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Organised retail segment seen growing at 30%

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Our Banking Bureau New Delhi
The organised retailing market in India is seen increasing to Rs 1,04,000 crore in the next five years from Rs 28,000 crore in 2004, according to a study by global rating agency Fitch Ratings.
 
The 25-30 per cent annual growth hopes has led retailers to ramp up investments. Over Rs 660 crore of capital expenditure has been planned by Trent (Rs 123 crore), Pantaloon Retail Rs 190 crore), Shoppers Stop (Rs 140 crore), Lifestyle (Rs 140 crore) and Subhiksha (Rs 70 crore), Fitch said in its report "Indian Retailing: Investing for Growth".
 
Fitch Ratings managing director Amit Tandon said the penetration of organised retail in the total retail market will rise to 10 per cent in the next five years from 3 per cent now. The total retail market is estimated at around Rs 9,30,000 crore.
 
Fitch's expectation of organised retailing growing three times over the next 5 years is based on a more favourable income distribution and increased consumption expenditure.
 
It expects households with annual income of Rs 2.15 lakh to double to 5.2 million in 2007 from 2.6 million in 2002, with 76 per cent of them resident in urban areas.
 
Given the low-margin nature of retailing business, retailers are increasingly seeing the need to invest in efficient sourcing and supply chain management to bring down costs.
 
This is particularly true in the fresh foods category as the cost of the product multiplies by the time it reaches the retailer, reflecting significant inefficiencies in the supply chain.
 
While retailers have been working on reducing the number of intermediaries, large investments, like in cold storage facilities, have yet to be seen but are likely once retailers have built up sufficient scale to justify the cost.
 
The other trend in the industry is private labels for margin enhancement. Private labels are brands created by retailers, and products sold under these brands are comparable in quality to the available branded products.
 
Retailers typically outsource the manufacturing of these products, and as they are bought at lower prices, retailers are able to pass on the cost savings to the consumers while still generating higher margins than on comparable branded products.
 
The largest incidence of private labels has been in apparel retailing, led by the department stores including Lifestyle, Ebony, Globus, Shopper's Stop and PRL.

 
 

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First Published: Apr 13 2005 | 12:00 AM IST

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