Pro-reform expectations push India up five positions in 2015 AT Kearney Global Retail Development Index™

India has risen five positions to rank 15th in the Global Retail Development Index (GRDI) released by AT Kearney today. India’s ranking has been boosted by solid growth in retail sales and strong prospects for future GDP growth.
India’s GDP is expected to grow at 8 per cent over the next three years, making it the world’s fastest-growing major developing market. Published since 2001, the GRDI ranks the top 30 developing countries for retail investment worldwide. The Index analyzes 25 macroeconomic and retail-specific variables to help retailers devise successful global strategies to identify emerging market investment opportunities.
“Ideally, India should be towards the top of the table with its large consumer market. The positive change in five ranks is on account of the expectations from the pro-reform government,” says Debashish Mukherjee, a partner with A.T. Kearney and co-head of the Consumer Industries & Retail Products Practice for India and Southeast Asia.
Consumer and investor sentiment in India have seen an uptick, as the pro-reform government led by Prime Minister Narendra Modi set out on an ambitious goal of improving its Ease of Doing Business ranking from 142nd to 50th in the next two years, making India an attractive market for international retailers.
“However, to maintain and even improve its ranking (which affects how global retailers & investors look at Indian retail), progress is required on multiple fronts: regulatory clarity & stability on FDI, FDI interpretation for e-commerce / market place and of course, improving consumer sentiment and spends, which will accelerate retail expansion in India,” he adds.
The tipping point for brick-and-mortar retail continues to be the opening up of FDI norms in multi-brand retail, a move that is not expected in the near-term. For now, international retailers continue to focus on the cash-and-carry and single-brand formats, where 100 percent FDI is allowed.
There is a lot of activity happening on that front. After two years of dormancy, Walmart will open a new outlet?in Agra in 2015 and plans to add 50 wholesale stores to its existing 20 in the next five years. Germany’s Metro will triple the number of wholesale stores to 50 by 2020. Nike, which has about 400 franchise locations in India, filed an application in September to open company-owned stores.

As retailers continue to expand, real estate availability could be the biggest barrier. India has four times the population of the United States but just one-tenth of the mall space. Many malls are also of poor design and lag behind global standards. The dearth of quality space in core areas is prompting some retailers to look online instead.
E-commerce recorded impressive 27 percent growth in 2014 to reach $3.8 billion, led by online retailers such as Amazon, Flipkart, and Snapdeal. However, this market still has a long way to go as online remains just 0.5 percent of the total retail market. For e-commerce to grow in India Internet penetration needs to increase and infrastructure needs to improve significantly.
The Associated Chambers of Commerce and Industry of India estimates that companies will spend between $1 billion and $2 billion on e-commerce-related infrastructure over the next five years.
India also represents a good opportunity for luxury brands, as the country’s Ultra High Net Worth Individuals (UHNWI) population is set to double over the next 10 years. With new regulations allowing 100 percent FDI in single-brand retail, luxury players are eager to gain a strong foothold in the country.
“India has the highest latent demand in luxury retail sector, boosted by per capita income growth and the rising number of ultra high net worth individuals. What’s preventing this from translating into sales is an absence of affordable right quality real estate, high import duties and a restrictive FDI policy in addition to a very scattered customer base that finds it easier to shop abroad,” says Neelesh Hundekari, a Partner with A.T. Kearney and an expert in the lifestyle and luxury sectors.
“Realising the growth potential will need micro segmentation of the market, facilitating direct experience of the brand, and wooing the small and medium sized enterprise owners,” he adds.