of favourable government policies.

Mall Development: Modern malls made their entry into India in the late 1990s with the
establishment of cross roads in Mumbai and Ansal Plaza in Delhi. According to a market
estimates, close to 10mn sq. feet of mall space is being developed across several cities in the
country.

FDI in Retail:

FDI in retail industry means that foreign companies in certain categories can sell products
through their own retail shop in the country. At present, foreign direct investment (FDI) in pure
retailing is not permitted under Indian law.
Government of India has allowed FDI in retail of specific brand of products. Following this,
foreign companies in certain categories can sell products through their own retail shops in the
country. India‘s retail industry is estimated to be worth approximately US$411.28 billion and
is still growing, expected to reach US$804.06 billion in 2015.

As part of the economic liberalization process set in place by the Industrial Policy of 1991, the
Indian government has opened the retail sector to FDI slowly through a series of steps: 1995:
World Trade Organization‘s General Agreement on Trade in Services, which includes both
wholesale and retailing services, came into effect.

1997: FDI in cash and carry (wholesale) with 100% rights allowed under the government
approval route.

2006: FDI in cash and carry (wholesale) brought under the automatic route. Up to 51 percent
investment in a single-brand retail outlet permitted.

2011: 100% FDI in single brand retail permitted. The Indian government removed the 51
percent cap on FDI into single-brand retail outlets in December 2011,and opened the market
fully to foreign investors by permitting 100 percent foreign investment in this area. Government
has also made some, albeit limited, progress in allowing multi-brand retailing, which has so far
been prohibited in India. At present, this is restricted to 49 percent foreign equity participation.
The spectre of large supermarket brands displacing traditional Indian mom-and-pop stores is a
hot political issue in India, and the progress and development of the newly liberalized single-
brand retail industry will be watched with some keen eyes as concerns further possible
liberalization in the multi-brand sector.

FDI IN SINGLE-BRAND RETAIL

While the precise meaning of single-brand retail has not been clearly defined in any Indian
government circular or notification, single-brand retail generally refers to the selling of goods
under a single brand name.

Up to 100 percent FDI is permissible in single-brand retail, subject to the Foreign Investment
Promotion Board (FIPB) sanctions and conditions mentioned in press Note. These conditions
stipulate that: Only single-brand products are sold (i.e. sale of multi-brand goods is not allowed,
even if produced by the same manufacturer).Products are sold under the same brand
internationally.
Single-brand products include only those identified during manufacturing. Any additional
product categories to be sold under single-brand retail must first receive additional government
approval FDI in single-brand retail implies that a retail store with foreign investment can only
sell one brand.

For example, if Adidas were to obtain permission to retail its flagship brand in India, those
retail outlets could only sell products under the Adidas brand. For Adidas to sell products under
the Reebok brand, which it owns, separate government permission is required and (if
permission is granted) Reebok products must then be sold in separate retail outlet.

FDI IN ―MULTI-BRAND‖ RETAIL

While the government of India has also not clearly defined the term ―multi-brand retail,‖ FDI
in multi-brand retail generally refers to selling multiple brands under one roof. Currently, this
sector is limited to a maximum of 49 percent foreign equity participation. These are positive
steps and it will encourage international brands to set up shop in India. On the other hand, this
will also lead to competition among Indian players. It will be the consumers who stand to gain,''
This would not change the market dynamics immediately as it will take some time for these
plans to fructify

Problems of Indian retailing:

1. Global economic slowdown impacting consumer demand

The current contraction in overall growth has not been so severe ever since the one witnessed
during World War II. The sub prime-triggered crisis in the US during end of 2007 gradually
spread across other parts of the world; as a the fallout of this crisis, credit availability dropped
sharply in advanced economies and their GDP growth contracted incessantly during the last
quarter of 2008. the financial crisis continued to trouble advanced and developing economies
in spite of policymakers‘ attempts to replenish liquidity in these markets. Many financial
institutions collapsed and filed for bankruptcy, as the situation got from bad to worse. Many
banks/institutions made massive write-downs following this turn of events. During 2007-10,
the write-downs on global exposures are expected to be worth US$ 4 trillion while the write
downs on the US-originated assets alone are likely to be worth US$ 2.7 trillion11. Such
massive write-down will affect the financial system to a grave extent, as it is likely to further
strain banks‘ funding capabilities. Already these write-downs
are turning into a major challenge for banks/financial institutions because of solvency issues,
and deepening risk of failure of banks/ financial institutions. Failure of the US investment
bank Lehman Brothers, for instance, has had an enormous impact on the overall global
financial system, and has consequently shaken the confidence of banks, investors, households
etc.

