India has risen five positions to rank 15th in the 2015 Global Retail Development Index, says London-headquartered consultancy A.T. Kearney.
The retail market is expected to grow to US$1.3 trillion by 2020, from US$925 billion in 2014. The retail market has grown at a compounded annual growth rate of 5.8 per cent. The future retail market growth will be boosted by the eight per cent per annum growth in the Gross Domestic Product (GDP) over the next three years and the increase in spending by a population of 1.25 billion, making India the world’s fastest-growing major developing market.
Consumer and investor sentiment have seen an uptick, as the pro-reform government under Prime Minister Narendra Modi sets out on an ambitious goal of improving its Ease of Doing Business ranking from 142nd to 50th in the next two years.
India represents a good opportunity for international retailers in single-brand retail, cash-and-carry, and e-commerce, as the country appears to be on the cusp of a strong growth phase over the next five years.
The tipping point for brick-and-mortar retail continues to be the opening up of FDI norms in multi-brand retail, a move that is not expected in the near-term.
For now, international retailers continue to focus on the cash-and-carry and single-brand formats, where 100 percent FDI is allowed. After two years of dormancy, Walmart will open a new outlet in Agra in 2015 and plans to add 50 wholesale stores to its existing 20 in the next five years. Germany’s Metro will triple the number of wholesale stores to 50 by 2020.
Many single-brand retailers such as Japan-based Asics, Danish retailer Bestseller, and French fashion brand Sisley are breaking away from franchisee tie-ups with Indian partners to go solo. Nike, which has about 400 franchise locations in India, filed an application in September to open company-owned stores.
Global Retail Expansion: An Unstoppable Force
Meanwhile many new entrants remain undecided between partnerships with local companies versus company-owned stores. IKEA, which also sources locally, plans to open its first solo store in Hyderabad. H&M will also enter India alone with plans to open an initial 50 shops. In contrast, Gap and The Children’s Place have chosen to partner with Arvind Lifestyle Brands. As retailers continue to expand, real estate availability could be the biggest barrier. India has four times the population of the United States but just one-tenth of the mall space. Many malls are also of poor design and lag behind global standards. The dearth of quality space in core areas is prompting some retailers to look online instead. E-commerce recorded impressive 27 percent growth in 2014 to reach $3.8 billion, led by online retailers such as Amazon, Flipkart, and Snapdeal. However, this market still has a long way to go as online remains just 0.5 percent of the total retail market, Internet penetration is just 20 percent of the population, and infrastructure needs to improve significantly. Indeed, the Associated Chambers of Commerce and Industry of India estimates that companies will spend between $1 billion and $2 billion on e-commerce-related infrastructure over the next five years.
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