International Journal of Business Administration and Management.
ISSN 2278-3660 Volume 7, Number 1 (2017),
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A study of Factors contributing towards the growth of Organises Retail
Ritu Sinha
Ph.D Scholar (Management)
(2014-2017)
K alinga University, Raipu r, C.G.
En r ol l me n t No. 1 5 0 8 6 4 1 6 ( K U0 0 2M MX I V0 2 0 10 5 9 4)
Abstract
Retai ling in India is one of the pillars of its economy and accounts for about 10 percent
of its GDP. The Indian ret ail market is estimated to be US$ 600 billio n and one of the
top five retail markets in the world by economic value. India is one of the fastest growing
retail markets in the world, with 1.2 billion people. In November 2011, India's cent ra l
gover nment announced r et ail refor ms fo r bot h mult i - brand st ores and t he
Indian r et ail indust r y has emerged as one of t he mo st dynamic and fast -paced
indust r ies due t o t he ent r y o f several new player s. I t account s for over 10 per
cent of t he count r y‘s Gross Do mest ic Product (GDP) and around 8 per cent of
t he emplo yment . India is t he wor ld‘s fift h - largest glo bal dest inat io n in t he
ret ail space. This paper is go ing t o st udy t he major fact ors responsible for
t he growt h of organised ret ail in I ndia.
1. Introduction
India is t he count r y having t he mo st unorganized ret ail mar ket . Tradit ionall y
it was a family's live lihood, wit h t heir shop in t he front and house at t he
back, while t hey run t he ret ail business. Mo re t han 99% ret ailer 's funct ion in
less t han 500 square feet of shopping space. Glo bal ret ail co nsu lt ant s KS A
Technopak have est imat ed t hat organized ret ailing in I ndia is expect ed t o
touch Rs.35,000 crore in t he year 2005 -06.
Retai ling in India is one of the pillars of its economy and accounts for about 10 percent
of its GDP12. The Indian ret ail market is estimated to be US$ 600 billio n and one of the
top five retail markets in the world by economic value. India is one of the fastest growing
retail markets in the world, with 1.2 billion people 3 4. In November 2011, I ndia's
1
"The Bird of Gold - The Rise of India's Consumer Market". McKinsey & Company. May 2007
2
Anand Dikshit (12 August 2011). "The Uneasy Compromise - Indian Retail". The Wall Street
Journal.
3
"Winning the Indian consumer". McKinsey & Company. 2005
4
Majumder, Sanjoy (25 November 2011). "Changing the way Indians shop". BBC News.
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cent ral gover nment announced ret ail refo r ms for bot h mu lt i - br and st ores and
t he I ndian ret ail indust r y has emerged as one o f t he mo st dynamic and fast -
paced indust r ies due t o t he ent r y o f sever al new player s. It account s for over
10 per cent of t he count r y‘s Gross Do mest ic Product (GDP) and around 8 per
cent of t he emplo yment . India is t he world‘s fift h - largest glo bal dest inat ion
in t he ret ail space.
The I ndian ret ail sect or is est imat ed at around Rs 900,000 crore, of which t he
organized sect or account s for a mere 2 per cent indicat ing a huge pot ent ia l
market opport unit y t hat is lying in t he wa it ing for t he consumer - savv y
organized ret ailer. Purchasing power o f Indian ur ban co nsumer is gro wing
and br anded mer chandise in cat egor ies like Apparels, Cosmet ics, Shoes,
Wat ches, Bever ages, Food and even Jeweller y, are slowly beco ming lifest yle
product s t hat are wide ly accept ed by t he urban I ndian consumer.
Indian ret ailers need t o advant age o f t h is growt h and aiming t o grow,
diversify and int roduce new for mat s have to pay more at t ent ion t o t he brand
build ing process. T he emphasis here is on ret ail as a br and rat her t han
ret ailers selling br ands. T he focus should be on br anding t he ret ail business
it self. There is no doubt t hat t he Indian ret ail scene is booming. A number o f
large corporat e houses —Tat a's, Raheja's, P ir amals's, Goenka's — have
alr eady made t heir foray int o t his arena, wit h beaut y and healt h st ores,
super market s, self-ser vice music st ores, new age book st ores, ever y-da y- low-
pr ice st ores, comput ers and per ipher als st ores, office equipment st ores and
ho me/ building const ruct ion st ores. Today t he organized pla yer s have
att acked ever y ret ail cat egor y.