2. Consumption declines in the advanced economies

Private consumption expenditure is an important indicator of overall economic growth. In the

last couple of quarters, the decline in consumption has further affected the global economic
downturn. Moreover, widespread financial crisis severely hit credit availability and household
disposable income. For instance, US households lost 20% (US$ 13 trillion)14 of their net worth
as a percentage of disposable income from the second quarter of 2007 to the fourth quarter of
2008. The stock prices across the world started falling during the second quarter of 2007 and
continued its losses throughout 2008; the global stock market lost between 40-60% in dollar
terms that translated to a huge loss of global wealth in 2008. The personal disposable income
(at current prices) in the US registered negative growth (3.9% and 2.1%) during the last two
quarters of 2008, respectively. The consumer demand situation was aggravated further by
reduced capital availability and consequent fall in investments.

3. Competition from the unorganised sector

Organised retailers face immense competition from the unorganised retailers or kirana stores
(mom-and-pop stores) that generally cater to the customers within their neighbourhood. The
unorganised retail sector constitutes over 94% of India‘s total retail sector and thus, poses a
serious hurdle for organised retailers. If put numerically, the organised retailers are facing stiff
competition from over 13 million kirana stores that offer personalised services such as direct
credit to customers, free home delivery services, APART from the loyalty benefits. During
the current economic slowdown, the traditional kirana stores adopted various measures to
retain their customers, which directly affected organised retailers. Generally, it has been
observed that customers shop impulsively and end up spending more than what they need at
organised retail outlets; however, in kirana stores, they stick to their needs because of the
limited variety. During a downturn, many customers may not like to spend
more as is evident from the past few months‘ trend that shoppers are increasingly switching
from organised retail stores to kiranas.

4. Retail sector yet to be recognised as an industry

The retail sector is not recognised as an industry by the government even though it is the
second-largest employer after agriculture. Lack of recognition as an industry affects the retail
sector in the following ways:

• Due to the lack of established lending norms and consequent delay in financing
activity, the existing and new players have lesser access to credit, which affects their
growth and expansion plans
• The absence of a single nodal agency leads to chaos, as retailers have to oblige to
multiple authorities to get clearances and for regular operations

5. High real-estate costs

Even though the real estate prices have subsided recently due to the slowdown in economies
and the financial crises, these prices are expected to go up again in the near future. Presently
the sector faces high stamp duties, pro-tenancy acts, the rigid Urban Land Ceiling Act and the
Rent Control Act and time-consuming legal processes, which causes delays in opening stores.

Earlier on the lease or rents on properties were very high (among the highest in the world) at
some prominent locations in major cities. The profitability of retail companies were affected
severely because real costs constituted a major part of their operating expenses. Now
companies are moving out from prominent malls of tier I cities and are re-negotiating the rental
agreements with landlords to reduce costs. Some are even focussing on setting up shops in tier
II and tier III cities.

6. Lack of basic infrastructure

Poor roads and lack of cold chain infrastructure hampers the development of food retail in
India. The existing players have to invest substantial amounts of money and time in building
a cold-chain network.
 7. Supply-chain inefficiencies

Supply chain needs to be efficiently-managed because it has a direct impact on the

company‘s bottom lines. Presently the Indian organised retail has an efficient
supply chain but it appears efficient only when compared with the unorganised
sector. On an international level the Indian organised retailers fall short of
international retailers like Wal-Mart and Carrefour in terms of efficiencies in
supply chain. In the following paragraphs some key challenges that the retailers
face during procuring goods from suppliers to delivering the same to end-
customers are discussed.

8. Challenges with respect to human resources

The Indian organised retail players shell out more than 7% of sales towards
personnel costs. The high HR costs are essentially the costs incurred on training
employees as there is a severe scarcity for skilled labour in India. The retail
industry faces attrition rates as high as 50%, which is high when compared to other
sectors also. Changes in career path, employee benefits offered by competitors of
similar industries, flexible and better working hours and conditions contribute to
the high attrition.

9. Shrinkage

Retail shrinkage is the difference between the book value of stock and the actual
stock or the unaccounted loss of retail goods. These losses include theft by
employees, administrative errors, shoplifting by customers or vendor fraud.
According to industry estimates, nearly 3- 4% of the Indian chain‘s turnover is lost
on account of shrinkage. The organised industry players have invested IT, CCTV
and antennas to overcome the problem of shrinkage.

The top seven trends in retailing in India are as follows:

1. Shift from Unorganized to Organized Retailing

2. Store Design

3. Competition

4. New Form of Retailing

5. Technology

6. Consumer Buying Behaviour

7. Entertainment.

1. Shift from Unorganized to Organized Retailing:

Retailing in India is thoroughly unorganized. There is no supply chain management perspective.
The key factors that drive the growth of organized retailing in India are higher disposable incomes,
rising urbanization, growing consumerism, nuclear family structure, growing number of educated
and employed women population.

2. Store Design:
Irrespective of the format, the biggest challenge for organized retailing is to create an environment
that pulls in people and makes them spend more time in shopping and also increases the amount
of impulse shopping.

