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Retail Outlook 2004
India: Organised retailing set for rapid growth
The retail industry in India continues its strong double-digit growth, with both large and small players setting their sights on expanding their businesses this year. Shirish Nadkarni reports from Mumbai.
Bigger, better and with more profits. That seems to be the general trend for organised retailing in India.
Smaller players want to ram up their operations swiftly while larger players simply seek to grow even more to hold their own against inevitable incoming competition from top global retailers.
According to a study by retailing consultancy KSA-Technopak, food, beverages and tobacco still form the key category of spending, consuming 52% of household income, followed by clothing and footwear (11%). Other growing categories are durables and furniture (7%), and health care (2%).
Our Retail Outlook study shows that organised retailing in India has been growing at 40% annually over the past three years, from Rs50 billion (US$1.1 billion) in 2000, and was estimated at Rs180 billion in 2002-03, says Arvind Singhal, managing director of KSA-Technopak.
For the first time in the country, there has been serious investment from Indian corporates and non-resident Indians. Some big global retail chains are also making their presence felt in a small way like Marks & Spencer of the UK, Mango and Ermenegildo Zenga.
For the future, we see rapid growth of organised retailing with most existing players ... swiftly ramming up operations, says Hemendra Mathur, KSA-Technopak's manager-retail practices.
We also foresee improved profitability for leading players as they have reached critical mass. The year ahead should see at least three to four of the world's top 10 retailers firming up plans to enter India.
According to the company's definitive document, Retail Vision 2005, which seeks to predict the future of retailing in India, retailing formats will undergo rapid change. Bigger shopping malls, exclusive brands and company outlets are emerging fast.
For example, the Raheja-promoted Shopper's Stop, which launched with one outlet in suburban Mumbai in 1993, today has 14 outlets countrywide and a turnover exceeding Rs3 billion.
Similarly, Westside, launched in 1997 by Tata group company Lakme Limited, has grown to 10 stores, with sales hitting above Rs1 billion. Pantaloon, launched in 1999, has 14 stores today and revenues of Rs2.5 billion. Lifestyle, which started in 1998, now has five stores ringing in Rs800 million yearly.
Supermarkets are not left behind. India did not have a supermarket of the kind seen in the West until the 1990s. Foodworld, which started in 1995, has since built 86 stores nationwide, boasting a Rs3.5-billion turnover.
Margin Free, launched in 2000, has 350 stores in India and a more than Rs5.2-billion turnover. Subhiksha, set up in 1997, has 125 stores that rake in Rs1.25 billion annually.
Then, there are the speciality stores. Tanishq, which sells Indian watch brands, has opened 56 stores in under a decade, raking in sales of Rs2.4 billion. Music World has expanded to 15 stores since it opened in 1997, reaping Rs600 million a year. Health & Glow, also launched in 1997, has 16 stores and Rs180-million sales.
The food-service field has grown even faster, with Pizza Hut, which opened in 1996, already operating 44 outlets, with an estimated annual turnover exceeding Rs1 billion. Coffee chain Barista, set up four years ago, has 130 outlets and makes Rs350 million a year.
McDonald's opened its first Indian outlet in Mumbai in 1996 before spreading its tentacles to operate 46 outlets. It considers India one of its most promising markets and has been careful to introduce products that cater to the local taste, especially for vegetarians.
US sandwich company Subway, which recently replaced McDonald's as the chain with the most outlets in the US, came to India in 2001 and is already challenging McDonald's dominance. The company expects India to be its largest and fastest-growing market outside North America.
Even stodgy, home-grown Nirula's, which had initially been satisfied with only one fast-food outlet in New Delhi since 1939, has grown over the past five years to 30 outlets located in metros and mini-metros.
Consumers have started caring about where they shop and eat, and have been seen shopping and eating [at] multi-brand outlets, exclusive stores or malls with entertainment facilities, observes Harminder Sahni of KSA-Technopak.
Time poverty has also prompted consumers to look at shopping through the Internet. All this means that manufacturers and retailers have to be much better ... at knowing their consumers, predicting their needs and wants, and delivering products and shopping experiences that consistently exceed their expectations. This is the biggest challenge facing the retail industry for the next decade, he adds.
The same challenge holds true for all service providers to current Indian retailers as well as for those looking at Indian retailers as future clients. Many strong national and regional players have emerged across formats and product categories.
Most of these players are now geared to expand far more rapidly than during their initial years, having regained or improved profitability after going through the respective learning curves, says Sahni.
What has changed is a rapidly-evolving and more affluent consumer, the easing of real-estate constraints, the more positive outlook of investors and lenders, and the enhanced interest of leading Indian business houses to invest in greenfield retail ventures.
The viability of various retail formats appear to have significantly improved, with rentals dropping to 6%-9% of most retailers' projected sales revenues. There is also a major improvement in opportunity for rapid expansion across cities and regions, and nationally. It now takes far less time to start a retail outlet, from the time of finalising the location.
Most market analysts feel that the convergence of shopping, entertainment and eating will further accelerate, as most mall developments already have a mix of these elements. This will change consumer expectations.
KSA-Technopak feels that India's organised retailing sector will require an investment of Rs40 billion to consolidate itself as a Rs350-billion sector by end-2005 (doubling the level on 31 March 2003).
Changing consumer expectations have also been proliferating abroad, wherever there are large pockets of expatriate Indians for whom Indian exporters cater. A distinct anti-US wave has been sweeping the Middle East after Saddam Hussein's capture, making India's US-theme garment exports anathema there.
[The theme on] T-shirts was invariably American football or basketball, says a Mumbai-based garment exporter. But our customers have asked us to switch to non-US themes. We have replaced American football with cricket although hardly any of the West Asian countries play cricket and geometrical motifs.
India became a major apparel-sourcing centre for buyers from West Asia almost a decade ago. Apart from private-label suppliers, Indian brands are also making significant inroads in the Middle Eastern market, with help from a huge expatriate Indian population.
According to industry estimates, Indian-apparel exports to the region amount to about Rs25 billion (US$550 million) a year. These consist mainly of shirts, T-shirts, trousers, jeans, children's wear, and ethnic ladies' wear.
Dubai, a major re-exporting centre, not only supplies to retailers in the region, but is also a big exporter to Russia, several Eastern European countries and Africa.
Indian brands are getting more popular in the Middle East, says Babubhai Iyer, a long-time supplier to this region. Retailers are insisting on [carrying] Indian labels.
Indian apparel majors like Raymond's and Madura Garments have already established their presence in this part of the world. Raymond's has 15 exclusive retail outlets across Kuwait, Saudi Arabia, Qatar and Abu Dhabi, plus four showrooms in Dubai.
Eight of its outlets are selling the ColorPlus brand of menswear, which was acquired from Chennai-based ColorPlus Fashions more than a year ago. The company recently opened its first designer-wear outlet, BE, in Dubai.
The Aditya Birla group company Madura Garments has also opened eight outlets in the Middle East. It stamps its presence there mainly through Planet Fashion exclusive showrooms for the company's branded apparel and accessories. Both groups are rapidly expanding in the region.
Even lesser Indian brands, like Killer jeans, promoted by the Mumbai-based Kewal Kiran group, and Free Look, promoted by New Delhi-based Avinash Goyal, are making waves in the Middle East and have exclusive showrooms in Dubai.
Industry sources reveal that private labels such as Urban Republic, Tom Collins and Street Times are popping up on shop shelves. According to them, buyers from the Middle East prefer private labels to mass-market brands and get bored easily, preferring to switch labels after a couple of seasons.