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Invest Guide April 2023

Indian Retail - Eye on the future(Growth, Challenges and Opportunities)

Several new businesses have entered the Indian retail market, making it one of the most dynamic and quick-paced sectors. In addition to contributing about 10% of the nation's GDP, it also provides over 8% of all jobs. When it comes to retail, India is currently the fifth largest worldwide destination in the globe. According to the 2019 Business-to-Consumer (B2C) E-commerce Index by the United Nations Conference on Trade and Development, India ranked 73 out of 190 countries. When it comes to retail, India ranks sixth on a worldwide scale and 63rd on the World Bank's Doing Business 2020 index.

The key attractions for global retail behemoths trying to enter additional markets are India's sizable middle class and its mostly untapped retail market, which will aid in the country's retail industry expanding more quickly. The spending power of urban Indian consumers is rising, and branded products in areas including apparel, cosmetics, footwear, watches, beverages, cuisine, and even jewellery are progressively becoming popular for use in business and leisure. According to one recent study, India's retail industry is predicted to be worth an astounding US$ 2 trillion by 2032.

India ranks as the world's sixth most popular tourist destination for shopping. India came in 16th place in the FDI Confidence Index (after US, Canada, Germany, United Kingdom, China, Japan, France, Australia, Switzerland, and Italy).

Market Size -

The retail sector in India is expected to expand at a 9% rate between 2019 and 2030, rising from US$ 779 billion in 2019 to US$ 1,407 billion by 2026, and then to more than US$ 1.8 trillion by 2030. The revenue of brick and mortar stores in India is projected to grow by between Rs. 10,000-12,000 crore (US$ 1.39-2.77 billion) in the upcoming fiscal year. At the current rate, the direct selling sector in India is anticipated to be worth US$2.14 billion. E-retail has benefited from the pandemic, and a study projects that the market would reach US$ 120–140 billion by FY26, growing at a rate of about 25–30% per year over the following five years. The India consumption narrative continues to be strong despite extraordinary hurdles. In 2021, personal consumption was estimated at Rs. 130–140 trillion (US$ 1.63–1.75 trillion), largely due to rising incomes, improved mobility, increased knowledge, and more optimistic perspectives.

India has the third-highest percentage of online retail customers (only behind China, the US). By 2030, it's anticipated that Direct-to-Consumer (D2C) shipments from new-age logistics firms will total 2.5 billion. In the next decade, the share of used-car purchases made online is projected to increase by a factor of 9.

Investments/ Developments In Retail -

India's retail industry has recently experienced significant investments and growth. Foreign direct investments in India totalled US$ 4.11 billion between April 2000 and June 2022, and retail inflation in India, as measured by the Consumer Price Index (CPI), reached 6.77 percent year over year in October 2022, according to data issued by the Ministry of Statistics and Programme Implementation (MoSPI).

  • Aditya Birla Fashion and Retail Ltd. and Galeries Lafayette have formed a strategic alliance to establish up upscale department stores and a specialized e-commerce platform in India. This relationship will begin in November 2022.
  • Aditya Birla Fashion and Retail Ltd.'s top premium menswear brand, Louis Philippe, announced the opening of a store in Vadodara, Gujarat, in August 2022.
  • Wipro Consumer, a subsidiary of Wipro Limited, has stated that it will enter the packaged food market in August 2022 with a line of traditional snacks and spices.
  • The most prestigious Italian Maison de Couture will arrive in India in July 2022 thanks to a partnership between Reliance Brands Limited (RBL) and Maison Valentino.
  • In order to improve the state of the Indian toy industry, Reliance Brands Limited signed a joint venture agreement with plastic legno spa in June of 2022.
  • Aditya Birla Group's TMRW, a Digital First 'House of Brands' endeavor in the Fashion & Lifestyle sector, will formally launch in June 2022.
  • In May 2022, Reliance Brands Limited (RBL) entered into a partnership with Tod's S.P.A., the renowned Italian luxury brand, to serve as the brand's official retailer in the Indian market for all product categories, including footwear, handbags, and accessories.
  • Wipro Consumer Care opened their manufacturing in Telangana in April 2022. It made an investment in a cutting-edge soap finishing line, which can produce 700 Nos. of soap per minute at its peak pace.
  • As of March 20, 2022, the total value of digital payment transactions in FY 2021–2022 was Rs. 8,193 crore ($1.05 billion).
  • UPI transactions totaled Rs. 12.11 lakh crore (US$ 148.32 billion) in October 2022.
  • Reliance Brands acquired the present Sunglass Hut store network from DLF Brands in March 2022, along with the franchisee rights for India.
  • The number of Indian enterprises providing the retail sector with services like digital ledgers, inventory management, payment options, and tools for logistics and fulfilment is growing. Investors invested US$ 843 million, or an additional 260% of capital, into 200 small and midsize retail technology start-ups in the first nine months of 2021.
  • The Department for Promotion of Industry and Internal Trade said in November 2021 that it is developing a regulatory compliance portal to reduce onerous compliance procedures between industries and the government.
  • As compared to the previous year, Indian shops grew by 14% in October 2021.
  • Over the past several months, a number of businesses have made investments in the Indian retail industry due to the growing demand for consumer goods across a variety of industries, including consumer electronics and home appliances.
  • Reliance announced plans to open 7-Eleven Inc. convenience outlets in India in October 2021.
  • To extend its grocery segment in the ultra-premium category, Reliance Retail opened Freshpik, a new experience gourmet food shop in India, in October 2021.
  • In order to increase its customer base, Plum, a direct-to-consumer beauty and personal care business, announced plans to open more than 50 offline locations across India (by 2023) in October 2021.
  • 10-35 stores will be added by Tanishq, Shoppers Stop, and Bestseller India in FY22 (which carries clothing from Vero Moda, ONLY, and Jack & Jones).

