Section F, Group 2 - Retail Industry in India (2)

8/4/2019 Section F, Group 2 - Retail Industry in India (2)

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Industry Awareness- Retail

Industry

Section F, Group 2 Amrit Jaiswal,

Aparajit S, K Harita, Khuman Vijay, RahulSingh, Shivani Shukla, Sumeet Kumar


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Definition of Retail

In 2004, The High Court of Delhi defined the term

retail as a sale for final consumption in contrast to a

sale for further sale or processing (i.e. wholesale) -

A sale to the ultimate consumer. Retailing can be said to be the interface between the

producer and the individual consumer buying for

personal consumption


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Overview of Indian Retail Industry

The Indian retail industry is divided into

organised and unorganised sectors

It is highly fragmented and more than 90% of

the business is carried out by the unorganised

sector


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Organized Sector

Organised sectors include business carried out

by licensed retailers

They are registered for income tax, sales tax,

and so on

Corporate retail chains, hypermarkets,

supermarkets, and specialty stores are

examples of players operating within this

sector


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Unorganized Sector

The unorganised sector is characterized byfamily run stores

Leads to lack of best practices when it comes

to inventory control and distribution, absenceof standardization

it is a sector populated by anyone who has

something to sell Local Kirana stores, general stores, hawkers,

paan beedi shops


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The organised sector, over the past decade, has

been replacing the traditional format of selling in

the retail industry

The trend is attributed to a slew of organizedretail formats offering a range of brands, and

liberalisation adopted by the government

They cater to the rapid growth in urbanisation, anincrease in the disposable income, changes in the

pattern of shopping, and demographic factors

Organized Sector (Contd)


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Indian retail sector accounts for 22% of the

country's GDP and contributes to 8% of total

employment

Hypermarkets accounted for 14% of mall

space

Demographic factor with over 50% of the

countrys population under 25 years of age is a

prime driving factor for modern retail sector



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Rural retailing has been witnessing an intense

focus from large brands

Low cost handsets, agri-retail outlets, and

other Fast Moving Consumer Goods (FMCG),

are being targeted to rural consumers

Utilization of technology is extensively done.

The data is available to country real-time

helping them take decisions quickly.



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Indian Retail Industry - Major Market

Players

Pantaloons retail (Future Group Venture):

Key People: Kishore Biyani( MD and CEO)

Started operations with Pantaloon Shoppe in 1993

Is now spread over 450 stores across 40 cities in India

Pantaloons( fashion outlets), Big Bazaar( Indianhypermarket chain), Food Bazaar( a supermarketchain), Central( chain of seamless destination malls)

Online portal- futurebazaar.com Market Capitalization:6679.66(Rs in cr)( BSE),

671.84(Rs. in cr)(NSE)


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Shoppers Stop:

Key people :Govind Shrikhande( Customer careassociate & President and CEO)

Started on Oct 27, 1991 by K. Raheja Corp. group of

companies, has 34 stores across 15 cities in India Has progressed from being a single brand shop to a

fashion and lifestyle store for families

Only member of India to become a member of

prestigious Intercontinental Group Of departmentalStores( IGDS)

Market Capitalization: 3297.92 cr, listed on BSE


Players (Contd)


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Trent (Westside,TATA):

Key People: Jamshed Daboo( CEO)

Established in 1998, revenues: US $ 53 million Westside( Lifestyle chain), Star Bazaar(

hypermarket chain), Landmark( Books and

music chain), Fashion Yatra( a complete familiy

fashion store)

Market Capitalization: Rs 2147 cr


Players (Contd)


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Profile Of Key Personnel

Sunil Bharti Mittal, Bharti retail:

Founder, Chairman and CEO of Bharti enterprises

Has been awarded the Padma Bhushan

Member of the board of trustees of the CarnegieEndowment for international peace

Also on Indian Prime Ministers council on Trade &Industry

Was the President of the Confederation of Indian

Industry In 2007-08 Co-chairman of the world economic Forum in

2007(Davos)


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Mukesh D. Ambani, Reliance Retail

Chemical Engineer from Institue of ChemicalTechnology, Mumbai

Pursued MBA from Stanford University, USA Initiated Reliances backward integration

journey from textiles into polyester fibers,

then into petrochemicals Led the creation of petroleum refinery at

Jamnagar



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Member of Prime ministers Council on Trade &Industry

Member of Board of governers of the National Councilof the applied Economic Research, New Delhi

Member of the Millenium Development Goals( MDG)Advocacy Group constituted by UN

At RIL, he is Chariman ( Finance Committee), and amember of the Employees Stock CompensationCommittee

Promoter of the company, holds 36,15,846 shares ofthe company in his name, as on March 31, 2011



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GovernmentPoliciesFactor Laws Consequences

Real estate Pro tenant laws

Non availability of

Land and High stamp duties

Due to these, it gets difficult

to find proper real estate in

terms of size and location.

