Influencing Factors Present: Indian Retail Scenario

Retail Business today is one of the quickly growing channels & playing an important role in emerging economic growth of the country. In the recent times customers are getting more & more attracted towards Retail Markets. Change in income structure, consumer tastes & preference, demographic & geographic profile are some of the key factors that are driving towards growth in Retail Business.

Some other main factors responsible for the growth in Retail Industry are as follows:

1. Growth of Consumers

Nowadays there is tremendous growth in number of consumers in India, especially the middle class. Consumer demand & income structure has also increased further raising their expectations for quality products at reasonable prices. Retail outlets offer a wide variety of products & services to the customers to meet their demands thus resulting into the growth of Retail Sector.

2. Working Population

In recent times the graph of working population has seen a steep increase in urban as well as rural areas thus changing their spending habits & income structure. It becomes very difficult for the working people to spend enough time in shopping at different locations. This enables a retailer to provide them various products at one place, creating a platform for development.

3. Value for Money

Big & organized retail outlets basically deal in volumes & can offer a good range of products at reasonable price thus attracting customers at a very large scale. This in return also creates a good opportunity for retailers to get more profits & enables new business groups to enter into this sector.

4. Rural Market

Today’s Indian Retail market has entered in rural areas creating a big competition, as the rural population has become more literate & quality conscious. These high potential rural populations have thus enabled the retailers to enter rural market & develop new products & strategies to meet their demands. Also it has created employment opportunities for the rural people thus heading towards growth & development.

5. Corporate Sector

Corporate sectors have also entered into the retail business to cater the customers demand & provide them better quality products at reasonable price. This is one of the reasons that have brought revolution to the retail sector thus driving it towards the growth.

6. Foreign Retailers

Rapid expansion & the race to cater the demand of every customer is catching the interest of foreign retailers to enter the market &provide good quality products & services through joint ventures or franchising. This will further boost the retail sector & will help in developing economy of the country.

7. Technological Impact

Advance technology has made it easier for the retailers to handle large scale business & cater the needs of consumers. With the introduction of computerized billing system, electronic media & marketing techniques, barcode system has changed the face of retailing in providing products & services to customers. Also the use of online market has driven the retail sector towards advanced growth structure.

8. Income Structure

Increase in the number of working population has resulted in increase in the income structure in cities as well as remote areas. This has further led to increase in the demand for quality products & services. People nowadays tend to try new things & improve their look thus increasing the spending habits & giving an opportunity to grow & expand their business.

The rise and growth of the Indian retail industry

Over the years, retailing in India has been one of the most dynamic and fast paced industries, which has travelled through different phases. Origins of retailing in India can be traced back to the emergence of kirana and mom & pop stores, but with Indian economy getting liberalised in early 1990s, many indigenous franchise stores propped up. Many domestic players like Raymond, Bombay Dyeing etc. started to forward integrate from manufacturing to retailing thereby catering to a larger base of customers.

In the backdrop of evolutionary times coupled with day to day disruptions, retail outlets like Shoppers Stop, Planet M, Crosswords, Pantaloons etc. entered the market in the 1990s, followed by a few shopping malls, department stores and supermarkets. Thus, from early 90s to about 2005, shoots of organized retail started emerging in India. 2005 onwards marked a phase of growth and stabilization where large corporates like Reliance, Aditya Birla, Godrej etc. entered and grew their retail business. Retail became the ‘buzzword’ and the industry to be in. In the decade the industry saw many ups and downs and a few groups also exited retail who were not being able to grow and compete in the sector. A large number of International brands and retailers also entered India during this phase, many of them like Zara and H&M becoming extremely successful while the others still struggle to find a foothold.

Currently, driven by strong macroeconomic factors, India is one of the fastest growing economies globally and the fourth largest retail market in the world. It thus holds a very strong position as far as its market potential is concerned. It provides a strong platform for consumers, distributors, manufacturers and ancillary sectors like transportation, logistics, cold chains etc. Retailers are continuously trying to fully tap the depth of this potential by making use of latest technologies along with next gen tools like data analytics, social commerce, CRM solutions etc. which form the backbone of modern retailing.

