Retailing in India - Assignment Example

? Retailing in India Contents Introduction 3 Literature Review 4 Methodology 5 Findings & Analysis 5 Conclusion 8 Reference 10 Introduction The retail sector of India is one of the pillars of the economy and nearly accounts for about 14% to 15% of the GDP. The retail market of India is thus estimated to be US$450billion and is also counted among the top five retail markets globally. India is the fastest growing market and accounts for about 1.2billion people. Indian retail is expected to grow by 25% annually and modern retailing is expected to be about US$175-200 billion by the year 2016. The food retail industry tends to dominate the retail sector with 58% of the retail sales followed by mobile phone retail sector which incurs 16.7US billion business and is growing at 20% annually (Gupta, 2012, p. 8). Clothing and footwear also accounts for 10.5% of the total sales in retail. The “entertainment, books and sports goods equipment” registered a CAGR of 21.3% in the financial year 2007 and 2012. According to Research and Markets, the retail industry in India has grown at CAGR of 14.6% in the financial year 2007 to 2012. The growth is influenced by the growing economic rate, change in the consumption pattern of the populace which are driven by higher standard of living, greater proportion of women, growth in middle class population and the increased level of penetration of organized retail segment. Despite of the prevailing growth rate, the retail segment of India remains fragmented with the organized sector still accounting for a miniscule percentage of the total market size of Indian retail market. The organized retail segment however accounted for a CAGR of 26.4% of the total retail. However with global and Indian economy reviving from post recession, the organized retail segment has witnessed a gradual increase in the footfall during FY2011 (Research and Markets, 2012). Literature Review India has emerged to be among the most favorable destinations for the international retailers over the years outpacing some of the retail giant locations such as Russia, UAE, Saudi Arabia and Indonesia and as per “Global Retail Development Index (2012)” India is the potential market with an accelerated growth of 15% to 20% in the coming five year period. The Indian retail segment is pegged at 500billion US dollar and is further expected to attain US $1.3trillion by 2020 and the organized retail sector is expected to reach about 25% by 2012. Indian e retailing market also has high potential for future growth with estimates to be US 1.26billion by 2015 and currently the e-retail segment accounts for US$ 361.66million (IBEF, 2012). In 2011, the Central Government of India had announced reform with respect o retail for both single brand and multi brand stores. The market reform have paved reform for competition and retail innovation with the multi brands such as Carrefour, Tesco and Wal-Mart and also for the single brands like Nike, Apple and IKEA. India had approved reform in January 2012 providing with the opportunity to innovate in the retail market with 100% ownership but for single brand imposed 30% of requirements of goods from India (Gupta, 2012). The Indian retailing structure can be divided into two groups, the organized and the unorganized retail sector. The unorganized retail sectors are the vendors, handcart, kiranas and others. This sector contributes to 98% of the total retail value. But with FDI in picture, the retail sector is expected to shrink employment in the unorganized sector and latter expand in the organized sector. The organized sector is undertaken by licensed retailers who are registered under income tax and sales. Another form of retailers is the in store retailers also known as brick and motor formats and are designed in order to lure its customers. Different kind of stores such as branded stores which appear in the form of executive showrooms, multi brand specialty store, department stores, convenient stores, supermarkets and shopping malls (Economy Watch, 2010). Liberalization and globalization have influenced the economy of India and has contributed in making it a lucrative consumer market. The government has also opened up FDI in retail sector (Deloitte, 2010). (Source: Deloitte, 2010) Methodology The subject matter retailing in India has been subjected and interpreted in many different ways. The research has included statistics, magazines; articles along with qualitative analysis based on Porters Five Force. The findings are mainly based on secondary research from articles, books and relevant sources. Findings & Analysis According to secondary findings it has been seen that the Indian retail segment is at its growth stage and is expected to grow at 15% to 20% over the next five year period. The market size of retail industry after the involvement of FDI, single brand retail during 2000 to 2012 stood at about US$42.70 million and Cash and carry represents a total holding of US$149.19billion on an annual basis. In addition the demography of India has made the market much more attractive and has open doors for companies operating in apparel, footwear, mobile phones, accessories, food and beverages, personal care and others. India