India's retail market to grow by 40%

India's retail market, currently valued at $511 billion, is poised to grow to $833 billion in the next five years, according to commercial real estate servics company CB Richard Ellis.
With the retail sector witnessing a boom, organised retail that currently accounts for less than 5 percent of the total retail market is expected to register a compounded annual growth rate of 40 percent and swell to $107 billion by 2013, a report by the company states.

To underscore the potential growth, CB Ellis quotes from a report by global consultancy AT Kearney, which says: "The consumer spending in India has increased by an impressive 75 percent in the last four years and will quadruple in the next 20 years."

Due to this increased consumer spending, the retail sector has received a thrust due to which it is experiencing an unprecedented growth.

According to CB Ellis, a pre-requisite of modern retailing is the availability of quality space in key locations to support the rollout plans of retailers.

However, due to subdued global economic scenario, retail rentals have been impacted significantly.

The report said while mall rentals in some of the micro-markets have remained stable, these have declined in pockets of Delhi and Gurgaon in the National Capital Region (NCR) and Bangalore between the first and the second quarter of this calendar year.

Declining mall rentals, combined with falling consumer spending due to inflation and close to 100 million square feet of mall space coming up, have led to a surplus of retail space in the country.

The report also dwells on the Indian retail scenario that is likely to emerge.

"Domestic retailers and mall developers will be moving into the smaller towns and cities with alacrity in order to respond to the growing consumers markets there and to capture the rising demand for branded products," it said.

As the existing formats make way for modern ones and the national footprint of retailers expands, efficient supply chains will be set up and logistics will be consolidated, CB Ellis said.

The report says the luxury retail market will gain critical mass and witness substantial growth in the next few years.

However, to enable this sector to realize its full potential, restrictions on foreign investments in retail will have to be relaxed further and retail rentals will need to undergo some degree of rationalization.