The burgeoning millennial population, growing middle income households and increasing women workforce provide a highly positive outlook for the retail businesses in India. Fuelled by these factors, the Indian retail industry is expected to grow from US$ 790 billion in FY 2019 to US$ 1400 billion by FY 2024, as the overall economy crosses the US$ 5 trillion mark.

As internet penetration increases, more international retailers set up shops in India and established Indian brands and retailers set themselves on a high growth trajectory, the share of organised retail market is expected to increase from 12 percent in FY 2019 to 25 percent in FY 2024.The e-commerce market itself is estimated to grow from US$ 24 billion in FY 2019 to US$ 98 billion in FY 2024. Going forward, given the strong retail and consumer outlook, India is expected to witness redefining trends which will shape the future of the retail market.

Consumer experience will be the key focus of the retailers, while technology will play an important part in increasing sales as well as facilitating the enhancement of consumer experience throughout their shopping journey. The next 10-12 years will be the defining years for Indian retail as the market will mature and organized retail will penetrate deeper into smaller cities and towns. While on one side more international brands and retailers across categories and formats will aggressively enter and grow the Indian business, India will become the key growth market for the ones already present. Technology will replace many ‘human roles’ in retail and new ways to emotionally connect with consumer will evolve. New markets will develop, and new channels will disrupt and reshape the markets.

This article focuses on the some of the above points and throws light on trends expected to disrupt Indian retail industry in the near future.

Growth of Indian Economy & Consumption

Just days after coming to power, the current government spelt out its key priorities, which were focused on laying the foundation for making India a US$ 5 trillion economy by FY 2024. As per IMF too, India’s GDP will grow at 7.4 percent in FY 2020, with medium term growth projection expected to remain strong at 8 percent due to ongoing structural reforms and a favourable demographic dividend.

These factors are largely scripted on the strength of India’s growing domestic consumption. This high rate of growth in consumption is accompanied by a substantial decline in India’s poverty rate and increase in formal employment, due to growing proportion of jobs in services and declining share of employment in agriculture. The growing contribution of services sector towards India’s overall GDP, has resulted in creating improved working conditions and better income for Indian households. As a result of this, India’s GDP per capita has crossed US$ 2,000 mark in FY 2019.

The government now intends to focus on the manufacturing sector to create new jobs and has launched many initiatives like “Make in India” for this. This will further help in increasing the GDP per capita, thereby putting more money into the hands of people to improve their lifestyle, thereby supporting consumption and the retail market.

It has been seen in the case of China that when the per capita GDP reaches US$ 2,000 mark and the basic requirements of shelter, food and clothing are met, people start spending many other categories and the retail market consumption prospects improve and investment momentum increases significantly. At this level of per capita income, basic needs are met and income available for discretionary spend increases. As India has crossed this US$ 2,000 mark in FY 2019, it can be expected that Indian retail has reached its inflexion point. With rapidly growing economy and higher GDP per capita, it can be assumed that Indian retail industry has started to change its gears, just like China did in the last 15 years.

Indian retail is thus expected to reach US$ 1400 billion by FY 2024 from US$ 790 billion in FY 2019, growing at a CAGR of 12 percent.

Growth of Organized Retail

Due to the sharp rise and changing consumption pattern of Indian consumers, share of organized segment is growing rapidly. While traditional formats or unorganized retail formats continue to dominate the retail market, organized retail is growing at a faster pace and eating up into traditional retail. A major driver of this high growth trajectory has been online retail which is projected to grow at a CAGR of 33 percent between FY 2019-24. Growth in online retail is majorly attributed to factors including:-

• Increasing internet penetration
• Growth in number of smartphone users
• Growing number of online shoppers

Although mobile, tablets and electronics as a category continue to be the dominant one in the online market of India, new breed of online players are targeting other categories like food & grocery, pharmacy etc. These will be the categories where we will see 40 percent plus year on year growth in the online space.

Factors Driving the Growth of Indian Retail Market

Indian consumption and retail market growth is largely supported by the following factors:

1. Burgeoning Millennial Population and Changing Outlook towards Spending

With median age of 27 years, India is home to world’s largest Millennial population. With 440 million of them, they make 34 percent of the total population in India. Further, their contribution to the Indian workforce is significantly higher at nearly 48 percent in FY 2019.

