Indian retail scenario

Global Retail Industry

1999 2002 2005 2006

Total Retail (US$ Billion) 150 180 225 260

Organized Retail (US$ Billion) 1.1 3.3 7 9.1

% share of Organized retail 0.7 1.8 3.2 3.5

Top 10 Retailers World WideRetailer Home Country

Wal-Mart Stores

Carrefour Group

The Home Depot, Inc

The Kroger Co.

Royal Ahold

Metro AG

Target Corporation

Albertson’s,Inc.

Sears, Roebuck and Co.

Kmart Corporation

USA

France

USA

USA

Netherlands

Germany

USA

USA

USA

USA

Evolution of RetailingThe emergence of retailing in India now has more to do with the increasing purchasing power of buyers, especially post-liberalization, increase in product variety, and the increasing economies of scale, with the aid of modern supply and distribution management solutions. Activity:Name a few existing retailers in India who you feel, are quite successful.

Evolution of RetailingImportant Stores opened in the Q4 FY 06

Store Particulars City Month

Lifestyle 7500 sq.ft Chennai March

Raymond Fashion outlet Kunnur March

Raymond Fashion outlet Chennai March

Landmark 22000 sq.ft Chennai MarchSpinach Retail food &

grocery storeMumbai March

Allukas Jewellery store Hyderabad March

Indian Retail Scenario At A Glance

The contribution of retail industry to India’s GDP is more than 13%.

Indian retail industry (organized as well as unorganized) spreads over more than 6 million outlets (2.4 million urban and 3.6 million in rural).

Even though India has well over 6 million retail outlets of all sizes and styles, the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents organized retailing with a great opportunity.

It was only in the year 2000 that the global management consultancy AT Kearney put a figure to Indian retail Industry – Rs. 400,000. Cr

Retailing in India is still thoroughly unorganized. There is no supply chain management perspective.

Indian Retail Scenario At A Glance

As much as 96 per cent of the 6 million-plus outlets are smaller than 500 square feet in area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India’s per capita retailing space is thus the lowest in the world.

Just over 8 per cent of India’s population is engaged in retail (compared to 20 per cent in the United States). India’s per capita retailing space is thus the lowest in the world.

Given the size, and the geographical, cultural and socio-economic diversity of India, there is no role model for Indian suppliers and retails to adapt or expand in the Indian context. Hence Indian retailers have to find a suitable model and adopt it to the Indian context.

Indian Retail Scenario At A Glance

India’s first true shopping mall – complete with food courts, recreation facilities and large car parking space – was inaugurated as lately as in 1999 in Mumbai. (This mall is called “Crossroads”).

An FDI Confidence Index survey done by AT Kearney, showed that the retail industry is one of the most attractive sectors for FDI (foreign direct investment) in India and if allowed, foreign retail chains would make a great impact on Indian retailing.

In India still, more than 60% sales in retail comes from food items only.

A Few Indian Retailers:Pantaloons – The different formats of Pantaloons are1. Big Bazaar – The Discount Hypermarket2. Pantaloons - The Family Store3. Central Mall – One point shopping4. Food Bazaar – Food & Grocery Super Market5. God Bazaar – specialty storeRPG – The different retail formats of RPG group are:1. Spencer’s (earlier known as Food World) – Super

Market2. Spencer’s Hypermarket3. Health and Glow4. Music World

Share of Organized Retailing in Countries

Country/Region Share of Organized Retailing

USA 80%

Western Europe 70%

Malaysia 50%

Thailand 50%

Brazil 40%

Argentina 40%

Phillippines 35%

Indonesia 25%

South Korea 15%

China 10%

Organized Retailing in India (2006)

Organized retail INR 28,000 crore

Clothing, Textiles &Fashion accessories

39%

Footwear 9%

Jewellery & Watches 7%

Mobile handsets & accessories 3%Health & Beauty (including services) 2%Food & Grocery 18%Durables 13%Books, Music & Gifts 3%Home 3%

Forces Governing Indian Retailing1. Consumer Pull: Rising income and greater

purchasing power of the Indian customer and the tremendous growth of the middle class in the post-liberalization era.

