MUMBAI — There’s a surge of movement happening in Indian retail, overcoming the lull of the past three years. And this time, the sector is projected to keep right on growing until 2020.
Two new reports have indicated that retail in India will go through a major growth spurt, almost doubling in size over the next five years.
A study by Boston Consulting Group in association with the Retailers Association of India said that Indian retail is expected to grow to $1 trillion by 2020 from $600 billion in 2015. The report noted that organized retail, which has been a small part of the total sector, and includes department stores and hypermarkets, will grow three times — to $180 billion by 2020 from $60 billion in 2015. About 90 percent of retail in India is made up of small, independent retailers, mostly mom-and-pop stores.
E-commerce will grow four times, according to the study — to $60 billion or $70 billion over the next five years.
Another report, by retail consulting firm Knight Frank India, focused on the seven major cities that have seen the fastest retail growth so far. These are Mumbai, Delhi, Bangalore, Chennai, Hyderabad, Pune and Kolkata.
Retail sales in these seven cities are projected to grow from 3.59 billion rupees, or $59.8 billion at current exchange, in 2014 to 7.65 billion rupees, or $127.5 billion, in 2019.
“The overall retail spending across the top seven cities in India will more than double over the next five years,” said Samantak Das, chief economist and director of research at Knight Frank India. “This gives an immense opportunity for the retail sector to adopt a higher growth trajectory.”
Das explained that the growth of the middle class, combined with further exposure of Indian consumers to global retail markets would fuel demand for more sophisticated products and better customer service. “This has already prompted a transformation in retail formats in India — from mom-and-pop stores to modern shopping streets and malls,” he added.
Global brands appear to have a big part to play in this future growth. The report cited that brands from more than 33 foreign countries are sold through modern retail outlets in India. The U.S. accounts for more than 35 percent of all foreign brands in India. The second biggest after the U.S. is the U.K., at 12 percent. Italian and French brands account for 8 percent each; Japanese, Swiss and German brands represent 5 percent each, the study found.
Foreign brands also have a stronger market share in some cities than others. For example, in Mumbai, overseas brands have more than a 40 percent share of modern retail, with companies such as Forever 21, United Colors of Benetton and Vero Moda leading in apparel, Bata and Pavers England for shoes and Nike, Woodland, Adidas, Puma and Reebok for activewear.
Global brands dominated the activewear segment, with 87 percent of brand stores being those of global companies.
Footwear is second in terms of a global brand presence, with foreign brands having a 32 percent market share of organized retail.
The watch and jewelry segment is dominated by local brand stores, with just 7 percent of the retail space represented by foreign brands.
National brand stores such as Reliance Fresh and Big Bazaar represent around three quarters of the organized retail space in the hyper/supermarkets category, the report said.
Across the board, the biggest category across the seven cities, according to the research, is apparel, where both global and local companies are seeing enormous growth.
It is also obvious from the research that branded goods are becoming more attractive to Indian consumers. In Hyderabad, for example, the combined share of branded stores (both global and local) is more than 90 percent; it is 68 percent in Chennai, and in Pune and Bangalore it is 64 percent and 62 percent, respectively.
Industry analysts have cited store size as being one of the key elements that have been a part of the learning process in Indian retail, from retail chains such as Debenhams to local retailers such as Reliance and Shoppers Stop that have opened stores with ambitious large-scale formats of more than 60,000 square feet, only to scale down in size over the past five years. With high retail rents, the question of size has been one of the key factors for retailers as consumers have changed shopping habits, with an increased spending pattern.
The report found that 77 percent of all the stores in the shopping streets of India’s top seven cities are less than 1,000 square feet.
In certain categories, such as accessories, stores tend to be much smaller — 90 percent of all the stores are less than 500 square feet.
Although the New Delhi region and Mumbai have long been known to be the two fastest-growing markets, the survey noted that Mumbai showed the highest consumer spending, at 1.04 trillion rupees, or $16.59 billion, in 2014, followed by Delhi and the National Capital Region (which includes the surrounding areas of Noida and Gurgaon) at 899 billion rupees, or $14.37 billion; Bangalore at 549 billion rupees, or $8.78 billion; Hyderabad and Kolkata at 319 billion rupees, or $5.10 billion, each; Pune at 238 billion rupees, or $3.80 billion, and Chennai at 225 billion rupees, or $3.60 billion.
As retailers get ready for this growth spurt, additional studies show the emergence of strong consumption patterns. A study by industry body ASSOCHAM and Yes Bank has said that consumer spending in India is expected to quadruple to $4.2 trillion by 2017.
A recent report by Nielsen observed that consumer confidence in India is the highest in four years, and in the Asia-Pacific.
“Consumers are hopeful of an improved economic environment with policies and reforms being set in place by the new government,” said Piyush Mathur, president of Nielsen India Region. “The trends in the finance sector also reflect this uptick in confidence, with credit-card penetration rising, home loan disbursement higher than in the third quarter and improved auto sales. The overall fast-moving consumer goods industry is looking to grow by double digits in 2015 based on lower inflation rates and increased consumer sentiment.”
Consumer confidence in India is higher than all the other BRIC countries (Brazil, Russia, India, China), according to the survey. While consumer confidence in India is at 129 points, China dropped by four points to 107, Brazil by 6 points to 95, and Russia by 8 points to 79, the report stated.
The awakening customer is causing retailers to reconsider their investments in the market. However, as noted in the report by the Boston Consulting Group, some key factors remain to be overcome as retailers in India see lower sales per square foot than in other global markets; lower gross margins and high rents.
Sales per square foot in Indian retail stores average 1,500 to 2,000 rupees a square foot, compared with an international average of 8,000 to 12,000 rupees, or $128 to $192, a square foot.