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Emerging Trends in Retail Sector

October 22, 2009


Retail Emerging TrendsHere is an excerpt on the study of Key Emerging Trends in Indian Retail Sector.

Focus on private labels:
Companies are looking to focus on increasing their private label sales. They are similar in quality [not all, we agree] compared to branded products but offer higher value as they are 15-20% cheaper than national brands. Industry players are looking to increase the sales mix of private labels brands – Pantaloon is looking to increase Private label sales from 18% to 20-22% this year.

Move towards shop in shops:
Retailers are increasingly looking to open shop in shops rather than own stores given the paucity of capital in the sector. Typically a store of the size of 10,000sqft requires investment to the tune of Rs22.5mn. Instead of making this high capital investment, Retailers are increasingly looking to set up shop in shops where they can retail their products in larger department stores or multi-brand outlets with zero upfront investment.

Closure of unviable stores:
There have been huge closures of stores over the last year as retailers embarked on huge expansion plans without proper research on catchments and viability. However, going forward we expect Retailers to be more circumspect before launching new stores and the pace of expansion will also be slower.

Revenue share agreements with developers:
The move towards revenue share would be a win-win situation for both retailers and developers. In a typical revenue share agreement, there is a minimum fixed rental agreement which is at a discount to what is normally charged (around 10 to 30%) and there is also a variable component which is a percentage of total revenues earned by the store. Overall, rentals work out to 5-6% of revenues for Hypermarkets, but could be up to 30% of revenues for designer stores.

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