2. Growing urbanization leading to a variety of customer needs.

3. Significant increase in the number of brands in the Indian market leading to a larger option set for the Indian customer.

4. Media boom leading to an increased level of awareness levels and exposure to the international trends and concepts.

5. Changing demographics propelling the growth of retail industry.

6. Psychographic changes in the Indian consumer behaviour

7. Shopping is becoming an outing or a way of family entertainment that means that families now spend greater time in shops.

Retailing : The Road AheadIndia is a nation of shopkeepers and it has more outlets than any other country in the world. But retail outlets still exist in all shapes and sizes –Panwalla to Shoppers’ Stop. However most of these retail outlets are kirana shops that are smaller than 500 sq.ft. in area, provide very basic offerings and hardly use any technology. According to Mr. Nedungadi, President, Madura Coats, “Retailing is becoming all about great ambience, more choice and convenient location. An emerging trend is also that of the value consciousness of the consumer.” So Indian retail industry has a long way to go. With corporate investments coming to organized retailing, the scope and growth of organized retailing is looking bright for Indian retail Industry.

Opening the door partly – 51% FDI permitted to Single Brand Retail

The most significant development in regulatory aspects influencing the Indian retail industry is the government’s decision to allow foreign direct investment (FDI) up to 51% in retail outlets meant exclusively for ‘single brands’. Previously single brands had to enter India only through joint ventures or the franchisee route. Now brands can enter with a majority stake of 51% along with a local partner. This definitely gives the international brands more space to play ground.

Some of the other regulatory aspects in India presently are:

Foreign-owned Indian companies cannot own and operate retail outlets except some specific areas

Variable stamp duties on transfer of property from state to state.

City urban planning prohibiting bigger commercial plots, rigid building and zoning laws for procurement of retail space.

Strong pro-tenancy lawsUrban Land Ceiling Act and Rent Control

Acts.

Foreign Direct Investment in Retail“Foreign direct investment reflects the objective of obtaining a lasting interest by a resident entity in one economy (“direct investor”) in an entity resident in an economy other than that of the investor (“direct investment enterprise”). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise. Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated”.

Facts Second largest employer after agricultureHighly fragmented sector primarily

consisting of the small, independent ‘Mom and Pop’ or kirana stores

Reasons for the boom in Indian retail market

The rise and fall of organized retailThe fightback by the local stores

The Indian Story

10th largest economy in the world based on GDP

7.5% GDP growth forecasted over 2005-2007

Real estate sector growing at 30% per annum and one of the largest employer – a key contributor to GDP

Residential market is 80% of the total real estate market

Gap between supply and demand in residential market is 41 billion sq.ft.

Office space demand of 66 million sq.ft. for IT industry over next 5 years

Real Estate in India projected to be USD 50 billion in 2008

Organized retail space demand of 40 million sq.ft. over next 3-4 years

India is ranked the 5th largest retail destination across the globe

Consumerism – the order of the day, which is fueling the growth in both the commercial as well as the retail sector

Globalization of Indian Economy

Indian Retail Scenario

Total Private Consumption Expenditure in India – 375 Billion USD

Retail Sale – 205 Billion USD (55%)

Organized Retail – 6.2 Billion USD (3%)

Retailing – 35% of GDP

Outlet Estimates – Over 12 Million

Format – Only 4% larger than 500 sq.ft.

Second Largest Employer after Agriculture

Retailing in India

Emergence of modern retail formats

Increased pressure on opening up FDI in retail sector

Rapid Evolution of New-age Young Indian Consumers

Rapidly increasing middle class

Rising Incomes levels

Increased Awareness Level among Consumers

Exposure to International Brands

Retail Space is no more a constraint for growth

Malls in India

A decade ago - not a single mall

A year ago - less than half a dozen

Today - 40-50 malls

2 years from now – 300-500 malls

Barriers

Barriers to FDI which limits entry of global players and limits exposure to best international practices

Lack of industry status which restricts financing and therefore the growth and scaling is limited

