The Indian Retail Story

The economy of India is the sixth-largest in the world measured by nominal GDP of US$2.628 trillion and the third-largest by purchasing power parity of US$9.49 trillion. With an average GDP growth rate of approximately 7% over the last two decades, India’s economy has the potential to become the world’s fastest growing major economy.

The Indian economy is classified into 3 sectors: agriculture, industry and services. More than 60% of the GDP is contributed by the service industry. Service industry includes aviation, finance and banking, information technology, insurance,electricity, infrastructure, tourism, retail, construction, education,health care, telecommunication and entertainment industry.

Retail industry contributes between 14% and 20% of India’s GDP. The Indian retail market is estimated to be US$600 billion and one of the top-five retail markets in the world by economic value. India has one of the fastest-growing retail markets in the world and is projected to reach $1.3 trillion by 2020 from $672 billion in 2016. Food and Grocery is the largest category within the retail sector with a share of 66% followed by Apparel at 8% and consumer durable and jewellery at 6%.

India retail is divided into organised and unorganised retail. The organised retailing refers to the trading activities undertaken by licensed retailers ,that is those who registered themselves for sales tax ,income tax ,etc. These include the corporate –backed hypermarkets and retail chains and also the privately owned large businesses. Unorganised retail are the number of small retailers consisting of the local kirana shops, owner-manned general stores, chemists, footwear shops, apparel shops, paan and beedi shops, hand-cart hawkers, pavement vendors etc that may or may not be register and don’t have chain of businesses. The unorganised retail penetration is around 87% and organised retail is just 13%. This indicated strong growth potential for the organised retail.

India being a very volatile market, it is very hard to predict what retail will look like in 2020. Here are a few challenges that will shape the future of Indian retail.

Demand Potential of the Population

With a total population of 1.3 billion and counting, the Indian population is witnessing a significant change in its demographics. Its a large growing consumption market. A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector have led to increasing purchase power with has further led to the growing demand.

We have a large ageing population to cater to. According to WHO, 2 billion people will be at least 60 years old by 2050. This is a great opportunity for retailers to take stock of the segment’s particular needs. retailers can work on providing electronic shopping carts ,online delivery options, special nutritional needs for the aged, after-sales service etc.

With 65% population under 35 years of age, this band of population is very well connected through their mobile devices. Retailers have to work more on ecommerce strategies and ways of having a seamless experience between the offline and online stores.

Time Starved

Due to urbanisation, Urban consumers who are starved of time and who have to spend a lot of time in commuting to their work places will to a great extent drive retail sales of fast and ready to eat foods. They are also likely to indulge in impulsive buying, when they will want to unwind at a mall during weekends. These are potential areas where the retailers will take the cue and lure the customers.

Higher Complexity

The quantum of choices in terms of the number of SKUs, multiple brands in a product, different platforms to buy from, variety of prices etc , there are a huge choice preference from where to buy from. The complexity of decision making is more complex with the variants available.

Need To Connect

India is one of the world’s most exciting e-commerce markets, but with an ever-rising number of mobile-only internet users, its mobile retail journey is still in its early days. The country’s mobile phone subscriber base recently surpassed one billion, highlighting the staggering potential of mobile technology in the country. However, to keep driving sales and retaining customers, retailers must provide a seamless and engaging shopping experience through mobile apps.

Due to the recent demonetisation and a reduction in cash transaction, along with improvement of net banking facilities, the opportunities for the Indian e-commerce sector has significantly increased.

Human and Food Health

As consumers are actively trying to live healthier lifestyles, food retailers are being forced to tailor their products and services to this new 21st century consumers. Consumers prefer buying nutritious food items that will add on to their daily health. Food should be kept fresh and without contamination by investing in refrigeration warehouses, logistics, packing and sourcing. Both food and human health is vital for the food retail growth.

Government and Policies

The market was small and limited with products and choices until 1997 when the government allowed foreign direct investment (FDI) in cash and carry wholesale. The approval requirement was relaxed, and automatic permission was granted in 2006. Between 2000 to 2010, Indian retail attracted about $1.8 billion in foreign direct investment, representing a very small 1.5% of total investment flow into India. In 2012 the government allowed 51% FDI in multi-brand retail, and in 2016 the government allows 100% FDI in e-commerce marketplace and cash-and-carry food retail.To promote its flagship Make In India scheme with job creation at its core, the Narendra Modi government is considering allowing 100% foreign direct investment (FDI) in single-brand retail—as long as the products are made in India.

After the recent GST tax reforms, retail sector will be very positive from both taxation and operations point of view. Analysts predict unification of markets. Retailers would be ready to explore markets across diminished boundaries leading to better growth of the retail market.

Infrastructure and Real estate

The biggest challenge facing the Indian organised retail sector is the lack of retail space. With real estate prices escalating due to increase in demand from the organised retail sector, it is posing a challenge to its growth. With Indian retailers having to shell out more for retail space it is effecting there overall profitability in retail.

Technology and data analytics

Today, Indian Retail has shifted focus from product-centric to customer-centric. In the end its about how well you can enhance customer engagement so that it adds to the point of sale of any retail sector. Retailers are investing more time and money in understanding the customer behaviour and trends.

The Indian customer showroom, webroom, ask friends, look for reviews online, hunt down for coupons. They also carry digital wallets in their smart phone to pay on the go. While expectations have risen, one thing is clear that Indian customer is now comfortable with digital and mobile technologies and are open to new experiences in their path to purchase.

Retailers need to unstore brick and mortar to enhance the in-store experience. Today consumers buy experience and not products. The lack of personalised offers, long lines and poor customer assistance at retail stores are key deterrents of a brick n mortar. Retailers need to work on data analytics to find out about consumer trends and patterns to facilitate a more personalised shopping experience.

Retailers can use technology to boost their omnichannel offerings by integrating tools in their apps like bar-code price scanners and beacon powered notifications. Retailers can work towards blurring lines between online and offline shopping for seamless omnichannel experience.

Networking and interaction with the customer in the shop needs to improve in order to shape the customer experience in the future. Enabling the store assistant with product and customer intelligence in real time can close these gaps.

With the increased online retailing and e-payment gateways, cyber threats and privacy are the dark side of Indian retail. Lawmakers need to pass laws establishing privacy policies and mandatory disclosures. Companies will also need to invest in better security practices as well as gain public trust by reacting to breaches promptly.Customers have the ever increasing choice of products at the lowest rates. E-commerce is probably creating the biggest revolution in the retail industry, and this trend would continue in the years to come. Retailers should leverage the digital retail channels , which would enable them to spend less money on real estate while reaching out to more customers.Both organised and unorganised retail companies have to work together to ensure better prospects for the overall retail industry, while generating new benefits for their customers.

Nevertheless, the long-term outlook for the industry is positive, supported by rising incomes, favourable demographics, entry of foreign players, and increasing urbanisation.What works in the west may not work for India since there are far more complex challenges that exist within the ecosystem ,but there are definitely few areas which the retailers can look into to change the landscape of Indian retail.

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