The year 2016 had just begun!! It’s hard to believe that the year just passed by. 2016 was a milestone year in a lot many ways. Here’s a look at how the retail industry fared in 2016…
E-commerce took over the fancy of Indian shoppers in 2016. Online shopping/ retail/ e-commerce witnessed a rapid growth this year. Brands made it a point to have an online presence as did market place players, expanding their horizon. Players catering to niche categories launched stores online, though not many of them passed the survival test.
Brick-and-mortar retail witnessed a steady growth. International brands like H&M took the Indian shoppers by storm.
Malls and shopping centers refurbished themselves to pull in more footfalls with a good dose of entertainment and leisure options. Players like nearbuy.com helped them by offering heavy discounts and offers.
The beauty and wellness industry too saw a lot of activity this year. A majority of malls in India have names like Juice, Thai Spa, Enrich – to name a few – offering spa services.
Home services also caught the fancy of many on both the sides of the table – retailers and consumers alike – with the space expected to grow at a CAGR of 8 per cent to reach US $5.29 billion by 2018.
The Recession
The major spoilsport last year for retail came on November 8, when the Government of India pulled high denomination currency notes – Rs 500 and Rs 1,000 – out of circulation with immediate effect. the Government also capped the daily withdrawal limit for citizens from banks.
Citing the changing dynamics of retail industry in India, Chief Marketing Officer, Payback India, Gaurav Khurana said, “The Indian retail industry has gradually evolved from product-focused to a more consumer-centric approach. The growth story is moving beyond the urban centres. India continues to be one of the more attractive destinations for international retailers and with the new relaxation in FDI norms, the sector is witnessing positive sentiments from global brands and investors. Moreover, with the revised regulatory guidelines like GST, ease of going business initiatives from the Government, the retail sector is poised at an high growth trajectory and may see long-term benefits. I look forward to the continued momentum in the economic growth eventually helping the retail sector experience improvement in consumer sentiment.”
Government Initiatives in 2016
According to India Brand Equity Foundation, the major initiatives undertaken by the Government of India to boost retail in India this year are:-
• GoI has allowed 100 per cent Foreign Direct Investment (FDI) in online retail of goods and services through the automatic route, thereby providing clarity on the existing businesses of e-commerce companies operating in India
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• The Government of Andhra Pradesh signed pacts worth Rs 1,500 crore (US $222.36 million) in a wide range of sectors including retail and steel and gas with Walmart India, Future Group, Arvind Lifestyle Brands Ltd and Spencer’s Retail, during the Partnership Summit in Visakhapatnam, while also unveiling a retail policy aimed to attract retail businesses to invest in the state
READ MORE: Chandrababu Naidu all for creating social spaces with an integrated shopping experience
• The Ministry of Urban Development has come out with a Smart National Common Mobility Card (NCMC) model to enable seamless travel by metros and other transport systems across the country, as well as retail purchases
• IKEA, the world’s largest furniture retailer, bought its first piece of land in India in Hyderabad, the joint capital of Telangana and Andhra Pradesh, for building a retail store. IKEA’s retail outlets have a standard design and each location entails an investment of around Rs 500 – Rs 600 crore (US $74–89 million)
READ MORE: All you wanted to know about IKEA’s much-awaited entry into India
• The Government of India has accepted the changes proposed by Rajya Sabha select committee to the bill introducing Goods and Services Tax (GST). Implementation of GST is expected to enable easier movement of goods across the country, thereby improving retail operations for pan-India retailers
MUST READ: Introduction of GST: A perspective for the retail sector
• The Government has approved a proposal to scrap the distinctions among different types of overseas investments by shifting to a single composite limit, which means portfolio investment up to 49 per cent will not require Government approval nor will it have to comply with sectoral conditions as long as it does not result in a transfer of ownership and/or control of Indian entities to foreigners. As a result, foreign investments are expected to increase, especially in the attractive retail sector.
Putting Things Into Perspective
President (West), The Phoenix Mills Limited, Rajendra Kalkar says: “The year 2016 was a fantastic year for Indian retail. The industry opened its arms to many popular and large international players like H&M, Coach, Forever 21 etc. Consumers acceptance to international brands and international fashion has also been forthcoming. People are more aware of fashion trends and are willing to spend more for better brands. The opening up of FDI in retail this year has also been a good thing and its only going to boost retail in India. With a good monsoon this year and a great festive season further boosted the retail industry. Yes, demonetization did see a knee-jerk reaction in the economy for a week or two but now things are back to normal. Christmas the season of shopping and gifting saw shoppers galore at the malls. Technology is paving the way for the future in retail and rightly so…its good to see a lot of brands embracing technology making shopping convenient, simple and fast.”