Poor Infrastructure which restricts retail growth, creates supply chain

bottlenecks and increases wastage of farm produce

The Way Ahead

India is amongst the least saturated of all major global markets in terms of penetration of modern retailing formats

Many strong regional and national players emerging across formats and product categories

Most of these players are now gearing up to expand rapidly after having gone through their respective learning curves

Real Estate Developers are also moving fast through the learning curve to provide qualitative environment for the consumers

The Shopping Mall formats are fast evolving

Partnering among Brands, retailers, franchisees, investors and malls

Improved Infrastructure

Conclusion

The demanding assertive Indian consumer is now sowing the seeds for an exciting retail transformation that has already started bringing

in larger interest from International Brands / formats.

With the advent of these players, the race is on to please the Indian consumer and its time for the Indian Consumer to sit back and

enjoy the hospitality of being treated like a King.

The Indian Retail Sector

Lakshmi Narayanaswamy (203/43)

Mudit Sharma (222/43)

Industry Evolution

Traditionally retailing in India can be traced to The emergence of the neighborhood ‘Kirana’ stores catering to the convenience of the consumers Era of government support for rural retail: Indigenous franchise model of store

chains run by Khadi & Village Industries Commission 1980s experienced slow change as India began to open up economy. Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim

first saw the emergence of retail chains Later Titan successfully created an organized retailing concept and established a series

of showrooms for its premium watches The latter half of the 1990s saw a fresh wave of entrants with a shift from

Manufactures to Pure Retailers. For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music

World in music; Crossword and Fountainhead in books. Post 1995 onwards saw an emergence of shopping centers,

mainly in urban areas, with facilities like car parking targeted to provide a complete destination experience for all segments of society

Emergence of hyper and super markets trying to provide customer with 3 V’s - Value, Variety and Volume

Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid.

At year end of 2000 the size of the Indian organized retail industry is estimated at Rs. 13,000 crore

Retailing formats in India

Malls:

The largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof.Examples include Shoppers Stop, Piramyd, Pantaloon.

Specialty Stores:

Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword, RPG's Music World and the Times Group's music chain Planet M, are focusing on specific market segments and have established themselves strongly in their sectors.

Discount Stores:

As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in bulk reaching economies of scale or excess stock left over at the season. The product category can range from a variety of perishable/ non perishable goods

Department Stores:Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs. Further classified into localized departments such as clothing, toys, home, groceries, etc.

Department Stores:Departmental Stores are expected to take over the apparel business from exclusive brand showrooms. Among these, the biggest success is K Raheja's Shoppers Stop, which started in Mumbai and now has more than seven large stores (over 30,000 sq. ft) across India and even has its own in store brand for clothes called Stop!.

Hypermarts/Supermarkets:Large self service outlets, catering to varied shopper needs are termed as Supermarkets. These are located in or near residential high streets. These stores today contribute to 30% of all food & grocery organized retail sales. Super Markets can further be classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales.

Convenience Stores:These are relatively small stores 400-2,000 sq. feet located near residential areas. They stock a limited range of high-turnover convenience products and are usually open for extended periods during the day, seven days a week. Prices are slightly higher due to the convenience premium.

MBO’s :Multi Brand outlets, also known as Category Killers, offer several brands across a single productcategory. These usually do well in busy market places and Metros.

Retailing formats in India

India’s number of Domestic grocery chains and Early Foreign Entrants

Recent Trends

Retailing in India is witnessing a huge revamping exercise as can be seen in the graph

India is rated the fifth most attractive emerging retail market: a potential goldmine.

Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 percent or US$ 6.4 billion

As per a report by KPMG the annual growth of department stores is estimated at 24%

Ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney.

Retail Sales in India

Unorganized : Vast majority of the twelve million stores are small "father and son" outletsFragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest.Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell day-to-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs)

Unorganized : Vast majority of the twelve million stores are small "father and son" outletsFragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest.Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell day-to-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs)

Traditionally three factors have plagued the retail industry:

Traditionally three factors have plagued the retail industry:

Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc.Store design : Biggest challenge for organised retailing to create a “customer-pull” environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investing heavily in store design.Emergence of discount stores: They are expected to spearhead the organised retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs. Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large cineplexes, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR‘ the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas.

Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc.Store design : Biggest challenge for organised retailing to create a “customer-pull” environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investing heavily in store design.Emergence of discount stores: They are expected to spearhead the organised retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs. Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large cineplexes, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR‘ the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas.

Recent changes:Recent changes:

Recent Trends contd.

Recent Trends contd. Multiple drivers leading to a consumption boom:

Favorable demographics Growth in income Increasing population of women Raising aspirations : Value added goods sales

Food and apparel retailing key drivers of growth Organized retailing in India has been largely an urban phenomenon with affluent classes

and growing number of double-income households. More successful in cities in the south and west of India. Reasons range from differences

in consumer buying behavior to cost of real estate and taxation laws. Rural markets emerging as a huge opportunity for retailers reflected in the share of the

rural market across most categories of consumption ITC is experimenting with retailing through its e-Choupal and Choupal Sagar – rural

hypermarkets. HLL is using its Project Shakti initiative – leveraging women self-help groups – to

explore the rural market. Mahamaza is leveraging technology and network marketing concepts to act as an

aggregator and serve the rural markets. IT is a tool that has been used by retailers ranging from Amazon.com to eBay to

radically change buying behavior across the globe. ‘e-tailing’ slowly making its presence felt. Companies using their own web portal or tie-sups with horizontal players like Rediff.com

and Indiatimes.com to offer products on the web.

Major Retailers

               

                              

India’s top retailers are largely lifestyle, clothing and apparel stores

This is followed by grocery stores

Following the past trends and business models in the west retail giants such as Pantaloon, Shoppers’ Stop and Lifestyle are likely to target metros and small cities almost doubling their current number of stores

These Walmart wannabes have the economy of scale to be low –medium cost retailers pocketing narrow margin

Leading Retailers

India vs. World

Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9 million outlets in USA, catering to more than 13 times of the total retail market size as compared to India

India has the highest number of outlets per capita in the world - widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per person)

Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail industry. Almost 100 times more than the turnover of HLL (India's largest FMCG company).

Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) can compare.

The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail industry employs about three million people.

One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HLL's annual turnover. Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing

(against 7 percent employed in India today). 60% of retailers in India feel that the multiple format approach will be successful here whereas in US

34 of the fastest-growing 50 retailers have just one format Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average

inventory turns ratio of about 18. Many Indian retailers KPMG surveyed have inventory turns levels between 4 and 10.

Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail shelves (translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.

Future direction: Positives

AT Kearney has estimated India’s total retail market at US$ 202.6 billion which is expected to grow at a compounded 30 per cent over the next five years.

With the organised retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010.

The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the next decade

Over next two years India will see several Indian retail businesses attaining a critical mass as growth in the industry picks up momentum driven by two key factors: Availability of quality real estate and mall management practices Consumer preference for shopping in new environments

Wal-Mart : huge plans for India. Moving a senior official from its headquarters in Bentonville, Arkansas, to head its market research and business development functions pertaining to its retail plans in India.

New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty major DLF Properties to set up shop in a mall in New Delhi.

Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, Ahmedabad, Lucknow and Bangalore in the next four months.

Future direction: Concerns

68 million square feet of mall space is expected to be available by end of 2007, which might lead to over-capacity of malls

Lack of differentiation among the malls that are coming up. One option may be to look at specialization.

Poor inventory turns and stock availability measures - retailers clearly need to augment their operations.

Operations of retailers and suppliers are not integrated. Efficient replenishment practices practiced in the Indian auto and auto-component industry can be leveraged to implement efficient supply chain management techniques.

Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity ordered, is an issue

Sales tax laws - lead to retailers having state-level procurement and storage leads to Indian retailers having higher inventories. VAT has helped alleviate this a bit.

Increased adoption of IT and shrinkage management will be a critical area. Supply chain and customer relations followed by merchandising, facilities management

and vendor development are areas which have significant gaps and proactive training is a key imperative for overcoming these.

SourcesAT KearnyForrester Research 2006 KPMG-FICCI Reporthttp://www.indiainbusiness.nic.in/