March 8, 2018

Retail Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

Retail Industry Analysis

Must know facts:

  • Retail industry is witnessing a revolution as many new format markets like hypermarkets, supermarkets, departmental stores have made their way in the market.
  • Retail industry is the largest among all industries accounting to 10 per cent of the country GDP and employs around 8 per cent of the workforce.
  • Indian Retail Industry has immense potential as India has the second largest population with affluent middle class, rapid urbanisation and solid growth of internet.

 

Influencing Factors for price change:

  1. Individual stocks in retail sector are best judged when benchmarked against – ‘NIFTY FMCG’, ‘NIFTY CONSUMPTION’ indices.
  2. Rural spend Data – Rural markets show high growth potential if tapped with the right set of products and pricing. With increasing investments in infrastructure, connectivity to such towns is now becoming easier. This helps the retailer to increase reach in such high potential markets.
  3. The private label space in the organised Indian retail industry has begun experiencing an increased level of activity.
  4. The high cost of real estate, deep discounting from e-tailers, non-availability of skilled labor in rural market are a few challenges that may hinder the growth of retail industry. Innovative concepts and model shall survive the test of time and investment.

 

Understanding the Industry:

Retail industry in India is undoubtingly one of the fastest growing retail industry in the world. It is the largest among all industries accounting to 10 per cent of the country GDP and employs around 8 per cent of the workforce. India has seen a drastic shopping revolution in terms of format and consumer buying behaviour. From shopping centers to multi-storied malls to huge complexes offering shopping, entertainment and food all under one roof and it is because of this trend that the retail industry is witnessing a revolution as many new format markets like hypermarkets, supermarkets, departmental stores have made their way in the market.

India has also been world’s top sourcing destination in 2016-17 and the share in this category is 55 per cent. In India, a major chunk of the middle class and also the untapped market of retail is an attractive force for all the retail giants from across the globe. Our working population with a median age of 24 years, along with emerging opportunities in the retail sector is one of the major factors of the growth in the retail industry of India. As many new businessmen are entering the industry, there is expected to be a growth in the retail sector.

The retail industry is mainly divided into Organised and Unorganised Retailing. Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.

Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

Given this picture, the total retail industry is estimated at occupying 9 lakh crore of space which the organized sector accounts for a mere 9 per cent indicating a huge potential market opportunity that is lying in the waiting for the consumer-savvy organized retailer. Today, the organized players have ventured into each and every retail category.

 

Estimated Market Size:

India’s retail market is expected to increase by 60 per cent to reach US$ 1.1 trillion by 2020, on the back of factors like rising incomes and lifestyle changes by middle class and increased digital connectivity. While the overall retail market is expected to grow at 12 per cent per annum, modern trade would expand twice as fast at 20 per cent per annum and traditional trade at 10 per cent. Indian retail market is divided into “Organised Retail Market” which is valued at $60 billion which is only 9 per cent of the total sector and “Unorganised Retail Market constitutes the rest 91 per cent of the sector.

India’s Business to Business (B2B) e-commerce market is expected to reach US$ 700 billion by 2020, as per CII (Confederation of Indian Industry). Online retail is expected to be at par with the physical stores in the next five years and has grown 23 per cent to $17.8 billion in 2017.

 

Road Ahead:

Due to the large scope of business and high growth potential, India is attracting investors across the globe. In FDI Confidence Index, India ranks 8th (after U.S., Germany, China, UK, Canada, Japan, and France).

There has been an increase in purchasing power of the consumer due to easy availability of credit which has given a push to higher value items and encouraged repeated purchases. There has been a clear shift in consumer mindset in buying. They are more educated and well informed. They have become more experimenting and are willing to try and buy products which they haven’t been used as yet. The expansion of middle class has led to higher purchases of luxury products and brand consciousness. Significant growth in discretionary income and changing lifestyles are among the major growth drivers of Indian retail industry.

With GST taking its shape, it has helped the retailers simplify its tax structure. This will lead to better supply chain structure, better cash flows, pricing, and profitability.

 

Top Stocks in the industry:

Avenue Supermart, Future Retail, Trent, Aditya Birla fashions, Future Life, V-Mart Retails & many more.

(Please note above stocks are not recommendations, they are purely for information purpose only)

 

Information Source / References: IBEF, The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,

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