Ritu Sinha Ph.D Scholar (Management) ( ) Kalinga University, Raipur, C.G.

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1 A study of Factors contributing towards the growth of Organises Retail Ritu Sinha Ph.D Scholar (Management) ( ) Kalinga University, Raipur, C.G. Enrollment No (KU002MMXIV ) Abstract Retailing in India is one of the pillars of its economy and accounts for about 10 percent of its GDP. The Indian retail market is estimated to be US$ 600 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail markets in the world, with 1.2 billion people. In November 2011, India's central government announced retail reforms for both multi-brand stores and the Indian retail industry has emerged as one of the most dynamic and fast -paced industries due to the entry of several new players. I t accounts for over 10 per cent of the country s Gross Domestic Product (GDP) and around 8 per cent of the employment. India is the world s fifth-largest global destination in the retail space. This paper is going to study the major factors responsible for the growth of organised retail in India. 1. Introduction India is the country having the most unorganized retail market. Traditionally it was a family's livelihood, with their shop in the front and house at the back, while they run the retail business. More than 99% retailer's function in less than 500 square feet of shopping space. Global retail consultants KSA Technopak have estimated that organized retailing in India is expected to touch Rs.35,000 crore in the year Retailing in India is one of the pillars of its economy and accounts for about 10 percent of its GDP 12. The Indian retail market is estimated to be US$ 600 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail markets in the world, with 1.2 billion people 3 4. In November 2011, India's 1 "The Bird of Gold - The Rise of India's Consumer Market". McKinsey & Company. May Anand Dikshit (12 August 2011). "The Uneasy Compromise - Indian Retail". The Wall Street Journal. 3 "Winning the Indian consumer". McKinsey & Company Majumder, Sanjoy (25 November 2011). "Changing the way Indians shop". BBC News. 189

2 central government announced retail reforms for both multi-brand stores and the Indian retail industry has emerged as one of the most dynamic and fast - paced industries due to the entry o f several new players. It accounts for over 10 per cent of the country s Gross Domestic Product (GDP) and around 8 per cent of the emplo yment. India is the world s fifth-largest global destination in the retail space. The Indian retail sector is estimated at around Rs 900,000 crore, of which the organized sector accounts for a mere 2 per cent indicating a huge potentia l market opportunity that is lying in the waiting for the consumer -savvy organized retailer. Purchasing power of Indian urban consumer is gro wing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian consumer. Indian retailers need to advantage of th is growth and aiming to grow, diversify and introduce new formats have to pay more attention to the brand building process. The emphasis here is on retail as a brand rather than retailers selling brands. The focus should be on branding the retail business itself. There is no doubt that the Indian retail scene is booming. A number of large corporate houses Tata's, Raheja's, Piramals's, Goenka's have already made their foray into this arena, with beauty and health stores, supermarkets, self-service music stores, new age book stores, every-day-lowprice stores, computers and peripherals stores, office equipment stores and home/building construction stores. Today the organized players have attacked every retail category. Retailing in India is the largest private sector and second to agriculture in employment. India has highest retail outlet density Around 1.5 retail crore retail outlet. The retail sector contributes about 10-11%to Indian GDP and it is valued at an estimated Rs crore out of which organi zed retailing industry around Rs crore. Organized retailing is primarily urban centric, its share as represented in urban scenario is projected to be 12 to 20% Growing at more than 30%, the organized sector is deriving the retail growth in India and contributes significantly to the growth of economy. According to the study done by the "Associate Chambers of Commerce and Industry" it is that annual retail sales reached $17billion by the year 2010, the retail sector in India has the potential to reach $ billion dollar. Dr Vishal Bishnoi(2009) 5 in his paper Effect of Organised Retail on Unorganised Retail with reference to Indian Scenario mentioned that India is 5 Vishal Bishnoi (2009), Effect of Organised Retail on Un-Organised retail with Reference to Indian Scenario, 4 th national conference on Innovation and Adaptability : Twin Engins of sustained 190

