Business Registrations

Understanding the Complexities of India’s Retail and Distribution Industry

India is among the most promising and developing marketplaces in the world. The retail and Distribution Industry in India is dynamic and fast-developing. The retail and Distribution Industry accounts for 10% of the Gross Domestic Product in India and 8% of the total employment in India is offered by the retail and distribution industry. Several new players have entered the retail and distribution industry in India. When it comes to the Retail Industry, India ranks the 5th largest global destination. India ranks 73^rd in the United Nations Conference on Trade and Development’s Business-to-Consumer (B2C) E-commerce Index in 2019 and ranked 63^rd in World Bank’s Doing Business in 2020.

India’s retail and distribution industry is experiencing exponential growth with developments not just in the major cities but also in rural cities. The enticing factors for international retailers seeking to enter the Indian market include the largest population, rising middle-class income, increase in consumer spending, and an unexplored retail market in India. International players in the Indian market will help the business to grow quickly. In addition to this, the retail power of urban consumers is increasing, and their demand for branded goods such as apparel, cosmetics, footwear, watches, beverages, jewellery, etc. Further, to ease doing business in India, the Indian Government has implemented several regulations and policies.

What are the complexities in the Retail and Distribution Industry in India?

1. Multi-Channel Customer Buying Experience

Due to technological advancement, Indian customers have the option of buying from offline as well as online stores. Before buying, a customer compares a product’s price in online stores. The offers and discounts vary on different websites and e-commerce platforms. This has created a challenge for the retail industry. However, this challenge can be turned into an opportunity by striking and building transparent cross-channels for the customers. This can be done by using customer data to analyze when, where, and how the customers interact and engage with themselves. This will allow the retail business to track the real-time feedback of customers and create different channels based on the data available as well as to curate offers.

2. Managing Infrastructure and Distribution Channels

The Infrastructural limitations restrict the distribution of goods in India. The poor trade supply chain coupled with the poor infrastructure leads to high marked-up retail prices of goods. Due to an unorganized and unsystematic supply chain with multiple intermediaries, the retail sector faces a major challenge. This challenge can be addressed with technological advancement. By implementing the warehouse management system, online retail businesses in India can reach accuracy, control inventory and maintain third-party distributions. Adopting modern trade businesses also help in eliminating intermediates and offers a competitive edge in the market.

3. Finding the Right Technology for your business

In the initial stages of a business, manually performing routine tasks is possible but as the business grows, the manual tasks will create mistakes and irregularities and will demand more manpower or technology. With technology, one can save time and energy but there are fewer chances of errors with human resources deployment. However, accuracy can also be ensured by deploying the right tools for your business. This will automate and streamline the daily process.

4. Gaining Customer loyalty

Retaining customers is a big challenge in a huge market. With new products and offers every day, customers are lured away. The only way to retain customers is to provide a well-synced shopping experience for the customers. A retailer should analyze its customers in a way to make the customers feel seen and valued. The customers should feel that their demand is considered by the retailer. Only then will a retailer be able to retain its customers.

5. Employee Training and Retention

Even though the Indian Retail and Distribution Industry in India is one of the fastest growing, it still lacks trained professionals to meet the demand of the workforce. To ensure employee retention, the employees should be engaged in frequent training programs. The focus should be on upskilling employees so they stick around. In addition to this, the employees should be continuously motivated with regular benefits and employee-centric HR policies.

6. Choosing a Right Brand Image

Brand Image speaks a lot about the product. Often products fail in the Indian market due to improper brand image. The right digital marketing strategy ensures customer engagement and drives leads. Choose the right software to make branding easier and devise an efficient branding strategy to ensure successful execution.

FDI in the Retail and Distribution Industry

Indian Retail and Distribution Industry has attracted several investments and developments recently. Several International Brands have launched their products in India. Between April 2000 to September 2022 India’s retail trading sector attracted USD 4.29 billion FDI. India’s Consumer Price Index-based retail inflation stood at 6.77% in October 2022. India ranked 16 in the FDI Confidence Index. In 2021, India witnessed 1.2 million e-commerce transactions. The retail and Distribution Industry is experiencing exponential growth not just in major cities but also in small cities. Numerous factors such as healthy economic growth, changing demographic profile, urbanization, increasing disposable income, and changing consumer tastes and preferences are driving growth in the retail and distribution industry of India. Retail tech companies are on the rise in India. Retail tech companies provide services like digital ledgers, inventory management, payment solutions, and tools for logistics. Thus, it is a great deal for MNCs to benefit from the consumer base in India and to enter into the Indian market. As around 60 shopping malls with a total retail value of 23.25 million are expected to become operational during 2023-25.

Government Initiatives to Promote the Retail and Distribution Industry

Numerous initiatives have been taken by the Indian Government to improve the retail industry in India. Some of these initiatives are:

1. In July 2021, Retail Parks Policy 2021-26 was announced by the Andhra Pradesh Government. This was introduced targeting retail investment of INR 5000 crore (USD 674.89) million in the upcoming 5 years.
2. In October 2021, a new framework for retail digital payments in offline mode was announced by the RBI to accelerate digital payment adoption in the country.
3. In April 2022, the PLI scheme was approved by the government for textile products. This will enhance India’s manufacturing capabilities and enhance exports with an approved financial outlay of INR 10,683 crore (USD 1.37 billion) in five years.
4. Change in the Foreign Direct Investment (FDI) rules in food processing sector to permit E-commerce companies and foreign retailers to sell Made in India consumer products.
5. 100% FDI via automatic route was allowed by the Government in the online retail of goods and services. This brought clarity to the existing business of e-commerce companies operating in India.
6. Retail and Wholesale traders were included in the MSMEs by the Minister of MSME. This step will now provide benefits to the retail and wholesale traders as they will now get priority in lending under the RBI guidelines^[1].

Wrap Up

The consumption habits of Indian consumers changed during post covid-19 pandemic. Now consumers do not distinguish between online and offline consumption modes. This has pushed companies to experiment with different ways to design their retail experiences and integrate different channels. By using both e-commerce platforms as well as traditional techniques, the retailers are experimenting with revenue models as well. Integration in the revenue model will improve the customer value offer. At present, e-commerce is probably the biggest revolution in the retail industry and it is likely to continue in the coming years. Hence, the long-term outlook of the industry looks favourable for the entry of foreign players in India. 

Read our Article: Registration and Licenses Required for Starting an E-commerce Business