The Great Indian Bazaar

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Sept. 26 – India's retail sector is estimated to grow to US$450billion by 2015, boosting the market share of organised retail from the current five percent to 14-18 per cent. A government-commissioned report valued the retail market at US$322bn last year. India's indegenious mom and pop stores, which have been battling for customers with the walmarts of the world, will be transformed during the next seven years, according to the McKinsey retail report entitled 'The Great Indian Bazaar'.

Large organised retail stores such as Ikea and Carrefour have had a tough time entering the protective retail sector in India. Most foreign retailers have managed to enter the huge Indian bazaar scene bu tying up with Indian conglomerates. Marks & Spencer recently tied up with Reliance Industries to sell clothing and homeware, while walmart signed up with the Bharti group, both entered India after several rounds of negotiations.

McKinsey identified two reasons for the cautious approach taken by big retailers. One was the deterrent effect of regulations, particularly curbs on foreign investment. Single-brand retailers, such as luxury goods chains are allowed to set up shop, but multi-brand retailers, such as Tesco and Wal-Mart, are barred from selling directly to consumers.

The other was that more "immediate" emerging markets such as China, Russia and eastern Europe had soaked up management capacity. Organised retail accounts for about 20 per cent of the retail market in China, while in Russia and Brazil its share is about 36 per cent.

"[Big international retailers] will all be here at some stage or form. But it's not clear what the regulation will be," said Ireena Vittal, one of the authors of the report. "The economic rationale for keeping foreign players out is non-existent."

The Hindu Business Line further says that McKinsey’s retail report talks about the uniqueness of the Indian shopper vis-À-vis the rest of the world: least loyal to a single retailer, dislike for pre-packaged fresh foods, willingness to pay more for convenience and services but not a premium price for a brand and demands ethnicity in apparel accessories. And, in the absence of quality control, information about the product and trust in retailers, brands serve as a proxy for all these factors.

Of the current 204 million households in India, the report estimates that only about 13 million households have the income to patronise organised retail. The great news is that this relevant consumer segment will grow five fold from 13 million to 65 million households in the next eight years but mom and pop stores would continue to be relevant across the country, in both small and large towns.