The retail market in India is currently facing a slowdown caused by the ongoing global financial crisis. This crisis has had a worldwide impact due to the interconnectedness of all countries. As a result, the Indian retail industry is experiencing disruptions and anxiously anticipating positive changes to overcome these challenges. The global recession is causing considerable upheaval not only in India but also in other international markets.
The high inflation levels have greatly impacted the global markets, causing concern among investors. The decline of major American financial institutions has had a significant influence on the world markets, including India and other countries. Consequently, there is currently a temporary slowdown in the usual busy activities of these markets. Nevertheless, it is important to recognize that fluctuations are common in the global market, which has experienced numerous ups and downs over time. Ultimately, it is crucial to acknowledge that despite these temporary downturns, the market growth rate remains consistently high.
The global economies are under strain due to the Financial crisis, which is predicted by the International Monetary Fund (IMF) to lead to a significant slowdown. The recovery depends on stabilizing commodity prices, resolving the crisis in the US housing sector, and resilient emerging economies. However, if the ongoing crisis persists, it will likely have an impact on emerging economies. Consequently, this downturn or inflation has a negative effect on the retail industry.
Despite the ongoing economic downturn, there has been a decrease in consumer interest in making purchases. This decline poses financial difficulties for individuals who still want to buy things because of the economic slowdown. Unfortunately, this situation has been disappointing for the retail industry. Nonetheless, it is crucial to acknowledge that this crisis is temporary and conditions will eventually get better.
In recent years, India’s retail industry has witnessed substantial growth in both organized and unorganized sectors.
In the past, the retail market in India was predominantly unorganized. However, there has been a shift in consumer preferences leading to an increase in popularity of organized retail. Unorganized retail encompasses various types of stores such as small and medium grocery stores, medicine stores, subzi mandi, kirana stores, paan shops, etc. The majority of retailing in India (over 90%) is still part of the unorganized sector, with organized retail primarily concentrated in large cities. It is projected that organized retail in India will experience an annual growth rate of 25-30%, reaching Rs35,000 crore ($24 billion) by 2010 from its previous value of Rs109,000 crore ($24 billion) in 2004-05.
The Indian retail sector has several important facts to consider:
- Ranking as the fifth largest global retail destination, India’s retail market is dominated by the unorganized sector.
- The top five companies in retail have a combined market share of less than 2%.
- In 2009, AT Kearney’s Global Retail Development Index (GRDI) identified India as the most attractive emerging market for investment in the retail sector.
- Retail trade currently contributes approximately 12% to India’s GDP and is projected to reach 22% by 2010.
- The Government of India predicts that the retail sector could reach a value of Rs. 2,00,000 crore (US$45 billion) and create between 10 to 15 million new jobs within five years. Currently, it employs around 8% of the working population.
- India remains highly appealing for global retailers with September 2009 seeing Foreign Direct Investment (FDI) inflow in single-brand retail trading amounting to approximately US$47.43 million according to the Department of Industrial Policy and Promotion.
The retail industry in India is mainly concentrated in major cities, accounting for more than 80% of the market. Mumbai has been identified as the top choice for organized retail, closely followed by Bengaluru. The country has various retail formats including hypermarts/supermarkets, mom-and-pop stores, departmental stores, convenience stores, shopping malls, e-trailers (online retailers), discount stores, vending machines for quick purchases, and specialty stores focusing on specific product categories known as category killers or Multi Brand Outlets (MBO’s). These MBO’s offer a wide range of products and services like entertainment and food all under one roof.
Specialty stores like Mumbai’s Crossword Book Store and RPG’s Music World are retail chains that specialize in specific categories and offer a diverse range of products. AV Birla Group is one of the major retailers in India with a strong presence in the apparel retail industry. It owns popular brands such as Allen Solly, Louis Phillipe, Trouser Town, Van Heusen, and Peter England. The company plans to invest Rs 8000 – 9000 crores until 2010.
Trent, which is a subsidiary of the Tata group, operates various retail chains including lifestyle retail, book and music retail, and consumer electronics. Their lifestyle retail chain Westside generated a turnover of Rs 3.58 million in 2006.
Landmark Group invested Rs 300 crores to expand their Max chain and another Rs 100 crores on their Citymax 3-star hotel chain.
