The Indian retail sector is in the midst of a boon but its highly patchy nature needs attention. Statistics reveal that 97 percent of its business is in the hands of unorganized retailers comprising of traditional family run stores and corner stores. One can get a magnified picture by looking at the thousands of small shops and outlets that are scattered all over the country. The organized retail is at the budding stage through attempts are being made to increase its proportion to 9-10 percent by 2010 bringing in a huge opportunity for prospective new players. Following agriculture, the retail sector is the highest source of employment with its roots penetrating deep into rural India generating more than 10 percent of India’s GDP.

The Indian retail sector is worth US$394 billion and is expending at the rate of 30 percent annually. Retailing in India contributes to 10 percent of GDP and employs 7 percent of the workforce. India is at the top of the charts as the next foreign investment destination as markets like China have become increasingly saturated. India is the fourth largest economy taking into account the GDP and is expected to rank third by 2010 just after US and China.

India represents an economic opportunity on a massive scale both as a global base and domestic market. In the past, Indian Retail sector was dominated by small-family-owned stores and outlets located in residential areas with a shop floor of less than 500 square feet. This scenario is rapidly changing with the emergence of the organized sector which is expected to create a sizzle by hiking the country’s economy. In the coming five years India is to experience a stronger growth driven by changing lifestyles, increased incomes and the capacity to spend which is likely to boost consumer demand.

India has been in the shadows since the past three decades with China grabbing the limelight for its fast paced economic growth and sustainability. The situation is no longer the same. While China touched the economic growth mark of 10.45 last year, India was just a little behind with 9.4 percent. It is estimated that India might overtake China to become the world’s fastest-growing economy in 2007.

India’s economic growth has accelerated over the past decade and has led to increased spending power of its citizens. The average income has doubled since 1985 and is projected to triple by the next 20 years. The Retail sector in India has been in news since the last 18 months with the stepping in of Bharti, Wal-Mart, Reliance and others, the race to grab a bite of the Indian Retail segment has already begun.

The modern retail industry in BRICs (Brazil, Russia, India and China) is noted for exuberating maximum potential on worldwide growth. It grew by 30 percent in India last year and 13 percent in China and Russia.

In a report by AT Kearney: India has been ranked No.1 position consecutively for the second year. In another aspect of this retail boom, India is also becoming the IT support centre for retail backend.

While it is foreseen that Indian retail is likely to hit the hilt with fast paced growth at the CAGR of around 49.53 percent per annum, India still has a number of challenges ahead. The biggest challenge staring in the face is that of cultural and regional differences in the country, which deter retailers from adopting a single format. The most favourable format for India is the hypermarket trend at the moment. The arrival of multinationals will further the growth of this format as it is the best way to compete with unorganised retailing in India.

The massive growth in the retail sector is marked by increase in the number of available brands, economic implications of the government increasing urbanization, credit availability, improved infrastructure, increase in investments, developments in technology and real estate building a world class shopping environment for the consumers. In order to match the pace of increasing demand there has been significant activity in terms of international labels, expansion plans and focus on technology, operations and processes.

Indian retail giants like Reliance, Ambanis, Rahejas, Bharti, ITC etc are making significant investments in the retail sector leading to the emergence of big retailers who can bargain with suppliers to reap economic benefits.

A new addition is the emergence of the concept of product quality and service delivery which were almost absent earlier from the consumer psyche. This had led to the overall professionalism in service delivery as well as the consumer purchase patterns shifting from ‘need only’ based trends to extended storage-based bulk purchase practices.

Today, synergies based on huge consumer bases developed in unrelated industries like telecom to retail are being seen in the Indian market as the combined purchase affinity of the middle class that surpass the specialist purchase patterns of the higher income strata in the Indian sub-continent. The competition in the global arena is likely to become fierce by 2016.

Indian retailers are unwilling to give an easy competitive fight on their home front as well as the small residential stores known as kirana stores. They are however warming up to the challenge and building personal relationships apart from increasing the service spectrum like never before.

The market is all geared up for the big explosion of extreme competitive activity combined with social and economic considerations. Till the 1990s Indian economy had not opened up and the industry was dominated by unorganized retailers and any kind of central purchase or retail formats were only propagated by the government pertaining to which awareness and efforts were negligible.

International retailers view India as the last retailing frontier left as the Chinese retail market is saturated. Despite, the Indian Government restrictions on the FDI, international players like Wal-Mart, Tesco and the likes are struggling to enter Indian markets. The government has allowed 51 percent FDI in the sector to ‘one-brand’ shops like Nike, Reebok etc. Several other International players are taking alternative routes to enter the Indian retail market indirectly via strategic licensing agreement, franchise agreement and cash in order to carry wholesale trading.

In comparison with countries like Japan, India stands at a beneficial position. The biggest challenge being faced by Japan is to increase its capitol and labour productivity, especially given its aging population. Export-oriented industries generally have world- leading levels of productivity, but they employ a small proportion of the population. Most Japanese work for less productive Japanese companies that tend to drag down the overall averages. The Japanese retail sector is haunted by low productivity even though one in every ten persons is involved in the retail industry. Several obstacles prevent more efficient, large scale retailers from boosting overall productivity which is 50 percent of that in the United States. The productivity level of large-scale formats (discounters, general merchandise stores and supermarkets is 84 percent of the US retail average whereas the level of small mom and pop stores is only 19 percent.

Large scale stores in Japan have not been replaced by the highly unproductive traditional stores that account for 55 percent of retail employment, while large –scale retailers account for 12 percent of employment. The shortage of large-scale retailers is particularly present in food retailing because they offer more choice for lower price and manage to serve many customers with relatively few personnel. Large scale foreign retailers have a negligible presence in the Japanese retail industry and domestic retail conglomerates in Japan operate multiple competing formats and do not compete fiercely due to interformat conflicts of interest.

Entry barriers to large-scale retailers and exit barriers to traditionals are the most important external obstacles to productivity growth in the sector. Local traditionals preside over the approval committee and the government has little tax incentive to bring in large-scale retailers.

Global retailers have already been sourcing from India. Parties supporting FDI suggest that retail should be opened gradually, such that it an promote competition and attribute to the growth for the Indian economy. The impact of the FDI would benefit the end user to a great extent and will help generate large-scale employment as more and more entrepreneurs would be coming forward to invest and taste the new generation in retail marketing.

Global retailers have already been sourcing from India; the opening up of the retail sector to the FDI has been fraught with political challenges. With politicians arguing that the global retailers will put thousands of small local players and fledging domestic chains out of business. FDI should be designed in such a way that many sectors including agriculture, food processing, manufacturing, packaging and logistics would reap benefits.

The structure of Indian retail is developing at a fast pace with shopping malls becoming common in large urban areas and development plans being projected at 250 new shopping malls by 2008. Modern retail has helped companies to increase the consumption of their products simply by enhancing the way a product is displayed and promoted.

Investments in the range of US$20+ Billion are expected in the next 5 years in Retail & its Supply Chain alone.

At least 2.5 Million additional direct jobs likely to be created in the next five years.

Hyper-competition is expected to set in by 2008-09 as the footprint of the top-five players starts significant overlapping in top 20-30 towns.

According to Assocham, the overall retail market would grow by 36 per cent with the organized sector expected to register three-fold growth to Rs 15,000 crore by 2008. The total size of the market is also expected to increase to Rs 14,79,000 crore from the current level of Rs 5,88,000 crore.

The Indian customer has loads to receive— form huge complexes for shopping to entertainment and food, everything under one roof. The future of Indian retail is a bright one that has a number of promises to offer and people are eagerly waiting for the competition to begin.