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How to Start a Retail Business in India?

Retail businesses sell their products and services directly to customers without the involvement of an intermediary. The customers are the end-users of the product or service sold by the retailers. The retail business can be operated in all possible forms, such as Proprietorship, PartnershipLLP or a private limited Company. Although for single-brand retails, FDI is permitted; however, there are restrictions on foreign investment in India for the multi-brand retail.
According to Statista, the Indian retail market is the third-largest in the world, next only to the U.S.and China. In the financial year 2020-21, its total market size stood approximately at USD 882 billion and accounted for 10% of India’s total GDP. The industry employs over 350 Million Employees in India that sell their products and services directly to million, which is 8% of India’s total workforce.
How To Start A Retail Business In India
According to the Retailers Association of India, after recording over 90% pre-covid sales, the growth rate of the Indian retail industry plunged during the pandemic. Its speedy recovery followed this in the financial year 2021-22. Despite an overall decline in the retail sector, India’s e-retail sector saw record sales growth in the pandemic, with the 3rd largest customer base globally.

Table of Contents

Types Of Retail Businesses In India

The Indian retail industry is largely unorganised, with only about 12% operating in the organised sector. These businesses can be classified into the following categories based on their products, mode, and site of operation:
  • Merchandise and service retail
  • Store and non-store retail
  • Online and offline retail
Retail businesses can either sell merchandise products or service products directly to their customers and clients. Merchandise businesses carry out large-scale sales and operations for a huge customer base and usually earn large revenues. Contrarily, retail services have a smaller customer base, limited scope of operations, and a negligible scope for earning revenues.
While merchandise retail businesses may or may not need a store (inventory) to operate from, retail service businesses are mostly non-store-based. Examples of store-based merchandise retail include departmental stores, speciality stores, art and craft stores, discount stores, and warehouses, whereas non-store-based merchandise retail includes e-commerce sites, sellers of products on social media, street vendors, and teleshopping businesses.
A few prominent and profitable retail businesses in India include FMCG (groceries and other perishables), apparel, footwear, and consumer electronics. They account for almost 65% of India’s retail industry.

Advantages Of Opening A Retail Business In India

The huge market size and share of the Indian retail sector in the country’s GDP indicates that opening such businesses in India can be extremely beneficial for business owners. A few advantages of opening a retail business in India are listed below:
  • A direct connection with customers and the market can help analyse market conditions and future trends, thereby helping in an efficient business planning
  • It is easier to expand the customer base without changing the location of the business.
  • Retail businesses can sell more varied products and services compared to manufacturers and wholesalers.
  • The option of not having an inventory reduces input costs for retailers. They also do not have any intermediaries, saving the cost of commission. Moreover, they can pass all the burden of cost and tax directly to their customers.
  • Providing more options to customers increases their potential for steep and rapid growth.
  • As a retailer, you may also manufacture your own goods. This will reduce the cost of the supply chain and help control the quality and price of products. This may also not be difficult as retail businesses already have huge storage facilities and inventory options
  • Besides, you may also patent your product.
  • Retail businesses heavily influence the marketing aspect of the products and the competition in the industry.

How To Start A Retail Business In India

Before starting a retail business in India, the following things must be kept in mind:
  • Choose your industry: Retail industry offers a variety of options for an owner to set their foot into. The industry you wish to establish your business in must be decided on the basis of its demand in the local market, ease, and cost of accessing a supply chain near the site of operation, competitiveness in the market and industry, and the scope for building a unique business brand in the industry. The location of the business plays a vital role in determining all these parameters. However, the analysis must not be restricted to the current location of the business but must include a wider area based on the future vision of expanding the business.

  • Choose your location: The preferred location of the business must have a low cost of living, a huge population of the target audience, a supply chain available at ease and proximity, market size and scope of expansion of the business, market competition, local taste and expenditure on the product sold, the financial status, safety and sanitation of the site of operation, low cost of employment, skilled workforce availability, and property or rental rates.

  • Choose your legal status: Setting up retail businesses in India has become quicker and easier than before, owing to the robust legal system in place for the purpose. However, choosing the legal status of your company is still a tedious task owing to its dependence on the scale of operations, capital requirements and the number of owners of the proposed businesses. Only two options are available for a single owner, a proprietorship and a One Person Company. In case the ownerships are held by a small group of people, we recommend either an LLP or a partnership as the business’s legal status. However, if the proposed businesses plan to operate at a larger scale and raise huge investments or funds for the purpose, a private limited status for the company is desirable.

  • Large retail businesses have a Private Limited status, as they have a huge potential to grow, expand and earn high revenues. It is noteworthy that online retail and e-commerce businesses like Blinkit and Big Basket operate as private limited companies, reasonably because such companies are well regulated under the Companies Act 2013. Additionally, they pay lower tax rates and enjoy a quicker and easier process tax of compliance.

  • Choose your name: You must choose a name for your business that at least communicates your brand voice and your field of operations. If possible, it must also convey the uniqueness of your product or service. It is important to name your business only after considering the provisions mentioned in Section 4 of the Trademark Act, 1999, which states that a new business’s name must never be the same or deceptively similar to the name of an existing business or trademark.

