The Indian Retail industry has grown at a CAGR of 14.6% for the period FY07-12(p). The said growth can be attributed to the growing Indian economy, increase in Private Final Consumption Expenditure (PFCE) and the change in consumption pattern of the Indian populace. The changing consumption pattern, in turn, primarily remains driven by higher standard of living, growing middle-class population, greater proportion of working women, increase in penetration levels of organised retail etc.
Of all the retailing segments, the contribution of ‘food & grocery’ is estimated to have remained the highest at 58% of the total retail sales during FY12 (p) with the ‘clothing & footwear’ segment remaining the second-largest contributor occupying 10.5% of the total retail pie during the same period. However in terms of growth figures, the ‘entertainment, books & sports goods equipment’ segment is estimated to have outperformed the other retail segments, registering a CAGR of 21.3% during the period FY07-12 (p).
Despite the said growth, the Indian retail industry remains highly fragmented, with the organized retailing still at a nascent stage accounting for a miniscule percentage of the total Indian retail market. During FY07- 12 (p), the organised retailing in India has grown at a CAGR of 26.4%; higher to the growth of total retailing in India during the same period under consideration. Of the organised retail sales during FY12, the contribution of ‘Clothing & Footwear’ segment remained the highest at 37% with the ‘Food & Grocery’ segment being the second-highest contributor accounting for 24.2% of the total organised retail sales. Notably, the penetration of ‘Food & Grocery’ segment remained low at 2.8% owing to greater sale of fresh produce and groceries from the unorganised retail outlets.
With the global as well as Indian economy reviving post recession, the organised retail industry witnessed gradual increase in footfalls and correspondingly an increase in the Same store sales (SSS) during FY11. Despite of increase in sales volume across product categories, the operating margins of the retailers failed to improve on the backdrop of rising input costs and discounted product offerings. To aggravate the situation, escalating interest burden adversely affected the retailers’ net profit margins.
During the latter half of FY12, the retailers however witnessed slowdown in consumer spending as reflected through their SSS performance. This in turn resulted in higher inventory days for the retailers, on an average, ultimately affecting their working capital cycle. Also, with the interest rates at its peak during FY12 and lack of fund-raising avenues from the capital markets, the availability of capital remained a major constraint to the Indian retailers. In addition, the Indian retailers continued to be faced with challenges such as higher store rentals and unavailability of desired store location especially in tier- I cities, taxation & other policy regulations, inefficiencies in supply chain management and higher rate of shrinkages.
Despite the said challenges, CARE Research expects the growth in country’s PFCE to propel the growth of retailing in India. Correspondingly, CARE Research expects the Indian retail industry to grow at a CAGR of 14.8% during FY12-15. Importantly, CARE Research expects the penetration of organised retail in the total retail pie to increase to 8.8% by FY15 owing to the expanding reach of the retailers in tier- II & III cities accompanied by higher consumer spend on discretionary items. Also, in an attempt to increase margins, CARE Research expects the retailers would resort to measures such as increasing the share of private labels in the total store sales, reducing store-level operating expenses etc.
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