Growth off the shelf

The retail sector that was till a few years back limited to boutiques and kirana stores, has radically changed its face, writes Radhika Pancholi.Topline courses

In an environment where spending power is growing fast, there is one sector that has caught the eye of investors and customers alike. The retail sector, which was till a few years back limited to standalone stores, boutiques and kirana stores, has radically changed its face. Malls, hypermarkets, supermarkets and lifestyle stores have gained importance — not only in the metros, but also in Tier II and III towns.

HT Image

The hypermarket format is slated to emerge as a large segment as metro suburbs become swankier hotspots compared to downtown shopping areas. In smaller towns, retail has empowered women to get freedom from the ‘shopkeeper-in law’ with new shopping arcades and malls gaining increasing acceptance among the women of these towns.

On the counter

Retail offers attractive pay packets, but a lot would depend on the company, qualifications, performance level, and experience. Apart from sales, marketing and specialised functions, which go with overall industry trends, a counter clerk can usually start with Rs 1.5 lakh per annum and a store manager at Rs 4 lakh per annum.

With about 11 million square feet of retail space being added last year, the hypermarket and supermarket formats are giving consumers a lot to spend on, especially with existing players such as Pantaloon, Shopper’s Stop and the Tata and RPG groups scaling up fast and new players such as the Birlas and Sunil Mittal pumping in big money into the market.

“At an estimated Rs 12.8 trillion in 2006, India’s retailing sector makes up for almost a third of the country’s GDP. Food and grocery items account for a whopping 74 per cent of total retail sales, comprising the organised and unorganised segments,” states a Crisil Research report.

Strengthening the case for organised food retailing, Sudhir Nair, head of Crisil Research, says: “Farmers are estimated to earn around Rs 1.8 trillion on food grains and fresh grocery at current levels. Assuming this segment shifts entirely to organised retailing, and two-thirds of the savings from reduced supply chain inefficiencies are passed on to the farmer, farm incomes could grow by more than 37 per cent to Rs 2.47 trillion.” It is, however, not yet clear how much would be passed on by the players.

Are you being served?

• India has one retail outlet per 90 people, one of the highest densities in the industry in the world

• India is the 9th largest retail market, with annual sales in the organized segment at Rs 35,000 crore in 2005 — and with revenues doubling every year

• Overall revenues, including those of small shops, is expected to grow 5.5% a year to Rs 28,70,000 crore by 2015 at current prices

• The organized segment is expected to grow faster, at 21.8%, to touch Rs 420,000 crore by 2015

• Food, groceries and general merchandise, apparel, consumer durables, food services and home improvement are the top categories in the organized segment

Source: Tata Strategic Management Group

Even if the rules of the game are evolving, some basics remain as relevant as ever. “The three essentials of retail branding are innovation, innovation and innovation. You have to take care of the customer, be in contact, provide an emotional benefit and respect his or her individual style. In a people-contact business like retail, it’s not about the share of wallets, it’s people,” said Andrew Levermore, CEO of Hypercity Retail India, during the Retail Brand 2007 Summit recently organised by the Confederation of Indian Industry in Mumbai.

The modern retailer is essentially looking out for two things that will help this industry grow — increased manpower and more space for expansion.

This brings us to an important question: who will win the retail race? Will it be the indigenous retailer, with his local knowledge, lobbying power and financial resources? Or will global powerhouses such as Wal-Mart learn to adapt and compete here, armed with their international expertise, western allure and sophisticated supply chains?

Hemant Kalbag, principal (consumer industries and retail practice) at AT Kearney, said while sharing perspectives from the report ‘Growth Opportunities for Global Retailers’: “The answer to these questions will be revealed in the next few years, as there is no single winning formula or ‘silver bullet’ strategy.”

At least till then, this sector will continue to grow at a rapid pace.