NEW DELHI: Organised retailing in the country is estimated to touch Rs 180 billion in 2002-2003, says a study conducted by KSA-Technopak, India's leading management consultancy firm specialising in the fashion and retail industries.KSA Technopak officials claim that the increase reflects a 20 per cent growth over the previous year.
KSA-Technopak chairman Arvind Singhal states: "The year 2003 will be the year of rapid growth for the organised retail sector in India. It will usher in improved profitability for the leading players and by 2004, we will see atleast three of the top ten global retail giants firm up entry plans for India,"
Singhal was addressing a presentation on Organised Retailing: Emerging Opportunities. "Global retailing trends clearly show that consolidation and mass merchandising have contributed significantly to the success of international retailers. With increasing competition emerging at a global level, the success factors for Indian retailers would lie in adapting flexibility in format development and category selection, as well as in global supply chain development," he states.
Flagging opportunities to the Indian retail sector across product categories, formats and geographical reach, the KSA Technopak analysis also identified a host of opportunities for the Indian retail players to mine.
The top four segments that will open up a fresh stream of revenue are food and grocery; consumer durables; furniture and home products; and speciality stores offering childrens wear and maternity products; jewellery and accessories; saree and Indian ethnic wear; footwear and toys, among others.
The total food and grocery sector is currently worth Rs 3,500 billion with organised retailing in this sector currently at less than Rs 20 billion. With consumers demanding a wider range of products under one roof; efficient and responsive service; value-for-money and easy access, there is a huge potential for retailers to tap into this segment, revealed the KSA Technopak analysis.
The key success factors in this sector include the ability to build the scale quickly; merchandise and supply chain efficiency; and financial strength, with the sector requiring a start up investment of Rs 500-600 million for a regional chain and over Rs 2.5 billion for a national chain. "A break even in this business can be achieved in 5-7 years," says Singhal.
The consumer durable sector, including IT and electronics products, is currently worth Rs. 350 billion. With a few regional exceptions, entirely served by small independent retailers as well as brand outlets, the sector is yet to see large box category killers emerging.
With efficient systems for building scale, margin enhancement and strong sourcing and merchandising skills, this sector offers yet another opportunity for the Indian retailers. Successful business models in this sector would combine durables, electronics, appliances, accessories with IT and convergence products and services.
Speciality stores too offer a myriad opportunities for profitable retail ventures and according to the KSA Technopak analysis, there is a huge market worth over Rs 800 billion that can be tapped into by retailers in speciality opportunities like furniture, furnishings and home products; childrens wear, maternity wear and accessories; jewellery and accessories; saree and ethnic wear; footwear; gifts and handicrafts; and health and nutrition products.
In terms of geographical opportunities, the study forecasts that organised retail will grow in mini-metros in India as well, with these markets offering a strong customer base with surplus income. Out of town outlet malls and highway shopping will be on the rise; outlets will be developed on major highways in close proximity to major towns, and there will be a combination of discount outlets offering food and entertainment.
Over Rs 60 billion worth slow-moving brands and products being generated every year (and increasing), providing access to an immediate potential of atleast 40-50 outlet malls on highways across India. Singhal adds, "Investment in each highway mall in the range of Rs 150-250 million can eventually generate a business of Rs 1-1.5 billion per year per village."
KSA Technopak analysis also revealed that many strong regional and national players are emerging across formats and product categories in India. Most of these players are now geared to expand far more rapidly than the initial years of starting up and have regained/ improved profitability after going through their respective learning curves.
The many changes conducive to growth in this sector are found to be the easing of real estate constraints, rapidly evolving consumers and a more positive outlook of investors and lenders.
With over 200 large Malls in planning or under construction stage throughout India, and over 25 million sq ft of new retail space expected to come to the market in the next 36-48 months (including re-developments) in over 50 cities across the country. This trend will significantly improve the viability of various formats of retail, as the rentals will drop to 6-9 per cent of the projected sales revenues for most retailers.
Convergence, according to the analysis, will emerge as a major trend in the sector, and shopping, entertainment and eating converging will further accelerate as most mall developments offer a combination of these three elements altering consumer expectations significantly.
Recent uptrend in financial performance of leading retail players has led to a positive outlook from investors and lenders with multiple options now available to retailers for funding through financial institutions; Indian and international funds, and individual investors. There is also a significant interest shown by leading Indian business houses to invest in large greenfield retail projects.
The KSA Technopak analysis on the winning retail propositions of tomorrow forecasts that while product differentiation and experience in terms of look and feel of the store would play a significant role, the gap will diminish due to ease in global sourcing for all competitors. Better value offerings would continue to be a major differentiator as also the convenience of proximity and appropriate assortment of product categories.