Tax System Differential sales tax rates

across the statesMulti point octroi

Sales tax avoided by smaller

stores

This results in advantage to

the smaller stores since theyreceive a tax evasion. The

distribution for the larger

player becomes cost intensive

Legislations Multiple licenses and

clearances

This proves to be a deterrent

for the entrance of new

players and causes issues for

existing players in their growth

objective.

Labour Laws Stringent Labour Laws Laws governing labour expect

the employer to adhere to a

fixed number of hours andwages. Limits flexibility.


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FDI Policy In Retail Sector

India has kept the retail sector largely closedto the outsiders

It allows only 51 % foreign investment in

single-brand retail with prior governmentpermissions

FDI upto 100 % for cash and carry wholesale

trading and export trading allowed underautomatic route

FDI not permitted in multi brand retailing


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Impact Of FDI

The current FDI Policy will not make anydifference for those brands which adopt thefranchising route as a matter of policy.

But they must rely on innovative structuringand arrangements of their choice in franchisearrangements to maximize their profits.

For those companies which choose to adoptthe route of 51% partnership, they must tie upwith a local partner


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Cold Supply Chain

Given the lack of infrastructure, preservation of theexported fruits and vegetables becomes difficult.The union budget of India, 2010-11, has therefore

proposed: Augmentation of storage capacity through private

entrepreneurs and warehousing corporations hasbeen fast tracked.

Capital investment in creation of modern storagecapacity will be eligible for viability gap funding ofthe Finance Ministry.


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International Presence In retail

Industry


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International Presence In retail

Industry (Contd)


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M & A Activity in the Industry

Deal Type Deal Date Target/ Seller Co Merged/Acquirer

Takeover 22 Jul, 2011 Big Shoe Bazaar

India Pvt. Ltd

Nexus Venture

Partners &

Catamaran

Ventures

Takeover 21 Apr 2011 Future Ventures

India Ltd.

Future Value Retail

Ltd.

Takeover 29 Sep 2010 Shoppers Stop Ltd. Qualified

Institutional Buyers

and other

InsitutiionsTakeover 30 Jun 2010 Hypercity retail(

India) Ltd.

Shoppers Stop Ltd.

Takeover 08 Jun 2009 Pantaloon Retail(

India) Ltd.

Qualified

Institutional

Placement


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Technological Trends

Latest Innovations:

Method Description

Customer Identification using RFID Customers are issued smart cards, helps

recording customer preferences andshopping behavior

E-Catalog Based selling A range of merchandise format is made

available

Mobile Point of sale Can purchase goods by putting them in

a shopping cart, preventing long queuesDigital Signage Digital signboards to help customer to

track products easily

Intelligent database A detailed online customer database is

available


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Advantages offered by IT in Retail

Enhanced customer experience through use of kiosks,mobile POS, digital signage and e-catalogs.

Consistency in business process.

Transparency in business process.

Operational efficiency through better management ofsupply chain, inventory and store

Improved productivity through automation, e.g. use ofPOS.

Easy tracking of inventory and leakage. Enables cross selling other products.

Allows performance management across locations.


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Current Scenario: IT perspective

IT innovations adoption still at an introductory

phase

Retailers have an advantage over their counter

parts, as they know which solutions would

work

innovation and deployment is confined to the

organized sector


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The Way Forward

The unorganized sector is lagging behind in

terms of IT usage

Even with availability of technology, money,

lack of education and comfort are constraints

In organized sector, growth is constant and is

expected to continue

It is here that a lot more development can be

expected in future


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Retail Institutions show an S-shaped

development through their economic life

As retail organization mature with time, their

attributes and strategy changes

Industry Life Cycle Analysis


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Phases of Development

Innovation: During the initial stage, when

organization tries to offer something different

from the other retailers to the customers

Accelerated Growth: rapid increase in sales

take place, so the organization may face cost

pressures


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Maturity: The organization continues to grow,

but the competitive pressure become intense

Decline: the growth becomes negative,

profitability becomes low and the overhead

costs become so high that the organization

loses its competitive edge

Phases ofDevelopment (Contd)


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Key Events in the Past 2-3 YearsDATE EVENTS