Government Initiatives -

To enhance the Indian retail sector, the government of India has launched a number of initiatives. The following is a list of some of them:

  • The PLI scheme for textile products, with a sanctioned financial investment of Rs. 10,683 crore (US$ 1.37 billion) over a five-year period, was approved by the government in April 2022 with the goal of improving India's manufacturing capabilities and expanding exports. With the goal of increasing the use of digital payment methods in India, the Reserve Bank of India (RBI) stated in October 2021 that it would be establishing a new framework for retail digital payments in offline mode.
  • The government of Andhra Pradesh launched its retail parks policy 2021-26 in July 2021, with a projected retail investment of Rs. 5,000 crore (US$ 674.89 million) over the following five years.
  • In an effort to allow E-commerce companies and overseas merchants to offer Made in India consumer goods, the government may amend the laws governing Foreign Direct Investment (FDI) in the food processing industry.
  • The Government of India has made it clear what is already being done by E-commerce companies operating in India by allowing 100 percent FDI in automatic channel online retail of products and services.

The Ministry of Micro, Small, and Medium-Sized Enterprises has declared that retail and wholesale businesses now qualify as MSMEs. According to the new RBI standards, the retail and wholesale sectors are eligible for priority sector financing.

In India, a growing number of large retail chains are opening stores that sell a variety of different brands. Even still, local mom-and-pop shops, street vendors, and regional chains continue to dominate this area. The Indian retail sector relies heavily on these independent stores. Yet, a sizable portion of this industry—small merchants, local craftsmen, and groceries Kirana stores—has remained outside of the modern retail space due to intrinsic logistical and financial challenges, mistrust of going online, and headaches dealing with rules, tax compliances, and administrative requirements. This has decreased the enthusiasm among small retailers and artisans to actively participate in and compete in the online market. Logistical and infrastructural costs are already high, and they have few resources to spare.

The best course of action for a diverse retail sector is to encourage the online presence of these small merchants by providing them with access to low-cost technologies and retail industry best practices. Retail stores that are currently offline will have to join the digital revolution as more customers become accustomed to making purchases online and through technology.

Growth of India's direct-to-consumer (D2C) sector, which now has over 1.35 billion potential clients across regions, is anticipated as a result of the country's expanding digital infrastructure and rising smartphone usage.

In this sense, the retail sector is seeing an increase in start-ups that, by focusing on D2C online retail and other specialized markets, are upending conventional shopping practices and improving the entire customer experience. Thus, some D2C focused start-ups are giving the FMCG giants that have controlled the Indian industry for decades a run for their money. The government can do more to support this ecosystem by lowering the regulatory burden on retailers, making it easier to get a loan, and lowering other costs associated with setting up shop.

Road Ahead -

Throughout the past two years, the COVID-19 epidemic has influenced shifts in consumer tastes, routines, and perspectives. This has a big effect on how consumers purchase and use products and services. Modern business tactics are now being used by multinational retailers to seize fresh retail prospects. Nowadays, consumers do not distinguish between offline and online channels of consumption. Large corporations are experimenting with various strategies to create seamless retail experiences that are integrated across all channels as a result. Retailers are experimenting with revenue models to enhance their consumer value proposition by using both well-established e-commerce platforms and conventional methods.

The country's e-commerce market is steadily growing. Consumers have a wide variety of things to choose from at competitive prices. The retail business is currently experiencing the biggest change ever thanks to e-commerce, and this trend is expected to last for many years to come. Businesses could use digital retail channels to increase customer reach in tier II and tier III cities while spending less on physical estate. Due to an increase in online shoppers in the nation, the online retail business in India is predicted to grow from an anticipated US$ 55 billion in 2021 to US$ 350 billion by 2030. As of 2019, only 4.7% of purchases are made online; by 2024, that number is predicted to rise to 10.7%. Yet, the long-term picture for the sector appears promising, supported by rising income, favourable demographics, the entry of foreign competitors, and increased urbanization.