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Best bet for retail chains

09-July-2005
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Best bet for retail chains

India's retail is the second largest untapped market after China.

India represents the most compelling international investment opportunity for mass merchants and food retailers looking to expand overseas, according to management consultancy firm AT Kearney.

Retailers that missed the opportunity to capture the first-mover advantage in China, it said, could make up for it in India.

At the moment, India does not allow foreign direct investment in the retail sector.

According to AT Kearney’s annual global retail development index for 2005—an annual study of retail investment attractiveness among 30 emerging markets—released today, India displaced Russia to move from the second place to the first.

Ukraine, China, Slovenia, Latvia, Croatia, Vietnam, Turkey and Slovakia—in that order—made up the rest of the top 10. Pakistan was ranked 30th.

“Driving India’s move was a greatly improved investment climate due to the recent relaxation of direct ownership restrictions on foreign retailers,” said the report.

India’s retail market, totalling $330 billion, is vastly under-served and has grown at an average rate of 10 per cent during the last five years. It is also one of the most fragmented retail markets in the world— the combined market share of the top five retailers totals less than 2 per cent.

“The message for retailers on India is clear: move now or forego prime locations and market positions that will become saturated quickly,” AT Kearney Vice-President Mike Moriarty was quoted as saying in the report.

Most of the growth in India, it said, would be in food and apparel. Indian consumers spend 45 per cent of their money on food and grocery and this category is the way to go for retailers to attract consumers initially.

The apparel industry is another promising sector. The industry is expected to grow 4-5 per cent a year in volume and 13 per cent in value.

The firm said global retailers such as Wal-Mart, Carrefour, Tesco and Casino would take advantage of the more favourable FDI rules and enter India through partnerships with local retailers. Others as Marks & Spencer and Benetton, currently operating through a franchise model, will most likely switch to a hybrid ownership structure.

To gear up for competition from overseas, Indian retailers such as Pantaloon, Westside and Big Bazaar would also look to increase scale and enhance logistics and supporting technology, said the firm.

Most of the growth in India, it said, would be in food and apparel. Indian consumers spend 45 per cent of their money on food and grocery and this category is the way to go for retailers to attract consumers initially.

The apparel industry is another promising sector. The industry is expected to grow 4-5 per cent a year in volume and 13 per cent in value.

The branded apparel market is the largest source of growth with both men's and women's branded segment growing at over 22 per cent every year.

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