The India Boom

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.

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