Q1 2010 India OrganiSed retail Market RESEARKnightFrank.co.in CH Diagnosis & Outlook Q1 2010 India OrganiSed ReTAILMarket Diagnosis & Outlook Knight Frank HIGHLIGHTS ! During 2010-12, 55 mn.sq.ft. of retail space will be ready in 7 major cities ! Between 2010 and 2012, the organised retail real estate stock will more than double from the existing 41 mn.sq.ft. to 95 mn.sq.ft. ! About 20% or 8 mn.sq.ft. of mall space is vacant ! During 2009-12, the Organised Retail Market will grow at a rate of 31% p.a. ! Between 2010-12, a higher pace of real estate development in comparison to the pace of organised retail market growth, will create an oversupply situation to the magnitude of 21 mn.sq.ft. in 2012 Q1 2010 India OrganiSed retail Market KnightFrank.co.in Diagnosis & Outlook table of contents 1. Editorial..............................1 2. National Capital Region (NCR) . 5 3. Mumbai..............................17 4. Pune.................................27 5. Bengaluru.............................34 6. Hyderabad............................44 7. Chennai..............................53 8. Kolkata...............................62 9. Case Study............................72 Mumbai..............................72 Bengaluru.............................77 Q1 2010 India OrganiSed retail Market KnightFrank.co.in Diagnosis & Outlook table of contents 1. Editorial..............................1 2. National Capital Region (NCR) . 5 3. Mumbai..............................17 4. Pune.................................27 5. Bengaluru.............................34 6. Hyderabad............................44 7. Chennai..............................53 8. Kolkata...............................62 9. Case Study............................72 Mumbai..............................72 Bengaluru.............................77 Q1 2010 India OrganiSed retail Market KnightFrank.co.in Diagnosis & Outlook In line with India's economic growth, the retail sector in this country is As per various literature, the projected annual growth rate of this maintain occupancies. Revenue sharing models are based on the EDITORIAL not only expanding but also modernizing. This new trend began during segment of the retail market till 2013 is slated to be over 30 per cent. premise that rent paid is linked to store performance. Some retailers late 1990s and early 2000s. In the midst of the unorganised retail As a result, its share in total retail market is expected to be around 11 are also attempting to negotiate a combination of zero rentals and In the initial years of the current decade, the Indian economy sector's strong dominance, some of the major industrial houses have per cent by 2013. On the flip side, concerns have been raised that the revenue sharing agreements, whereby a period of zero rentals will be witnessed a sub 5 per cent annual growth rate and as a result, the entered into this sector and have announced ambitious future growth of modern retail will have an adverse impact on retailers in the followed by revenue sharing for a duration until sales volumes begin to private consumption expenditure and retail sales clocked an annual expansion plans. Transnational corporations have also joined hands unorganised sector. However, a recent study (2008) undertaken by the rise again. Another variant that is increasingly gaining importance is average growth rate of only 4 per cent and 4.8 per cent respectively with big Indian companies to set up retail chains. India's Bharti group Indian Council for Research on International Economic Relations revenue sharing with a minimum guarantee from the retailer's side. during 2000-01 to 2002-03. However, there was a smart pick up of the joined hands with Walmart, the world's largest retailer and Tata group (ICRIER) and commissioned by Department of Industrial Promotion and In addition to the short-term measure of renegotiating rent, retailers economy during 2003-4 to 2007-08 and the average annual GDP tied up with the UK based Tesco, the world's third largest retail group. Policy (DIPP), Ministry of Commerce & Industry, Government of India are also looking at long-term initiatives in order to trim costs and growth rate was recorded at 8.9 per cent. Once the economy attained has shown that there would be a positive sum game in the retail sector A perceptible structural change towards an organised format is diversify risk. Certain national brands have started exploring relatively high momentum, the Indian retail trade witnessed a robust growth of in India where both organised and unorganised retail segments not foreseeable in the retail sector. These organised and modern retail untapped or growing segments in order to diversify their range of around 11 per cent during this period. The upsurge witnessed during only coexist but also grow substantially in size. As a result, it is formats generally consist of supermarkets/convenience stores, products. Consolidation of