India’s retail sector has been undergoing structural changes for the last two decades. Shopping malls, lined with specialty retailers, started dotting the retail markets of the country’s top cities during the mid-1990s. Since then, the ‘mall culture’ gradually pervaded the population, especially in the metros and mini-metros, heralding the beginning of the modern retail movement in India.
India modern retail evolution
The pace of mall construction was moderate during the first five to seven years and gained substantial momentum after that. The impact of the global financial crisis on the Indian economy in 2008 and 2009 checked this pace, and this trend continues today. The next big wave that has changed the skyline of the retail sector in India and accelerated the presence of modern retail is e-tailing, or the sale of products and services through the internet, telephone and television. This trend started in 2010 and has become prominent in the last three years. We believe that the modern retail segment in India will be driven by e-tailing as well as the brickand-mortar modern retail format through an integrated approach.
Another trend that is becoming conspicuous since the last couple of years is the transformation of non-modern stores in shopping streets into modern formats. This trend is likely to gain momentum in times to come because of the prevailing consumer preference for a modern and organised shopping experience.
India has gradually become one of the important retail markets for global retailers. Other than the fact that it is one of the biggest economies in the world, its demographics also work in its favour. Mumbai, Bangalore and the NCR are at the epicentre of this retail wave. The majority of the global retailers planning to enter the country are considering these three locations in the first phase.
Brands from more than 33 foreign countries have their representation in malls and high streets in India. This also exhibits the growth of the modern retail sector in India. USA contributes a massive 35 percent of all foreign brands present in India. This is followed by the United Kingdom, at 12 percent. While Italian and French brands account for an 8 percent share each, Japanese, Swiss and German brands represent 5 percent each. Nearly 400 international brands are already present in India; some of the recent entrants in the Indian market include, Ikea, H&M, Gap, Aéropostale and Massimo Dutti. Despite all these changes in the retail market towards modernisation, India still lags in the modern retail penetration.
MODERN RETAIL PENETRATION: EXISTING SCENARIO
Retail Spending and Penetration of Modern Retail
Presently, modern retail penetration in India is abysmally low compared to the developed and emerging economies. While the share of modern retail is 84 percent, 71 percent, and 53 percent in the US, Singapore and Malaysia respectively, it is only 19 percent of the value of the total retail spending in the National Capital Region, Mumbai, Kolkata, Chennai, Bengaluru, Pune and Hyderabad (the top seven cities), cumulatively. In fact, the degree of penetration in the whole of India would be even lower, since the presence of modern retail in smaller cities and rural areas is not significant. However, this is changing considerably as evolving consumer spending patterns, increasing disposable income levels and preferences are redefining the country’s retail landscape. Currently, the total annual retail spending in the top seven retail markets of the country amounts to 4,206 billion and this is projected to reach 7,650 billion by 2019. Going forward, a sizable portion of this retail spending will continue to take place in the nonmodern retail segment as well. The penetration of modern retail will also witness a substantial rise, from the current 19 percent to 24 percent in the next three years.
Currently, the per capita occupied modern retail space in the top urban cities stand at 833 sq.ft per 1,000 population. Bengaluru has the highest per capita penetration of modern retail space in India, at 1,323 sq.ft per 1,000 population. This is followed by Pune and Chennai, at 1,002 and 1,001 sq.ft per 1,000 population respectively. Despite having the maximum occupied modern retail space in India, the NCR market ranks fourth among the top seven cities in the country, at 933 sq.ft per 1,000 population. Clearly the penetration of modern retail spaces is not adequate, and Mumbai, Kolkata and Hyderabad rank lower than the average of the top seven cities, in terms of per capita modern retail space. These figures will be even lower for the rest of India, as the shopping mostly happens on unorganised streets in smaller towns and rural markets.
The National Capital Region ranks first in terms of mall space per capita in India, at 536 sq.ft per 1,000 population. This is followed by Bengaluru and Pune in second and third place respectively. Mumbai fares poorly in terms of mall space penetration per capita, at just 350 sq.ft per 1,000 population. This is much lower than the average penetration in the top seven cities. Hyderabad is ranked last when it comes to per capita mall space penetration in India, with just 193 sq.ft per 1,000 population.
It’s interesting to analyse the split of occupied modern retail space in malls and shopping streets. Most of the cities have a good proportion of both. Distribution of modern retail space is skewed towards malls in Mumbai, as 59 percent of the total modern retail space in the city is represented by malls only. This is followed by the NCR and Pune. The modern retail space in Pune is represented fairly by malls and shopping streets, at 48 percent and 52 percent respectively. This is very similar to the mix observed at the level of the top seven cities. The share of mall space is the lowest in Hyderabad, as more than 70 percent of the total modern retail space is present in the various shopping streets of the city.
Increasing penetration of modern retail through e-tail, transformation of existing shopping streets and development of more malls is going to change the modern retail skyline in the next three to five years.
CRYSTAL GAZING: MODERN RETAIL IN INDIA
Until a few years ago, shopping meant a visit to a mall or high street. With the advancement of technology and its increasing usage by consumers and retailers, shopping options are not restricted to physical stores anymore. E-tailing is not only a reality; it is evolving constantly to create synergies with other retail channels. High-speed internet connections have become more affordable and within reach. Interestingly, India is the second largest smartphone market globally, and is expected to witness fast-track growth in the next five years.
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