Improved investment climate and a more liberal foreign direct investment regime have made India the top destination for global retail giants like Wal-Mart, Benetton and Tesco, which are looking to expand overseas, international management consulting firm A T Kearney said on Friday.
India displaced Russia to move from second place to first in the 2005 Global Retail Development Index released by AT Kearney. The Index is a study of retail investment attractiveness among 30 emerging markets across the globe.
The country's retail market totalling $330 billion is vastly underserved and has grown by 10 per cent on average over the past 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 two per cent.
India's ranking was driven by an improved investment climate due to the recent relaxation of direct ownership restrictions on foreign retailers, it said.
"The message for retailers on India is clear: move now or forego prime locations and market positions that will become saturated quickly," A T Kearney vice president Mike Moriarty said, adding retailers that missed opportunities to capture first-mover advantage in China can make up for it in India.
A T Kearney anticipated that global retailers such as Wal-Mart, Carrefour, Tesco and Casino will take advantage of the more favourable FDI rules and enter India through partnerships with local retailers. Other retailers such as Marks & Spencer and Benetton Group, who are 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 will also look to increase scale and enhance logistics and supporting technology, AT Kearney said.
India and Russia are followed by Ukraine, China, Slovenia, Latvia, Croatia, Vietnam, Turkey and Slovakia among the top ten destinations for a retail foray. Neighbouring Pakistan was ranked 30th on the list.
AT Kearney said most of the growth in India would be in food and apparel sectors. 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 consulting firm said, adding 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, it said.
The global consulting firm said the time to secure the early-mover advantage in India would soon run out. In the next year or so, easing of government regulations and more liberal economic terms would provide international players easier access to India's retail market, it said.
Despite advantages, however, A T Kearney cautioned that global retailers might have to face some glitches in India. High taxes, poor infrastructure, bureaucratic hurdles and high cost of real estate are some of the challenges that multinationals would have to tackle in the country, it added.