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The most promising and booming industry of future is retailing. AT Kearney, a well-known international management consultancy, recently identified India as the ‘the most attractive retail destination’ globally from among thirty emergent markets (2007). According to a Knight Frank survey, India ranks fifth amongst the 30 emerging retail markets in the developing countries. India has witnessed a frenetic pace of retail development over the past five years. Goldman Sachs has estimated that the Indian Economic growth could actually exceed that of China by 2015. It is believed that the Country has potential to deliver the faster growth over the next 50 years. As we all know that India has been a nation of Dukandars, having –approximately 12 million retailers. Obviously retailing is in our blood –either as a shopkeeper or as a shopper. The Indian Retail market is estimated to grow from the current US $ 330 billion to US $ 427 billion by 2010 & U. S. $ 637 by 2015. Retail which contributes 10% of our GDP is the largest source of employment after agriculture. There is increased sophistication in the shopping pattern of customers, which has resulted to the emergence of big retail chains in most metros; mini metros and towns being the next target. Customer taste and preferences are changing leading to radical transformation in lifestyles and spending patterns which in turn is giving rise to new business opportunities.

Evolution of retail industry

Traditionally, retailing in India can be traced to the emergence of the Corner stores (Kirana) catering to the convenience of the consumers. Era of government support for rural retail: Indigenous franchise model of store chains run by Khadi & Village Industries Commission. 1980s experienced slow change as India began to open up economy. Textile sector with companies like Bombay Dyeing, Raymond’s, S Kumar’s and Grasim, saw the emergence of retail chains. Later, Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches. The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Retailers. For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books. 1995 onwards saw an emergence of shopping centers, mainly in urban areas, with facilities like car parking targeted to provide a complete destination experience for all segments of society. Emergence of hyper and super markets trying to provide customer with 3 V’s –

ü      Value

ü      Variety

ü      Volume

Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid. At year end of 2000 the size of the Indian organized retail industry was estimated at Rs. 13,000 crore. The retail industry is divided into organized and unorganized sectors. Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets, retail chains, and also the privately owned large retail businesses. Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the Corner stores (Kirana shops); owner manned general stores, Cigarette stalls (paan/beedi), convenience stores, hand cart and pavement vendors, etc.

Indian Retail Structure

Retailing in India is currently estimated to be a US$ 230 billion industry, of which organized retailing makes up 3 percent. By 2010, organized retail is projected to reach US$ 30 billion with an expected growth rate of about 400%. A study conducted by Fitch, expects the organized retail industry to continue to grow rapidly, especially through increased levels of penetration in larger towns and metros and also as it begins to spread to smaller cities and B class towns. Fuelling this growth is the growth in development of the retail-specific properties and malls. According to the estimates available with Fitch, close to 25mn sq. ft. of retail space is being developed and will be available for occupation over the next 36-48 months. Fitch expects organized retail to capture 15%-20% market share by 2010. While organised retail makes up for over 70-80 per cent of the total business in developed countries, the Indian organised retail segment pales in comparison with other Asian countries such as China, South Korea and Thailand. Retailing is the largest private sector industry in the world economy, with the global industry size exceeding $6.6 trillion, according to Euromonitor. In China, the organised retail segment accounts for about 20 per cent of the overall business; in Thailand, it is around 40 per cent, while in Malaysia it makes up for nearly 50 per cent of the total business, according to the data.

Current retail format

The retail sector in India is highly fragmented and organized retail in the country is at a very nascent stage. Of the 12 million retail outlets, more than 80 per cent are run by small family business, which use only household labour. China and Brazil, took 10-15 years to raise the share of their organized retail sectors from 5 per cent to 20 per cent and 38 per cent respectively. India too is moving towards growth and maturity in the retail sector at faster pace, according to Ernst and Young India.

Retail formats



Total Grocery Outlets



Traditional grocery outlets






Other grocery outlets



Total Drug stores



Traditional medical/drugstores



Cosmetic stores



Source: Businessworld Marketing Whitebook 2010

According to the E&Y India Retail Report the following are the findings which are made

  • Hypermarkets to be the preferred format for the international retailers entering India
  • Malls to move beyond the metros, increase presence in tier II cities
  • Organised retail penetration highest across footwear, clothing segment.
  • Franchising gaining steam with retailers.

Retail sales in India amounted to be about Rs.7400 billion in 2009, expanded at an average annual rate of 7% during 1999-2002. With the upsurge in economic growth during 2010, retail sales are also expected to expand at a higher pace of nearly 10%. Across the country, retail sales in real terms are predicted to rise more rapidly than consumer expenditure during 2009-11. The forecast growth in real retail sales during 2009- 2011 is 8.3% per year, compared with 7.1% for consumer expenditure. Modernization of the Indian retail sector will be reflected in rapid growth in sales of supermarkets, departmental stores and hypermarkets. Sales from these large-format stores are set to expand at growth rates ranging from 24% to 49% per year during 2003-2008, according to a report by Euro monitor International, a leading provider of global consumer-market intelligence.

