Indian Retail Sector Analysis
In this article, we are going to do a detailed analysis of retail sector in India. Indian Retail sector has gone through a considerable change in size, scope and complexity of retailing over the last two decades.
Analysis of Retail Sector in India
- Key Growth Drivers : Indian Retail sector has emerged as one of the most dynamic and fast-growing sectors due to entry of several new players in the recent times along with rising income levels, growing aspirations, favourable demographics and easy credit availability.
- GDP Contribution : Retail sector contributes almost 10% of the India’s Gross Domestic Product (GDP). According to the latest numbers, current GDP of India is around $2.5 Trillion. So, its 10% contribution means, almost $250 Billion are contributed from this sector per annum.
- Employment Contribution : As far as total employment in the country is considered, around 8% of the total employment is contributed by retail sector. So, we can clearly have an idea that this sector is very important for Indian economy in current scenario.
- Valuation : The current total valuation of the retail sector is almost $900 Billion, which includes unorganised, organised and E-Tail. Still very few retail players are listed.
- Globally, India is fourth-largest global destination in the retail space after US, China and Japan.
Contribution of 3 heads to Total Retail Market in India
- Unorganised Retail : Currently, the Indian retail market continues to be dominated by the unorganised retail (traditional kirana stores) accounting for about 88% of the total retail market.
- Organised Retail : On the otherhand, organised retail like Big Bazar, D’Mart, Malls, Showrooms etc, is contributing only about 9% of the total retail market.
- E-Tail : E-Tail like Flipcart, Amazon, Big Basket etc, accounts for only 3% of the total retail market in India.
2.Segment-wise Revenue Mix in Organised Retail
- Within organized retail, food & beverage holds around 65% of the revenue.
- While apparel and footwear contributions is 10%. We have covered detailed analysis of Bata and Relaxo in our stock analysis for stock subscribers.
- Consumer Durables and Jewellery & accessories are contributing 9% and 7% respectively.
- Health & Entertainment, Home Décor & Furnishings, Beauty & Personal Care contribute around 4%, 3% and 2% respectiely to the otal organised retail market.
- India’s organised retail penetration is much lower compared with other countries, such as the United States which has organised retail sector penetration of 85%. This can indicate the scope of the future growth of the organised retail in India.
- Also, according to the government’s expectation, overall indian retail sector is expected to grow around 9-10% every year for the next 5 years. The valuation of Indian Retail sector is estimated to reach up to $1.15 Trillion in next 2 years, according to the Ministry of Commerce.
- The Indian retail sector will be able to achieve the above mentioned growth of 9-10% per annum, through the expansion of organised retail only. That is the reason why big retail players like Avenue Supermarts, Reliance retail is expected to be at a much premium valuation.
- With the improvement in the market share of total organised and E-Tail, the overall retail sector can attain the 9-10% growth and thus, reach to the projected numbers in next 2-3 years.
- Organised Retail’s contribution to the overall Indian retail is expected to improve to 12-15% from 9% currently.
- The proprietors (unorganised retail) tend have the inertia to resist for the changes like implementation of GST Law etc. While the businessman (organised retail) try to adopt the changes as early as possible so as to take the first mover advantage. Also, with the availabilty of advanced technology, talent pool etc the operational efficiency in the organised retail players can be improved considerably. Thus, higher double digit numbers can be achieved by organised players for their overall profitability and net profits growth.
- So, for the same reason, organised retail players like Avenue Supertmarts, Reliance Retail through Reliance Industries, Future Retail are the stocks with a very positive growth path in future.
- Thus, with the expansion in the market share of organised retail, Indian Retail sector will achieve the estimated projections in next 2-3 years.
- Improving economy, changing demographic profile, increasing disposable incomes in hands of the middle class, brand awareness and growing urbanization along with rising discretionary spends are the main growth drivers in the organized retail market in India.