This set of consumers are more confident of future success and earning at a much younger age than their parents. As they are more urban in their approach, these consumers are career driven and well-travelled people. They aspire high, with fewer things seems to be out of bound for them. Millennials no longer feel guilty about spending too much on self, instead they believe in investing towards fulfilling their needs more thoroughly. They spend on things that make them look good in a “selfie” world. They also spend on things that improve their lives and their “image”. The focus is shifting from high capex items like house and cars that the last generation saved and spent on, to spending more on experiences and on day to day things, buying better products and brands in a more convienent way.

Also, Millennials are known to be marrying late, with average age of marriage for women in urban India increasing from 20-22 years to 25-26 years, while for men it has increased from 25-26 years to 29-30 years in the past few years. This has resulted in young Millenials having more disposable income to spend on “self”, therby growing various categories like personal gadgets, solo holidays etc.

2. Increasing Women Workforce

With changing societal mind set and increasing gender equality at office, women entering workforce has been on the rise in past few years. From FY 2014 to FY 2019, women workforce in India has increased from 5 million to 7 million respectively and is expected to reach 10 million by FY 2024. This has led to the increase in earning members and family income, thereby giving rise to discretionary spending. Today, women in India are getting independent in terms of their purchase decisions. This coupled with increasing time pressures and aspirations to spend on self-development, is giving rise to the consumption of new categories like personal care, readymade products etc.‘ Convenience’ is again a theme that comes up very strongly here. Across categories, products and brands that can make the consumer life more convenient will continue to grow very rapidly.

3. Growing Wallet Share and Price Trade-Off

With growing GDP per capita and higher disposable incomes, consumers have become more aspirational and are open to buying new categories. This hasled to a change in wallet share of Indian consumers. Earlier wallet share of Indian consumers was largely dominated by food and clothing only, but with evolving buying behaviour, new categories like mobile and communication, beauty & grooming, personal gadgets etc. have now become a part of Indian consumer’s wallet share.

Many new categories of spend have thus emerged in the last few years and many others have redefined themselves.

Consumers have traded “durability” for “price” and “fashion”. E.g. in the 80s and 90s, consumers purchased a TV or a refrigerator or furniture only once or twice in their lifetime, largely when the older product became irrepairable. However, Millenials buy these products every 5-7 years as products with new features and designs are launched. Thus, the market for these products has grown tremendously as first-time buyers purchase these products driven by greater affordability and there is a high replacement driven demand. There is also a great growth in the second-hand market, which is also becoming online with many online players entering the market.

4. Growth of Markets

With online players now delivering to the smallest of towns, consumers in these cities are aware of many international and indigenous brands available in the market. This spells a big opportunity for the modern retailers who are looking to enter into Tier III & IV markets. Many consumers living in Tier III &IV towns have now experienced the brands, through online purchases. Leading national brands are now looking at 500 plus cities as their market and are already opening stores. Other international and indigenous brands are planning expansion into these cities based on factors like changing lifestyle, digital connectivity etc.

5. Growth of Malls

With wide variety of international and domestic brands available and with growing consumer desire to own these brands at a more organised, better and bigger destinations, there has been a sharp rise in the number of malls operating in India. Earlier the mall development was confined to top tier cities like Delhi- NCR, Mumbai, Hyderabad, Chennai, Pune etc. However the next round of mall development is expected to come from Tier III cities like Allahabad, Coimbatore, Jamshedpur, Panaji, Udaipur etc.

Malls have also progressively become bigger and are considered to be destinations or experience centres instead of just shopping or transactional places. Today, malls are focusing more to become a community or public interaction centres by creating meeting places, entertainment areas, providing better shopping experiences through enhanced ambience, brand selection etc. By bidding farewell to the categories like books and music, and mobile, that have moved online, malls have started to focus on the growing significance of offering a good line-up of experiential categories like food and beverage, entertainment options like multiplexes, gaming centres along with other amusement options to encourage greater footfalls and more return visits.