News: Organised Indian retail expected to double in size in just three years
(RB 09/08/2006) Mumbai - India’s fledgling organized retail sector is expected to double in size in just three years. Although organised retail still only accounts for an estimated three percent of India’s total retail market, the ambitious expansion plans of so many businesses within the sector point to a doubling of retail outlets and retail space in the next three years.
The report, produced by KPMG in India and the Federation of Indian Chambers of Commerce and Industry (FICCI), does however suggest that there could be a slight problem on the horizon with over-capacity in the new wave of Indian shopping malls becoming a distinct possibility.
Retailing in India is currently estimated to be worth US$200 billion, of which organized retailing accounts for US$6.4 billion. By 2010, that figure is expected to have grown to US$23 billion . When interviewing a selection of retail CEOs for the purpose of the report, KPMG in India discovered that 70 percent of businesses expect to grow in excess of 40 percent per annum in the next three years.
Commenting on the report’s findings, Deepankar Sanwalka of KPMG in India, said: “Statistics like this show that the organized Indian retail sector is just starting to realize the massive potential which it obviously has. Retail businesses are becoming more sophisticated in their offerings and adjusting their growth targets accordingly. Alongside this, other demographic factors are falling into place at exactly the right time. Sixty percent of the population is now under 30 years of age while the long-anticipated spending explosion among the young, consuming middle class is finally becoming a reality.”
“However, the point about shopping mall over-capacity is an interesting one. The availability of retail real estate will be a key factor in the sector’s growth plans. Due to the high cost of retail space in increasingly congested cities, retailers are welcoming the emergence of a mall culture. Such has been the zeal with which this format has been accepted, that it is predicted that 68 million square feet of mall space will be available by the end of 2007 . Unfortunately, many of our survey respondents felt that over-capacity was inevitable due to the lack of the necessary anchor tenants and insufficient differentiation between many of the proposed malls.”
The report suggests that the answer to the over-capacity issue may be for malls to adopt a specialized format. For example, specialist gold malls, stocked exclusively with jewelry retailers, have already started to appear. Plumping for a suitable product focus may allow the malls to become “destination malls”, thereby providing them with the necessary differentiation from their competition.
It’s not just the shopping malls which have been thinking about their formats. As retail businesses have grown, the need to decide on the format most suited to each business has grown as well. Western retail has long accepted that employing too many retail formats across one business rarely works. As a youthful industry itself, organized Indian retail is now going through its period of format experimentation. The KPMG report shows that many businesses believe that supermarket and specialty formats have the most potential for growth, closely followed by hypermarkets. It will however be interesting to see how perceptions may change about hypermarkets. Having started with other formats, every leading Indian retailer now uses a hypermarket format – or has plans for one – as its popularity grows.
Deepankar Sanwalka continued: “At the moment, the Indian government’s bar on foreign direct investment (FDI) on retail remains in place, ostensibly to protect the domestic retailers, allowing them to ‘grow up’ in peace. They are certainly doing that now. Considering the projected size of the industry by 2010, there is plenty to play for – which means that they must make the correct decisions on format, location, product offering, marketing and other key considerations.”
“With that in mind, it will be interesting to see if and when the government does relax the FDI rules. In other areas of the world where foreign retailers have entered the market, it is instantly assumed that domestic retailers suffer. There is evidence however – in places like Central and Eastern Europe - that the modern retailing techniques which the overseas businesses brought with them were quickly absorbed by the indigenous businesses; some of which are now emerging as serious competitors to the overseas businesses. By the time any foreign retailers are allowed in to India, one thing that can be guaranteed is that they will find a vibrant and growing domestic industry.”
The report, produced by KPMG in India and the Federation of Indian Chambers of Commerce and Industry (FICCI), does however suggest that there could be a slight problem on the horizon with over-capacity in the new wave of Indian shopping malls becoming a distinct possibility.
Retailing in India is currently estimated to be worth US$200 billion, of which organized retailing accounts for US$6.4 billion. By 2010, that figure is expected to have grown to US$23 billion . When interviewing a selection of retail CEOs for the purpose of the report, KPMG in India discovered that 70 percent of businesses expect to grow in excess of 40 percent per annum in the next three years.
Commenting on the report’s findings, Deepankar Sanwalka of KPMG in India, said: “Statistics like this show that the organized Indian retail sector is just starting to realize the massive potential which it obviously has. Retail businesses are becoming more sophisticated in their offerings and adjusting their growth targets accordingly. Alongside this, other demographic factors are falling into place at exactly the right time. Sixty percent of the population is now under 30 years of age while the long-anticipated spending explosion among the young, consuming middle class is finally becoming a reality.”
“However, the point about shopping mall over-capacity is an interesting one. The availability of retail real estate will be a key factor in the sector’s growth plans. Due to the high cost of retail space in increasingly congested cities, retailers are welcoming the emergence of a mall culture. Such has been the zeal with which this format has been accepted, that it is predicted that 68 million square feet of mall space will be available by the end of 2007 . Unfortunately, many of our survey respondents felt that over-capacity was inevitable due to the lack of the necessary anchor tenants and insufficient differentiation between many of the proposed malls.”
The report suggests that the answer to the over-capacity issue may be for malls to adopt a specialized format. For example, specialist gold malls, stocked exclusively with jewelry retailers, have already started to appear. Plumping for a suitable product focus may allow the malls to become “destination malls”, thereby providing them with the necessary differentiation from their competition.
It’s not just the shopping malls which have been thinking about their formats. As retail businesses have grown, the need to decide on the format most suited to each business has grown as well. Western retail has long accepted that employing too many retail formats across one business rarely works. As a youthful industry itself, organized Indian retail is now going through its period of format experimentation. The KPMG report shows that many businesses believe that supermarket and specialty formats have the most potential for growth, closely followed by hypermarkets. It will however be interesting to see how perceptions may change about hypermarkets. Having started with other formats, every leading Indian retailer now uses a hypermarket format – or has plans for one – as its popularity grows.
Deepankar Sanwalka continued: “At the moment, the Indian government’s bar on foreign direct investment (FDI) on retail remains in place, ostensibly to protect the domestic retailers, allowing them to ‘grow up’ in peace. They are certainly doing that now. Considering the projected size of the industry by 2010, there is plenty to play for – which means that they must make the correct decisions on format, location, product offering, marketing and other key considerations.”
“With that in mind, it will be interesting to see if and when the government does relax the FDI rules. In other areas of the world where foreign retailers have entered the market, it is instantly assumed that domestic retailers suffer. There is evidence however – in places like Central and Eastern Europe - that the modern retailing techniques which the overseas businesses brought with them were quickly absorbed by the indigenous businesses; some of which are now emerging as serious competitors to the overseas businesses. By the time any foreign retailers are allowed in to India, one thing that can be guaranteed is that they will find a vibrant and growing domestic industry.”
posted by InCar Group Press Room at 00:16
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