Growing middle class drives consumption across the country.
India has overtaken China to take the top spot in the 2017 Global Retail Development Index (GRDI) released today by management consulting firm A.T. Kearney. India’s rapidly expanding economy, easing of foreign direct investment (FDI) rules and a consumption boom are the key drivers for India’s top ranking.
The GRDI, now in its 16th edition, ranks the top 30 developing countries for retail investment worldwide. The Index analyzes 25 macroeconomic and retail-specific variables. The study is unique in that it not only identifies the markets that are most attractive today, but also those that offer future potential.
India has become the world’s fastest growing economy, with GDP growth expected to be 7.4 percent in 2017 and 7.6 percent in 2018. The country’s retail sector has been growing at an annual rate of 20 percent. Total sales surpassed the US$1 trillion-mark last year and the sector is expected to double in size by 2020.
Rapid urbanization and a growing middles class with higher income levels is driving up consumption across the country. The government’s continued support to relax FDI regulations in key areas of the retail sector have provided further boost to its growth. In the past year, the government has allowed 100 percent foreign ownership in B2B e-commerce businesses and for retailers that sell food products.
India’s retail sector has also benefited from the rapid growth in e-commerce. It is projected to grow 30 percent annually and reach US$48 billion by 2020. Retailers have been quick to seize the opportunity with 86 percent of e-commerce dominated by pure-play online retailers in 2016. Government efforts to boost cashless payments (witnessed in the recent nationwide demonetization exercise) and reform indirect taxation with a nationwide goods and services tax (GST) are also expected to accelerate adoption of formal retail.
“India’s top ranking is a clear vote of confidence in its retail market and vast growth potential. The government is taking steps to eliminate the federal and state rules that curtail retail development, and new regulations are being developed to attract investment and increase consumption. This strong environment has propelled India to the top spot in the GRDI,” said Debashish Mukherjee, Partner with A.T. Kearney and Head of the Consumer Industries & Retail Products Practice for India.
Himanshu Bajaj, Partner with Consumer Industries & Retail Products Practice at A.T. Kearney India, added: “There are still considerations for retailers. Developing an omnichannel strategy in India is incredibly challenging, which can be seen from the reported consolidation plans of two of the nation’s largest online retailers. Understanding the size and complexity of India’s retail market, especially the dynamics at the state level, as well as the nuances across the nation (with a population of 1.33 billion) is vital if retailers are to succeed. That said, the relaxed rules for FDI in key areas of the sector, and the easing of doing business in general, means that retailers who are well prepared have significant opportunities”.
In 2016, as consumers showed increased interest in brands, prominent international retailers entered the market. These include Armani Exchange, Cole Haan, Heatwave, Muji, Massimo Dutti, Kate Spade, and Neil Barrett. H&M has opened 15 stores within two years of entering the market, Xiaomi intends to roll out single-brand retail stores across the country, and German sports goods makers Puma and Adidas are looking for government approval to operate fully owned retail stores and online portals.
IKEA, the world’s largest furniture retailer, plans to invest US$1.56 billion to set up 25 stores nationwide. Amazon and Walmart have aggressive rollout plans, with Walmart aiming to open 50 cash-and-carry stores in the next four to five years. The luxury sector also continues to see activity with Saks Fifth Avenue reportedly in talks with local partners to open two stores.
In 2016, India was second to China in GRDI ranking. fii-news.com
