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With the economy growing at more than 9% annually and the resulting
improvements in income dynamics along with factors like favorable demographics
and spending patterns, India is not only witnessing an unprecedented consumption
boom but has also harnessed the confidence of the masses around the world. This
consumption boom has given a major fillip to the Indian retail sector which is
expected to grow exponentially for the next five years. The sector is expected
to witness a golden era with expansion being the buzzword.
Indian retail is ranked among the ten largest retail markets in the world.
The attitudinal shift of the Indian consumer in terms of Choice Preference,
Value for Money, Ease of Shopping and the emergence of organized retail
formats has transformed the face of retailing in India. In the last few years,
Indians have gone through a dramatic transformation in lifestyle by moving from
traditional spending on food, groceries, and clothing to lifestyle categories
that deliver better quality, convenience, and taste. Modern retailing satisfies
the rising demand for such goods and services with many players entering the
bandwagon in an attempt to tap the large opportunities present in the sector.
The Number Game
Retail sales in India contribute around 34% of the countrys GDP and 7% of
total employment. The total retail market in India, in 2006, stood at Rs
1,557,000 crore, which is expected to grow at a CAGR of 28% over the next five
years. But the grey area for the industry is that around 97% of the industry is
unorganized, with only about 3% being managed by the organized players. The good
news though is that organized retailing is expected to grow at a CAGR of 36.7%
for 2006-2011. To capture a share of this retail pie are the existing players
who are quickly ramping up spaces and announcing ambitious expansion plans.
Then, on the other hand, are the new players who are rapidly testing and rolling
out new formats in the country.
In the near future, the organized retail activity will be restricted to urban
and semi-urban India only. Due to the urban-rural divide, organized retail will
grow in the metros and larger cities first, followed by the rural and semi-rural
areas. Thus, India will witness multiple stages of growth of retailing.
Key Drivers
The key factors favoring the growth of retail in India are rising disposable
incomes, increasing movement toward urbanization, and increasing choice for ease
and convenience. There is also a pull effect coming directly from consumers,
who are getting more demanding in terms of better quality and improved services
and products. Thus, Indian retail is likely to see the advent of phenomena like
e-tailing, tele-retailing, increased franchising, mall culture, and rural and
tier-2 retailing. The segments that are expected to grow at significant rates
are food and grocery, clothing, furniture and fixtures, durables, footwear,
leather, and jewelry.
IT all the Way
Increasingly, the retail industry, especially organized retailing, is
realizing the importance of information technology. That it will bring about
process improvements, which would result in greater operating efficiencies and
hence, increased profits. But, the awareness of whats available is low among
the retailers in India, resulting in poor decision-making and poor selection of
IT products and solutions.
The IT market in retail and wholesale, for 2006, was Rs 771 crore, accounting
for a mere 1.25% of the total domestic IT spending in India. But, recording a
year-on-year growth of 23.9% (full year 2006 over full year 2005) according to a
recent IDC report (India Retail Sector IT Usage and Trends 2007-2011: Forecast
and Analysis). This is forecasted to grow at a CAGR of 32.5% for the period of
2006-2011. Retail is one of the very few sectors in India wherein the growth
rate of IT deployment is higher than that of the growth rate of the sector
itself.
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| IT is forming the backbone of
strategies for offering competitive pricing, and yet, a robust bottomline
through improved management of stores and improved customer experience |
IT in the retail is under different phases of implementation depending upon
the type of retailer. While most large retailers are still revamping their
network infrastructure and ERP deployments, the mid-sized ones have deployed
standard solutions like Retail Pro, SAP IS Retail and Retek. On the other hand,
the small retailers have gone for customized point-of-sale solutions. Thus, the
sector has solutions ranging from simple point-of-sale (PoS) systems to complex
retail ERPs.
The demand for IT solutions will not only vary according to the size of the
retailer but will also be phased as per the time span. In the short term,
emphasis will be on using the existing IT resources to generate more
information. At this stage, retailers plan to leverage gains from their IT
investments. One way of this is to have information about customers and devise
ways to get repeat business from existing customers, apart from adding new
clientele. In order to do this, the retailers are deploying customer
relationship management (CRM) and online analytical processing (OLAP) software
to run on top of their existing databases.
In the span of the next 2-3 years, the retailers will mainly focus on
expansion of their outlets and establishing the IT infrastructure. But in the
longer term, they will look to eliminate the non-value adding activities and
will replace them with efficient systems and procedures. They will recognize and
appreciate the efficient implementation of the revised systems and procedures in
terms of computer systems, hardware, software and networking better. This will
be the time when technologies like RFID and business intelligence will start
taking precedence in IT deployments of the retailers.
Also, most of the applications being deployed by retailers in India are not
integrated. There are only a few standalone IT deployments in the areas of
supply chain management, vendor development, merchandising and inventory
management. In the coming years, Indian retailers are planning to revamp their
current IT systems in a big way and will focus more on integration and
networking.
IT as Business Partner
The role of IT in the Indian retail sector is defined as that of a business
partner. There is complete awareness at the top about the potential of IT to
facilitate the fulfillment of business objectives. Thus, it is imperative for
vendors to understand the need of retailers, as per the time span and their
size, who are going aggressive on expansion of their outlets. The IT vendors
need to work as facilitators for the exponential growth of the sector and advise
the retailers on products they need for automation, integration and
consolidation. They should also suggest ways on how the new technologies should
be adopted by the players. To gain competitive advantage, they should look for
partnership arrangements with the retailers and offer them the collaborative
technologies that will help them in unifying, integrating and networking their
outlets to reach and offer their customers choice, ease and convenience while
shopping.
Parishesh Mishra and Arpan Gupta,
Industry Verticals Research Practice, IDC India Page(s) 1
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