has huge population who falls under the category of middle class and accounts for 75million households. India has got population of 500 million within the age group of 25 years and the young segment are independent and have access to money which in turn help in to drive in purchase in fashion, accessories, mobile phones, food and beverages and others. According to reports of World Wealth 2010, there has been a decent rise in the number of millionaires from India with investible assets with about 1million US dollar second fastest in the region of Asia Pacific second only o Hong Kong. According to findings it has been seen that a huge demand lies in for food and beverages, electronic products and other FMCG products like shampoos and toothpaste followed by mobile phones, apparels, two wheelers. The following figure show the demand as per consumers needs and requirements (Source: PWC, 2011, p. 12) Based on the above findings huge opportunity lies with the Indian retail segment to expand and explore in the years to come. The supply drivers for retail segment are the expansion strategy which has enabled the consumers to access easily retail products across various cities, urban areas and also including Tier II and Tier III towns and cities. Some of the global brands has also made its entry into India retail market and believes that the emerging economies have huge potential to incur future growth rates. However growth opportunities for Indian retail market as per analysis are accessories, children’s wear, leisure, footwear, apparel and also children’s wear. However in comparison to other Asian countries, apparel market in India is comparatively smaller. The Asian market for apparel is predicted to expect a growth of 5% by 2014 and among the emerging economies China tends to evoke confidence in global fashion market. However the apparel market has been increasing at a faster rate and is highly supported by the young market segment. Another opportunity lies in the consumer durable and electronic sector and demand for it are high in India. Demand for food and beverage in Asia is expected to increase (PWC, 2011). After analyzing the market based on secondary sources, Porters five force has been conducted to understand the attractiveness of the retail industry. Porters five force model takes into consideration five aspects which are the bargaining power of buyers and suppliers, threat of new entry, threat of substitutes and rivalry among the competitors. The bargaining power of consumers is moderate as they do not have the power to bargain with retail stores but of course they demand better quality products. The suppliers powers are low as contract with big retailers can either break or make suppliers. Analyzing the growth rate in retail sector, the threat of new entrant is high. With 51% FDI in single brand had created wide opportunity for international brands to expand in India. Few examples like Mc Donald’s, IKEA, Body Shop, M&S and others. Threats from substitutes are also high as offerings tend to be same with other retail outlets providing the consumers with greater option. Competition from rivalry is also high with more brands coming up, both domestic and internationals leading to tough competition between the firms. In addition to the offline retail segment, the online retail market is also growing at double digit rate and is expected to become the next major area in the retail industry. Major growth drives for online retail industry are the following, With the use of broadband and other portable device internet penetration is high and helping consumer to shop online irrespective of where they are. Participants of global and local E-commerce have launched websites with range of products Consumers are willing to experiment with forms introduce in retail segment Speed, convenience ad 24 hour accessibility are main drivers in online marketing Conclusion Thus after analyzing the facts, statistics and trends in the Indian retail segment it can be concluded that the Indian retail market is regarded as an evolving market and is expected to grow and developed in the next four to six years as the consumers with high disposable income will increase allowing them to spend more on products. With more retailers entering the Indian retail market and expand the operations, the consumers buying pattern and shopping habits will change enabling retailers a stable growth rate. Retailers who are currently functioning into the market and also those who plans to expand will thus have enough time to understand the dynamics of the market, establish formats, develop supply chain and chose the right kind of product to meet the diverse need of the Indian consumers. Reference Research and Markets, 2012. The Indian Retail Industry 2012. Retrieved from Gupta, P. 2012. FDI In Indian Retail Sector: Analysis Of Competition In Agri-Food Sector. Retrieved from IBEF, 2012. Retail. Retrieved from Economy Watch, 2010. Structure of the Retail Industry In India. Retrieved from Deloitte, 2010. Indian retail market: Changing with the changing times. Retrieved from PWC, 2011. Winning in India’s retail sector: Factors for success. Retrieved from < http://www.pwc.com/in/en/assets/pdfs/rc-publications/WinningSector.pdf> Read More