3 the country having the most unorganized retail market. Indian retail market is preliminary characterized as Mandis and /or weekly Bazaars, where vegetables, groceries, and other day-to-day items were sold, later small stores came up at corners of the streets or residential colonies which were popularly known as Kirana stores now also referred as Mom and Pop Stores. We have gone through a number of literature to enquire about the major factors affecting the growth of Organised retail in India. 2. Objectives and Research Methodology Objectives of the study are as given below: 1. To analyse the retail market in India. 2. To find out the major categories of Retail Outlets. 3. To Growth drivers of the Organized Retail Industry in India. Research Methodology Research methods can be classified in different ways, the most commo n distinction is between the quantitative and the qualitative approaches (Myers, ). Quantitative approaches were originally used while studying natural sciences like: laboratory experiments, survey methods and numerical methods. A qualitative study is used when the researcher w ants to get a deeper understanding on a specific topic or situation. Myers (2007) 7 stated that the qualitative approach was developed in social sciences in order to support the researcher in studies including cultural and social phenomena. Sources included in the qualitative approach are interviews, questionnaires, observations, documents and the researcher s impression and reactions. The chosen approach is qualitative. This study typically takes the form study of secondary data available on Indian Retail system. To understand and conclude the major factors contributing towards the growth of Indian retail industry, we have gone through a number of reports and papers. This has the advantages of providing very rich information and avoiding the influence of ot hers on the opinion o f any one individual. 3. Results and Discussion Growth at th March published in Conference Proceedings Book by Excel Publication, New delhi, ISBN# , pp Myers, M. D. (2007), Qualitative Research in Information Systems, MIS Quarterly, vol. 21 No. 2, pp Ibid 191

4 Organised Retailing is India's one of the fastest growing industry and one of the biggest sources of employment in the country, generating more than 10 per cent of GDP of India. Organised retailing, however, currently organized retail is contributing merely about three percent of the overall Indian retailing industry. Organised retailing, aims at providing an ideal shopping experience to the consumer based on the advantages of large -scale purchases, consumer preference analysis, excellent ambience and choice of merchandise. Retail industry can be broadly classified into two categories namely - organised and unorganised retail. Organized retail - Organised retailing, in India, refers to tr ading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the publicly traded supermarkets, corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganized retail on the other hand, refers to the traditional formats of low-cost retailing, for example, the local corner shops, owner manned general stores, paan/beedi shops, co nvenience stores, hand cart and pavement vendors, etc, It consists of unauthorized small shops - conventional Kirana shops, general stores, corner shops among various other small retail outlets - but remain as the radiating force of Indian retail industry. Other Classifications Hyper marts/supermarkets Large self-servicing outlets offering products from a variety of categories. Mom-and-pop stores They are family owned business catering to small sections; they are individually handled retail outlets and have a personal touch. Departmental stores Are general retail merchandisers offering quality products and services. Convenience stores Are located in residential areas with slightly higher prices goods due to the convenience offered. 192

5 Shopping malls The biggest form of retail in India, malls offers customers a mix of all types of products and services including entertainment and food under a single roof. E-trailers Are retailers providing online buying and selling of products and services. Discount stores These are factory outlets that give discount on the MRP. Vending It is a relatively new entry, in the retail sector. Here beverages, snacks and other small items can be bought via vending machines. Category killers Small specialty stores that offer a variety of categories. They are known as category killers as they focus on specific categories, such as electronics and sporting goods. This is also known as Multi Brand Outlets or MBO's. Specialty stores Are retail chains dealing in specific categories and provide deep assortment. Mumbai's Crossword Book Store and RPG's Music World are a couple of examples. Growth drivers of the Organized Retail Industry in India A McKinsey report on India (2004) says organized retailing would increase the efficiency and productivity of entire gamut of economic activities, and would help in achieving higher GDP growth. At 6%, the share of employment of retail in India is low, even when compared to Brazil (14%), and Poland (12%).Govt of India's plan of changing the FDI guidelines in this sector speaks of the importance attached to retailing. Recently moves by big corporate houses like Reliance Industries has further fuelled the major 193

