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AN ANALYSIS OF INDIAN RETAIL INDUSTRY

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					                             INDUSTRY ANALYTICS

                 AN ANALYSIS OF INDIAN RETAIL INDUSTRY


SUBMITTED BY:

     GROUP NO. : 5

     SECTION     :E



GROUP MEMBERS:          Anshuman Sharma (08 PG 289)
                       G. Praneetha (08 PG 301)
                       Kushal Rastogi (08 PG 313)
                       Parul Pratap Rai (08 PG 323)
                       Priya Rajvansh (08 PG 334)
                       Swayamvara Singh (08 PG 349)


SUBMITTED TO:    Dr. R.Venkatamuni Reddy

DATE OF SUBMISSION: 25.02.2009
                                                                                                        2




                                 ACKNOWLEDGEMENT



We are immensely grateful to Dr.R.Venatamuni Reddy for providing us with valuable inputs for

this report through his in-depth analysis of the industries of India as well as globally. This report

wouldn‘t have been successful without his guidance, which made a subject like Industrial

Analytics very interactive and interesting. His approach in teaching familiarized us to use

databases and hence make broad decisions. This report would prepare the students for the

Student Internship Program and give comprehensive insight into the Indian Economy and the

Indian Retail industry.




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                                                 Table of Contents

1.      GLOBAL RETAIL SECTOR .............................................................................................. 9

     1.1 Growth in the Global Retail Market ...................................................................................... 9

     1.2 Present State of Global Retail Industry ............................................................................... 12

2.      OVERVIEW OF INDIAN RETAIL SECTOR................................................................. 14

     2.1 Structure of Indian Retail Sector ......................................................................................... 14

     2.2 Growth prospects in Indian Retail Sector ........................................................................... 15

     2.3 Evolution in Organized Retail ............................................................................................. 16

     2.4 Impact of Recession ............................................................................................................ 19

3.      KEY DRIVERS OF GROWTH IN INDIAN RETAIL.................................................... 22

     3.1 Consumer or Demand-Side Drivers .................................................................................... 23

     3.2 Retailer or Supply-Side Drivers .......................................................................................... 28

     3.3 Opportunities of Retail Sector ............................................................................................. 31

     3.4 Key challenges impeding the growth of Organised Retail in India .................................... 34

     3.5 Retail Solutions from CISCO .............................................................................................. 39

4.      COMPANY ANALYSIS ..................................................................................................... 41

     4.1 SHOPPERS‘s STOP LIMITED .......................................................................................... 41

        4.1.1 Investment Strategies .................................................................................................... 41

        4.1.2 Strategies Adopted Over Time to Tackle Competition ................................................. 42

     4.2 TRENT LI MITED.............................................................................................................. 44

        4.2.1 Investment Strategies .................................................................................................... 44

        4.2.2 Strategies Adopted By Trent Ltd. to Tackle Competition ............................................. 45

     4.3 VISHAL RETAIL LIMITED ............................................................................................. 46

        4.3.1 Strategy employed by Vishal Retail Ltd. ....................................................................... 47


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                                                                                                                                                       4

     4.4 PROVOGUE (INDIA) Ltd.................................................................................................. 48

        4.4.1 Expansion Plans ........................................................................................................... 49

        4.4.2 Marketing Strategy ....................................................................................................... 49

        4.4.3 Investment Strategy....................................................................................................... 51

     4.5 PANTALOON RETAIL (INDIA) LIMITED .................................................................... 52

5.      QUANTITATIVE ANALYSIS ........................................................................................... 55

     5.1 Ratio Analysis ..................................................................................................................... 55

     5.2 Comparative Analysis of Companies with the Industry...................................................... 59

        5.2.1 Debt Equity Ratio ......................................................................................................... 59

        5.2.2 Current Ratio ................................................................................................................ 60

        5.2.3 Inventory Turnover Ratio ............................................................................................. 61

        5.2.4 Interest Cover Ratio...................................................................................................... 62

        5.2.5 Return on Capital Employed ........................................................................................ 63

        5.2.6 Return on Net Worth ..................................................................................................... 64

     5.3 Trend Analysis .................................................................................................................... 66

        5.3.1 Shopper’s Stop .............................................................................................................. 66

        5.3.2 Trent.............................................................................................................................. 69

        5.3.3 Vishal ............................................................................................................................ 72

        5.3.4 Provogue ....................................................................................................................... 74

        5.3.5 Pantaloons .................................................................................................................... 77

6.      QUALITATIVE ANALYSIS.............................................................................................. 81

     6.1 Porter‘s Five Forces of Analysis ......................................................................................... 81

     6.3 SWOT Analysis................................................................................................................... 84

        6.3.1 Shopper’s Stop .............................................................................................................. 84

        6.3.2 Trent Limited ................................................................................................................ 86


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        6.3.3 Vishal Retail Limited .................................................................................................... 88

        6.3.4 Provogue India Limited ................................................................................................ 90

        6.3.5 Pantaloons Retail India Limited ................................................................................... 92

7.      FUTURE OF INDIAN RETAIL ........................................................................................ 94

     7.1 Comparison of past and future ............................................................................................ 94

     7.2 Private label development progression ............................................................................... 96

     7.3 The Best is yet to come ....................................................................................................... 97

     7.4 Facts and Figures ................................................................................................................. 98

     7.5 Recommendations ............................................................................................................... 99

References .................................................................................................................................. 102

Glossary ..................................................................................................................................... 105




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                                            Table of Graphs
Graph 1.1 - Global Retail Sales .................................................................................................... 10

