Rising Lifestyle Spend To Boost Retail Sector  ( October '4,2003, FE)

Organised retailing may constitute just two per cent of the entire retailing activity in India. But rising income levels, a large young population, increased exposure to media and global standards have created aspirations and expectations which augurs well for organised retail.

Industry players opine that the feel-good factor is reflected in organised retail as globalisation of the Indian economy has led to a rise in lifestyle spending amongst Indians.

BS Nagesh, managing director and CEO, Shoppers Stop Ltd, expects the quarter from October to December to be good for retail. “Positive GDP growth, drop in savings rate, media and peer pressure to look good and feel good and change in the lifestyle is increasing the consumer spend on retail,” said Mr Nagesh. He added that the increase in retail space and, therefore, better opportunity to buy various products displayed on the shelf are fuelling extra spend from the consumers.

Similar sentiments were echoed by Rakesh Malhotra, COO, Ebony Retail Holdings Ltd. He said that there is a clear shift from ‘need based’ to ‘want based’ and the current sustained growth in GDP will only add to the positive parity and help retail penetrate even in B and C class cities. “Total retail trade is estimated to be Rs 12,50,000 crore and there are more than 50 million urban households. This gives a picture of the potential of this sector,” said Mr Malhotra. He added that a big opportunity exists in the next leap in the area of apparels, home improvement, sanitary ware and ceramics, grocery, fruit juices, wines, toys, health and personal care, entertainment, fashion, jems and jewellery, electronics and white good, books and music, travel and tourism.

The positive outlook for the retail sector stems from the fact that the growth in sectors like infotech and business process outsourcing (BPO) have given rise to a large middle class population with a high disposable income. Therefore, lifestyle spending today comprises of entertainment, shopping and food. Add to that a huge young population who are more aware through increased media penetration, thereby fuelling the retail growth. “Population growth combined with an increase in disposable incomes has given a boost to the retail industry. The brand conscious urban population forms the largest segment of demand for the majority of retailers. The segment has grown 3.22 per cent per annum over the last decade, compared to the overall population growth of 2.13 per cent per annum. Further, over the past decade, consumer spending has increased at an average of 11.5 per cent per annum,” stated a Knight Frank India retail review for the third quarter 2003.

In fact, both Fitch Ratings India and Knight Frank has stated that organised retailing will grow from the present two per cent and capture around 20 per cent market share by the year 2010. The smaller towns and cities will also witness the retail sweep which is at present restricted largely to class A cities. The spread of BPO into smaller towns and cities will also lead to change in the lifestyle spends in these cities as the population will have more disposable income to spend on entertainment, shopping and food. “The growth of organised retail will be not only through increased level of penetration in larger towns and metros but also due to the spread into smaller cities and B class towns. According to estimates, close to 25 million square feet of retail space is being developed and will be available for occupation in the next 36-48 months,” said the Fitch Ratings report on India - retailing.

However, impediments exists which industry players feel could hamper the growth witnessed in the last two years. Mr Nagesh said that the players in order to keep the momentum will have to ensure that their backend systems, information technology and logistics infrastructure is in shape to gear up for the surge in retail spend and opening up of opportunities. On a macro level, lack of FDI status, multiplicity and complexity of taxes, lack of proper infrastructure and high cost of real estate are the impediments to the growth of retail. “Lack of FDI status has limited capital investments in supply chain infrastructure, which is a key for development. It has also constrained access to world class retail practices,” stated the Fitch report.