6 investments in retail sector. A strategic alliance, land acquisitions in prime areas give the essence of the mood in this sector. India's strong economic growth and rise in disposable incomes, especially with salaried class after the implementation of Sixth pay scales, of middle class and lower middle class has attracted business houses like Omaxe, Parshvnath, Vatika, and Ansals to invest into retail business. The Government's decision will allow foreign Direct Investment and businesses into this sector attracting foreign companies to establish their businesses in India. Now foreign retailers will be able to own their own stores in India for the first time as part of a major government liberalization of business. Till 2006 foreign companies were allowed to operate franchises by the government to protect the indigenous companies. Now new regulations may allow foreign companies to hold up to 100%. But the Indian government is going ahead with new reforms which may create millions of job in the near future while safeguarding the interest of domestic firms. Currently, organised retail is in a nascent stage of g rowth in India as it just has a 5.9% share in the total India retail trade. However, in recent years, organised retailing has been growing at a robust rate due to rise in the number of shopping malls as well as in the number of organised retail formats. The key factors of growth of organised retail in modern India are discussed in the following pages. i. Rising disposable income of Indian middle-class The Indian middle-class can be categorised into seekers and strivers, which is the consuming class and the prime target segment for retailers in India. In 2005, these two categories together constituted around 6.4% of total households in India but accounted for 20% of the disposable income. By 2015, the middle class is expected to constitute around 25% of total households and account for 44% of the total disposable income, and by 2025, the respective figures are likely to go up to 46% and 58%. The Indian middle-class population and their growing disposable income levels will drive the future growth of organised retail in India 6. ii. Changing consumer preferences and shopping habits The prime reason for a paradigm shift in the shopping attitude of the Indian consumer is the change in their preferences and tastes. Due to the increasing use of IT and telecom, India n consumers have become aware of brands and shops for lifestyle and value brands according to the need and occasion. Consumers will continue to drive the growth in the organised retail by 194

7 expanding the market and compelling retailers to widen their offerin gs in terms of brands and in terms of variety. Figure 1: Consumption of essential commodities The spending on essential commodities has been steadily falling over the years, whereas the consumption of discretionary products has been growing at a healthy pace. If the composition of PFCE is studied, one can notice that the share of food, beverages and tobacco in the total PFCE has declined from 53.0% in FY90 to 42.2% in FY08. On the other hand, the share o f communication, entertainment, personal care consu mption has been rising over the years. Changes in lifestyle have brought about a paradigm shift in consumption, which will undoubtedly continue to drive retail growth in segments like beauty, healthcare, telecom, and entertainment. Moreover, the rising reach of media coverage is increasing consumer awareness about products, their prices and services, which is likely to further encourage growth in the organised retail segment. iii. Changing demographics India is one of the youngest and largest consumer markets in the world with a median age of around 25 years, which is the lowest as compared with other countries. According to estimates, India s median age would be 28 by It is expected that over 53% of the population will be under the age of 30 by 2020, which means that the potential for the Indian retail segment will be enormous. Another plus about this population is that they will be more dynamic than the previous generations because their consumption is driven by wants rather than needs. Thus, the organised retailing, which thrives on lifestyle products, is expected to receive a boost because of the young population by

8 Figure 2: Demographic Distribution iv. Increase in working population India is the second-largest country in the world in terms of population, and is the largest consumer markets in the world owing to its favourable demographics. In 2008 India s working population (in the years age group) constituted around 53% of the population as compared with 48.6% in the UK, 49% in the US, and 53% in Russia. Further, the increase in the number of working women has fuelled the growth in sales of discretionar y items. There has been a 20% increase in the number of working women in the last decade. Figure 3: Population Distribution v. Spurt in Urbanization 196