According to Director, Phoenix Market City, Pune, Rajiv Malla, “Consumers’ exposure to global fashion platforms, evolving lifestyle and improved spending capacity has definitely redefined the country’s retail scenario in last few years, placing India among an important retail market for global retailers both in the offline and e-tailing space. With this kind of sentiments and dynamism that is present, the retail industry in the year 2016 witnessed a substantial growth. Many international brands were seen setting up shops and expanding operations in India, especially in cities like Mumbai, Delhi-NCR, Bangalore and Pune.”
CEO, Ishanya, Mahesh M shares, “21st century is driven by growth especially in the organised sector and an exponential growth in personal consumption due to various factors, namely, increasing exposure to global brands, dynamic changes from joint families to nuclear families on account of job migration and rising incomes. I feel this trend will encourage retailers to drive more focus towards customer-centric initiatives and programs. Efforts on achieving Omnichannel customer experience has been rampant this year and concrete steps in this direction will make shopping experiences more holistic and fruitful for the consumers leading to a flourishing retail business.”
MD, Godrej Consumer Products Limited, Vivek Gambhir says, “Overall, 2016 was a lack lustre year for the FMCG sector. We did see some recovery in growth, with growth inching up to low single digits. However, given the low penetration and consumption rates in India, we witnessed far lower growth than the significant potential of the sector.”
According to him, in 2017, once GST gets implemented, it will help the economy grow faster. It is a transformative structural reform, both for the economy and how we do business, and will be a real game changer.”
Moving over the dynamics as witnessed in the wellness industry, according to Founder and MD – O2 Spa, Ritesh Mastipuram, “In 2016, the industry witnessed very positive demand and growth both from an employment perspective as well as from a customer point of view. This awareness and growth especially is on the rise as the concept of health and well-being is now a much growing concern and influencer in deciding the way individuals plan their lives.”
Giving a gist of 2016, Chairman and MD of Technopak, Arvind K. Singhal, unveils, “Calendar year 2016 turned out to be a good one both for brands and for retailers, barring a few exceptions. The economy has grown well, the inflation has been lower than it was in 2015, a relatively good monsoon has given some boost to rural consumer spending, and after the shock of demonetization in November 2016, it seems that consumer spending has already come back on track by the latter half of December.”
Talking about Retail Real Estate, Ex-Chairman and Country Head, JLL India, Anuj Puri, says,”As a landmark year for the country – and the real estate industry – draws to a close, it’s time to analyze what happened in 2016 and what to expect in 2017. For the real estate industry, 2016 saw the biggest changes in decades, especially on the policy front. Some of the biggest game -changing policies like GST and RERA cleared hurdles, and are on their way to full implementation.”
Demonetization and the Effect
The domestic consumption story was impacted by demonetization in the last two months of 2016. It led to a 25 per cent hit being taken by retailers, especially in the Tier-II, III cities, where the volume of cash transactions is higher. Business is expected to normalize from 2Q17, unless a new policy is announced. GST’s implementation, if well-planned, will prove to be very beneficial to the retail sector. However, if GST’s implementation is poor, it could result in chaos and affect consumption again. Retailers would get intensely involved in sorting out the issues that would ensue with a poorly-planned GST rollout, and thereby lose focus on their core business.
Malla shares, “In last two months the retail industry witnessed a minor dip around 5 per cent in the footfall and close to 7-8 per cent in the overall business owing to Government’s demonetization initiative. Though things are getting back to normalcy with circulation of newer currency notes in the system and we anticipate the Indian retail industry to be robust and growth oriented in the long-run.
The demonetization move caused considerable turmoil; however, along with the Benami Transactions Act, it promises to bring greater transparency in the real estate sector.
Mastipuram shares his experience post the demonetization move, “Demonetization has had very little to no impact on the overall business and industry. Just the percentage of transaction in cash has come down from 38 per cent to under 9 per cent but the same percentage has gone up in the card business.” This is acceptable considering spas are still not on the necessity list of an average Indian middle class and majority of the spa users happen to be card users as well.
Gambhir shares, “While rural consumers are most affected by the current cash crunch, once the liquidity situation improves, we will see much stronger growth from rural India. The impact of a good harvest should help grow the rural economy. The Government’s initiatives towards investing in rural infrastructure should provide additional impetus for growth. We also expect consumers to become more value conscious. They will seek good quality products with great design and packaging. And all of it at reasonable prices. Brands will need to rethink their price-value equation and become more inclusive.”
The major spoilsport this year for retail came on November 8, when the Government of India pulled high denomination currency notes - Rs 500 and Rs 1,000 - out of circulation with immediate effect
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