Retailing Industry

Overview

The retailing sector in India is highly fragmented. There are about 12 million retail outlets spread across the country, of which more than 80% are run by small family businesses using only household labour. Traditionally, small-store (kirana) retailing has been one of the easiest ways to generate self-employment, as it requires limited investment in land, capital and labour.

India has one of the highest retail densities in the world at 6% (12m retail shops for about 200m households).

India’s organised retail sector is in the early stages of development and represents only 2.5% of the market. It is way behind the development curve when compared with modern economies (in the US ORP constitutes about 85% of total retail sales). India also lags behind other emerging markets in Asia (Taiwan, Malaysia, Thailand,Indonesia, China), Eastern Europe (Poland) and South America (Brazil) where significant progress been the last two decades.

But the story is set to change. In India, organised retail has been growing at about 25% p.a. over the last two years and in our view will accelerate over the next five years. Several factors have emerged that will drive growth.

The 5 growth drivers for retailing growth

• Increasing urbanisation and rising incomes** among the young towards an organised retailing experience (** Note Below)
  
• Good quality supply of land is no longer a constraint
  
• Profitable models have emerged across most product categories
  
• Regulatory environment is becoming more favourable
  
• Capacity Expansion plans of retailers are becoming more aggressive
  

  Key Players (Indian)

  Pantaloon

  RPG Retail

  Shoppers’ Stop

  Trent

  Lifestyle

  Subhiksha

  People Challenges

  Building Retention: The industry also faces considerable attrition. This can create damaging situations, as a people intensive industry training and developing skilled personnel is critical to its growth.

  Since this is an emerging sector;there are no existing talents (poaching)

  Counter sales is not viewed asa prestigeous job hence people who do it do not have a strong self esteem-would seek a change.

  Outlook

  India will increase its Organised Retail Penetration (ORP) by 5% over 5 years (from the current level of 3% to 8% by 2010e), which we believe is achievable keeping in mind examples of growth in other emerging markets.
  

  It took 10 years for China to increase its ORP by 15% between 1990 and 2000 and that was achieved with limited assistance from foreign retailers.
  

  An 8% ORP in 2010e would imply about a 100bps gain in ORP market share for the next five years in India as compared to a gain of 150bps/year in China between 1990 and 2000. In other emerging markets the gains have been much faster on a per year basis.
  

  An ORP of 8% in 2010e would imply organised retail sales CAGR of 30% between 2005and 2010, not aggressive in our view keeping in mind that growth trajectory has been about 22-24% in the last two years.
  

  Other assumptions include a five-year retail sales CAGR of 7% (in line with recent growth rates)and an estimated real GDP CAGR growth of 6% over the same period.
  

  ** Rising Incomes:- Note

  The Total retail market in India is worth $202 billion. It is growing at 30% per year, of this the luxury segment is worth $444 million. There are 1.6 million high-income households earning Rs 45 lakhs or more annually,and growing at 14% p.a. The # of millionaires is growing at 12.8% annually and their wealth will be estimated at $322 billion by 2009.