Indian retail gears up for global heights

As per AT Kearney’s global retail development index, India has come out, for two consecutive years, as the most attractive destination in a group of 30 emerging retail markets.  We have every reason to believe that the trend will continue in the coming years. Seven twenty million people will join the consuming-age class by 2010. Projected growth rates for mortgage, retail loans and credit cards are estimated at 25 to 30 per cent per annum. Urbanisation is expected to rise from 28 per cent to 32 per cent by 2008. Hopefully, we will also see a relaxation on Foreign Direct Investment (FDI) in retail. In the short span of a decade, the number of malls has increased from zero to 100 and every aspect of retail is booming. Food, fashion, home products, general merchandise, leisure and entertainment as well as health and wellness are on a roller coaster.

India is experiencing an economic revival due to the increasing inflow of IT/ITes companies. The IT/ITes sector brings prosperity both at the individual and corporate levels. Because this business genre is not location-specific, it has broken the stranglehold that metros and CBDs previously had upon the real estate market. We see that previously unknown suburbs and hinterlands are, at present, exploding with activities at the commercial and residential fronts. Retail is, therefore, once again at the forefront, meeting the burgeoning demand. High consumption driven by disposable incomes, lifestyle shifts and availability of a wide range of brands is dictating the speedy growth of different retail formats in India. We are faced with the touchy task of creating formats that integrate the bests of the west without offending the sentiments of our consumers. This is particularly true in the case of tier II cities. There, we cannot bank on the metropolitan outlook that we adopt in bigger cities. With an intelligent approach, we can give significant impetus to India’s retail boom through retail developments in these non-metro cities. These cities have enough population to sustain retail and its development. Affluence has always coexisted with aspiration in tier II cities and organised retailers are naturally moving in these potential areas. With the ever-increasing penetration of FMCG into non-metros and in rural areas, non-metro malls will be a very successful format. It is worthwhile and quite revealing to reflect on the strategies of international brands and retail giants. They are vying with each other so as to get a slice of the real estate pie in areas that nobody would have cared to bother ten years ago. Seriously, a decade ago, how many of us did care to give a second thought to the prospects of Mumbai’s Malad or Pune’s Aundh? How many of us did foresee Kanpur on the retail map?

India’s organised retail market is still in its embryonic stage and demands a careful control so as to develop it and sustain growth. Estimated at around Rs 9,00 billion, the organised sector constitutes only nine per cent of the country’s total retail market. We are now in a critical situation and the biggest blunder we can commit is sitting back on our threadbare laurels and congratulate ourselves on past victories. There is too much to be done to groom India’s organised retail sector into a force of continued significance in the international context. As a real estate professional, my cautions and concerns are specific to the area of my expertise. Indian mall developers need to assimilate and grasp completely the business model they are dealing with. It is no longer time for unplanned, haphazard, exuberant project launches. Development of malls must be strictly restricted to appropriate locations and pricing must be intelligently done and carried out. They must position malls in areas of high human traffic and population, offering right product mix and infrastructure support. If such guidelines are not observed, supply will eventually outstrip demand.

 

Understanding consumer psyche

Better than now, there has never been a time to plumb the unique Indian psyche and 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, much 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.

We must open our minds to new concepts and be willing to discard formulas that are evidently not working. Sticking to obsolete practices will have effects comparable to those of an untrimmed, ingrown toenail, which curls back on itself and harms the very entity it is meant to protect. We must not allow that to happen to Indian retail. The sector is too laden with promise of future prosperity to sacrifice it on the dusty altar of traditional and plagiarised formats.Last year was a landmark year in Indian retail. We witnessed a capital appreciation of 25-30 per cent and there is no indication of a slowdown. Organised retail in India constitutes only two per cent the global retail industry, but, here, we are referring to a snowballing effect. We have studies indicating that organised retailing in India will cross the Rs 1 trillion (approximately $ 21.5 billion) mark by the year 2010. Currently, the size of organised retail in Inida is estimated at around Rs 350 billion (approximately $ 7.5 billion). By 2010, we are very likely to attract investments of around Rs 200 billion (approximately $ 4.3 billion).

That’s not too bad at all for a sector that, in India, is known 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 another 300 malls, multiplexes and shopping centers are under construction. Going by this year’s pace, we are likely to have nearly 500 lakh 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. Further, we are now firmly in the international investment spotlight. The real estate sector has attracted FDI worth $3 bn in the first half of ’06. This is the highest ever FDI inflow into the Indian real estate sector. Total FDI inflow into the country in FY06 was $ 7.5 bn. Retail is one of the primary drivers of the Indian real estate sector and the future prospective is bright and evident. A mere two per cent of the global retail pie, organised retail sector in India would be nothing more than a mere blip on the international radar screen. 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 right. 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.

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