>INDIA RETAIL FORUM 2009 (DOLAT CAPITAL)

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India Retail Forum - 2009

The Retail industry in India is $400bn with the industry accounting for around 27% of the GDP. The organized or modern retail penetration levels are abysmally low for India and account for 3-5% of the total retail sales and the rest is catered to by unorganized retail mainly ‘Kirana Stores’. In other countries the penetration levels for organized retail are much higher at ~80% in USA, ~40% in Mexico and Turkey and ~20% in China. The lower penetration levels give an opportunity for Modern retail to increase penetration and increase the scale of organized retail in the country.

Although the opportunity is there, the retail sector will show a steady growth and not explosive growth as witnessed in the telecom sector. For the growth to happen in this sector there needs to be inclusive growth and there is a need to drive consumption.

Key Highlights

■ Retail Sector to grow
India’s organized retail market is currently growing at the rate of 40% annually. The growth is expected to be fast paced over the next three years with global players like Wal-Mart, Tesco, and Carrefour entering the fray. At the current growth rate organized retail is expected to reach USD 90-95bn by 2010. The entry of foreign players will drive the growth as the penetration levels of organized retail increase. The penetration of organized retail is expected to touch 10% by 2014, which will be based on inclusive growth and driving consumption. Although the retail sector will grow, profitability remains a key issue and needs to addressed.

■ Real Estate Cooling off
The real estate which consists of half the expenditure for retailers has cooled off considerably with prices falling up to 30%. There were 400 malls to be completed by December 2010. Now this number is down to 100. With the fall in real estate prices most of the retailers have been able to derive better deals. Real estate players also indicated that they wont be doing any strata sales and will be looking at rental and revenue share models. The revenue share models come with a minimum guarantee. There have been some revenue sharing deals that have been sprung in the past one year, but these have been few and come with a lot of caveats.

■ Driving Private Labels
Almost all the retailers are looking at some kind of backward integration by introducing private labels across categories. The need for private labels comes from their ability to derive higher margins than CPG goods. Retailers also emphasized that they will be looking at branding these private labels and creating newer markets for them. Retailers are looking at private labels actively in the food and grocery business.

■ Technology Key Driver
Retailers earlier were not too keen on embracing technology. IRF2009 indicated that the retailers are now ready to address the technology bits by actively implementing technology. The demand for Business Intelligence solutions, item data management, and vendor management came to the fore with all almost all retailers citing the need for technology for effective supply chain management.

■ View
We remain cautious on the sector. The growth in the retail sector will be slow and steady and not explosive. Retailers need to set their home in order first and then look at growing the scale. We like Titan and Trent in this space.

To see full report: RETAIL SECTOR