Ret ailing in I ndia is t he largest pr i vat e sect or and seco nd t o agricult ure i n
emplo yment . India has highest ret ail out let densit y –Around 1.5 ret ail crore
ret ail out let . The r et ail sect or cont ribut es about 10 -11%to Indian GDP and it
is valued at an est imat ed Rs.93000 crore out of which organi zed r et ailing
indust r y around Rs.35000 crore.
Organized ret ailing is pr imar ily ur ban cent ric, it s share as repr esent ed in
urban scenar io is pro ject ed t o be 12 t o 20% Growing at more t han 30%, t he
organized sect or is der iving t he ret ail growt h in I ndia and cont r ibut es
significant ly t o t he growt h of econo my. According t o t he st udy do ne by t he
"Associat e Chambers o f Co mmerce and I ndust r y" it is t hat annual ret ail sale s
reached $17billio n by t he year 2010, t he ret ail sect or in I ndia has t he
pot ent ial t o reach $ 270-280 billio n do llar.
Dr Vishal Bishno i( 2009) 5 in his paper ―“E ffect of Organised Ret ail on Un-
organised Ret ail wit h reference t o Indian Scenar io ‖ ment io ned t hat India is
5
Vishal Bishnoi (2009), ―Effect of Organised Retail on Un-Organised retail with Reference to Indian
Scenario‖, 4th national conference on ―Innovation and Adaptability : Twin Engins of sustained
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t he count r y having t he mo st unorganized r et ail market . Indian ret ail market is
preliminar y charact er ized as Mandis and /or weekly Bazaars, wher e
veget ables, grocer ies, and ot her day-t o -day it ems were so ld, lat er smal l
st ores came up at corner s o f t he st reet s or resident ial co lonies which were
popular ly known as Kir ana st ores now also ref erred as ‗Mo m and Pop
Stores‘.
We have gone t hrough a number of lit erat ure to enquire about t he majo r
fact ors affect ing t he growt h of Organised ret ail in I ndia.
2. Objectives and Research Methodology
Objectives of the study are as given below:
1. To analyse t he ret ail market in I ndia.
2. To find out the major categories of Retail Outlets.
3. To Growt h drivers o f t he Organized Ret ail Indust r y in I ndia .
Research Methodology
Research met hods can be classified in different wa ys, t he mo st commo n
dist inct io n is bet ween t he quant it at ive and t he qua lit at ive approaches ( Myer s,
2007 6). Quant it at ive approaches were or igina lly used while st udying nat ural
sciences like: laborat or y exper iment s, sur vey met hods and numer ica l
met hods. A qualit at ive st udy is used when t he researcher w ant s t o get a
deeper under st anding o n a specific t opic or sit uat ion. Myer s (2007) 7 st at ed
t hat t he qualit at ive approach was develo ped in social sciences in order to
support t he researcher in st udies including cult ur al and social pheno mena.
Sources included in t he qualit at ive approach are int er views, quest io nnaires,
obser vat ions, document s and t he researcher‘s impr essio n and react io ns. The
chosen approach is qualit at ive.
This st udy t yp ically t akes t he for m st udy of secondar y dat a available o n
Indian Ret ail syst em. To underst and and co nclude t he major fact ors
cont r ibut ing t owards t he growt h of Indian ret ail indust r y , we have gone
t hrough a number o f report s and paper s. This has t he advant ages o f providing
ver y r ich infor mat io n and avo iding t he influence o f ot hers on t he opinio n o f
any o ne individual.
3. Results and Discussion
Growth‖ at– 28-29th March 2009. published in Conference Proceedings Book by Excel Publication,
New delhi, ISBN# 978-81-7446-833-8, pp. 318-324.
6
Myers, M. D. (2007), ―Qualitative Research in Information Systems‖, MIS Quarterly, vol. 21 No. 2,
pp.241-242.
7
Ibid
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Organised Ret ailing is I ndia's one of t he fast est growing indust r y and one
of t he biggest sources o f emplo yment in t he count r y, generat ing more t han 10
per cent o f GDP o f I ndia. Organise d ret ailing, however, current ly organized
ret ail is cont r ibut ing mer ely about t hree percent o f t he overall I ndia n
ret ailing indust r y. Organised ret ailing, aims at providing an ideal shopping
exper ience t o t he consumer based o n t he advant ages o f lar ge -scale purchases,
consu mer preference analys is, exce llent ambience and cho ice o f merchandise.
