Rising returns in retail

The overall retail market is expected to grow at 15 % CAGR from Rs 23 trillion in 2011-12 to Rs 47 trillion in 2016-17 over the next five years. The drivers will be raising income levels, increasing urbanisation, plastic money, favourable demographics and rising rural consumption.

The Indian retail market is among the largest and the fastest growing sectors in the world. With a population of over 1.2 billion and average household size between four to five, it is not difficult to see the potential attractiveness the market offers.

It accounts for a massive 35 per cent of the county’s GDP. With majority of the brands taking the franchise route, the growth forecast in retailing has grown even better. As per leading, international and Indian business information provider, Dun & Bradstreet, Indian retail sector is expected to grow 17% in the current financial year, highest after last two years, on the back of expected higher gross domestic product (GDP) growth.

The sector grew 13% in FY 2013 and FY 2014 after 20% plus growth in the previous financial years. The report said that due to competition between MNCs and domestic retailers, product pricing has declined and the affordability has improved.

The Indian retail industry, which comprises organised and unorganised retail, is currently estimated at US$ 490 billion. It has experienced high growth over the last decade with a noticeable shift towards organised retailing formats. The industry is moving towards a modern concept of retailing. “Demand from international and domestic brands as well as retailers continued to strengthen throughout 2013; with the second half of the year witnessing an increase in demand for quality retail space in Delhi NCR, Pune and Chennai,” according to the findings of CBRE’s latest report, India Retail Market View H2 2013.

As India’s retail industry is aggressively expanding itself, great demand for real estate is being created. Further, easy availability of debit/credit cards has contributed significantly to a strong and growing online consumer culture in India. With the online medium of retail gaining more and more acceptance, there is a tremendous growth opportunity for retail companies, both domestic and international.

Favourable demographics, increasing urbanisation, nuclear families, purchasing power of consumers, preference for branded products and higher aspirations are some factors which will drive retail consumption in the country.

E-commerce is also expected to be the next major area for retail growth in India. The industry is projected to increase from US$ 70 billion in 2011 to US$ 200 billion in 2020.

Key highlights in retail

·  Easy financing scheme and innovative marketing strategy to boost expansion.

·  Rising interest rate and increasing rental cost are likely to pressurise the profit margins of the industry.

·  E-tailing to observe an exponential growth over the next few years on the back of growing internet penetration.