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Retailing
in India - 16
Mar 2004 India
has sometimes been called a nation of shopkeepers. This epithet has its roots
in the huge number of retail enterprises in India, which totalled over 12 million
in 2003. About 78% of these are small family businesses utilising only household
labour. Even among retail enterprises that employ hired workers, the bulk of them
use less than three workers. India's
retail sector appears underdeveloped not only by the standards of industrialised
countries but also in comparison with several other emerging markets in Asia and
elsewhere. There are only 14 companies that run department stores and two with
hypermarkets. While the number of businesses operating supermarkets is higher
(385 in 2003), most of these had only one outlet. The number of companies with
supermarket chains was less than 10. Retail
sales
Retail
sales, which amounted to about Rs7,400 billion in 2002, expanded at an average
annual rate of 7% during 1999-2002. With the upturn in economic growth during
2003, retail sales are also expected to expand at a higher pace of nearly 10%. In
a developing country like India, a large chunk of consumer expenditure is on basic
necessities, especially food related items. Hence, it is not surprising that food,
beverages and tobacco accounted for as much as 71% of retail sales in 2002. The
remaining 29% of retail sales are non-food items. The share of food related items
fell over the review period, down from 73% in 1999. This is to be expected as,
with income growth, Indians, like consumers elsewhere, spent more on non-food
items compared with food products. Sales
through supermarkets and department stores are small compared with overall retail
sales. However, their sales grew much more rapidly (about 30% per year during
the review period). As a result, their sales almost tripled during this time.
This high acceleration in sales through modern retail formats is expected to continue
during the next few years with the rapid growth in numbers of such outlets in
response to consumer demand and business potential. Government
policy
There
has been vigorous opposition to foreign direct investment (FDI) in retailing from
small traders who fear that foreign retailing companies would take away their
business, lead to the closure of many small trading businesses and result in considerable
unemployment. Given the political clout of the small trading community, because
of their enormous numbers, the government has barred FDI in retailing since 1997.
Hence, at present, foreign retailers can only enter the retailing sector through
franchising agreements. Organisational
characteristics
Given
the traditional and underdeveloped state of the Indian retail sector, the organisational
characteristics of retail enterprises are rudimentary. Most of them belong to
independent enterprises in the form of small family businesses. Cooperatives
have been present in India for several decades, spurred by the encouragement given
by the Indian Government, which viewed the cooperative movement as an integral
component of its erstwhile socialist policies. However, since the 1990s, there
has been a reduction in government support for cooperatives. In 2002, there were
about 35,000 outlets run by cooperatives. Economic
liberalisation, competition and foreign investment since the 1990s led to a proliferation
of brands with both foreign and Indian companies acquiring a strong brand equity
for their products. Hence, franchising emerged as a popular mode of retailing.
Sales of franchises grew at a rapid pace of 14% per annum over the review period.
In 2002, there were over 5,000 franchised outlets. The
other major retailing organisation format is multiples, better known as "chain
stores" in India. In 2002, there were about 1,800 chain stores. Among the
various organisational formats, sales of chain stores grew at the fastest pace,
with sales growth during the review period averaging 24% per year. Food
retailers
There
are a large variety of retailers operating in the food retailing sector. This
is not surprising considering the enormous size of the market for food. However,
traditional types of retailers, who operate small single outlet businesses mainly
using family labour, dominate this sector. In comparison, supermarkets account
for a minuscule proportion of food sales. This is because of the strong competitive
strengths that traditional retailers possess. These include low operating costs
and overheads, low margins, proximity to customers, long opening hours, and additional
services to customers (such as home delivery). Nevertheless, supermarket sales
expanded at a much higher rate than other retailers. This is because greater numbers
of higher income Indians prefer to shop at supermarkets because of convenience,
higher standards of hygiene and the attractive ambience. Health
and beauty products retailers
With
growth in incomes, Indians have been spending more on health and beauty products.
As in the case of other retailing sectors, small single-outlet retailers also
dominate sales of health and beauty products. However, in recent years, a couple
of retail chains specialising in health & beauty products have sprung up.
At present, they account for only a tiny share of sales of these products. However,
as Indians spend more on such products in future, their business will undoubtedly
expand substantially. There is also scope for entry of more such chains. Clothing
and footwear retailers
Numerous
clothing and footwear shops are to be found in Indian cities and towns, especially
in shopping centres and markets. These are a mix of traditional and modern stores.
Traditional outlets are small and cramped with little emphasis on alluring displays.
They basically stock a limited range of cheap and popular items. In contrast,
modern clothing and footwear stores are spacious with sample products attractively
displayed in windows, sometimes with mannequins. Just as in the case of food retailing,
there are also a huge number of retailers selling clothing and footwear in makeshift
stalls or on footpaths. Because of their rock-bottom prices, which are much lower
than prices of branded products, they attract a large number of customers. Home
furniture and household goods retailers
The
home furniture and household goods retailing sector in India is dominated by small
retailers. Despite the large size of this market, very few modern and large retailers
have established specialised stores for these products. However, there is considerable
potential for the entry or expansion of specialised retail chains and it is likely
that this will happen during the next few years. Durable
goods retailers
The
entry of a large number of foreign consumer durable companies into the Indian
market during the 1990s after the government liberalised its foreign investment
and import policies transformed this sector dramatically. A much larger variety
of consumer electronic items and household appliances became available to the
Indian customer. Competition among companies to sell their brands provided a strong
impetus to the growth for retailers operating in this sector. Leisure
and personal goods retailers
Rising
household incomes due to economic growth spurred consumer expenditure on leisure
and personal goods in India. There are specialised retailers for each category
of products in this sector. A few retail chains also emerged particularly in the
retailing of books and music products. Another key feature of this sector is the
popularity of franchising arrangements between established manufacturers and retailers.
Alternative selling channels Sales
through most alternative selling channels are tiny or non-existent. The only exception
was direct selling, which grew rapidly over the review period. The main reason
for this was that direct selling companies could easily attract a huge number
of "distributors", who constitute the key element for the success of
any direct selling company. Many of these are unemployed Indian housewives who
welcomed this opportunity to earn additional income for their households. The
low start-up costs meant that they could easily start this business. Forecast
total retail sales
Retail
sales (in real terms) are predicted to rise more rapidly than consumer expenditure
during 2003-2008. The forecast growth in real retail sales during 2003-2008 is
8.3% per year (compared with 7.1% for consumer expenditure). Inevitably, modernisation
of the Indian retail sector will be reflected in rapid growth in sales of supermarkets,
department stores and hypermarkets. This is because of the growing preference
of the affluent and upper middle classes for shopping at these types of retail
stores, given the conveniences they offer such as shopping ambience, variety and
a single-point source for purchases. Hence, sales from these large format stores
are predicted to expand at growth rates ranging from 24% to 49% per year during
2003-2008. However, such rapid growth is from a small base. Hence, they will continue
to account for only a small share of total retail sales in 2008. | 
