A.T. Kearney recently unveiled its Global Retail Development Index™ (GRDI). The index is known to guide global retailers with their strategic investments. Though the index for 2013 shows a lot of changes in retail eco-system, one thing hasn’t changed: As developed markets face flat or anemic growth, developing markets remain important sources of growth. The 12th annual edition of the GRDI finds many opportunities for retailers seeking to grow and expand in fast-growing developing markets big and small.
This year India has steeply fallen to 14th rank this year as compared to 5th rank it gained in 2012. The report suggests growth slowdown, but still strong. The global slowdown hasn’t spared India, whose GDP growth rate slipped to 5 percent, down from a 10-year average of 7.8 percent. Same-store sales volume growth slowed in 2012 across retail, particularly for lifestyle and value-based formats. India falls nine spots in the GRDI to 14th; its previous low ranking was 6th place in the inaugural Index in 2002, and it was first as recently as 2009.
High operating costs, low bargaining power with vendors, and heavy discounting to improve sales have affected profits and expansion plans. Real estate cost and space availability also remain important issues. Many players are actively looking at improving sales productivity, cutting operating costs, and reducing store size.
However, the long-term fundamentals remain strong: in particular, a large, young, increasingly brand- and fashion-conscious population. Retail growth of 14 to 15 percent per year is expected through 2015. Modern retail remains limited (7 percent in 2012), but it is expected to grow as the country urbanizes and retailers make new investments.
In 2012, India’s retail sector reached an important landmark: The government allowed 100 percent foreign direct investment in a single brand for the first time. Several single-branded retailers entered India in many sectors: apparel and beauty (including Brooks Brothers, Kenneth Cole, Sephora, and Armani Junior), standalone boutiques (including Roberto Cavalli and Christian Louboutin), and food (including Starbucks and Dunkin’ Donuts). Large retailers such as IKEA are finalizing their India entry strategies.
In multi-brand retail, the government allowed 51 percent FDI starting in early 2013. However, there are preconditions about investment, sourcing, store locations, and state government approval. Although the government has received multiple investment proposals, many multi-brand players are taking a “wait-and-see” approach due to apprehensions about how the policy will be implemented.
Retailers are expanding in tier 2 and 3 cities as real estate costs in major metro areas skyrocket. Carrefour, Metro, and Bharti-Walmart have increased their presence in these markets.
Online shopping is in the early stages, with e-commerce sales equal to less than 1 percent of all retail sales, but growth is expected as more people access the Internet. Mobile phones, electronic appliances, apparel, movies, music, and books are the fastest-growing categories. New entrants, new business models, and new niche categories have flooded the market, yet few players have turned profitable yet.
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