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Impact of Recession on the Indian Retail Market

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The retail market in India is facing slowdown with the ongoing financial crisis happening across the world markets. Since the markets always have internally linked with each other, the impact of the crisis is generally shared among all. The following circumstances are creating unwelcome interruptions to the Indian retail industry. The industry hopes for the best alternations to overcome the acrimonious situations. Markets in recession worldwide and India too: The current meltdown in the world markets is shaking the globe today.

Not even a single country seems to be off the hook.

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The high level of inflation has been a wet blanket for the global markets. The roots of the world markets are nearly pulled away with the heavy downfall of the American financial giants. Amongst many countries, India too not exempted from the impact of world financial crisis. All this is leading to a temporary recess for the markets from a regular busy schedule. However, these fluctuations are not new for global market.

For the decades long, markets, across the world, have been witnessing such ups and downs. But the ultimately fact is that the market growth rate is always constantly high when comparing to such downfalls.

Economic slowdown: The Financial crisis is adding to the pressure on global economies. The International Monetary Fund (IMF) now sees the world entering a major slowdown. The recovery would depend on three key factors: commodity prices stabilizing, the crisis in the US housing sector bottoming out, and emerging economies providing a source of resilience. But, if the current crisis were to last longer, the emerging economies are more likely to be affected. The impact on retail industry: The inflation or the economic slowdown is adversely affecting the retail industry.

With the suddenly disturbed economical status, consumers are gradually losing interest on buying. And for the interested, the unbalanced income, followed by the economic slowdown, is not meeting their buying requirements. This evolution had soon disappointed the hopes of retail industry. Anyhow, it’s all a short-term crisis for the retail industry until the things turn around. India Retail Industry Indian Retail Scenario The retail scenario is one of the fastest growing industries in India over the last couple of years. India retail industry comprises of organized retail and unorganized retail sector.

Traditionally the retail market in India was largely unorganized; however with changing consumer preferences, organized retail is gradually becoming popular. Unorganized retailing consists of small and medium grocery store, medicine stores, subzi mandi, kirana stores, paan shops etc. More than 90% of retailing in India fall into the unorganized sector, the organized sector is largely concentrated in big cities. Organized retail in India is expected to grow 25-30 per cent yearly and is expected to increase from Rs35, 000 crore in 2004-05 to Rs109, 000 crore ($24 billion) by 2010.

Quick facts on Indian Retail sector •Indian Retail Industry is the fifth largest global retail destination. •India retail market is dominated by the unorganized sector. •The top five companies in retail hold a combined market share of less than 2%. •The Indian retail market has been ranked by AT Kearney’s eighth annual Global Retail Development Index (GRDI), in 2009 as the most attractive emerging market for investment in the retail sector. •Currently the share of retail trade in India’s GDP is around 12 per cent, and is estimated to reach 22 per cent by 2010. According to Government of India estimate the retail sector is likely to grow to a value of Rs. 2,00,000 crore (US$45 billion) and could yield 10 to 15 million retail jobs in the coming five years; currently this industry employs 8% of the working population. •India continues to be among the most attractive countries for global retailers. According to the Department of Industrial Policy and Promotion, approximately US$ 47. 43 million was the amount of Foreign Direct Investment (FDI) inflow as on September 2009, in single-brand retail trading.

More than 80% of the retail industry in the country is concentrated in the large cities. A study reveals that among the more than 20 locations, for organized retail in India, Mumbai was found to be the most preferred location followed closely by Bengaluru in the second position. Retail formats in India •Hypermarts / supermarkets: large self-servicing outlets offering products from a variety of categories. •Mom-and-pop stores: they are family owned business catering to small sections; they are individually handled retail outlets and have a personal touch. Departmental stores: are general retail merchandisers offering quality products and services. •Convenience stores: are located in residential areas with slightly higher prices goods due to the convenience offered. •Shopping malls: the biggest form of retail in India, malls offers customers a mix of all types of products and services including entertainment and food under a single roof. •E-trailers: are retailers providing online buying and selling of products and services. •Discount stores: these are factory outlets that give discount on the MRP. Vending: it is a relatively new entry, in the retail sector. Here beverages, snacks and other small items can be bought via vending machine. •Category killers: small specialty stores that offer a variety of categories. They are known as category killers as they focus on specific categories, such as electronics and sporting goods. This is also known as Multi Brand Outlets or MBO’s. •Specialty stores: are retail chains dealing in specific categories and provide deep assortment. Mumbai’s Crossword Book Store and RPG’s Music World are a couple of examples. Major Retailers in India AV Birla Group has a strong presence in apparel retail and owns renowned brands like Allen Solly, Louis Phillipe, Trouser Town, Van Heusen and Peter England. The company has investment plans to the tune of Rs 8000 – 9000 crores till 2010. •Trent is a subsidiary of the Tata group; it operates lifestyle retail chain, book and music retail chain, consumer electronic chain etc. Westside, the lifestyle retail chain registered a turnover of Rs 3. 58 mn in 2006 •Landmark Group invested Rs. 300 crores to expand Max chain, and Rs 100 crores on 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 Kishore Biyani by went slow on expansion plans and even scaled down operations.

