Organized stores to capture 25% of retail revenues by 2011: study

Organized stores to capture 25% of retail revenues by 2011: study

Mumbai: In a surprise finding that organized retail is growing faster than expected in India, a study has forecast that this segment could account for a quarter of the total retail revenues by 2011 from the current 8% share. The study has been done by accounting firm Deloitte India.

India’s retail industry, both organized and unorganized, is worth $295 billion (Rs12.3 trillion) at present.

A February study by Mumbai-based brokerage Edelweiss Capital had said that organized retail would form 15% of the retail sales by March 2011 from 4.1% now. But Deloitte’s study says that organized retail grew at a scorching pace in 2007, going to 8% of total retail sales from 5% in 2006.

New stores, more spending power and access to credit had led to organized retail’s 50% growth in 2007, said Shyamak Tata, partner at Deloitte who did the research.

Several large retailers including US-based Wal-Mart Stores Inc. and UK’s Marks and Spencer Plc. have announced plans for the Indian market, spurred by this explosive growth. But organized retail’s march has been checked to some extent by protests from India’s small retailers, who form the backbone of retail in India—in the dominantly unorganized sector.

They argue that large retailers would gain market share at their expense.

Some retailers scaled back plans in the face of opposition from small retailers and legislation in some states thatlarge retailers would have to pay a tax on food and grocery sold in their stores or a share in their profits. But Deloitte’s estimates suggest that organized retail is still setto explode.

Deloitte’s estimates, to be released at a retail conference on Thursday, are pegged to the amount of retail space coming up in the country.

Retailers have bought or will buy around 316 million sq. ft of retail space, several times the 68 million sq. ft of space they took up in 2006.

For this investment in space to pay off, the industry would have to grow at around 50% or so, Tata said. “If retail continues to grow at this pace, the malls will get used," he said. “If not, then rentals will get affected."

And even with the current growth, Deloitte estimates that India’s biggest cities don’t have a high density of organized retail.

There are two hypermarkets, two discount stores, two department stores, two wholesale cash and carry stores and 11 supermarkets on average in each of these cities, it says.

In 2006 and 2007, the fastest growth had come in whole-sale cash and carry stores, which grew at 150%. This was followed by supermarket stores, which doubled and hypermarkets, which grew at 75-80%.

Gibson Vedmani, chief executive of industry body Retailers Association of India, however, said, “You cannot measure growth only by space, but also match it with the value of sales in the stores. There are a lot of malls coming up and occupying them will not be an issue, but their performance may be an issue."

“Organized retail has been growing at 38-39% a year. But last year, some formats, particularly supermarkets and hypermarkets, grew very fast. Other segments such as apparel have seen steady growth," Vedmani added.