The major components of the retail sector are: Food and Grocery, Fast Moving Consumer Goods (FMCG), Consumer Durables, Apparel, Footwear and leather, Watches, Jewellery, and Health and Beauty
The anatomy of the retail market has shown that the clothing and textiles constitutes 39 per cent of the organised retail pie, followed by food and grocery, which accounts for 11 Percent share of organised retail market.
However, according to the survey conducted by KPMG for Federation of Indian Chamber of Commerce and Industry (FICCI), among these, the food and grocery is expected to witness the fastest growth followed by clothing as the second-fastest growing segment.
Clothing & Textiles:
Apparel and accessories retailing is the largest segment of Organized Retailing in India, constituting 38% of the total Organized Retail. The penetration of Organized Retail in the category is around 23%.Major sub segments are based on Gender (Men & Women), Age (Kids, Infant), Use and occasion based (Formal, Casual, Bridal, Sportswear, Uniforms, etc). Most of the major sub segments have performed well on account of demographic, economic and social factors like high disposable incomes, more number of working women, young demography, etc The share of clothing in the Private Final Consumption Expenditure (PFCE) has marginally reduced from 4% to 3.8% in FY 2008 as well as Y-O-Y growth in PFCE on clothing has also slowed down 6.5% in 2007-08.The Organized Retail segment has done well in the last few years despite of the aforementioned factors on account of consumers upgrading to premium brands. The premium range across apparel segments has shown the fastest growth in volume and value on account of rising aspirations as well as a growing willingness to pay a premium for quality. Malls & Hypermarkets are likely to increase the penetration of organized apparel retailing in the country. Apparel makes up for a large proportion of total sales for hypermarket players such as Big Bazaar and Vishal Mega Mart. This segment has attracted global players like Guess, Gas, Levi’s, Benetton, Gucci, Marks and Spencer. Most of the global as well as Indian brands have adopted the franchisee route for expansion, due to the relatively lower level of investment involved. The major Indian players include Arvind Brands, ITC, Koutons, and Raymond.
Jewellery:
Jewellery accounts for 3% of the Organized Retail market and the penetration of Organized Retail is only 3%-4%. The growth in Organized Retail was 31% in 2007 as compared to a growth of 9.6% in the total retail market.
The two major segments of this sector in India are gold jewellery and diamonds. Gold jewellery forms around 80% of the Indian jewellery market, with the balance comprising fabricated studded jewellery that includes diamonds as well as gemstone studded jewellery. The Indian gems and jewellery market continues to be dominated by the unorganized sector in the form of “Family jeweler”. However, with the Indian consumer becoming more aware and quality conscious, branded jewellery is becoming very popular. This industry with a large number of retailers is expected to see larger players and consolidation growing forward.
Watches:
Watches accounted for 3% of the Organized Retail market and have the highest penetration of organized retail. The Indian watch industry is clocking double digit growth rates in the recent past which is in line with the growth of the economy. The growth in the luxury segments has been higher on account of increasing disposable incomes and watches being seen as more of a status symbol. The trend is in line with the global markets where the Swiss majors have been on a growth path and Japanese majors are seeing a flat top-line. The Indian watch market holds immense potential as the penetration levels of watches is very low in India, especially in the rural and semi urban areas.
Footwear:
India is the second largest manufacturer of footwear in the world, next only to China. The market size of footwear in India is 2.6-35 billion pairs per annum. The market size of the footwear industry in the top 20 cities in the country is estimated to be 10 crore pairs per annum6. Organized Retail has higher Levels of penetration in footwear and the segment accounts for around 10 % of the total Organized Retail market. The organized footwear retail market can be segmented based on utility – sports footwear, semiformal / casual footwear and formal wear, as well based on gender/age – men, women & kids. The market is dominated by casual and sportswear which makes up nearly two-thirds of the total footwear retail market. The branded sportswear segment has been outperforming rest of the segments and it is estimated to be worth Rs. 1,000 crore.
Health & Beauty Care Services:
The category includes health and beauty care services such as weight loss clinics, skin and hair treatment clinics, beauty parlors/saloons and spas and accounts for 1% of the Organized Retail market. This category comes under the realm of service retailing and involves human resource with specific skill sets. Beauty parlors and saloons are the major sub segments which are dominated by the unorganized segment.
Pharmaceuticals:
Pharma retail space is dominated by unorganized players “neighborhood chemists” which are small family-owned stores measuring less than 250 sq. ft. The pharma market has around 800, 0007 retailers which indicate the scope of consolidation. Pharmaceuticals retail accounts for 3% of the Organized Retail pie. About 2% of the Pharma retail industry is now occupied by organized retailers such as Apollo Healthcare, Medicine Shoppe, and Guardian Pharmacy. Factors such as ambience, availability, reliability and quality of drugs, price discounts on account of economies of scale in procurement will help organized Pharma retailers to Garner a bigger share of the market.