Ret ail indust r y can be broadly classified int o t wo cat egories namely -
organised and unorganised ret ail.
Organi zed retai l - Organised ret ailing, in I ndia, refer s to t r ading
act ivit ies undert aken by licensed ret ailers, t hat is, t hose who are
regist ered for sa les t ax, inco me t ax, et c. These include t he public ly
t raded super market s, corporat e -backed hyper market s and ret ail chains,
and also t he pr ivat ely owned large ret ail businesses.
Unorgani zed retai l – on t he ot her hand, refer s t o t he t radit io nal
for mat s o f low-cost ret ailing, for example, t he local corner shops,
owner manned general st ores, paan/ beedi shops, co nvenience st ores,
hand cart and pavement vendors, et c, It consist s o f unaut hor ized sma l l
shops - convent io nal Kir ana shops, gener al st ores, corner shops amo ng
var ious ot her sma ll ret ail out let s - but remain as t he radiat ing force o f
Indian r et ail indust r y.
Other Classi fication s
Hyper marts/ supermarket s
Large self-ser vicing out let s offer ing product s fro m a var iet y o f cat egor ies.
Mom-and-pop stores
They are family owned bus iness cat er ing t o sma ll sect ions; t hey ar e
individually handled ret ail out let s and have a personal t ouch.
Depart mental stores
Are general ret ail merchandisers o ffer ing qualit y product s and ser vices.
Convenien ce stores
Are locat ed in r esident ia l ar eas wit h slight ly higher pr ices goods due t o t he
convenience offer ed.
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Shopping malls
The biggest for m o f ret ail in I ndia, malls offer s cust omer s a mix o f all t ypes
of product s and ser vices inc luding ent ert ainment and food under a single
roof.
E-trai lers
Are ret ailer s providing online buying and selling o f product s and ser vices.
Discount stores
These are fact ory out let s t hat give discount on t he MRP.
Vending
It is a relat ively new ent r y, in t he ret ail sect or. Here beverages, snacks and
ot her small it e ms can be bought via vending machines.
Category ki llers
S mall specia lt y st ores t hat offer a var iet y o f cat egor ies. They ar e known as
cat egory killer s as t hey fo cus o n specific cat egories, such as elect ronics and
sport ing goods. This is also known as Mult i Brand Out let s or MBO's.
Specialty stores
Are ret ail chains dealing in specific cat egories and provide deep assort ment .
Mumbai's Crossword Book St ore and RPG's Music Wor ld are a couple o f
examples.
Growth drivers of the Organized Retail Industry in India
A McKinsey report on India (2004) says organized ret ailing would
incr ease t he effic ienc y and product i vit y o f ent ir e gamut o f econo mic
act ivit ies, and would help in achieving higher GDP growt h. At 6%, t he share
of emplo yment o f ret ail in I ndia is lo w, even when co mpared t o Brazil
(14%), and Po land (12%).Govt o f I ndia's plan o f changing t he FDI guidelines
in t his sect or speaks of t he import ance at t ached t o ret ailing. Recent ly mo ves
by big corporat e houses like Reliance I ndust r ies has furt her fuelled t he ma jor
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invest ment s in ret ail sect or. A st rat egic alliance, land acquis it io ns in pr ime
areas give t he essenc e of t he mood in t his sect or.
India's st rong econo mic growt h and r ise in disposable inco mes,
especially wit h salar ied class aft er t he implement at ion o f S ixt h pay scales, o f
middle class and lower middle class has at t ract ed business houses like
Omaxe, Parshvnath, Vati ka, and An sals t o invest int o ret ail business. The
Gover nment 's decisio n will allow fore ign Direct I nvest ment and businesses
int o t his sect or att ract ing foreign co mpanies t o est ablish t heir businesses in
India. Now foreign ret ailers will be able t o own t heir own st ores in I ndia for
t he fir st t ime as part of a major go ver nment liberalizat io n o f business. T il l
2006 foreign co mpanies were allowed to operat e franchises by t he
gover nment to prot ect t he ind igenous companies. Now new regulat ions ma y
allow foreign co mpanies t o ho ld up t o 100%. But t he Indian go ver nment is
going ahead wit h new refor ms which may cr eat e millio ns o f jo b in t he near
fut ure while safeguarding t he int erest of domest ic fir ms.
