Indo-Swedish Collaboration in Retail

9 Days agoAll things retail: Dive into India-Sweden's collaborations in the retail space in our newest article, here.

This year, as India and Sweden mark over two decades of diplomatic ties, India is organizing a two-day event at Stockholm with the aim of exploring synergies and avenues of partnership between Indian and Swedish companies. In the run-up to this event, we take a closer look at the collaborations in the retail sector.

 

INDIAN RETAIL MARKET OVERVIEW

 

The retail sector is critical for the growth in India’s economy and contributes around 25% to the country’s Gross Domestic Product (GDP). 1 The Indian retail industry, valued at USD 630 billion, has caught the world’s imagination – it has emerged as one of the fastest-growing and dynamic industries over the last decade, especially with its inclination towards organised retail. 2 By definition, organised retail generally includes licensed retailers (giant chains, supermarkets or hypermarkets) that make high investments and are registered to pay taxes to the government. In 2015, the organised retail sector stood at USD 50-70 billion and is poised to reach USD 160 billion by 2020. 3 E-commerce forms a significant component of the retail sector and is poised to become one of the fastest-growing retail channels in the years to come.


 

ADVANTAGE INDIA

 

The growth in the retail sector is largely being steered by a consistent rise in India’s population, especially its young demographic. Statistics by United Nations reveal that the country’s population is set to touch USD 1.45 billion by 2028, making it the world’s most populous nation.8 Additionally, India will become the world’s youngest country by 2020, with an average age of 29.9 This spells good news as consumer demand is likely to be on the rise for the years to come, thereby fuelling India’s Gross Domestic Product (GDP). Another significant feature about India’s growing population is the spike in household income levels. This change in income has resulted in an increase in spending levels even in smaller cities (Tier–2 and 3).

Secondly, an increase in smartphone and internet penetration has resulted in a noticeable shift in consumer awareness and behaviour, with an increasing number of users now being more digitally-conscious. According to a study by the Boston Consulting Group, half of India’s Internet users will be in rural areas and 40% will be women by 2020.10 Although the number of estimated urban internet users is larger and stands at 269 million, the growth in internet penetration is majorly visible in rural India which reported 163 million internet users in October 2016.11

With increasing smartphone and internet penetration as well as growing urbanisation, there is also a dramatic shift in spending behaviour. Today, shopping is becoming more social and more frequent, owing to the rise of online shopping. On the basis of this, the number of online buyers is like to rise and become 350 million by 2025.12 E-commerce is now a strong vertical with the current market size estimated at USD 12-14 billion and is poised to reach a market size of USD 45-50 billion by 2020.13 Though some categories like electronics feature higher than others, consumer durables, clothes and beauty are fairly visible too.

Furthermore, the government’s pro-investor policies have made entry into India much simpler. In single- brand retail trading, 49% Foreign Direct Investment (FDI) is allowed under automatic route, while government approval is needed above that. In cases where foreign investment is above 51%, sourcing of 30% of the value of goods purchased has to be from India. In multi-brand retail, 51% FDI is permitted with government approval. The minimum amount to be brought in, as FDI, by the foreign investor would be USD 100 million.14 Also, the retail sector is among the top three sectors to generate employment in India. The government’s decision to ease regulatory hurdles along with growing consumer demand is also expected to see the creation of many more jobs in the coming years.15

After the introduction of a uniform tax in the form of Goods and Services Tax (GST), all taxes such as Central Excise, Additional Excise, Service Tax, and Central Cesses will be subsumed. In the case of apparel, a tax of 5% will be levied on a value less than Rs. 1,000, while it will be 12% for value more than Rs. 1,000. In the case of footwear, a tax of 5% will be levied on a value less than Rs. 500 and 18% for value over Rs. 500. Luxury goods will have levy a tax of 28%. This will ensure greater efficiency and lower logistics cost.

