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Organised retail to grow faster than GDP, says KPMG

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  • Number of department stores is estimated to grow at 24%.
  • 150 new shopping malls likely by 2008.
  • Food and beverages segment is an emerging growth area.
  • Gems and jewellery too has significant potential.
  • New Delhi , Sept. 28

    THE organised retail sector is expected to grow at a higher rate than GDP growth in the next five years driven by changing lifestyles, strong income growth and favourable demographic patterns, says a KPMG report titled `Consumer Markets in India: the next big thing?'

    The structure of retailing is developing rapidly with shopping malls becoming increasingly common in large cities, and development plans being projected at 150 new shopping malls by 2008. According to the report, the annual growth of department stores has been estimated at 24 per cent, which is faster than overall retail; and supermarkets have taken an increased share of general food and grocery trade over the last two decades.

    Disposable incomes remain concentrated in urban areas, `well-off' and affluent classes and the growing number of double-income households. However, the report reveals that the sheer size and potential of the rural segment has been underestimated. The Indian market is evolving dynamically and there is hidden consumption power in the low-income rural areas that offers considerable opportunities for organised retailers in the kind of rural territories that many companies have failed to address. The retail growth therein is expected to be double-digit if infrastructure allows the consumer companies to reach new markets at reasonable costs.

    As the market is changing fast with growth in disposable incomes, the KPMG report further reveals that the Indian consumer is emerging to be more trend-conscious with the development of modern urban lifestyles.

    Specialised retailers in segments such as consumer durables and white goods, books, music, lifestyle goods, household furnishings, furniture, healthcare & beauty, etc are developing rapidly and Indian retailing is undergoing a slow but deep-rooted shift away from total reliance on countless small family-run stores towards larger, more formal retail outlets. However, for foreign retailers willing to do business in India, concerns such as cost of retail space, FDI controls, `unorganised' sector competition, shortage of urban retail space need to be addressed, according to the KPMG report.

    It adds that the food and beverages segment is an emerging growth area. Similarly, the gems and jewellery market is a key emerging area with significant potential. While Indians continue to shop with unbranded jewellery stores, the organised sector is offering branded solutions to the demand for quality and value, as consumers move away from traditional retail settings reliant on family retailers. Gemstones and jewellery represents the most significant segment of Indian retailing, accounting for a high proportion of total retail spend, and also representing a growing global retailing operation as Indian retail chains begin to expand into high-value markets in the West Asia, Europe and the US.

    However, the distribution network in India needs to be strengthened, says the report. The large geographical spread is a problem and so are the logistics of connecting various regions.

    Mr Deepankar Sanwalka, Executive Director and Head - Consumer Markets, KPMG, India, said, "The issue is about having the necessary infrastructure and organisational support to reach and tap this market. Consumer companies are faced with various roadblocks with respect to distribution such as large geographic area, infrastructural constraints, distributor costs, fragmented market, lack of national distribution networks and lack of distribution hubs."

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