However, during the last quarter a bit of confidence was restored as the economy showed signs of growth. Hurdles on the way •The tax structure in India favours small retail business •Lack of adequate infrastructure facilities •High cost of real estate •Dissimilarity in consumer groups •Restrictions in Foreign Direct Investment •Shortage of retail study options •Shortage of trained manpower •Low retail management skill Future Trends •Lifestyle International, a division of Landmark Group, plans to have more than 50 stores across India by 2012–13. Shoppers Stop has plans to invest Rs250 crore to open 15 new supermarkets in the coming three years. •Pantaloon Retail India (PRIL) plans to invest US$ 77. 88 million this fiscal to add up to existing 2. 4 million sq ft retail space. PRIL intends to set up 155 Big Bazaar stores by 2014, raising its total network to 275 stores. •Timex India will open another 52 stores by March 2011 at an investment of US$ 1. 3 million taking its total store count to 120. In the first six months of the current fiscal ending September 30, 2009, the company has recorded a net profit of US$ 1. 2 million. Australia’s Retail Food Group is planning to enter the Indian market in 2010. It has plans to clock US$ 87 million revenue in five years. In 20 years they expect the India operations to be larger than the Australia operations. 2010 can be brighter for Retail sector The year 2009 has been bad for the real estate sector, particularly for the retail sector. While residential real estate picked up in the last two quarters, retail has been seeing very low demand. According to a report by Cushman & Wakefield, of the 44 malls proposed at the beginning of the first quarter of 2009, just about 18 were delivered by the year end.

A number of developers postponed mall projects in 2009 but with a revival of demand in the end of the year, 2010 is expected to see a number of mall projects getting back on track. The outlook for the retail sector in 2010 is looking brighter. The festive season has been good and has seen a lot more footfalls. As the market picks up, there will be a revival of demand for retail spaces again. Year 2009 saw fresh supply of 5. 7 million sq ft of mall space. Approximately 9 million sq ft of mall space was deferred to the future, which is a reduction of 60%.

Almost 80% of new mall space in Bangalore was postponed which meant the city saw a vacancy of only 3%. Most large developers had postponed their projects as it was hard for them to lease retail space. In the early part of 2009, developers also faced a credit crunch which slowed down mall plans. This slowdown in mall construction need not be viewed as a negative. The slowdown has helped in maintaining a good supply demand equation, especially for markets which were staring at an oversupply situation. Delhi-based developer Omaxe launched its mall in Patiala a month back and the response was been good.

The company though had decided to postpone its 1. 5 million sq ft mall Connaught Place in Greater Noida because of lack of demand in 2009. The retail segment is seeing renewed demand over the last 4-5 month. Across the major cities, rentals hardly saw any upward movement since the markets crashed late 2008. Mall as well as main street rentals (except a few locations) continued to remain below the average rental rates of the fourth quarter of 2008, says the report. Some micro markets in the NCR, Bangalore and Mumbai saw a 53%-40% decline in rentals in the fourth quarter of 2009 over the same period last year.

Bangalore’s prominent high streets (Brigade Road and Commercial Street) were the only micro markets to post an approximate 10% rise in rentals over last year, indicating the existing demand for premium retail precincts over emerging locations in the city. Of the 5. 7 million sq ft of fresh mall supply in 2009, the largest share of the supply — 1. 8 million sq ft came up in Mumbai, followed by Hyderabad (1. 1 million sq ft) and the NCR (0. 9 million sq ft). Kolkata saw fresh supply of 0. 7 million sq ft. Retailers are now very cautious about signing up new space. It has been a learning experience for both developers and retailers.

The retailer is now asking a lot more questions and is very cautious. They are asking questions about the location, about anchor tenants. The Road Ahead Industry experts predict that the next phase of growth in the retail sector will emerge from the rural markets. By 2012 the rural retail market is projected to have a total of more than 50 per cent market share. The total number of shopping malls is expected to expand at a compound annual growth rate of over 18. 9 per cent by 2015. According to market research report by RNCOS the Indian organized retail market is estimated to reach US$ 50 billion by 2011.

Cite this Impact of Recession on the Indian Retail Market

Impact of Recession on the Indian Retail Market. (2018, Mar 10). Retrieved from https://graduateway.com/impact-of-recession-on-the-indian-retail-market/

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