By Nirmal Bang

In India ‘retail’ is not a new word. But there is still something very new about the sector today in terms of the shift from roadside pavement retail to small shops, from departmental stores to the huge state-of-the-art malls.

Today two businessmen might be producing similar goods and have same-sized balance sheets, but if one does a lot of advertising and publicity and the other doesn’t, it is the former who emerges with a ‘brand’.

Yes, we are certainly living in the age of branding. Whether you buy Lux soap from a kirana shop or a supermarket – you are ultimately buying the brand. Branding has today transformed into multi-faceted stores in shopping malls, exclusive standalone stores as well as high-end boutiques, which burn a hole in your pocket.

The Indian retail market saw a slump following the global recession and is now recovering, emerging as one of the top attractive investment destinations. Currently, the share of retail to the country’s GDP is about 12%, which is estimated to rise to 22% by 2010. Within this market, apparels form the second largest segment in terms of value, growing annually at the rate of 10%. With the opening up of the economy and globalization, India’s retail industry has witnessed a huge change over the years and with FDI now allowing up to 51% in single brand retail, the demographics of this industry have substantially improved and are further expected to shine.

Of all market categories retail offers in itself the broadest canvas for any brand to show its true colors, to portray itself in front of the consumer and finally put the brand in the consumer’s hands. Changing consumer patterns, rising income levels and the emerging middle class, which will constitute more than half of the total population is set to drive growth in this sector.

The slowdown did bring with it some bad news for the retail industry. The Retailers Association of India revised its estimates for organized retail penetration to 10.4% in 2012 from 16%. While some said the bubble had burst, others said these brakes were necessary as otherwise this sector would have created trouble for India’s economy in the future.

Recently, India slipped to the sixth position from second in export of clothing (US$ 10.17 billion in 2008-09). The current fiscal saw garment export growth rates declining to 7% from 9%, a year before.

The declining trend has been visible since Jun ’08 and has carried on till February this year with demand picking up with signs of a global economic recovery in the latter half of the year.

Post Sept ’08, clothing exports from India have declined each month (except Jan ’09). The provisional figures for the September-March period are US$ 5.52 billion versus US$ 5.90 billion in the corresponding period last year, that is a decline of approximately 4.75%.

The trend in Apr ’09 has continued to show a decline of 9.71%. Yet, the future looks bright for the sector, simply because once the recessionary clouds move away people will jump into the consumerist wagon.

India’s per capita GDP has grown exponentially over the years and is expected to grow further. This along with the transition of the middle class will lead to a reduction in poverty and further the burgeoning middle class. In 2005, the middle class segment was relatively smaller in size, comprising just 5% of the total population but this is expected to increase to 41% by 2025.

The total apparel consumption by these classes is said to increase more than 10 times from $3.6 billion in 2006 to $37 billion by 2025. This data simplifies the vision for India’s retail sector.

Further, the consumption rate is growing stronger day by day and the combination of rapidly rising household incomes and a growing population will lead to a significant increase in consumption.

The aggregate consumption of India is expected to grow to Rs 34 trillion by 2015 and Rs 70 trillion by 2025, a four-fold increase from the current levels of Rs 17 trillion. The Indian market is expected to be the fifth largest market in the world by 2025, surpassing the market of Germany.

The Apparel Export Promotion Council (AEPC) also forecasts strong growth in the Indian apparel industry. Among their set targets and forecasts are to attain exports worth US$ 34 billion by 2015, growing at an average of around 18% for the period 2009-2015, to have at least 5.3% share in the global apparel market by 2015, to have 60% share in India’s textile exports and retain 90% of the domestic market, which is growing at 10%.

Although low growth of 6% annually is likely to continue for the next two years, the AEPC vision is based on sustained growth of top five apparel suppliers. Based on the past export trends of India, feasibility study and the assumption that the world apparel market would grow moderately at 8%, AEPC fixed the target for apparel exports by 2015 at US$34 billion.

The retailers are also working to overcome key hurdles. Increasing market share, improving brand image, insulating the export market by diversifying, tackling production-related issues and reducing cost disadvantage, keeping a check on debt-funded expansion, penetrating the rural markets and Tier-I and Tier-II cities, offering products for the lower income bracket and much more, is on the retailers’ minds to make the most of the next projected boom in the market cycle.

The future certainly looks bright. As the consumer base in India grows exponentially from 300 million to an estimated 500 million in the next five years, the retail sector is slated to grow along with it. India’s overall retail sector is estimated to rise to US$ 833 billion by 2013 and US$ 1.3 trillion by 2018.

Of this, organized retail, which constitutes just 5% of the total market, is estimated to grow at a CAGR of US$ 107 billion by the year 2013 from US $20 billion in 2007, signifying a huge potential.

With the second largest population in the world growing at an average of around 1% per annum coupled with rising income levels, the retail sector will ride on the consumption wave that continues to be one of the most significant components of the Indian GDP.

