Retail in IndiaTowards growth and profitability

THE GREAT INDIAN RETAIL STORY

Source: Citigroup Research

Timeline of Retailing in India

India – a nation on the move Current GDP ~ $1 trillion 4th largest in terms of GDP (PPP)

terms Target customer base 405 mn. Growth rate likely to be sustained

above 8% Changing consumer behavior -

consumerism Growth in availability of

infrastructure and mall space

GDP growth and Retail

Retail, GDP growth Organized Retail in 2010

The organized players Indian companies

Future Group Reliance Retail Bharti Shoppers'Stop Pyramid Aditya Birla Group Subhiksha Spencer Group Tata – Westside, Tata – Chroma

Foreign Players Nike (Single brand) Levis (Single brand) Wal-mart (JV) Metro (Cash&Carry)

Organized retail, revenue and volume growth

Total size of retail $300bln

Size of organized retail $8bln

% share of Organized retail 3%

Source: Economics times retail knowledge series

FORMATS

Source: India Retail Report, 2007, Merrill Lynch

Market Profile of Various Formats Department Stores: Shopper Stop, Lifestyle, Pantaloons Hypermarkets: Big Bazaar, Spencer Supermarkets and Conv. Stores: Subhiksha, Trinethra

Department Stores Hypermarkets Supermarkets and Conv. Stores

Well established, limited competitionEntrenched in Indian MindsetScore on shopping experienceStress on brandingPrice not critical as they cater to upper income class

Relatively new concept, but already as big as department storesGrowing fast, but competition to intensifyPrice Discount and Wide Varieties act as key attractionsKey to success will be efficient Supply Chains and Store locations

Main challenge to mom and pop storesHow to compensate for facilities that mom and pop stores provide namely Home Delivery and Monthly Credit ?Immense Competitions, building scale to achieve cost efficiencies will be critical

Major Retail Formats

OPPORTUNITY&

CHALLENGES

Which categories will grow ?Food and Groceries Sector that the largest amount of consumer spends is concentrated. Maximum opportunity for investments

Consumer durables With increasing purchasing power, consumers tend to spend the

most on this category. There is nothing to prevent a company from putting up shops

outside the city limits, because consumer durables are a premeditated purchase.

Availability of finance options has increased spending in this sector.

Home products With increasing private ownership of homes by relatively young

couples, across most major cities in India, national retail chains offering home furniture (and accessories) have great potential.

Source: AT Kearney , Citigroup Research Report

Growth Potential In India

POLICIES

Government Policies

51% FDI allowed in single-brand formats 100% FDI in cash-and-carry format NO FDI in multi-brand stores ( like Wal-Mart) Trends indicate that the FDI would open up in

retail sector, however political consensus has to be reached before that happens

Benefits of FDI in retail Drawbacks of FDI in retail Inflow of investment and funds. Improvement in the quality of

employment. Generating more employment. Increased local sourcing. Provide better value to end

consumers. Investments and improvement in the

supply chains and warehousing. Franchising opportunities for local

entrepreneurs. Growth of infrastructure. Increased efficiency. Cost reduction. Implementation of IT in retail. Stimulate infant industries and other

supporting industries.

Would give rise to cut-throat competition rather than promoting incremental business.

Promoting cartels and creating monopoly.

Increase in the real estate prices. Marginalize domestic entrepreneurs. The financial strength of foreign

players would displace the unorganized players.

Absence of proper regulatory guidelines would induce unfair trade practices like Predatory

Pros and Cons of allowingFDI in retail

OPINIONS

Growth Drivers Barriers to EntryConsumption Boom, Higher IncomesFavorable DemographicsChanging Lifestyles and PreferencesReal estate boomManufacturing ReformsReduction in import duties-offering

Regulatory barriers Fragmented Suppliers Lack of infrastructure Supply Chain Complexities Lack of skilled Human Resource Differential Taxation System Labor Legislation Clustering of Malls

Growth Drivers & Barriers

Opinions on Formats and Growth Potential Consumer financing will be an important tool

to drive consumption Income growth alone may not be sufficient

Margins to be driven by non-core businesses Retailing will remain concentrated in the top

10 towns Multi-format retailing to thrive Large scope for rural retailing

Views of Mr Kishore Biyani, Pantaloon Retail – India Retail Forum

Views of Foreign Players Environment not conducive enough

Only 51% FDI in single brand retailing Many retailers (e.g.. IKEA) unwilling to enter

without 100% FDI) Insufficient data on consumer behavior Focus in India only on growth and not

profitability Scope for private labels (only 4% in Asia

compared to 17% in western markets)

Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum

Outlook and challenges Strong long-term growth potential Severe cost pressure largely related to property rentals Profitability likely to remain low - patient capital should

survive but weak players likely to exit in the near term Consolidation is on the cards Driven more by traffic growth than ticket growth Convenience stores to remain integral part of retail Need for catering to local flavors Internet retailing still to pick up in India

Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum

Heard from the street.. India's Mahindra Group to enter retail sector (Reuters

10/10/2007) Reliance Retail Venture Falls Short of Opening Target

(Bloomberg 12/10/2007) India's Populists Resist Big Retail (WSJ 9/10/2007) Spencer's to reduce retail formats (ET 14/10/2007) Small retailers embrace IT to boost operations (ET

12/10/2007)

THANK YOU