Retail Industry In India: Current State And Future

If a foreign company wishes to own and operate a single retailer in India, then the foreign companies need approval from the Department of Industrial Policy and Promotion to invest above 49%. After operating in India for five years, the retailer must source at least 30% of their material in India for products sold in the domestic market. “Currently, India allows 51% Foreign Direct Investment (FDI) in multi-brand retail, 100% FDI into multi-brand food retail, and 100% FDI into e-commerce retail. All three categories require government approval with stringent conditions.” (Dunseith) Foreign companies must invest at least $100 million US along with 50% of the investment going into backend infrastructure within the first three years in order to get approval for owning and operating a multi-brand retailer. Also, the company can only sell products made in India.

Government Regulations

Government policies are now more in favor for fashion merchandising and the rapid expansion of the retail sector in India by opening the retail sector to foreign investors. One instance, for example, is that the government has allowed 100% Foreign Direct Investment (FDI) in online retail of goods and services which, as a result, provides clarification of existing e-Commerce businesses. In India, organized retailers only account for 7% of the market because India lacks the industry status. So, the government needs to grant the country with an industry status to attract more investors and also help promote both big and small-scale retailers. Also, India recently signed the Goods and Services Tax to go into effective. The Goods and Services Tax is an indirect tax on supply of goods and services. The implementation of this tax is expected to help the movement of goods across the country and also improve retail operations.

Current Retailers

Current retailers are divided into two markets, organized and unorganized retail markets. Organized retailers refer to licensed retailers involved in trading activities that must register for sales tax and income tax. Examples include department stores, specialty shops, or stores within the mall. These stores offer a wide range of products, value for money, and offers a memorable shopping experience. The organized retailers dominate the metro and urban parts of India. Majority of Indian’s consumer consists of urban shoppers who are widely accepting lifestyle products. So, retailers need to take advantage of this growth and focus on branding the retail business. In order to do so, Indian retailers should reinforce their marketing positioning and communicate to their customers the value of the products they’re offering. The mall culture is also growing rapidly which suggests that organized retailers have room for tremendous growth as the economy grows. India also has both small and large formats of exclusive stores having national and international brands to cater to all areas of society. For example, in August of 2018, IKEA opened their first location in India receiving 28,000 visitors daily. IKEA is now persuading Indian customers to not come to store to better handle the crowds effectively. “The craze is primarily the result of IKEA’s months-long promotional efforts through front-page newspaper ads and large hoardings across the city. In Hyderabad, awareness of the brand went from a mere 5% when IKEA was still building the store to nearly 80% as the opening date approached, IKEA India’s creative director (Life at Home), Mia Lundstrom, had told Quartz in an interview last week.”

Unorganized retailers refer to tradition format stores with low-cost. Examples include convenience stores, hand carts, general stores, and small retail shops called kirana shops. The unorganized retailers dominate the semi-urban and rural parts of India. It’s estimated that about 95% of retail in India is through unorganized retailers because of the advantages it possesses over organized retailers. These advantages include close distance from home, bargaining, offers traditional mindset of Indian consumers, and allows for personal service. But, the purchasing power for India’s middle class, urban consumers is growing rapidly for branded merchandise within the organized retail market. So, Indian’s current retailers need to capitalize on this growing industry by introducing new formats and providing variety of products.

Current Retail Formats

Retail trade in conducted with the use of different formats. The traditional format of retailing in India are the kirana shops. This format is a small neighborhood retail store and are mainly family owned and operated with less than 500 square feet of space. Modern retailing has entered India’s retail landscape in the form of shopping centers, malls, and huge complexes. Department stores in these formats offer a wide range of products such as piece goods, women’s ready to wear and accessories, and men’s and kid’s wear. Along with providing many lines of merchandise that appeal to majority of consumers, department stores also seek to attract people and keep them coming into the store. Hypermarkets are stores that combine both a supermarket and a department store. It provides a wide range of fresh groceries and apparel at low profit margins. Specialty malls are operated by independent retailers. These stores attract customers with a single line or closely allied lines of goods. Because these stores specialize in a specific area, it’s able to offer a wide assortment of goods, an extensive range in sizes, and the newest styles. Since their buyers can concentrate on a few lines for a specific area, their knowledge of these lines is more complete than that of a buyer with different lines in multiple areas. A retail format in high demand in India is e-Commerce. “In 2017, about 100 million consumers purchased online and the number is expected to cross 120 million by 2020 with the rise of digital natives, better infrastructure in terms of logistics, broadband and Internet-ready devices to fuel the demand in e-commerce.” The increase of the digital age in India will have an impact on the future of India’s retail sector.

Conclusion

India’s vast middle class and its untapped retail industry will help the growth of the retail landscape in India because global retail giants are looking for the qualities that India possesses. The future of India’s retail industry has a promising outlook, but it also depends on India’s government regulations and policies along with its rapid urbanization. In the next few years, we’re going to see the rapid growth of India’s organized retail sector as international players establish their presence by adjusting their formats to fit local buying behavior. As these changes occur in the industry, competition will increase, cutting cost will decrease, and retail productivity will improve. At the same time, we’ll see the unorganized retail sector step up with game and use their local knowledge to gain an advantage over the international players. Therefore, it’s important for retailers to secure a unique position in the market place so consumers can build relationships and experiences with the retailer. India has a high growth potential in the retail industry and looks favorably among its global peers which will attract investors toward India.