Current ly, organised ret ail is in a nascent st age o f g rowt h in I ndia as it just
has a 5.9% share in t he t ot al I ndia ret ail t rade. However, in r ecent years,
organised ret ailing has been growing at a robust rat e due t o rise in t he
number o f shopping ma lls as well as in t he number o f organised ret ai l
for mat s. T he key fact ors of growt h o f organised ret ail in moder n I ndia ar e
discussed in t he fo llowing pages.
i. Rising disposab le income of Indi an mi ddle - class
The I ndian middle- class can be cat egorised int o seekers and st r ivers, whic h
is t he consuming class and t he pr ime t arget segment for ret ailers in I ndia. I n
2005, t hese t wo cat egories t oget her const it ut ed around 6.4% o f t ot al
househo lds in I ndia but account ed for 20% of t he disposable inco me. B y
2015, t he middle class is expect ed t o const it ut e around 25% of t ot al
househo lds and account for 44% of t he tot al disposable inco me, and by
2025, t he respect ive figures are like ly t o go up to 46% and 58%. The India n
middle -class populat io n and t heir growing disposable inco me levels wil l
dr ive t he fut ure growt h of organised ret ail in I ndia 6 .
ii. Changing consu mer p references and shopping habits
The pr ime reason for a paradigm shift in t he shopping at t it ude of t he I ndia n
consu mer is t he change in t heir prefer ences and t ast es. Due t o t he increas ing
use o f IT and t eleco m, I ndia n co nsumers have beco me aware o f br ands and
shops for lifest yle and value brands according to t he need and occasio n.
Consumers will cont inue t o dr ive t he growt h in t he organised ret ail by
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expanding t he market and co mpelling ret ailers t o widen t heir offer in gs in
t erms o f br ands and in t er ms o f var iet y.
Figur e 1: Consumpt ion o f essent ial co mmodit ies
The spending o n essent ial co mmodit ies has been st eadily fa lling over t he
years, wher eas t he consumpt io n of discret ionar y product s has been growing
at a healt hy pace. I f t he co mposit io n o f P FCE is st udied, o ne can not ice t hat
t he share o f food, beverages and t obacco in t he t ot al P FCE has decline d
fro m 53.0% in FY90 t o 42.2% in FY08. On t he ot her hand, t he share o f
co mmunicat ion, ent ert ainment , personal care consu mpt io n has been r ising
over t he year s. Changes in lifest yle have brought about a paradigm shift in
consu mpt ion, which will undoubt edly cont inue t o dr ive ret ail growt h in
segment s like beaut y, healt hcare, t eleco m, and ent ert ainment . Moreover, t he
r is ing reach o f media coverage is incr easing co nsumer awareness about
product s, t heir pr ices and ser vices, which is likely t o furt her encourage
growt h in t he organised ret ail segment .
iii. Changing demographics India is one o f t he youngest and largest
consu mer market s in t he wor ld wit h a median age o f around 25 year s, whic h
is t he lowest as co mpared wit h ot her count ries. According t o est imat es,
India‘s median age would be 28 by 2020. It is expect ed t hat over 53% of t he
populat ion will be under t he age o f 30 by 2020, which means t hat t he
pot ent ial for t he I ndian ret ail segment will be enor mous. Anot her plus about
t his populat io n is t hat t hey will be more dyna mic t han t he previous
generat io ns because t heir co nsumpt ion is dr iven by want s rat her t han needs.
Thus, t he organised ret ailing, which t hr ives on lifest yle product s, is
expect ed t o receive a boost because of t he young populat io n by 2020.
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Figu re 2: Demographi c Dist ribution
iv. Increase in working population
India is t he second- largest count r y in t he wor ld in t er ms o f populat io n, and
is t he largest consumer market s in t he wor ld owing t o it s favourable
demographics. I n 2008 India‘s working populat ion ( in t he 15 -49 years ag e
group) const it ut ed around 53% o f t he populat ion as co mpared wit h 48.6% in
t he UK, 49% in t he US , and 53% in Russia. Furt her, t he increase in t he
number o f working wo men has fuelled t he growt h in sa les o f discret ionar y
it e ms. There has been a 20% increase in t he number of working wo men in
t he last decade.