Retail Trade 







Retail Sales (Rs Bn)







Retail sales (Us $bn)







Retail Sales volume growth (%)







Retail sales US$ Value growth (%)







Source: EIU

The trends that are driving the growth of retail sector in India are:

  • Low share of organized retailing
  • Falling real estate prices
  • Increase in disposable income and customer aspiration
  • Increase in expenditure for luxury items


(at current prices)

Retail Segments

India Retail Value (Rs.Crore)

Organised Retail (Rs.Crore)

% Organised in 2010

Clothing, Textiles & Fashion Accessories
















Health & Beauty care services








Consumer Durables, Home Appliances/equipments




Mobile handsets. Accessories & Services




Furnishings, Utensils, Furniture-Home & Office




Food & Grocery




Catering Services (F & B)




Books, Music & Gifts








US$ 270 Billion

US$ 12.4 Billion

Source: IMAGES F&R Research

India’s Income classes




RICH (annual income > US$ 4,700)

ü      Own cars, PCs

3million households

6milliion households

CONSUMING (US$ 1000-4700)

ü      Have bulk of banded consumer goods, 70% of 2-wheelers, refrigerators, washing machines



CLIMBERS (US$500-1000)

ü      Have atleast one major durable (mixer, sewing machine/tv)



ASPIRANTS (US$350-500)

ü      Have bicycles, radios and fans



DESTITUTES (Less than US$350)

ü      Not buying



Source: The Great Indian Retail Story 2010, Ernst & Young.

Consumers buying behaviors

Availability of lifestyle spending options is increasing for Indian consumers and that inducing higher spends on “status acquisition”. Traditionally, Indian consumer is cautious about debts. In recent past, this attitude has changed radically and in recent year’s credit is no more a feared entity. Indian consumer buying behaviour to a large extent has a western influence. Foreign brands have gained wide consumer acceptance in India and they are much more open for experimentation. Beauty parlours in cities, eateries, designer wear, watches, hi-tech products are a few instances which reflect these changes. Purchasing priorities in India also influence the level of sales of individual products. Penetration data bear this out: televisions in use in 2006 were estimated at 95 per 1,000 population, far higher than the level for white goods. This reflects the growing demand for entertainment in India. According to Ernst & Young report, ‘The Great Indian Retail Story, 2006’, the emergence of a larger middle and upper middle classes and the substantial increase in their disposable income has changed the nature of shopping in India from need based to lifestyle dictated. The self-employed segment has replaced the employed salaried segment as the mainstream market, thus resulting in an increasing consumption of productivity goods, especially mobile phones and 2 - 4 wheeler vehicles. There is also an easier acceptance of luxury and an increased willingness to experiment with the mainstream fashion, resulting in an increased willingness towards disposability and casting out from apparels to cars to mobile phones to consumer durables. The rate of growth of spending on discretionary items (unlike basic necessities like food) has been growing at an average of 9 per cent per year over the past five years. A nation of savers, India, has now altered into a nation of spenders. KSA Technopak’s Consumer Outlook 2004 report estimates that an average Indian spends 40% of his monthly salary on food and grocery and 8% on personal care products.

Major Formats of In-Store Retailing



The value proposition

Branded stores

Exclusive showrooms either owned or franchised out by a manufacturer.

Complete range available for a given brand, certified product quality

Specialty Stores

Focus on a specific consumer need, carry most of the brands available

Greater choice to the consumer, comparison between brands is possible

Department Stores

Large stores having a wide variety of products, organized into different departments such as clothing, house wares, furniture, appliances, toys, etc

One stop shop catering to varied/ consumer needs.


Extremely large self-service retail outlets

One stop shop catering to varied consumer needs

Discount Stores

Stores offering discounts on the retail price through selling high volumes and reaping economies of scale

Low Prices

Hyper- mart

Larger than a supermarket, sometimes with a warehouse appearance, generally located in quieter parts of the city

Low prices, vast choice available including services such as cafeterias.

Convenience stores

Small self-service formats located in crowded urban areas.

Convenient location and extended operating hours.

Shopping Malls

An enclosure having different formats of in-store retailers, all under one roof.

Variety of shops available to each other.

