India tops global retail index again

India and Russia continue to occupy the top two spots in AT Kearney's Global Retail Development Index in 2007, as they have in the last three years, even as small towns attracted retailers like never before.

As the retail sector in larger cities in India, China and Russia reach saturation point, global retailers are increasingly setting up shop in smaller cities without even testing the waters in the bigger ones.

Until recently, such rapid growth was confined to the largest cities in each country, says the survey, the sixth such by the consultancy firm. Increasing competition in the major cities is forcing domestic and global retailers to expand into tier-II and tier-III cities in search of growth.

In China, foreign retailers such as Wal-Mart and Tesco, and Hong Kong-based retailers are branching out into smaller mainland cities, such as Yuxi, Weifan, Nanchang and Wuhu.

In Russia, Carrefour recently announced that it was entering the country via tier-II cities. In India, shopping centre developer Prozone is focusing on development in smaller cities in anticipation of the growing demand for modern retailers.

China vaulted past Vietnam and Ukraine to place third in this years index, largely on the strength of continued growth in consumer spending and retailers moving into smaller markets.

Besides, modern retail formats grew between 25 and 30 per cent in India and 13 per cent in both China and Russia in the last year. These are among the findings of the sixth annual Global Retail Development Index (GRDI), a study of retail investment attractiveness among 30 emerging markets conducted by management consulting firm AT Kearney.

"India, being at the top of the GRDI, validates the level of activity and enthusiasm we have seen in the marketplace. We anticipate seeing another year of major investments and new retail concepts changing the rapidly evolving organised retail landscape in India, not just in the metros, but also deeper penetration in the tier-II and tier-III cities," said Hemant Kalbag, principal consumer industries and retail practice at AT Kearney India.

Modern retail, accounting for 2-3 per cent of the market, is expected to grow at a compound annual growth rate (CAGR) of 40 per cent from $8 billion to $22 billion by 2010.

Overall, India's retail sector is expected to grow from its current $350 billion to $427 billion by 2010 and $635 billion by 2015.

The study also found that as larger cities in India, China and Russia reach retail saturation, some retailers are entering countries through smaller second- and third-tier cities, where consumers are ready to embrace Western-style retail concepts and products, thanks to the influence of television, movies and the internet.