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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.
Last updated:
Oct 2006.
Appendices
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