Malls are expected to be one of the major growth drivers of apparel retailing and in terms of opening new retail outlets, apparel retailers and brands attained a higher than expected growth rate. The market potential is clearly evident from the number of stores being added to the list of existing ones every year.

The number of operational malls are expected to grow two-fold with a major slice of development taking place in Tier-II and Tier-III cities, which are relatively newer avenues for the industry.

Apparel industry is considered an environment-friendly industry due to its low emission levels. The industry can leverage carbon credits saved in this industry and trade them in the world market. In fact, it can be a new source of revenue for our industry.

Given the fact that because of the rise in the global equity markets, the prices of some of the apparel stocks such as Zodiac, Provogue and Koutons have already gone up by an average of 150% in the last six months.

The Indian Brand Equity Foundation (IBEF) too upholds most of these projections. The country’s retail market is the fifth largest retail destination globally to be ranked as the most attractive emerging market for investment in the retail sector by AT Kearney’s eighth annual Global Retail Development Index (GRDI) in the year 2009.

The share of retail trade in the country’s gross domestic product (GDP) was between 8% and 10% in 2007. It is currently around 12% and is likely to reach 22% by 2010.

A McKinsey report called ‘The rise of Indian Consumer Market’, estimates that the Indian consumer market is likely to grow four times by 2025.

Commercial real estate services company, CB Richard Ellis’ findings state that the retail market in India is currently valued at US$ 511 billion.

Further, CB Richard Ellis states that India has moved up to the 39th rank in the list of the most preferred retail destination in the world in 2009, up from 44 last year.

Banks, capital goods, engineering, fast moving consumer goods (FMCG), software services, oil marketing, power, two-wheelers and telecom companies are leading the sales and profit growth of India Inc in the fourth quarter of 2008-09. India continues to be among the most attractive countries for global retailers.

At US$ 511 billion in 2008, its retail market is larger than ever and draws both global and local retailers. Foreign direct investment (FDI) inflows as on Jul ’09, in singlebrand retail trading, stood at approximately US$ 46.60 million, according to the Department of Industrial Policy and Promotion (DIPP).

India’s overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a compounded annual growth rate (CAGR) of 10%. As a democratic country with high growth rates, consumer spending has risen sharply as the youth population (more than 33% of the country is below the age of 15) has seen a significant increase in its disposable income.

Consumer spending has risen at an impressive rate of 75% in the past four years alone. Also, organized retail, which is pegged at approximately US$ 8.14 billion, is expected to grow at a CAGR of 40% to touch US$ 107 billion by 2013.

The organized retail sector, which currently accounts for around 5% of the Indian retail market, is all set to witness maximum number of large format malls and branded retail stores in south India, followed by north, west and the east in the next two years.

According to the report ‘Mall Realities India 2010’ by leading property consultants, Jones Lang LaSalle Meghraj and Cushman & Wakefield India in association with Shopping Centres Association of India, over 100 malls of over 30 million sq ft of new shopping centre space is projected to open in India between 2009 and the end of 2010.

Further, this sector is expected to invest around US$ 503.2 million in retail technology service solutions in the current financial year. This figure could go further up to US$ 1.26 billion in the next four to five years, at a CAGR of 40%.

India has emerged the third most attractive market destination for apparel retailers, according to a study by global management consulting firm AT Kearney. Apparel, along with food and grocery, will lead organized retailing in India.

India has one of the largest numbers of retail outlets in the world. The sector is witnessing tremendous growth with retail developments taking place not only in major cities and metros but even in Tier-II and Tier-III cities in the country.

Major plans by leading retailers, both from India and abroad, have been revealed and are much talked about. Among these, the leading names are Marks & Spencer, Carrefour SA, Gitanjali Group Mahindra Retail, Pantaloon Retail India (PRIL), Bharti Retail, Aditya Birla Retail, Reliance Retail and Shoppers Stop. The government has permitted 100% FDI in the cash-and-carry wholesale formats. Franchisee arrangements have also been allowed in retail trade.

According to industry experts, the next phase of growth is expected to come from rural markets, with rural India accounting for almost half of the domestic retail market, valued at over US$ 300 billion.

Rural India is set to witness an economic boom, with per capita income having grown by 50% over the last 10 years, mainly on account of rising commodity prices and improved productivity.

According to retail and consumer products division, E&Y India, basic infrastructure, generation of employment guarantee schemes, better information services and access to funding are also bringing prosperity to rural households. The rural market, which requires constant innovation, will need to go beyond routine ideas.

All in all, there’s no stopping India’s retail sector. As the middle class steadily grows, the rich continue to tune in to the finer things in life and poverty is reduced greatly each year, contributing to the retail industry in their own little ways.

Those with established brands are taking their companies to newer levels with each financial year and there are a number of brands that are being launched almost every other day – adding to the massive industry thus, helping it to grow by leaps and bounds.