URBAN! URBAN! There isn't much incentive for retailers to stray out of metros

Any retail investor looking to the mature industry in the West for clues to future strategies should know this: The Indian retail landscape need not necessarily mimic the evolutionary patterns of retail industries elsewhere. For one, according to a study being done by McKinsey & Co., consumer habits in India-even in terms of broad metrics like savings rate-are vastly different from those in supposedly comparable countries. In China, McKinsey's Ireena Vittal points out, the average savings rate is 45 per cent, but the young have a lower rate of 27 per cent. In India, the difference is yawning: 27 per cent versus 10 per cent, indicating that the young Indian consumer is more confident of her future and, thus, happy to spend.

For a retailer, differences such as these make catering to the Indian consumer that much more difficult. So what sort of stores should the retailer be setting up and what should he be stocking in them? Delhi-based consulting firm Technopak has a retail evolution model called TREM that tries to predict how the various retail channels (ranging from the cigarette shop to the modern retailer) in three geographic categories-metros, mini-metros and class-I towns, and class-II towns and below-will change in response to competition. The model, based on trade data analysis and survey of 1,307 retailers in 10 different categories, points to some interesting trends. Based on current growth, the share of modern format stores in metros is likely to grow from 3.5 per cent to 16 per cent by 2015. However, if the promised investment in modern retail takes place, its share could jump to 32 per cent (see Format Shares And Geographies).