Indian retail getting organized : Most attractive emerging market

The year 2006 was a landmark in Indian retail: we witnessed a growth in capital appreciation of 25 to 30 per cent and there is no indication of a slowdown. Organised retail in India constitutes only 2 per cent of the global retail industry, but we are referring to a snowballing effect, here. We have studies indicating that organised retailing in India will rise from the current size of Rs 350 billion (approx. $7.5 billion) and cross the Rs 1 trillion (approx. $21.5 billion) mark by the year 2010. By that year, we will have, very likely, attracted investments in the proximity of Rs 200 billion (approx. $4.3 billion).

That’s not too bad at all for a sector that, in India, is notorious for its fragmented nature. It amazes me that, just a decade ago, India did not have a single mall. Today, we have 100 full-fledged malls and 300 malls. Moreover, several multiplexes and shopping centres are under construction. At the pace set this year, we stand to have close to 50 million sq. ft. of high-grade retail space by the end of 2007. Large corporate groups like ITC, Reliance, Tata, Raheja and others are infusing staggering amounts of capital into the organised retail sector.

International spotlight

Furthermore, we are now firmly within the international investment spotlight. The real estate sector has attracted FDI worth $3bn in the first half of 2006. This is the highest ever FDI inflow into the Indian real estate sector. Total FDI inflow into the country in FY06 was $7.5bn. Retail is among the Indian real estate sector’s primary drivers and the implications for the future are evident. The significance of such escalations in FDI on a nation’s economy is best summed up by an excerpt from a report in the McKinsey Quarterly entitled ‘The Truth About Foreign Direct Investment In Emerging Markets’ -

“In 13 of our 14 cases, foreign direct investment unambiguously helped the receiving economy. It raised productivity and output in the sectors involved, thereby raising national income while lowering prices and improving the quality and selection of services and products for consumers. Rather than being beneficial only in certain cases, foreign investment nearly always generated positive spillovers for the rest of the Indian economy.”

2007 and beyond

There are immense opportunities in Indian retail and the global marketers are very much aware of it. The international retailer community has taken notice of the fact that the country’s consumer culture, business practices and industry dynamics are forces quite unto themselves. And why not? The segment of India’s more affluent shoppers is 6 million strong. We are talking of a segment that spends approximately $28.36 billion annually. India ranks as the fifth most attractive emerging retail market in the world and represents a virtual goldmine. That is certainly strong incentive to adapt to India’s highly individualistic consumer mentality.

The fragmented nature of Indian retail had earned it the unflattering label of ‘a nation of shopkeepers’. However, we are seeing a paradigm shift in consumer preferences now – the accent is on an organized retailing experience of global standards. The sector is witnessing a huge revamping exercise. Traditional markets are making way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. We are all intimately familiar with the western-style malls appearing in metros and second-rung cities. The fact that Indian retail is gaining a global perspective is one to be proud of. However, many players seem to be content with plodding the beaten path. In our mall formats and retail-related business philosophies, we often prefer to take the path of least resistance – aping the West.

The concepts of customer generation and business practice certainly do have some cross-cultural commonalities. However, there has never been a better time than now to plumb the unique Indian psyche and to see what makes it tick. If we wish to emulate the West’s momentous successes in retail and related fields, we must also shake off certain old prejudices and misconceptions. The Western mind is, in many respects, far more liberated than the Eastern mind. We must not discount the possibility that this liberation and the progress we see in Western retail are closely interlinked.

To some extent, we are growing up. After all, the country is now exploring hitherto unexplored domains such as niche malls. They are bound to be teething problems in this, as Indian consumers have yet to develop a mindset willing to explore beyond the novelty of Western-style of all-under-one-roof malls. However, it will happen. India’s consumers are ready for newer and more discerning shopping experiences.

Meanwhile, the most sustainable format today is typified by a dovetailing of entertainment and food sales with shopping. There is a huge responsibility on mall developers to keep their interpretations of this format workable and sustainable. Malls and multiplexes in urban areas must be developed with adequate attention to the location of the retail outlets.

We expect the government to do its bit in sustaining the new formats, too. Town planning laws must be amended so that the malls do not impinge upon the residential character of urban localities. The master plans of most cities in India are archaic and do not provide for mall developments on the presently witnessed scale.

A mere 2 per cent of the global retail pie would be a mere blip on the international radar screen in any other context. However, it is clear that the Indian retail sector is the flavor of the decade and possibly the century on the global menu card.

It is of utmost importance that India plays its cards rightly. Indian retail is not a force unto itself but affects the entire country’s economy. As modern retailers establish their businesses, they help in building ancillary industries. In sufficiently matured markets, construction and real estate, supply chain and logistics, packaging and security benefit directly from a progressive retail market. When markets open up to modern retail, export volumes tend to surge, whereas when markets remain closed, exports stagnate.