Figur e 3: Populat ion Dist r ibut io n
v. Spurt in Urbani zation
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Hist orically cit ies and t owns have been t he dr iving force o f overal l
econo mic and social deve lopment . Current ly over 335 millio n people o f
India reside in c it ies and t owns, which t ranslat es t o around 30% o f t he t ot al
populat ion7. The rap id growt h in ur banizat ion has facilit at ed organis ed
ret ailing in I ndia, and has caused t he speedy migrat ion o f populat ion int o
major t ier I and t ier II cit ies, which have a significant share in t he ret a il
sales o f t he count r y.
Figur e 4: Urbanizat ion in I ndia
The ur ban populat ion‘s cont r ibut ion in I ndia‘s GDP shot up fro m 29% in
1951 t o 60% in 2001 and is expect ed to increase t o 70% by 20118, a s
migrat io n t o cit ies and t owns grows r apidly in ant icipat io n o f higher inco me
opport unit ies provided by t hese epicen t ers. Moreover, t he co nt inuous
development in ur ban areas has invar iably at tract ed subst ant ial inflows o f
capit al bot h fro m do mest ic and fore ign invest ment s have led t o t he
t ransit io n o f ur ban areas. As t he I ndian organised ret ail is ma inl y
concent rat ed in t he urban areas, it s growt h (urban ar eas) is imperat ive fo r
t he organised ret ail in t he count r y.
Though, percent age o f ur ban populat ion t o t ot al populat io n in I ndia (29%) is
co mparat ively qu it e low against t he world average (48.6%), as well a s
count r ies s uch as Brazil (84%), China (40%), t he US (81%) and Russia
(73%), it is however not iceable t hat tot al urban populat ion in I ndia was far
more t han t he t ot al populat ion o f t he ent ire US in 2005 and by 2025, it is
expect ed t hat India‘s t ot al ur ban populat ion w ould co nst it ut e around 6.7% o f
t he t ot al wor ld populat io n. This would undeniably emerge as t he I ndia‘ s
largest market for organised ret ail, and t herefore t he cha llenge for t he ret a il
player s to leverage t he full pot ent ial o f flourishing ur ban areas.
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Figur e 5: Annual growt h of Ur ban Populat io n
Furt her more, due to t he rapid infrast ructure development in ma jor t ier I, II
and III cit ies, many rural inhabit ant s are att ract ed to cit ies, which increase
t he ur ban per capit a inco me and in t ur n offers unbound oppor t unit ies for t he
organised ret ail segment . Increased glo balisat io n has also played a big ro le
in t he develo pment of ur ban areas.
vi. Rise in MPCE level in urban areas
The aggregat e ur ban co nsumpt io n in I ndia has been growing st eadily o ver
t he past few year s as t he econo my has been cont inuously flour ishing dur ing
t his per iod, owing t o a rise in ur ban populat io n as well as a rapid per capit a
inco me growt h. In FY05, 56.0% o f t he urban populat io n was below t he
MPCE level o f Rs 930, while in FY07 t he percent age o f populat ion under
t he MPCE level o f Rs 930 decreased t o 46.1%.
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Figure 6: MPCE level in ur ban areas
The average MP CE for t he ur ban populat io n in FY07 was Rs 1,312 up fro m
Rs 1,105 in FY05, on t he ot her hand, t he average MPCE for rural populat io n
in FY07 was Rs 695 up fro m Rs 579 in FY07 1 0 .
The NSS report clear ly suggest ed t hat t he consumpt io n pat t ern in ur ba n
areas d iffer ed fro m t he rural areas. While t he food it ems const it ut ed 52.2%
of t he rur al ar ea‘s co nsumpt io n in FY07 and t he no n - food it ems account ed
for t he remaining share, in t he urban areas, t he share o f food it ems in
consu mpt ion was 39.4% and t he non- food it e ms account ed for t he rest .
vii. Organi sed Retai l Concent ration in Tier II and III Citi es
Init ia lly t he ret ail revo lut ion began in t he big t ier I cit ies in I ndia; however,
as t ier I cit ies are r elat ively sat urat ed now, ret ailers, especially value
ret ailers, ar e finding t heir way t o smalle r t ier II and t ier III cit ies as well.