operations by reducing number of outlets is 2003 to 2007 was contained during the last two years because of the expected that a positive environment is likely to be prevalent in the hypermarkets, discount stores, speciality stores and departmental also another strategy adopted by several retailers to beat the adverse economic meltdown. Of late, signs of economic recovery are observed economy which would take the organised retail on a high growth stores. These outlets are usually chain stores, all owned or franchised consequence of oversupply created during the boom time. which is likely to put the retail trade in India again on a reasonably trajectory. by a central entity or a single store large enough to form a part of the high growth trajectory. Figure 2 Once the phase of control and consolidation is over, significant new modern retail segment. The existence of these modern retail outlets are Figure 1 trends could well begin to emerge across the board. Retailers are generally found in malls and prominent highstreets across various Distribution of Upcoming Supply during 2010-12 Retail Stock & Vacancy expected to shift focus to food and related items, rather than lifestyle 20 30% cities. Mumbai - 21% goods. In addition to this, Tier I and Tier II cities could become more 18 17.8 As discussed earlier, the retail market in India is primarily unorganised Bengaluru - 11% attractive propositions for developers and retailers due to lower rentals 25% 16 and the penetration of modern retail is very minimal. This is in contrast Kolkata - 9% and operating costs and high growth in population. 14 Chennai - 14% 20% to the trend in developed economies of USA, UK, France and Germany Hyderabad - 7% . 12 t where organised retail is in the range of 75-80 per cent. As per the data f . Objective of the Study q Pune - 9% s . 10 15% released by ICI, organised retail market size was to the tune of n 8.73 m NCR - 29% In the context of sustainable growth, it has to be noted that there 8 US$12.1bn in 2006, accounting for 4.6 per cent of the total retail 10% needs to be a convergence between demand and supply. The demand 6 segment. The late diffusion and low share of modern retail is mainly attributable to the severe restrictions on foreign direct investment (FDI) for organised retail market is captured through the consumer base and 4 3.82 3.37 3.05 5% 2.77 for retailing in our country till end of 2005. The demand side Source: Knight Frank Research its spending towards consumer items like food and related items, 2 1.16 characteristics such as moderately high economic growth, ever- FMCG, consumer durables and clothing and footwear. Malls and other 0 0% i i Recent Dynamics of Organised Retailing organised retail space represent the supply side. In an efficient market, e a d u R a a t r a n expanding middle and upper class consumer base, high urbanization C n b a u u b l N k n l m a P a e r the supply of organised retail space keeps a balance with the existing o u g h e rate, increasing share of women in workforce and greater availability of The economic meltdown of 2008 and 2009 has brought in some K n M C d e y B H personal credit were definitely favourable for a greater penetration of important alterations in the organised retail market in India. consumer market and its future growth. Otherwise, the situation of Stock Vacancy over and under supply will prevail. At the city level and also at the zone Source: Knight Frank Research modern retail in the economy. In January 2006, India allowed foreign During the boom period, prior to the downturn, the outlook for this sector exuded confidence. Lots of developers announced their level within a city, the under and over supply situations crop up Indian Retail Market companies to own up to 51 per cent in single-brand retail joint ventures (JVs) and as a result the organised retail in India got a boost. Though forays into mall development and the penetration of modern retail primarily because of the demand and supply mismatch. However, at The retail sector in India is highly fragmented and mostly owner-run multiple-brand foreign firms are still barred in retail, they can set up was expected to grow at a phenomenal rate. However, as a result the mall level, micro-market and mall specific factors may also play “Mom and Pop” outlets. The entire sector is dominated by small wholesale operations. The growth in organised retailing in the present of the economic slowdown in the last couple of years, bullish important roles in creating this mismatch. retailers consisting of local Kirana shops, general stores, footwear and decade may be gauged by the rise in number of shopping malls. In sentiments have given way to the much needed cautious and In view of the above, Knight Frank research has carried out this study to apparel shops, hand-cart hawkers and pavement vendors. These 1999, India had just 3 shopping malls measuring around 1 mn.sq.ft.