Bharat Book Bureau

The growth in the Indian economy since the last decade and the change in consumption pattern of the Indian populace in terms of higher proportion of middle class population, greater proportion of working women etc can unarguably be linked to the growth of the Indian retailing industry. Of all the segments in retail, the contribution of ‘food & grocery’ remained the highest at 58% of the total retail sales during FY10, with the ‘clothing & footwear’ segment remaining the second largest contributor occupying 10% of the total retail pie during the same period. However in terms of growth figures, the ‘entertainment, books & sports goods equipment’ segment outperformed the other retail segments registering a CAGR of 22.5% during the period FY06-10.

In spite of the growth, the industry remains largely fragmented with the organized retailing still at a nascent stage. In case of overall retailing revenues, the food & grocery segment accounted for the highest share at 58% of the total retailing pie aggregating Rs.11.49 lakh crore during FY10. In the organised retailing, the food & grocery segment stood as the second largest contributor with revenues aggregating Rs.24,273 crore during the same period. However, the organised retail penetration of other segments such as clothing & footwear, entertainment & books and furniture & furnishing surpassed that of the food & grocery segment.

The Indian retail industry has witnessed rampant growth over the last decade. However, during the economic recession since the latter half of FY09, the retailers especially in the organised segment suffered a set-back in the form of declining revenues and halt in their capex plans. The unemployment situation, further aggravating the fear of job losses during the recession, resulted in muted consumer spending with the consumers choosing to spend on necessities rather than discretionary items; the industry thus witnessed decline in footfalls, conversion rate, which was especially apparent in the decline of same store sales. The slowdown in consumer spending led to the inventory being stacked up resulting in a low inventory turnaround ratio, registering a decline to 4.3 times during FY09 from 4.8 times during FY08. Before the onset of recession, the large scale expansion plans of the Indian retailers warranted an increase in inventory and greater store operating expenses in the form of rentals and staff expenses thus increasing the working capital requirement. However with the economic recession in effect, the retailers were faced with a liquidity crunch owing to difficulties in raising funds both from the equity as well as debt markets. Additionally, the funds raised during the economic boom attracted higher interest rates thereby affecting the retailers’ ability to service the interest as well as principal repayments during the downturn. The total interest outgo of the retailers as tracked by CARE Research registered a y-o-y growth of 78.6% during FY09.

Even though, post recession, the industry is witnessing a gradual turnaround, it is met by a few stumbling blocks that constitute the challenges ahead for the Indian retail industry viz. higher store rentals as compared to retailers globally, taxation & other policy regulations, inefficiencies in supply chain management and higher rate of shrinkage.

In spite of the said challenges, CARE Research expects the Indian retail industry to grow on the backdrop of expectant rise in the country’s Gross Domestic Product (GDP) during the period FY11-FY13. The rise in income level of the Indian populace, in turn, is expected to fuel the domestic consumption ultimately resulting in higher revenues for the Indian retailers. Importantly, CARE Research expects the penetration of organised retail in the total retail pie to increase by FY13 owing to the expanding reach of the retailers to tier-II & III cities accompanied by higher consumer spend on discretionary items. Also, in an attempt to increase margins, CARE Research expects the retailers would restore to adapting measures such as increasing the share of private labels in the total store sales, reducing store level operating expenses etc. The report on the Indian retail industry provides a comprehensive overview of all the above mentioned parameters with detailed forecasts.

Table of Contents :

Executive Summary


Rising PFCE – to fuel India Retailing growth story
Indian Retail sales to surge by 1.6 times by FY13
Organised Retail penetration expected at 8% by FY13
Organised retailing growth to be fuelled by spend on discretionary goods
Comparative study of Organised retailing segments
Emphasis on private labels to boost profit margins
Organised retailing in tier- II & III cities to expand further
Capex plans of organised retailers: slow but steady
Focus on reducing store level operating expenses
Entry of foreign players in the Indian retail scenario through tie-ups

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