9 Historically cities and towns have been the driving force of overall economic and social development. Currently over 335 million people o f India reside in cities and towns, which translates to around 30% of the total population7. The rapid growth in urbanization has facilitated organised retailing in India, and has caused the speedy migration of population into major tier I and tier II cities, which have a significant share in the retail sales of the country. Figure 4: Urbanization in India The urban population s contribution in India s GDP shot up from 29% in 1951 to 60% in 2001 and is expected to increase to 70% by 20118, as migration to cities and towns grows rapidly in anticipation of higher income opportunities provided by these epicenters. Moreover, the continuous development in urban areas has invariably attracted substantial inflows o f capital both from domestic and foreign investments have led to the transition of urban areas. As the Indian organised retail is mainly concentrated in the urban areas, its growth (urban areas) is imperative for the organised retail in the country. Though, percentage of urban population to total population in India (29%) is comparatively quite low against the world average (48.6%), as well as countries such as Brazil (84%), China (40%), the US (81%) and Russia (73%), it is however noticeable that total urban population in India was far more than the total population of the entire US in 2005 and by 2025, it is expected that India s total urban population w ould constitute around 6.7% of the total world population. This would undeniably emerge as the India s largest market for organised retail, and therefore the challenge for the retail players to leverage the full potential of flourishing urban areas. 197

10 Figure 5: Annual growth of Urban Population Furthermore, due to the rapid infrastructure development in major tier I, II and III cities, many rural inhabitants are attracted to cities, which increase the urban per capita income and in turn offers unbound oppor tunities for the organised retail segment. Increased globalisation has also played a big role in the development of urban areas. vi. Rise in MPCE level in urban areas The aggregate urban consumption in India has been growing steadily over the past few years as the economy has been continuously flourishing during this period, owing to a rise in urban population as well as a rapid per capita income growth. In FY05, 56.0% of the urban population was below the MPCE level of Rs 930, while in FY07 the percentage of population under the MPCE level of Rs 930 decreased to 46.1%. 198

11 Figure 6: MPCE level in urban areas The average MPCE for the urban population in FY07 was Rs 1,312 up from Rs 1,105 in FY05, on the other hand, the average MPCE for rural population in FY07 was Rs 695 up from Rs 579 in FY The NSS report clearly suggested that the consumption pattern in urban areas differed from the rural areas. While the food items constituted 52.2% of the rural area s consumption in FY07 and the non-food items accounted for the remaining share, in the urban areas, the share of food items in consumption was 39.4% and the non-food items accounted for the rest. vii. Organised Retail Concentration in Tier II and III Cities Initially the retail revolution began in the big tier I cities in India; however, as tier I cities are relatively saturated now, retailers, especially value retailers, are finding their way to smaller tier II and tier III cities as well. The changing landscape of the Indian retail segment and the increas ing competition has also forced retailers to tap growth opportunities in tier II and III cities in India. viii. Internet Drives Awareness and Online Purchases There has been a substantial increase in the number of Indians who use the Internet and a concomitant increase in the number of online purchases. Indians have started using the Internet not only for increasing awareness but also to shop online, which has opened a whole new channel of retailing in the Indian retail scenario. Online retailing offers consumers the convenience of ordering merchandise to their doorstep. Recently, Future Group, which owns Pantaloon, has initiated a measure to capitalise on the online opportunity through futurebazaar.com. A similar venture flipkart.com is also proving the new channel to be highly viable, especially since it eliminates the biggest cost of the physical store. ix. Easy credit availability a boon for organised retail The higher penetration of credit cards in India has also boosted the growth of the organised ret ail sector; in fact, the young population s increasing fancy for plastic money has further fuelled their purchasing power. Even though the organised retail sector is at a nascent stage (constituted 5.9% of the total retail industry in 2007), it is growing at a rapid pace. Moreover, the spurt in issuance of credit cards and loans by both Indian as well as foreign banks has further boosted the segment s growth. According to the RBI, as on FY09, the total number of outstanding credit and debit cards in India was 24.7 million and million respectively. 199