The changing landscape o f t he I ndian ret ail segment and t he increas ing
co mpet it io n has also forced r et ailer s t o tap growt h opport unit ies in t ier II
and III cit ies in I ndia.
viii. Internet Drives Awaren ess and On line Pu rch ases
There has been a subst ant ial increase in t he number o f Ind ians who use t he
Int ernet and a conco mit ant increase in t he number of online purchases.
Indians have st art ed using t he Int er net not only for increasing awareness but
also t o shop online, which has opened a who le new channel o f ret ailing in
t he Indian r et ail scenar io. Online ret ailing offers co n sumers t he co nvenienc e
of order ing mer chandise t o t heir doorst ep. Recent ly, Fut ure Group, whic h
owns Pant aloon, has init iat ed a measure to capit alise o n t he online
opport unit y t hrough fut urebazaar.co m. A similar vent ure flipkart .com is also
proving t he new channel t o be highly viable, especia lly since it eliminat e s
t he biggest cost of t he physical st ore.
ix. Easy credit avai labi lity – a boon for organised retai l
The higher penet rat ion o f credit cards in India has also boost ed t he growt h
of t he organised ret ail sect or; in fact , the young populat io n‘s incr easing
fancy for plast ic mo ney has furt her fuelled t heir purchas ing power. Eve n
t hough t he organised ret ail sect or is at a nascent st age (co nst it ut ed 5.9% o f
t he tot al ret ail indust r y in 2007), it is growing at a rapid pace. Moreover ,
t he spurt in issuance o f cr edit cards and loans by bot h I ndian as well a s
foreign banks has furt her boost ed t he segment ‘s growt h. According t o t he
RBI, as on FY09, t he t ot al number o f out st anding credit and debit cards in
India w as 24.7 millio n and 137.4 millio n r espect ive ly.
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Figur e 7: Credit Card Transact ions Growth
x. Retai l invest ment
Invest ment s in t he ret ail sect or have imp roved since FDI has been allowed
in single - brand and cash-and-carr y for mat s. According t o t he Technopa k
est imat es, invest ment s in t he organised ret ail will t ouch US$ 35 billio n in
t he next five years or so. Invest ment s allow organised pla yer s in r et ail t o
expand at a ver y high rat e. All key ret ailer s in I ndia have expansio n plans
over t he next 3-4 year s; for inst ance, Pant aloon has an ambit ious expansio n
plan t o t ake it s ret ail space up t o 30 mill io n squar e feet by 2011. Likewise,
Visha l Ret ail is expect ed t o t ake it s t ot al st ore count t o 500 wit h a n
est imat ed ret ail space o f around 10 millio n square feet b y 2011.
xi. Avai labi lity of quality real estate
According t o indust r y sources, mall space in I ndia has grown fro m a meagr e
1.0 millio n square feet in 2002 t o about 57.3 millio n squar e feet by t he end
of 2008; t ier I cit ies are expect ed t o account for aroun d 73% o f t he ma l l
space and t he rest is likely t o be equa lly divided bet ween t ier II and t ier III
cit ies.
4. Conclusion
India is expect ed t o beco me t he wor ld‘s fast est growing e -co mmerce market ,
dr iven by robust invest ment in t he sect or and rapid increase in t he number o f
int er net user s. Var io us agencies have high expect at ions about growt h o f
Indian e-co mmerce market s. Indian e - commer ce sales are expect ed t o reach
US$ 120 billio n! by 2020 fro m US $ 30 billio n in FY2016. Furt her, I ndia's e -
co mmerce market is e xpect ed t o reach US$ 220 billio n in t er ms o f gross
mer chandise value (GMV) and 530 million shoppers by 2025, led by fast er
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speeds o n reliable t eleco m net works, fast er adopt io n o f online ser vices and
bet t er var iet y as well as convenience@. India‘s direct se lling indust r y is
expect ed t o reach a size of Rs 23,654 crore (US$ 3.51 billio n) by FY2019 -20,
as per a jo int r eport by I ndia Direct Selling Associat io n (IDS A) and PHD.
This st udy has proved t hat India is now ready for t he organised ret ail and
even Go vt . is t aking much init iat ive in t his regard. T he t ime t o come will
belo ng t o organised ret ail.
5. References
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