Evolution of Retail: Indian Context

With revolutionary changes taking place in the worldwide economy and the growing importance of 24/7 operation of the business, the retail sector has been undergoing a paradigm shift across the world.

The world of today has turned into a global village; consumerism is having a huge impact on the contemporary retail business, and technological advancements have created opportunities as well as several challenges for the retail industry.

With the advent of the internet, the growth in the retail industry has been impressive due to the benefits of the economies of scale and also the expansion of business across the geographical boundaries at B2B (Business to Business) and B2C (Business to Consumer) levels.

Several studies have proven that the Indian Retail Market is one of the top emerging markets in the world. For Indian Economy, the retail sector is one of the pillars, which contributes towards a growth rate of approximately 10% of the total GDP and towards the total employment around 8%.

According to the latest studies, Indian retail market is ranked amongst the top 5 retail markets worldwide estimated around 600 Billion US Dollars.

Indian Retail industry is expected to have a bright future and offers numerous opportunities for progress and growth. According to GRDI reports, some favorable factors which support the growth of retail business are: rise in fashion loving and brand conscious young population, extensive urbanization, and expansion of opportunities for new investment in retail sector.

As per the report of FICCI (2011), a positive trend in the Indian retail sector can be attributed to a sharp rise in the Middle-Income segment and growth in domestic consumption. Moreover, studies suggest that with changes in the consumer buying preferences, demographics composition and increasing preference for mall culture, there has been a transition from the traditional retail formats to a more organized form of retailing, as a result of which the Indian Retail market is expected to witness an optimistic trend in future as well.

The retail sector in Indian context can be subdivided into Organized and Unorganized retail sectors. Organized retailing constitutes licensed retailers registered under sales and income tax, involved in carrying out their day-to-day trading functions. This may include large hypermarkets, large-scale owned retail ventures owned privately or the retail chains as well. On the other hand, unorganized retailing comprises of a sizeable proportion of small retailers operating their own Kirana, paan, beedi shops, general stores, chemists, hawkers, etc.

In developed economies, organized retail enjoys a predominant share of around nearly 75-80% as against traditional retailing, while in developing economies; unorganized sector enjoys a predominant share in the retail market.

The retail sector in India is highly fragmented or distributed. Unorganized retail constitutes a significant share of over 90%, while the organized retail segment is just in a start up stage and has witnessed an impressive growth over last few years. Retail in India originated with the Mom and Pop Stores and Kirana Stores, which used to cater to the requirements of the local population. Over a period, the government encouraged rural retail and provided support for establishing Khadi & Village industries.

During 1980’s, the retail scene in India changed further with the opening up of the economy, as a result of which leading retail chains in textile sector were established like Raymond’s, S Kumar’s and Bombay Dyeing. Subsequently, Titan launched its retail showroom, and the organized retailing started strengthening its grip in the Indian market.

By 1995, major retail outlets such as Food World, Music World, and Planet M, Crossword entered the Indian retail market. Large retail formats and stores like shopping malls, hypermarkets and supermarkets came into operation for providing best of the class experience to the customers.

The retail sector evolution witnessed improvements in the distribution set up, supply chain management, technological innovations, back end operational support and excellence and increase in business alliances in the form of collaborative ventures, mergers, acquisitions, joint ventures, etc.

Major players in the retail industry like Tata Group, Future Group, Bharti, and Reliance, etc. have stepped forward with aggressive and ambitious investment plans in the retail sector as a part of their business expansion strategy across various verticals. Moreover, with the introduction of retail reforms by the Government of India which allows FDI of 51% in multi brand stores in India, organized retail sector is expected to capture a major share of the market in the upcoming future.

According to Assocham study, factors such as globalization and liberalization of economies, increase in the purchasing power of the consumers, changing lifestyle and infrastructural developments, have revolutionized the Indian retail market.

Studies reveal that organized retail market which was just at 7% of the total retail market share in 2011-12, is expected to attain a total share of over 10% across the retail sector by 2016-17. The estimated growth rate of traditional retail is expected to be around 5% while for organized retail it is expected to be around 25% by 2020.

Food & Grocery is the major contributor in the entire retail market in India with a total contribution of almost around 60% of the total retail sector in 2012. This is followed by Clothing (8%) and Telecom & Mobile (6%) and many others.

In organized retailing, Apparels is the major contributor which accounted for a total contribution of 33% in 2012 to the retail industry followed by food and grocery (11%). Though, the share of Food & Grocery segment in organized retailing has shown an impressive growth since last few years. E Commerce and E Tailing in recent years have redefined the retail landscape and offer a lot of opportunities to various stakeholders.

Challenges Faced by the Indian Retail Sector

Even though the retail sector in India has a lot to offer regarding opportunities and prospects of business growth, still it is susceptible to various impediments/bottlenecks which may slow down the pace of growth. Several challenges such as infrastructural limitations, rigid or stringent regulations, political uncertainties, etc, may restrict the growth prospects and pose a lot of hurdles. Some of the major challenges which Indian retail industry is faced with are:

  • Competing with the international standards

  • Indian retail industry is exposed to several systemic inefficiencies and problems with the supply chain framework.

  • Indian retail outlets operate in a constrained space of below 500 sq. ft., which is too small as per the international retail outlet space standards.

  • Growth in the retail industry has given rise to real estate related problems with increasing requirements for setting up hypermarkets and supermarkets across various locations in large scale.

  • Problems related to the shortage or lack of availability of trained or skilled manpower.

  • Frauds in the form of thefts, vendor frauds or administrative loopholes in the retail industry, are a major cause of worry and this has posed several challenges before the management.

  • Infrastructural and logistics related issues.

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