Retailers need not follow strictly, the above said formats. Considering the diversity in terms of taste and preferences existing in India, it is important for retailer to look at local conditions and insights into the local buying behaviour before shaping the format choice. Retailers, not only international players but also Indian players are trying different formats to keep up the consumer interest. According to KPMG retail survey in India, the specialty and supermarket formats have the most potential for growth in India, followed by hypermarkets. Most of the global powerhouses in the retailing sector such as Wal-Mart, Carrefour, Tesco etc. have adopted multi-format and multi-product strategies in order to customize their product offering for distinct target segments. Similar trends are likely to be exhibited in India as all formats present prospects for growth, the IMAGES-KSA Report says.

Fastest growing retail segment

  • Watches and jewelry – 18%
  • Durables – 18%
  • Pharmacy – 27%
  • Furniture and fixtures – 27%
  • Clothing – 55%
  • Food and grocery – 91%

(Source: India’s Retail Survey 2009, KPMG)

Future plans of retail majors

  • A successful telecom firm, Bharti Enterprises entered into retail business under a company called Bharti Retail Pvt. Ltd. It entered into a joint venture with Wal-Mart for wholesale cash-and-carry and back-end supply chain management operations in India. Bharti-Wal-Mart is to invest US$2.5 billion by 2015, to create 10 million sq ft of retail space.
  • Reliance Retail is about to invest US$ 5.5 billion by 2013-2014, to create 100 million sq ft of retail space.
  • Futures Group (Pantaloon Retail) will invest US$ 260 million by 2010, to increase its retail space to 10 million sq ft.
  • Subhiksha, the US$ 73 million discount store will set up 1,000 stores in India by the year end, while Metro AG is investing US$ 400 million over the next three years to set up some 18 stores in the country.
  • RAHEJAS is all set to launch 55 hypermarkets across India by 2015 with US$100 million sales.
  • RPG: Planning IPO, 450+ MusicWorld, 50+ Spencer’s, covering 4 million sq ft within the next 4 years
  • PANTALOON: 10 million sq ft of retail space and Rs. 9000+ crore sales within the next 2 years.
  • LIFESTYLE: Rs. 400 crore investment in the next 5 years in Max Hypermarkets and value retail stores, Home & Lifestyle Centres.
  • Piramyd: 1.75 mn sq ft of retail space and 150 stores in next 5 years.
  • Trent to open 27 more stores across its retail formats adding 1 mn sq ft of space in the next 12 DLF malls.
  • Vishal Group: Plans include an IPO and an investment close to Rs. 1250 cr ($ 278 mn) by 2010, targeting 220 outlets, taking its cumulative retail space to 5 mn sq ft and sales turnover of Rs. 5000 cr ($ 1 bn+). With 50+ new stores getting ready in the current fiscal the chain is investing Rs. 300 cr (66.67 mn) with sales target of over Rs. 700 cr ($155.6 mn).

Foreign retailers in India

Entry route


Franchise route

Pizza Hut, McDonalds, Adidas, Nike, Benetton, Marks and Spencer, Baskin and Robbins, Dominos and DKNY

Cash and carry Wholesale trading

Metro of Germany, Shoprite of South Africa and Itochu of Japan.
Wal-Mart is thinking of taking this route with its own Sam’s Club wholesale operations

Licensing agreement

Gucci, Disney, Liz Claiborne, Rolex and Tommy Hilfiger, Mango etc.

Manufacturing base

Bata, LG Electronics, Nokia, Whirlpool, Samsung, Hindustan Lever (a Unilever joint venture), Nestle India, Colgate-Palmolive and P&G

Whatever may be the pros and cons of allowing 100 per cent FDI in retail sector, the issue is already politicized and it will take atleast couple of years before government makes any further changes to the foreign investment policy.

Benefits of FDI in retail

Drawbacks of FDI in retail

ü       Inflow of investment and funds.

ü       Improvement in the quality of employment.

ü       Generating more employment.

ü       Increased local sourcing.

ü       Provide better value to end consumers.

ü       Investments and improvement in the supply chains and warehousing.

ü       Franchising opportunities for local entrepreneurs.

ü       Growth of infrastructure.

ü       Increased efficiency.

ü       Cost reduction.

ü       Implementation of IT in retail.

ü       Stimulate infant industries and other supporting industries.

ü       Would give rise to cut-throat competition rather than promoting incremental business

ü       Promoting cartels and creating monopoly.

ü       Increase in the real estate prices.

ü       Marginalize domestic entrepreneurs.

ü       The financial strength of foreign players would displace the unorganized players.

ü       Absence of proper regulatory guidelines would induce unfair trade practices like Predatory pricing.

