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15-Jun-2017   |   Others   |   11:01 AM

Indian Retail Industry: From potential to performance

Immense potential. This phrase has been used to describe the Indian retail sector for as long as one can remember. A large population base, young upwardly-mobile and affluent middle class, rapid urbanization and growing internet and smartphone penetration are among the many reasons for that. Sadly, the optimism has been followed by a long list of challenges and hurdles that needed to be overcome to turn this potential into actual growth. However, all of that could be about to change. India’s retail sector now stands at the cusp of fast-paced growth, one that could see it emerge as one of the fastest growing retail markets across the world. In fact, India has been ranked number one in A.T. Kearney’s 2017 Global Retail Development Index,which ranks the top 30 developing countries for retail investment worldwide. There are three key factors that are triggering this change. Foreign Direct Investment : The Indian government has been opening up the retail sector to foreign investors. The Narendra Modi-led government has allowed 100 percent foreign direct investment (FDI) in multi-brand retail for food products. However, what is more important are the small tweaks to the overall conditions for FDI in the sector, which will make these investments financially feasible for companies. For example, initially the government had stipulated that any foreign multi-brand outlet operating in India needed to source 30 percent of all products from local MSME suppliers in India. That had seen many leading companies delay their investments as they concluded that this mix was difficult to work with. This has now been changed and foreign owned outlets retailing Food, now need to have 30 percent of goods ‘manufactured in India’. This means they can still choose the product range, and the brands, they want to carry as long as they are being manufactured in India. Further, it appears that some amount of household items may be allowed to be retailed in this format (to be confirmed by the Govt.), which we believe will make this format economically feasible. This is likely to ease concerns of those who were sitting on the side lines and result in an increase in foreign investment in the sector. This is a game changer as food and grocery account for around a third of India’s consumption basket. Valuing quality and service : There is a slow but sure change in the “value equation” taking place amongst the masses: there is a growing trend among Indian consumers to “uptrade” to branded products from those sold “loose”, paying for service (look at how the salon or local grocer market has transformed) and paying more for value (split AC share in is 90%+ of the market) and for more premium brands. This is being driven by a variety of factors including urbanization, increased awareness about global trends, quest for better products and focus on healthier living and valuing one’s own time. India’s urban population has expanded from 340 million in 2006 to 430 million in 2016, according to the United Nations’ World Cities report. India’s leading cities, as well as tier 2 and tier 3 cities, have also seen a big increase in media and internet penetration. That has made consumers more aware of global fashion and food trends, driving up demand for packaged products, premium brands. All of this is eventually being underpinned by the ability of customers to afford premium products & services, across all categories – from food to fashion. India’s economic expansion over the past few years has resulted in higher income levels. Per capita income in India has nearly quadrupled since the start of the century, rising from US$452.4 in 2000 to US$1593.3 in 2015, according to the World Bank. This has put more disposable cash in pockets of consumers who are not shy of spending it. The growing consumption power of Indian urban consumers backed by a consistently growing economy should create a “deeper” market across categories and set the foundation for further modernising Retail Skilling & Employing India : The retail sector is among the top three employers in India. The government’s move to allow FDI in various forms, coupled with the growing consumer demand, is expected to see it create even more jobs in the coming years. According to the National Skill Development Corporation, India’s retail sector will need around a workforce of around 56 million. The sector will have one of the highest incremental human resource requirements - of 17.35 million till the year 2022. These jobs are likely to be created at all levels. With companies looking to open up more stores, there were will be need for staff at the customer service level. Meanwhile, as companies look to make the most of the digital evolution and launch their e-commerce offering, high-end jobs will also be in demand. As multinational companies enter the country post the easing of FDI regulations they are likely to invest in back-end infrastructure such as warehouses, logistics, accounting, customer services etc. creating ancillary jobs across the country. With more people employed, they are likely to see their income levels go up, which in turn will give them more cash to spend, which will create even more jobs. It’s the vicious cycle many economies across the globe can only hope for. Before we know, the most used phrase to describe India’s retail sector could well be: Top performer. Source <> http://retail.economictimes.indiatimes.com/news/industry/-indian-retail-industry-from-potential-to-performance/59141590 Image source <> http://www.ejinsight.com/wp-content/uploads/2015/10/1162020_1fe0aa857c8b0be9fa20b105dc018102-692x360.jpg