Lifestyle International is their international brand business. K Raheja Corp Group has a turnover of Rs 6.75 billion which is expected to cross US$100 million mark by 2010. Segments include books, music and gifts, apparel, entertainment etc. Reliance has more than 300 Reliance Fresh stores; they have multiple formats and their sale is expected to be Rs 90,000 crores ($20 billion) by 2009-10. Pantaloon Retail has 450 stores across the country and revenue of over Rs. 20 billion and is expected to touch 30 million by 2010. Segments include Food & grocery, e-tailing, home solutions, consumer electronics, ntertainment, shoes, books, music & gifts, health & beauty care services.
Retail and recession: The global economic slump has had its impact on the India retail industry. One of the earliest players in the Indian retail scenario, Subhiksha’s operations came to a near standstill and required liquidity injection. Vishal Retail secured corporate debt restructuring (CDR) plan from its lenders while other players like the Reliance Retail run by Mukesh Ambani and Pantaloon led by Kishore Biyani went slow on expansion plans and even scaled down operations.
Despite facing challenges such as a shaky economy, tax structure favoring small businesses, inadequate infrastructure, high real estate costs, dissimilar consumer groups, restrictions on foreign investment, limited retail study options, shortage of trained manpower, and low retail management skills in 2009, there were signs of growth during the last quarter that restored some confidence. Looking ahead to the future:
– Lifestyle International plans to have more than 50 stores across India by 2012–13.
– Shoppers Stop intends to invest Rs250 crore to open 15 new supermarkets in the next three years.
– Pantaloon Retail India (PRIL) plans to invest US$77.88 million to expand its existing retail space by 2.4 million sq ft and set up 155 Big Bazaar stores by 2014.
– Timex India aims to open 52 new stores by March 2011, bringing its total count to120. In the first half of the current fiscal year ending September30 ,2009,Timex recorded anet profit of US$1.2 million.
– Additionally,Australia’s Retail Food Group plans to enter the Indian market in2010with hopesofgeneratingUS$87millioninrevenueoverfiveyearsand surpassingitsAustralianoperationswithin20years.Despiteallthesechallenges,the retail sector is hopefulforabrighterfuturein2010
However, despite these challenges faced this year in particular within the real estate sector – especially retail properties – there has been a decrease in demand while the residential market has shown improvement over the past six months.Cushman &Wakefield’s report states that out of the 44 malls planned in Q1 2009, only around 18 were completed by the end of the year.
Despite the delay of mall projects in 2009, there is now a renewed demand in the market as the year comes to an end. It is anticipated that multiple mall projects will resume in 2010, indicating a more promising outlook for the retail sector next year. The festive season has been particularly prosperous, with an increase in foot traffic. As the market improves, there will be a resurgence in demand for retail spaces. In 2009, approximately 5.7 million sq ft of new mall space was introduced while around 9 million sq ft was deferred for future development, resulting in a significant decrease of 60%.
Despite facing delays and difficulties in leasing retail space, approximately 80% of new mall space in Bangalore was completed. This has resulted in a low vacancy rate of only 3% within the city. The challenges faced by major developers, including a credit crunch and project postponements, contributed to the slowdown in mall construction.
However, this decrease in construction should not be viewed negatively. In fact, it has helped maintain a balanced supply and demand ratio for markets that were at risk of having an oversupply. One such example is Omaxe, a Delhi-based developer which recently opened a successful mall in Patiala just one month ago.
In 2009, the construction of the Connaught Place mall in Greater Noida was delayed by the company due to low demand. However, there has been a recent increase in demand in the retail sector. Rental rates in major cities have remained unchanged since the market crash in late 2008. Both mall and main street rentals (excluding some locations) have stayed below the average rates from Q4 2008. According to a report, certain micro markets in NCR, Bangalore, and Mumbai experienced a decline of 53% to 40% in rentals during Q4 2009 compared to the same period last year.
Brigade Road and Commercial Street, the prominent high streets of Bangalore, saw a rental increase of around 10% compared to the previous year. This indicates a higher demand for premium retail areas over emerging locations in the city. In 2009, Mumbai had the largest share of new mall supply with 1.8 million sq ft, followed by Hyderabad with 1.1 million sq ft and the NCR with 0.9 million sq ft. Kolkata received a fresh supply of 0.7 million sq ft. Retailers are now cautious about leasing new space due to lessons learned by both developers and retailers.
The retailer is being more cautious and asking additional questions about the location and anchor tenants. Experts predict that the retail sector’s next phase of growth will come from rural markets. By 2012, rural retail is projected to hold over 50% of market share. The number of shopping malls is expected to grow at a compound annual growth rate of over 18.9% by 2015. According to a market research report by RNCOS, the Indian organized retail market is estimated to reach US$ 50 billion by 2011.