Source: Industry reports

Bottlenecks for the retail growth




Barriers to FDI

ü   FDI not permitted in pure retailing

ü   Franchisee arrangement allowed

ü           Absence of global players

ü           Limited exposure to best practices

Lack of Industry status

ü   Government does not recognize the industry

ü           Restricted availability of finance

ü           Restricts growth and scaling up

Structural impediments

ü   Lack of urbanization

ü   Poor transportation infrastructure

ü   Consumer habit of buying fresh foods

ü   Administered pricing

ü           Lack of awareness of Indian consumers

ü           Restricts retail growth

ü           Growth of small, one-store formats, with unmatchable cost structure

ü           Wastage of almost 20%-25% of farm produce

High cost of real estate

ü      Pro-tenant rent laws

ü      Non-availability of government land, zoning restrictions

ü      Lack of clear ownership titles, high stamp duty (10%)

ü           Difficult to find good real estate in terms of location and size

ü           High land cost owing to constrained supply

ü           Disorganized nature of transactions

Supply chain bottlenecks

ü     Several segments like food and apparel reserved for SSIs

ü    Distribution, logistics constraints – restrictions of purchase and movement of food grains, absence of cold chain infrastructure.

ü     Long intermediation chain

ü           Limited product range makes scaling up difficult

ü           High cost and complexity of sourcing & planning

ü           Lack of value addition and increase in costs by almost 15%

Complex Taxation System

ü     Differential sales tax rates across states

ü     Multi-point Octroi

ü     Sales tax avoidance by smaller stores

ü           Added cost and complexity of distribution

ü           Cost advantage for smaller stores through tax evasion

Multiple Legislations

ü     Stringent labor laws governing hours of work, minimum wage payments

ü     Multiple licenses/clearances required

ü           Limits flexibility in operations

ü           Irritant value in establishing chain operations; adds to overall costs

Customer preferences

ü     Local consumption habits

ü      Need for variety

ü    Cultural issues

ü           Leads to product proliferation

ü           Need to stock larger number of SKUs at store level

ü           Increase complexity in sourcing and planning

ü           Increases the cost of store management

Availability of talent

ü     Highly educated class does not consider retailing a profession of choice

ü     Lack of proper training

ü           Lack of trained personnel

ü           Higher trial and error in managing retail operations

ü           Increase complexity in sourcing and planning

ü           Increase in personnel costs

Manufacturers Backlash

ü      No increase in margins

ü           Manufacturers refuse to disintermediate and pass on intermediary margins to retailers

Source: Industry, Fitch


This paper lays out before the reader the state of the Indian retail sector at a moment in time when it is in great flux. Almost every two months we see big corporations who had previously shied away from the retail industry, announcing huge investments into the sector. Companies already in the market are coming up with new formats almost every quarter. Coupled with the economy growing in leaps and bounds and the government at the center obliging with favorable policies, the retail sector is a bus no one wants to miss in India. However, to succeed in India requires knowing what’s on the mind of the Indian consumer, what works for him and what does not, and understanding that global products and pricing need to be customized to fit with the local scheme of things. Without having a strategy in place for the Indian consumer market in place, foreign retails would find it tough to compete with the local organized retailers and the mom and pop shops; local retailers with their recent entry into the market should try to leverage their knowledge of the consumers and experiment with formats to see how they can capture the maximum market share. In the few years to come, it would be interesting to see who comes out on top and what the winning strategy is, and also why the strategy succeeded and others failed.


ü      Bijapurkar, R. (2003), The New, Improved Indian Consumer, Business World, 8th December, PP. 28-36.Consumer & Marketers, Marketing White Book (2006) P. 109

ü      FDI in Retail Sector in India, Arpita Mukherjee, Nitisha Patel, ICRIER Publication,pg.31

ü      India Retail Hand book ,ICICI and AC Neilson , ORG Marg ( 2006)

ü      Living it Up, India Today, August, 22,2005, pp.86

ü      Marketing White Book (2006), Business World, pp.237,114-115.

ü      Non-Store Retailing, Retailing in India, Euro monitor Report, 2006

ü      Retailing in Punjab: 2010 and beyond (2006), An image & CII study.

ü      The Global Retail Development Index (2006), At Kearney

ü      TSMG ( Tata Strategic Management Group) Analysis, 2006.


Lakshmipriya - About the Author:




10/27 Vijayalakshmi layout,                                                                                         

I street, Ganesh Nagar,

Ganapathy, Coimbatore-641 006.

Tamilnadu, India

Phone : 0422 2330649

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To achieve success in all endeavors I undertake and to establish a successful career rendering the best of my efforts with utmost sincerity and devotion





  • Worked as a Lecturer in Department of Management studies at Angappa College of   Arts and science, Coimbatore from 26.06.2006 to 24.06.2007.
  • Working as an Assistant professor in Department of Management Science at Sri Krishna Arts and Science College, Coimbatore from 26.06.2007 to till date.




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     Research and Development

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            I declare that the information given in this fork is true to the best of my Knowledge and belief.





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