Indian retail to magnify by 2020: CII-BCG study

According to the new study, India's retail sector will magnify to $1.1-1.2 trillion by 2020.
Indian retail

According to the new study, India’s retail sector will magnify to $1.1-1.2 trillion by 2020 from $630 billion in 2015, riding on income growth, rapid urbanisation and more nuclear families leading to higher per capita consumption.
The study titled ‘Retail transformation: Changing Your Performance Trajectory’ conducted by industry lobby Confederation of Indian Industry (CII) and consulting firm The Boston Consulting Group says, that the overall growth will be driven by key demographic changes. By 2020, there will be a 70% rise in the income level and 100 million more youths will enter the workforce.
Officially launching on Friday, the report observes that nearly 35% of Indians will be living in urban areas and there will be a rapid rise in the number of nuclear families by 2020.
Organized retail will account to12% of the retail market and e-commerce will comprise about 5% by 2020, and while the overall retail market is likely to grow at an annual rate of about 12%, organized retail is projected to grow at 20% and e-commerce at 40-50%, the study said.
An earlier BCG report, released in February 2015, said that average household income will increase three times to $18,448 by 2020 from $6393 in 2010.
Also, urbanization will go up to 40% in 2020 from 31% in 2015 and more than 200 million households will be nuclear, representing a 25-50% higher consumption per capita spend, the February report said.
According to the latest report, by 2020 about 650 million consumers will be present online, of which 350-400 million would be “digitally influenced”, helping e-commerce to grow to $45-50 billion from $8-12 billion in 2015.
The study says that smaller towns will play a vital role in the growth of e-commerce. In tier-II towns, the relevance of variety would increase, driven by lack of options in organized retail, it added.
Adding that companies will have to build capabilities in Omni-channel retailing, big data and analytics, information technology and supply chain, the report says, retailer will have to adapt to changes to integrate digitally influenced consumers in a better way. The study calls upon Indian retailers to take a strategic view of their opportunities and be clear about their aspirations. Abheek Singhi, senior partner and director at BCG India said, “With organized retail having potential to be close to 12-15% of the retail opportunity and e-commerce being $45-50 billion and potentially higher, Indian retailers would need to transform themselves to capture the massive opportunity.”
In the past few quarters, most brick and mortar retailers, such as Croma, Future Group, which runs chains like Central and Big Bazaar, and brands such as Nike, Mango and Vero Moda have gone online through marketplaces like Flipkart, Amazon India and Snapdeal. At present, most brick-and-mortar retailers don’t have a good multichannel offering.
Shashwat Goenka, sector head, Spencer’s Retail Ltd, RP Sanjiv Goenka Group said, “With the expected exponential boost in digitally savvy consumers over the next decade, technology will play a key role in the development of the Indian retail sector. Retailers will have to adopt technology in both back-end and front-end, to bring the digitally savvy consumer into the mainstream retail fold.”
Shailesh Chaturvedi, chief executive and managing director at Tommy Hilfiger Apparels India shared, “With more disposable income, Indians are also likely to spend more on premium products. While e-commerce may be a ready answer, premiumization and upgradation of consumption may also be a very strong force going forward. With growth of the Indian economy, discretionary spends will rise faster and premium product will gain share, as seen in other emerging markets of Russia and China. Indian consumers will become more sophisticated, discerning and demanding and will be ready to pay bit more for their choices.”
The report also talks about the challenges ahead for brick and mortar retail. They include price sensitiveness of online consumers, steep competition with e-commerce, and lower bargaining power against suppliers and regulatory barriers. These factors may lead to lower profitability and return on capital for such retailers when compared with other sectors and global retailers, it added.
BCG, in its February 2015 report, said that sales per square foot at Indian retail stores at Rs.1,500-2,000 per square foot is much lower than the international average of Rs.8,000-12,000 per sq.ft Even the gross margins are lower in India by 7-8% than the international standards and the rentals are higher by 1.5-3% on an average.

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