Consumer Durables, Home Appliances/equipments:
The category consists of various white goods such as refrigerators, washing machines as well as electronic products (excluding mobile phones). Indian consumer durable industry is having significantly less penetration levels as compared to other countries in the world. As a result of this, India is having enormous unrealized potential. The rural market is growing faster than the urban market, although the penetration level in rural area is much lower. Split air-conditioners, frost-free refrigerators, fully automatic washing machines, microwave ovens, and high-end flat panel TVs are likely to have healthy growth rates. The color televisions (CTV) segment is expected to be the largest contributing segment to the overall growth of the industry. The Indian middle class, defined by the National Council of Applied Economic Research (NCAER) as households with annual income of between Rs. 2.5 lakh and Rs. 5 lakh, has been driving the consumption of goods such as cars, refrigerators and color TV sets. According to NCAER, such consumers, accounting for about 12% of the country’s households, owned 60% air conditioners and 25% of all TV sets and refrigerators. Many manufacturers of consumer durable goods are now tying up with retailers/distributors for providing solutions to the end-consumer more effectively. Organized Retail format is fast catching up in the country and would drive up sales of consumer durable goods by setting new formats such as Multi-brand showrooms.
Mobile handsets, Accessories & Services:
The increasing penetrations of mobile phones have offered opportunities in handsets & accessories as well as recharge cards (in case of GSM phones) and repair service retailing. India witnessed a growth of 25.5% in sales of mobile handsets during 2008 with 124 million devices sold compared to 98.8 million during 2007. 9 The number of mobile subscribers in India will touch 500 million by 2010, with growth in rural markets (B and C circles) 10. The number of mobile phone retailers in India is expected reach 10 lakh by 2010.This segment accounts for 3 % of the Organized Retail market. The market has seen the entry of large retail chains like Univercell, The Mobile Store, and Hotspot.
Furnishings, Utensils, Furniture-Home & Office:
This segment constitutes 6% of the Organized Retail market. The penetration of Organized Retail in the sector is more pronounced in the premium category like high end modular kitchens, designer furniture, bathroom accessories, etc. The major players in this segment include Godrej Life space, Fabindia, Home Town, and Style Spa & Welspun. Economic development and easy credit availability have led to a boom in both in housing and Commercial sector fuelled the demand for furniture and furnishings. Social factors like young
demography, nuclear families etc have also contributed to the same.
Food & Grocery:
Food and grocery, which is the largest segment of the total retail industry, is the second largest in the organized space accounting for 11.5% of the market. This segment holds the largest potential for organized Retail. The share of Organized Retail is more in case of dry groceries. The economies of scale allow the retailers to offer products at a cheaper rate to the very price sensitive Indian customers along with assortment of goods and the right ambience. The unorganized segment dominates the wet grocery segment. Unorganized supply chains and regulations (discussed in subsequent sections) are the key Bottlenecks for organized retailers. The key players in this segment are Food Bazaar, Reliance Fresh, More, and Spencer’s.
Out-of-Home Food Services:
This segment constitutes about 7% of the Organized Retail market. The key success factors for Organized Retailers are quality, ambience and differentiated product offerings. Lifestyle changes have led to people leading a fast pace life have led a spurt in number of restaurants, and fast food joints.
“Eating out” as means of recreation has also caught up. Indians’ taste buds are more than willing to taste international cuisines such as Chinese, Italian, Thai, and Mexican which offers a “change” from the traditional Indian cuisine. Most of the leading multinational foodservice chains such as Pizza Hut, McDonald’s have adopted the franchising route to set-up their Indian operations. They have also
adopted to the local taste preferences. Health consciousness is on the rise as more and more people suffer from obesity related problems, which is an important trend to watch out for.
Books, Music & Gifts:
This segment constituted 3% of the Organized Retail market with most of the penetration being limited to urban areas. Key players in this segment include Planet M, Music World, Landmark, Odyssey, Higginbotham’s and Archie’s. The differentiating factors for the organized formats are services include book reading sessions (for book retailing), ambience and wide assortment of goods. Marketing efforts like “Occasion Marketing” (Father’s Day, Mother’s Day etc) and brand building activities have contributed to the growth of Gift retailers. The segment is likely to be significantly impacted by the growth in internet usage and mobile phone penetration. Music downloads on phone/internet; e-tailers like Amazon are likely to offer stiff competition to the industry. Pirated books and music has always been a source of problem and will continue to be so in the near future.
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