STOrai profiles the RAI – EY report on “Pulse of Indian Retail” – released at RAI’s CFO Summit in March 2014.  The objective of the report was to map the views and concerns of CFOs on the performance of organized retailers in the Indian market. It surveys and presents the views of 25 Retail CFO’s in India. It highlights growth opportunities, challenges and concerns and priorities for the sector, through the lens of the Retail CFO.

India’s retail market, in 2013, was estimated at US$520 billion and is expected to grow at a CAGR of 13% to reach around US$950 billion by 2018.  Organized retail penetration, currently estimated at 7.5%, is expected to clock a 19-20% p.a. growth to reach 10% by 2018.

Key priorities for the Retail CFO may be summarized as: Penetration, Policy & Profitability.

Penetration: Penetration in tier-II and III cities, improvement in business models and operations, coupled with movement from unorganized to organized trade are expected to play an integral role in driving growth. Tier-II and tier-III cities such as Jaipur, Nagpur, Ludhiana, Vadodara, Aurangabad, Kochi etc., are emerging as the new “hot spots” of consumption. Organized retailers are increasingly setting up stores in these smaller cities.

However, this growth in organized retail has been achieved at a significant cost. Organized retail started more than a decade ago, but, most players have struggled to achieve the desired level of profitability and returns. Despite investments of time and capital during this gestation period, returns are an area of significant concern.

Policy: The liberalization of FDI policy is expected to propel foray of global retailers, which will further fuel the growth of organized retail in India. While Single Brand Retail has seen some global investment interest, investor in Multi-Brand Retail remains muted.  In addition, the industry believes that the pace of GST rollout will be determined only after the general elections.

Profitability: At store level, the retailers are focusing on improving store profitability through productivity enhancement and better inventory management. At corporate level, the retailers are keeping major costs such as supply chain and manpower in line with the revenue to ensure profitable growth of the business.

In a nutshell, a retail CFO’s mantra for 2014 seems to be balancing growth and profitability.