The Indian retail industry is on the verge of a revolution with savvy apparel businesses in line for anywhere up to $250m - $500m in sales according to a report published by leading consultancy McKinsey.

India is lagging behind other developing economies, said the report. In many of these countries, the organised retail segment (including apparel and food) already has a 40 per cent share of the market compared with India's two per cent. But the situation is already beginning to change.

Out of step with the times
The global retail industry is worth $6.6 trillion - the largest of the private industries - with financial industries worth $5.1 trillion and engineering at $3.2 trillion. It is one of the world's largest employers, with retail accounting for around 16 per cent of US jobs.

Retail formats in Western economies have changed dramatically over the past few decades, McKinsey said, with department stores giving way to mass merchandisers. The Indian retail scene forms a sharp contrast to the worldwide situation.

It has the largest global retail outlet density (approximately 12 million outlets), but the stores mainly have very basic offerings, fixed prices, and do not make any use of technology. They tend to be extremely competitive and depend on free land, unpaid or cheap labour and zero taxes to stay afloat.

Clothing market is worth billions
India's $15bn apparel and textiles market represents a major opportunity for organised retailers, said the report. At present however, apparel takes up only 22 per cent of the market - and branded clothing makes up just 20 per cent of that figure. The fabric industry is still mostly unorganised with the powerloom and handloom sector accounting for over 90 per cent.

Men's clothing and sportswear look to be the most profitable sectors. They have already begun to take off in the past few years, with men's clothing accounting for 70 per cent of branded goods sales compared with 22 per cent for children's wear and just eight per cent for womenswear. This trend is expected to continue, with men's branded apparel anticipated to increase by 30 per cent a year against 10 per cent each for women's and children's clothing.

Cultural factors affect women's apparel market
Branded apparel forms just three per cent of the women's clothing sector at present. Western clothing for women is restricted to a very small percentage of the female population, such as students in urban markets and the tiny minority of female executives. At best, branded apparel is estimated to be worth only 10 per cent of the women's apparel market as a whole. This leaves 90 per cent of the market to unorganised and small-scale players.

Clothing sales in India are divided between outlets selling readymade garments, outlets selling saris and outlets selling textiles. Some 92 per cent of textile outlets are small cut-piece stores, two per cent are company showrooms and six per cent upmarket fabric shops.

The McKinsey report has identified multiple causes for this low level of modernisation in Indian retail. Primary among them was the earlier restrictions on consumer goods and consumerism till the 1990s. The inability to offer a wide range of products was further worsened by the marketers' inability to create economies of scale in sourcing.

Another factor was lack of consumer culture, along with low incomes. These prevented the development of formats such as department stores that work on superior ambience and design to capture consumers.

Another major factor was probably the lack of recognition for retail as an industry, with virtually no access to capital, land or people available to aspirant retailers. Very few banks were willing to invest in retail, while real estate restrictions made it well nigh impossible to access land of reasonable size.

Change on the way
Over the past three years, however, there have been clear signs of an emerging revolution in Indian retail. Several factors are responsible for this new development, the McKinsey report said . Rising incomes, explosion on the media front, the change in women's status and in family structure, and the surging rural demand have triggered growth in the industry. Supply chains are being established too, corporates are entering the field, and established players are expanding.