12 x. Retail investment Figure 7: Credit Card Transactions Growth Investments in the retail sector have improved since FDI has been allowed in single-brand and cash-and-carry formats. According to the Technopa k estimates, investments in the organised retail will touch US$ 35 billion in the next five years or so. Investments allow organised players in retail to expand at a very high rate. All key retailers in India have expansion plans over the next 3-4 years; for instance, Pantaloon has an ambitious expansio n plan to take its retail space up to 30 million square feet by Likewise, Vishal Retail is expected to take its total store count to 500 with an estimated retail space of around 10 million square feet b y xi. Availability of quality real estate According to industry sources, mall space in India has grown from a meagr e 1.0 million square feet in 2002 to about 57.3 million square feet by the end of 2008; tier I cities are expected to account for aroun d 73% of the ma ll space and the rest is likely to be equally divided between tier II and tier III cities. 4. Conclusion India is expected to become the world s fastest growing e -commerce market, driven by robust investment in the sector and rapid increase in the number of internet users. Various agencies have high expectations about growth of Indian e-commerce markets. Indian e-commerce sales are expected to reach US$ 120 billion! by 2020 from US$ 30 billion in FY2016.Further, India's e - commerce market is expected to reach US$ 220 billion in terms of gross merchandise value (GMV) and 530 million shoppers by 2025, led by faster 200

13 speeds on reliable telecom networks, faster adoption of online services and better variety as well as India s direct selling industry is expected to reach a size of Rs 23,654 crore (US$ 3.51 billion) by FY , as per a joint report by India Direct Selling Association (IDSA) and PHD. This study has proved that India is now ready for the organised retail and even Govt. is taking much initiative in this regard. The time to come will belong to organised retail. 5. References 1. Alan Bryman, Emma Bell (2008), Business Research Methods, Chapter 11, p. 281, Oxford University Press, New Delhi. 2. Anurag Sharma, Vishal Bishnoi, Eco nomic Feasibility o f implementing ecrm System: A study of select Retail Outlets in NCR, Lambert Academic Publication, ISBN: , pp Aprameya Rao and Kishor Kadam, 25 years of liberalization: A glimpse of India s growth in 14 charts, accessed on Jul 17, Arjun Mittal (2013), E-commerce: It s Impact on consumer Behavior, Global Journal of Management and Business Studies, Vol.3 No.2, pp Bahree, Megha (25 November 2011). "India Unlocks Door for Globa l Retailers". The Wall Street Journal. 6. Chaffey, Dave E- business and E- commerce Management, Pearson Education, Donald R Cooper, Pamela S Schindler (2008), Business Research Methods, 9 th ed., Tata McGraw Hill, New Delhi, pp Donald R Cooper, Pamela S Schindler (2008), Business Research Methods, 9 th ed., Tata McGraw Hill, New Delhi. pp Fill C, Marketing Communications, Contexts, Strategies and Applications, Prentice Hall, Vishal Bishnoi (2009), Effect of Organised Retail on Un -Organised retail with Reference to Indian Scenario, 4 th national conference on Innovation and Adaptability : Twin Engins of sustained Growth at th March published in Conference Proceedings Book by Excel Publication, New delhi, ISBN# , pp Wayland, Robert E., Paul M. Cole. Customer Connections Harward Business Review Press, Zeithaml V. and Jo Bitner, M., Service Marketing, Integrating Customer Focus across the films, New Delhi, Tata McGraw Hills,

14 13. "Bankruptcy code biggest economic reform after GST: Finance Ministry". Accessed "Economic and financial indicators" 3 July