 

SYNERGY WITH SWEDEN IN THE RETAIL SECTOR

 

Sweden has been a global leader in innovation and boasts of highly skilled force, aware consumers and a stable economy, among other attributes. In 2015, retail sales grew by 2.2% to USD 85 billion and are expected to grow by 3.5% by 2015. The Swedish market has witnessed consistent growth every year for 18 consecutive years, which is being driven by a steady rise in population as well as an increase in disposable incomes. Sweden’s population currently is 9.8 million and this growth has been consistent in the last two decades. Additionally, Sweden’s purchasing power is amongst the highest among all European countries and there is a large middle-class segment, which possesses a high spending power. Additionally, there is less disparity between high and low-income households.16 Furthermore, the use of social media is high and the penetration of internet users is amongst the highest in the world.

Imbibing the positives from Sweden, India aims to increasingly collaborate with Swedish countries and boost manufacturing in line with the vision of the ‘Make in India’ campaign. Giants like Hennes & Mauritz (H&M) and IKEA have made their foray into the Indian market. H&M was established in Sweden in 1947 and currently operates more than 4,300 stores in 64 markets across the world.17 Ever since it spread its wings in India in 2015, it has resonated with consumers here and plans to add another 0.16 million square feet of retail space by the end of 2017, which would add up to 0.65 million square feet. By end of 2017, they plan to have 8 more stores across Mumbai, Delhi, Bangalore, Indore, Coimbatore and Amritsar taking the total number of stores in India to 24.18 H&M is also in talks with Mumbai-based Prakhhyat Infraprojects to set up its first warehousing hub in Bhiwandi, Maharashtra.

Another leading Swedish retail company, IKEA, which started as a mail-order business in 1943, currently has 50 suppliers in India with 45,000 direct employees and 400,000 people in the extended supply chain. The IKEA Group is the first major single brand retailer to get FDI approval and plans to open several stores in Delhi/NCR, Hyderabad, Karnataka and Maharashtra. The first IKEA India store spread across 400,000 sq.ft will open in Hyderabad by end December. It plans to functionally operate 25 stores in India in the next 10 years.19 20

With an increasing number of opportunities in retail and the focus on ‘Make in India’, synergies between India and Sweden are likely to strengthen and reach its pinnacle.

Source:
1 https://media-publications.bcg.com/india/Retail-Transformation.pdf
2 https://media-publications.bcg.com/india/Retail-Transformation.pdf
3 https://media-publications.bcg.com/india/Retail-Transformation.pdf
4 http://www.atkearney.in/consumer-products-retail/global-retail-development-index
5 http://economictimes.indiatimes.com/news/economy/indicators/india-among-top-five-consumer-markets-in-asia-bmi-research/articleshow/59033818.cms
6 http://www.financialexpress.com/economy/consumption-story-set-to-treble-to-4-trillion-by-2025-report/596826/
7 https://www.bcg.com/d/press/21march2017-new-indian-changing-consumer-149010
8 http://www.thehindu.com/todays-paper/tp-national/india-to-be-most-populous-country-by-2028-un-report/article4816016.ece
9 http://www.financialexpress.com/india-news/with-an-average-age-of-29-india-will-be-the-worlds-youngest-country-by-2020/603435/
10 https://www.bcg.com/en-in/publications/2017/marketing-sales-globalization-new-indian-changing-consumer.aspx
11 https://www.bcg.com/en-in/publications/2017/marketing-sales-globalization-new-indian-changing-consumer.aspx
12 https://www.bcg.com/en-in/publications/2017/marketing-sales-globalization-new-indian-changing-consumer.aspx
13 https://media-publications.bcg.com/india/Retail-Transformation.pdf
14 http://dipp.nic.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17_0.pdf
15 http://retail.economictimes.indiatimes.com/news/industry/-indian-retail-industry-from-potential-to-performance/59141590
16 http://www.business-sweden.se/globalassets/invest-new/reports-and- documents/retail-market-in-sweden---sector-overview-2016.pdf
17 https://about.hm.com/en/media/news/financial-reports/2017/1/2441626.html
18 http://retail.economictimes.indiatimes.com/news/apparel-fashion/apparel/hm-to-add-8-stores-in-6-mnths-go-online-in-india-by-2018/59409787
19 http://retail.economictimes.indiatimes.com/news/home-and-decor/furniture-and-decor/ikea-to-open-third-india-store-in-bengaluru-acquires-14-acres-land-parcel/58929382
20 http://www.eiu.com/industry/article/594910643/ikea-to-open-hej-homes-pop-up-stores-in-india/2016-12-12