30/8/2011 HUL, Trent join hands to fund poor kids' schooling

26/8/2011 Pantaloon plans one store a day this quarter

13/1/2011 Starbucks Coffee to form partnership with Tata Coffee

3/1/2011 Carrefour opens new first cash and carry store in India

7/9/2010 Big Bazaar launches first store in Maharashtra

11/6/2010 Paul & Shark opens first Indian store in New Delhi

Bestseller plans to introduce new brands in India

1/6/2010 - Bharti Retail announces expansion plans

31/5/2010 Bata India announces expansion plans

3/5/2010 Future Group enters into agreement to open Carrefour hypermarkets in India

16/12/2009 - Marks & Spencer to expand operations in India

12/11/2009 - Bharti Wal-Mart to open 40 new stores in India

8/10/2009 - - Future Group and Clarks to form footwear retail joint venture in India

25/9/2009 - Aditya Birla Retail plans to offer more products under private label brands

11/6/2009 - Indian government clears FDI proposals of Damas and Danone and 23 other brands

11/6/2009 - Tesco to conclude supply chain integration with India's Star Bazaar

9/6/2009 - Wal-Mart to award multiple contracts to Indian firms worth $500 million

3/6/2009 - Pantaloon Retail's unit and Carrefour likely to sign equity partnership deal

21/5/2009 - Bharti Wal-Mart to open first cash-and-carry store in India

8/4/2009 - Mahindra Retail launches flagship store of Mom & Me in Delhi

17/3/2009 - Pantaloon Retail plans to spin off Big Bazaar and Food Bazaar chains


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Key Drivers for Growth

Economic boom brought many retail brands intothe industry

Franchise model has gained popularity recently

Disposable income of Indian middle class isincreasing

Population as a growth driver

Increasing awareness and usage of credit cards

Increasing internet usage amongst Indians

Increased growth in retail in tier- II & III cities

Benefits of a shortened supply chain model


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General impact of union budget 2011-

12 on Retail Industry

Higher income tax exemption limit will result inhigher disposable incomes in the hand ofconsumers which is a positive for the sector.

15 Mega Food Parks to be set-up to address theissues relating to bottlenecks in retailing capacityof vegetables and fruits under The Eleventh Plan.

Further, Policy initiatives to be introduced to

achieve efficiencies in the marketing anddistribution systems of food grains, fruits andvegetables.


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Impact of specific changes in excise

duty relating to Retail Industry

Branded garments to be costlier as levy of

excise duty on garments made mandatory at a

unified rate of 10% for branded garments. Imposition of marginal 1% excise duty on

precious metals like gold and silver will hurt

branded jewellery retailers.


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Appendix


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Brandhouse

Retails Ltd

Pantaloon

Retail

(India) Ltd

Provogue

(India) Ltd

Shoppers

Stop Ltd Trent Ltd

V2 Retail

Ltd

As of Mar-10 Jun-10 Mar-11 Mar-11 Mar-11 Mar-10

Gross Block 67.03 1,417.04 105.33 505.64 330.19 363.7

Less : Accumulated Depreciation 21.72 294.89 39.28 193.5 66.27 142.19

Less:Impairment of Assets 0 0 0 0 0 0

Net Block 45.31 1,122.15 66.05 312.14 263.92 221.51

Lease Adjustment 0 0 0 0 0 0

Capital Work in Progress 0.28 59.68 0.36 44.65 27.83 0

Investments 0.05 2,002.91 290.18 237.19 424.97 0.38

Inventories 195.22 1,270.67 271.88 151.14 130.57 219.96

Sundry Debtors 268.35 123.57 171.46 16.01 6.66 2.92

Cash and Bank 0.54 100.54 19.94 2.61 300.34 10.98

Loans and Advances 54.8 423.02 219.34 279.8 462.15 59.69

Total Current Assets 518.91 1,917.80 682.62 449.56 899.72 293.55

EBITDA 58.74 676.56 81.05 159.37 86.27 -500.69PAT 16.21 179.56 33.41 75.18 43.04 -414.72

Debt-Equity Ratio 0.38 0.33 0.31 0.84 1.22 0

Long Term Debt-Equity Ratio 0.13 0.12 0.26 0.62 0.59 0

Current Ratio 1.01 3.13 2.47 1.66 1.42 1.23

Inventory 12.82 2.25 6.13 4.13 3.93 2.49

Debtors 143.31 3.55 142.81 42 2.7 383.18

Current Assets, Loans & Advances

Assets


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References

http://timesofindia.indiatimes.com/home/union-budget-2011/Highlights-of-Union-Budget-2011-2012/articleshow/7592642.cms

http://indiabudget.nic.in/ub2011-12/bh/bh1.pdf

CII, Retail Scenario in India, Unlimited Opportunity

Economywatch.com

Legal India Express Computer

Capitaline Database

Business Beacon

Data Monitor Database

CRISIL Reports

IBEF Report

Market & Research

Documents

Section F, Group 2 - Retail Industry in India (2)