The Hindu Business Line : It's boom time, folks!

THESE are boom times for retail industry in India. Arguably, the largest source of employment after agriculture, at $180 billion (Rs 8,10,000 crore), Indian retail accounts for a sizeable portion of the country's GDP. And yet, it is easily one of the least evolved, with only a miniscule two per cent coming under the organised net.

Over 12 million retail outlets, mostly run by small shopkeepers, cover the remaining 98 per cent. Against this, the percentage of retail business falling under the unorganised umbrella is 80 per cent in China, 85 per cent in South Korea, 75per cent in Indonesia, 65 per cent in Philippines, 60 per cent in Thailand and 50 per cent in Malaysia. The figures pertaining to the developed world - 80 per cent in organised sector against only 20 per cent in the unorganised - is quite contrary to the ground reality in India.

Retail is the largest private sector industry in the world economy, with the global industry size exceeding $6.6 trillion, according to Euromonitor. The Indian retail industry prefers to look at the flip side.

For the $3.5billion strong industry, growing at 35-40 per cent per annum, the sky is the limit as it has the potential to grab an existing business worth $176 billion, which is growing at 11-12 per cent. That is a long way to travel and there is room for everybody. No wonder then that a number of new players are moving into this space without upsetting any of the incumbent players. Thus, one has seen modern retail adapt new formats such as hypermarkets, supermarkets and specialty stores across a range of categories. These formats, having already established themselves in the metros and mini-metros, are now in the process of carving out a presence in the second-rung cities.

While exposing the people of these cities to `never-before' shopping experiences, the pundits are forecasting a quantum jump for the sector during the next decade. With Indian GDP at Rs 14,26,701 crore, growing at 6-7 per cent and two-thirds earmarked to private consumption, it is imperative that consumption grows rapidly to support the growth forecast for the economy.

According to a CII background paper, in the absence of a healthy growth in private consumption, economic growth will not result in substantial improvement in the quality of life. The development of the retail industry is a key factor influencing the promotion of consumption.

According to retail consultants KSA Technopak, as many as 200 malls are expected to come up during 2005-06. The next three years may see a couple of Indian retail businesses crossing the Rs 1,000 crore mark. Many others may also attain critical mass, beyond which growth shall be driven by the multiplier effect as rapid rollout progresses in tandem with new customer acquisition and increased spend capture. And playing a crucial role in this would be retail finance. Pegged at Rs 1,00,000 crore during the last fiscal, it is more than keeping pace with the retail industry as it is slated to touch Rs 1,40,000 crore by the end of this fiscal.

As per a recent Harvard Business School report entitled `Ground-Floor Opportunities for Retail in India', India's economic growth is an exciting new playing field for the retail industry and for entrepreneurs looking to get in on the ground level. Rising incomes, increased advertising and a jump in the number of women working in the country's urban centres have made goods more attainable and enticing to a larger portion of the population.

According to one of the panelists talking to HBS, now ordinary people are buying what otherwise only the rich could afford. Though, it may take awhile before the `shop until you drop' mentality takes root even in the cities, let alone reach rural India. At another level, the retail boom is already leaving an indelible mark on the commercial real estate sector. The rentals paid by the large retailer chains are relatively high in the organised sector and the bigger players occupy larger spaces to get better rates. The branded products in the large retail sector cost more and their clients are willing to pay the price for the experience, with the retail rentals about 20 per cent higher than the commercial rates.

While there has been talk of allowing up to 26 per cent FDI in certain retailing activities, a decision on the issue is yet to be taken by the Government. According to a Crisil report, with China allowing FDI inflow up to 49 per cent in 1992, foreign players have taken the initiative and at present, around 40 foreign retailers constitute almost 20 per cent of the organised retailing in the country.

The Indian retail push is lead by the likes of Pantaloon, Shoppers' Stop and FoodWorld. Fetching close behind is Westside, Wills Lifestyle, Titan, Raymond, Bata, Crosswords, Lifestyle, Globus, Barista, Qwiky's, Café CoffeeDay, Vivek's, Nilgiris, Subhiksha and Ebony. Those carrying the international label include McDonald's, Pizza Hut, Dominos, Gautier, Levis, Lee, Nike, Adidas, TGIF, Benetton, Swarovski's, Sony, Sharp, Kodak, and The Medicine Shoppe. While the Indian players are seen to have ready access to prime real estate, the foreign companies have to depend upon shopping malls and rentals for their outlets. With prime real estate not coming cheap by any means in any of the Indian cities, this may prove to be the initial hurdle for global brands to overcome to breach the great Indian retail divide.