Organized retailing in India

The recent years have witnessed rapid transformation andvigorous profits in Indian retail stores across various categories. This can becontemplated as a result of the changing attitude of Indian consumers and theiroverwhelming acceptance to modern retail formats. Asianmarkets witness a shift in trend from traditional retailing to organized retailing driven by the liberalizationson Foreign Direct Investments. For example, in China there was a drastic structural development afterFDI was permitted in retailing. India has entered a stage of positive economic development which requiresliberalizationof the retailmarket to gain a significant enhancement.

Domestic consumption market in India is estimated to growapproximately 7 to 8% with retail accountingfor 60% of the overall segment. Of this 60%, organized retail is just5% which iscomparatively lesser than other countries with emerging economies. In developedcountries organized retailing is the established way of selling consumer products. Despite the low percentage, Indian textileindustry has grown noticeably in organized retailing of textile products. Thenegative phase in exports may have compelled the Indian textile retailers toexplore the opportunities in the domestic market substantially causing theoutstanding growth in the concerned segment. Theseindications give a positive notion that organized retailing has arrived inthe Indianmarket and is here to stay. It is expected to grow 25-30 per cent annuallyand would triple in size from Rs35,000 crore in 2004-05 to Rs109,000 crore ($24billion) by 2010.

India is on the radar screen in the retail world and globalretailers and at their wings seeking entry into the Indian retail market. Themarket is growing at a steady rate of 11-12 percent and accounts for around 10percent of the countrys GDP. The inherent attractiveness of this segment luresretail giants and investments are likely to sky rocket with an estimate of Rs20-25 billion in the next 2-3 years, and over Rs 200 billion by end of 2010. Indianretail market is considered to be the second largest in the world in terms ofgrowth potential.

A vast majority of India's young population favors brandedgarments. With the influence of visual media, urban consumer trends have spread across therural areas also. The shopping spree of the young Indians for clothing,favorable income demographics, increasing population of young people joiningthe workforce with considerably higher disposable income, has unleashed newpossibilities for retail growth even in the rural areas. Thus, 85% of theretail boom which was focused only in the metros has started to infiltratetowards smaller cities and towns. Tier-II cities are already receiving focused attention of retailers and the other smaller towns and even villages are likely to join in the coming years. This is a positive trend,and the contribution of these tier-II cities to total organizedretailing sales is expected to grow to 20-25%.

Challenges facing the Organized Retail Industry:

Despite the rosy hopes, some facts have to be considered topositively initiate the retail momentum and ensure its sustained growth. Themajor constraint of the organized retail market in India is the competitionfrom the un-organized sector. Traditional retailing has been deep rooted inIndia for the past few centuries and enjoys the benefits of low cost structure,mostly owner-operated, therein resulting in less labor costs and little or notaxes to pay. Consumer familiarity with the traditional formats for generationsis the greatest advantage to the un-organized sector. On the contrary,organized sector have big expenses like higher labor costs, social security toemployees, bigger premises, and taxes to meet.

Availability and cost of retail space is one major area where Government intervention is necessary. Liberalizing policy guidelines for FDI needs focus as well.Proper training facilities for meeting the increasing requirements of workers in the sector would need the attention of both Government and the industry. Competition for experienced personnel would lead to belligerence betweenretailers and higher ratesof attrition, especially during the phase of accelerated growth of the retail industry. The process of avoiding middlemen and providing increased income to farmers through direct procurement by retail chains need the attention of policy makers. Taking care ofsupply chain management, mass procurement arrangements and inventory management are areas that need the focus of entrepreneurs.

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