3. Competition:
Competition is increasing between different types of retailers. Discount stores, departmental
stores, supermarkets, etc. all compete for the same customers. The small independent retailers
survive by providing personal services to the customers.

4. New Form of Retailing:

Modem malls made their entry into India in the late 1990s, with the establishment of Crossroads
in Mumbai and Ansal Plaza in Delhi. India’s first true shopping mall, ‘Crossroads’—complete
with food courts, recreation facilities and large car parking space—was inaugurated as late as 1999
in Mumbai. Malls have given a new dimension to shopping experience.
5. Technology:
Technology today has become a competitive tool. It is the technology that helps the organized
retailer to score over the unorganized players, giving both cost and service advantages. Technology
has also made possible the growth of non-store retailing.

6. Consumer Buying Behaviour:

In India, there are no uniform trends with respect to consumer buying behaviour. There are visible
differences in the shopping pattern of consumers across income segments. Organized retailing has
definitely made headway in the upper class.

However, even in this segment, items such as milk, fruits, vegetables and a significant portion of
‘through-the-month’ purchases seem to be done at traditional outlets. Organized retail outlets seem
to be associated with branded items/special purchases. Organized retailing does not seem to have
made an impact on the lower class, except for ‘curiosity’ shopping.

7. Entertainment:
Modem retail formats provide a place for people to assemble, and a means of entertainment, by
providing facilities such as food courts, mini theatre, children’s play spaces and coffee shops.
These facilities help the customers enjoy shopping.

India’s Retail Post Covid

The COVID-19 pandemic has been one of the biggest disruptors of life and business in recent
history. Apart from creating a sense of caution, fear and concern in the minds of people, it has also
severely impacted most commercial activities. While the whole world is trying to shift their
operations online, retail is one of the sectors which is difficult to completely make the shift. Since,
crowded places like malls and retails stores, can easily be carriers of the virus, there remains a
certain stigma attached to it. Such realities would be a game changer for the sector. There remains
a lot of looming uncertainty making it difficult to accurately visualize the post-COVID scenario.
Within the retail sector, the effect on mass merchandise stores as compared to lifestyle formats
including malls would be very different. While it is true that many stores would be facing inventory
pile ups, several others might run into severe supply issues. Currently various categories are not
able to manufacture and source raw materials. Thus, when nothing is made, nothing can be
supplied. Additionally, retail requires a fast rotation of working capital. With inventory pile ups,
many smaller stores might find themselves in a cash crunch.
Looking at the situation from the point of view of a consumer, the outcome may vary across
different goods. While there have been instances of panic buying, the trends across essentials and
non-essentials would vary. With differing consumption patterns, the trend within essentials would
also be vastly different. For example, panic buying of biscuits will not affect future purchases. But
just because people buy extra shampoo, toothpaste or groceries, they are not going to brush their
teeth four times or cook extra food. Therefore, not all essential products will see the same kind of
sales pattern, post this crisis.
With shops such as supermarkets and kirana stores selling essential items, these shops might face
a smaller impact. Specifically, with people staying home, they tend to depend on their
local kirana store more than ever. With a sustained supply chain these stores might register a
growth. However, the story might play out a little differently with mass merchandise stores like
supermarkets. Supermarkets might see a lower impact since they have a tag of selling essential
products. However, they would need to divert their focus heavily to essentials during the lockdown
and non-essentials immediately post the lockdown. Their location being in a mall does spell out
some trouble for these stores. Additionally, these stores carry stocks of perishable items which
may need to be discarded or sold off at massive discounts. Non-food products if bought would be
stored at home and affect future sales.
For other non-food fast moving consumer goods, like apparels, IT products and consumer
durables, the sector might see the largest drop. While people will be excited and eager to purchase
newer commodities post the lockdown, the contact points in such locations might be a cause of
worry. Also, these stores would have to deal with the problem of excess stocks and styles going
out of fashion. They might also lose out on seasonal sales due to this reason and would have to
liquidate their stocks with the help of massive discounts.
However, with lifestyle shopping specially apparel, people often want to try on the products before
purchase and also be presented with an opportunity for a return. This might be a tricky situation to
handle during these times. This might lead to a surge of livestreaming. Livestream shopping is a
trend that has been widely popularized. Often influencers are seen livestreaming inside of
boutiques, offering product closeups and even trying on clothes, shoes and jewelry for an online
audience. This practice is particularly popular in China. As we are all growing more accustomed
to online activities, livestream shopping might become the way to reach out consumers in a post-
COVID-19 world.
One major factor affecting the entire sector would be the purchasing power of the people. With a
recession in the global economy, job cuts and pay cuts, consumer behaviour might be hard to
predict. While consumers would be eager to shop again, there may be some constraints.
While it is difficult to entirely predict the future trend at the moment for the retail sector, it would
be interesting to see how events unfold for the sector in the post COVID world.