NEW DELHI — The Indian retail market is expected to more than double over the next four years, according to a study by Crisil Research, part of Standard & Poor’s.
The Indian retail market currently is estimated to be worth about $45 billion a year, although organized retailing only represents 9 percent of the total.
In the study, Crisil Research estimated the total retail market would increase to $850 billion, of which the organized segment would be $80 billion, a growth of 23 percent. Clothing accounts for 6 percent of the retail market, while beauty, personal care and pharmaceuticals is at 12 percent and soft furnishings at 5 percent. Food and grocery represents the majority at 65 percent.
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For retailers looking for instant success, Crisil strikes a cautionary note: It takes more than five years to achieve a cash breakeven point in the Indian market, with specific cities that will show the greatest returns.
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“In terms of the metros and mini-metros, if we look at the seven largest cities — Mumbai, Delhi, Calcutta, Chennai, Bangalore, Hyderabad and Pune — we believe the organized retail penetration is going to grow the fastest in them for the next five years. We expect organized retail penetration in these cities to be close to 33 percent by 2015 from the current 28 percent in FY11,” said Ajay D’Souza, head for industry research at Crisil.
Retail in India has undergone a transformation in the last 10 years, with local department store chains Shoppers Stop, Lifestyle, Pantaloons, Central and Trent being joined by the likes of industrial groups such as Reliance and Aditya Birla. International retailers came in with single brand stores, such as Adidas, Nike, Louis Vuitton, Gucci, Giorgio Armani, Tommy Hilfiger and others, while Wal-Mart and Metro came into India with the cash-and-carry format.
Apparel accounts for 55 to 60 percent of the total product mix at department stores. Branded apparel was able to generate 30 to 35 percent gross margins, while private label margins were higher at 40 to 45 percent.
While footfall has increased steadily, the report noted that the average footfall in a 50,000-square-foot department store was 32,000 people a week, 45,000 in a hypermarket and 8,000 in an apparel specialty store.
These are expected to rise in coming years, as household incomes will go up by 2015, with the number of households with an income of 1 million rupees, or $21,094 at current exchange, increasing to 2 percent of the total from the present 1 percent, and those within the brackets of 200,000 rupees, or $4,288, to 500,000 rupees, or $10,570, rising to 21 percent in 2015 from 13 percent now. The driving factors for this are the increasing number of women in the workforce and more nuclear families and greater urbanization.