The Hindu Business Line : Retail investment yields higher returns: Study

HIGHER disposable incomes, falling real estate prices and an increasing number of discerning customers are fuelling growth of the retail industry in India, according to Knight Frank's latest report in its annual India Retail Review.

Calling for a liberal Foreign Direct Investment (FDI) policy within the Indian retailing sector, the report draws attention to countries such as China, Indonesia and Thailand, where market dynamics have undergone drastic changes following liberal FDI policies.

The study indicates that investment in retail real estate continues to yield the highest returns in comparison with residential and office segments, with yields being in the region of 13-16 per cent. By way of example, the report indicates that HDFC — the investor in Shoppers' Stop in Pune - has achieved a net return of 15.43 per cent per annum on its initial investment. Another example is that of shoe major Adidas — the space leased by Adidas in Ansal Plaza, Delhi, has yielded a return of 15.84 per cent per annum.

Other key findings of the Knight Frank report indicate that India now ranks fifth among 30 emerging retail markets in developing countries. According to the report, consumer spending in the country has grown at an average of 11.5 per cent annually over the past decade.

According to the report, about 25 million sq ft of organised retail space is expected to come up across the country by year 2005. Organised retail, meanwhile, is expected to grow from the current two per cent to 20 per cent of the total retail industry in India by the end of the current decade. The size of the organised retail industry has been estimated at Rs 19,500 crore.

The report elaborates that while the growth in the retail sector has been focused on Tier 1 cities only, the retailer focus is gradually broadening to include Tier 2 cities such as Nagpur, Indore, Jaipur, Chandigarh, Lucknow and Kochi.

While the focus of retail expansion in Mumbai is malls, Delhi is an attractive retail destination because it has the highest share of all-India urban households, with the total average expenditure per household in Delhi being the highest in the country at Rs 11,597 per annum, compared with an all-India average of Rs 4,577 per annum.

Key drivers of retail activity remain apparels and the food and beverages (F&B) sectors. While the organised apparel segment is expected to grow at a steady 9.5 per cent per annum over the next three years, F&B outlets are expected to grow to 464 by mid-2004, against 223 now.

Also, entertainment is now becoming an integral part of new mall development, analyses the study.

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