  • Choose a mode of operation (online or offline): To open an online retail business, the rate of digital literacy of the local target audience, and the availability of networks and smart devices must be analyzed before beginning operations.

  • Get registered and incorporated: Based on the legal status of your company, you must apply for a certificate of registration from the Registrar of Companies in India. Following the registration of your business, you must apply for its incorporation. Registration is required to receive a license for operating a business at the desired location. On the other hand, an Incorporation makes the business a separate legal entity. Besies,tax registration, GST registration, ESIC and EPF registrations are also mandatory for starting a retail business in SetIndiaBiz offers a one-stop solution for the registration of all kinds of companies in India. We also provide post-incorporation legal and compliance services.

  • Get necessary approvals and licenses like the Shop and Establishment LIcense, business license, resale certificates, hallmarks, licenses for verifying quality and safety standards of products,etc.

  • Draft a business or store policy

  • Draft a business plan and strategy

  • Recruit skilled and experienced employees at an economical cost

  • Build an effective and functional customer feedback and grievance channel

  • When all is done, launch your business.

  • Choose your industry: Retail industry offers a variety of options for an owner to set their foot into. The industry you wish to establish your business in must be decided on the basis of its demand in the local market, ease, and cost of accessing a supply chain near the site of operation, competitiveness in the market and industry, and the scope for building a unique business brand in the industry. The location of the business plays a vital role in determining all these parameters. However, the analysis must not be restricted to the current location of the business but must include a wider area based on the future vision of expanding the business.

  • Choose your location: The preferred location of the business must have a low cost of living, a huge population of the target audience, a supply chain available at ease and proximity, market size and scope of expansion of the business, market competition, local taste and expenditure on the product sold, the financial status, safety and sanitation of the site of operation, low cost of employment, skilled workforce availability, and property or rental rates.

  • Choose your legal status: Setting up retail businesses in India has become quicker and easier than before, owing to the robust legal system in place for the purpose. However, choosing the legal status of your company is still a tedious task owing to its dependence on the scale of operations, capital requirements and the number of owners of the proposed businesses. Only two options are available for a single owner, a proprietorship and a One Person Company. In case the ownerships are held by a small group of people, we recommend either an LLP or a partnership as the business’s legal status. However, if the proposed businesses plan to operate at a larger scale and raise huge investments or funds for the purpose, a private limited status for the company is desirable.

  • Large retail businesses have a Private Limited status, as they have a huge potential to grow, expand and earn high revenues. It is noteworthy that online retail and e-commerce businesses like Blinkit and Big Basket operate as private limited companies, reasonably because such companies are well regulated under the Companies Act 2013. Additionally, they pay lower tax rates and enjoy a quicker and easier process tax of compliance.

  • Choose your name: You must choose a name for your business that at least communicates your brand voice and your field of operations. If possible, it must also convey the uniqueness of your product or service. It is important to name your business only after considering the provisions mentioned in Section 4 of the Trademark Act, 1999, which states that a new business’s name must never be the same or deceptively similar to the name of an existing business or trademark.

  • Choose a mode of operation (online or offline): To open an online retail business, the rate of digital literacy of the local target audience, and the availability of networks and smart devices must be analyzed before beginning operations.

  • Get registered and incorporated: Based on the legal status of your company, you must apply for a certificate of registration from the Registrar of Companies in India. Following the registration of your business, you must apply for its incorporation. Registration is required to receive a license for operating a business at the desired location. On the other hand, an Incorporation makes the business a separate legal entity. Besies,tax registration, GST registration, ESIC and EPF registrations are also mandatory for starting a retail business in SetIndiaBiz offers a one-stop solution for the registration of all kinds of companies in India. We also provide post-incorporation legal and compliance services.

  • Get necessary approvals and licenses like the Shop and Establishment LIcense, business license, resale certificates, hallmarks, licenses for verifying quality and safety standards of products,etc.

  • Draft a business or store policy

  • Draft a business plan and strategy

  • Recruit skilled and experienced employees at an economical cost

  • Build an effective and functional customer feedback and grievance channel 

  • When all is done, launch your business.

Conclusion

The process for setting up a retail business in India can be quick and easy, especially if you have the necessary knowledge and professional experience in the field. Additionally, having new and unique ideas is key to the success of your business, as retailers that have a niche usually perform better in the market. Market analysis and understanding the trends in consumer demand is also a significant aspect of establishing and running your business operations in India and elsewhere in the world. As far as the legal procedure is concerned, SetIndiaBiz will be honoured to help your business with all the necessary legal formalities and compliance for setting up your retail business in India.

About Setindiabiz

Setindiabiz is an organized team of experienced CA, CS, & Lawyers, duly supported by a pool of trained accountants & paralegal staff that provides quality & affordable compliance services to startups & small businesses in India. The views, statements and recommendations expressed in this article or post are only for the sole objective of providing information, and it does not constitute professional advice or recommendation of the company. Neither the author nor the company or its affiliates accepts any liability for any loss or damage arising from any information in this article or any actions taken in reliance thereon.

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