Graph 2.1 Total Share of Retail Sector in India............................................................................ 15

Graph 2.2 Organized Retail as a % of Total Retail Sales - 2008 .................................................. 17

Graph 2.3 Penetration of Organized Retail ................................................................................... 18

Graph 3.1 Growth in Private Consumer Spending ....................................................................... 23

Graph 3.2 Growths in Population ................................................................................................. 25

Graph 3.3 Increase in Internet Usage in 2008............................................................................... 26

Graph 3.4 Growing Young Population ......................................................................................... 31

Graph 3.5 Labor Cost per Worker across Asian Countries .......................................................... 33

Graph 4.1 Presence of Vishal Retail across .................................................................................. 46

Graph 5.1 Past 5 year Ratio analysis for Retail Sector ................................................................. 56

Graph 5.2 Comparison of Debt Equity Ratio of Major players .................................................... 59

Graph 5.3 Comparison of Current Ratio of Major players ........................................................... 60

Graph 5.4 Comparison of Inventory Turnover Ratio of Major players ........................................ 61

Graph 5.5 Comparison of Interest Cover Ratio of Major players................................................. 62

Graph 5.6 Comparison of ROCE Ratio of Major players ............................................................. 63

Graph 5.7 Comparison of Return on Net Worth Ratio of Major players ..................................... 64

Graph 5.8 Shopper‘s Stop – Sales Trend Analysis ....................................................................... 67

Graph 5.9 Shopper‘s Stop – Expenditure Trend Analysis ............................................................ 68

Graph 5.10 Shopper‘s Stop – Profit Trend Analysis .................................................................... 68

Graph 5.11 Trent Limited – Sales Trend Analysis ....................................................................... 70

Graph 5.12 Trent Limited – Expenditure Trend Analysis ............................................................ 70


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Graph 5.13 Trent Limited – Profit Trend Analysis....................................................................... 71

Graph 5.14 Vishal Retail – Sales Trend Analysis......................................................................... 72

Graph 5.15 Vishal Retail – Expenditure Trend Analysis ............................................................. 73

Graph 5.16 Vishal Retail – Profit Trend Analysis ........................................................................ 73

Graph 5.17 Provogue – Sales Trend Analysis .............................................................................. 75

Graph 5.18 Provogue – Expenditure Trend Analysis ................................................................... 75

Graph 5.19 Provogue – Profit Trend Analysis.............................................................................. 76

Graph 5.20 PRIL – Sales Trend Analysis ..................................................................................... 77

Graph 5.20 PRIL – Expenditure Trend Analysis .......................................................................... 78

Graph 5.20 PRIL – Profit Trend Analysis .................................................................................... 78

Graph 7.1 Private label development progression ........................................................................ 96




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                                                                                 8




                                 Chapter 1
               GLOBAL RETAIL SECTOR




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                                                                                                     9

1. GLOBAL RETAIL SECTOR

Retailing involves all activities accompanying to selling to ultimate consumer for their personnel
family and household use, from a fixed location such as a department store or kiosk, in small or
individual lots for direct consumption by the purchaser. Retailing is the interface between the
producer and the individual consumer buying for personal consumption. Hence the success of
retailing is highly dependent on an efficient supply chain management.


1.1 Growth in the Global Retail Market

The confluence of market forces has created an extremely complex climate for the global retail
industry. In mature markets, retail sector is challenged by its inability to grow and maintain
profit margins as a result of a constrained operating environment, market maturity & situation,
slow population growth and more demanding consumers as well as highly volatile consumer
behaviour.

According to the research conducted by MVI (Management Ventures Inc) in 2007 found that
modernizing retailers need capabilities in six core areas to win in the changing environment.
                                        Pricing



                                 Finance          Brand




                                       Operations
                   Measurement                            Execution




Today retailing is a primary driver of the global economy and has become an essential part of
our lives. Of the world‘s 10 largest retail companies, six are from the US and four are from
Europe. These top ten had combined sales of $978.5 billion in 2007, according to international
consulting group, Deloitte.



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                              Graph 1.1 - Global Retail Sales

  14
                                                                            13.06
                                                           12.17
  12                                                                12.61
                                                      11.44
  10                                          10.46
             8.37            8.6     9.47
                     8.35
   8


   6                                                                                       Value (US $ tn)


   4


   2


   0
    1999   2000     2001    2002   2003     2004   2005    2006    2007     2008    2009


Data Source - Economic Cell, AEPC

The issues that were competing for the retailers from the past 2 years are the power of
technology, product transparency, privacy and security, Green business model, Talent
management

To maintain the highest level of profitability, retailers are establishing a presence in fertile
foreign markets. Retail organizations now view their potential market share to include worldwide
consumers, not just customers in their home country. Among the top 5 retailers in the world in
terms of the revenue the largest retailer is, Wal-Mart which has its headquarters in US. The
second largest retailer in the world is Carrefour of France followed by Tesco of UK, Metro of
Germany and Home Depot of US.


Most Preferred International Retail Markets

The following table gives the top 15 countries which has the highest presence of international
players in their retail market. India ranks 44 in the list. This is because of the FDI restrictions
prevailing in the country. The situation is expected to change because of the liberalization in the


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                                                                                                    11

FDI for retail sector which will be discussed later.

                   Table 1 – 15 Most preferred International Retail Market

     Rank              Country                         % of International Retailers Present

     1                 UK                              55%

     2                  Spain                          51%

     3                 France                          49%

     4                 Germany                         47%

     5                 Italy                           45%

     6                 Switzerland                     42%

     7                 Austria                         42%

     8                 United Arab Emirates            41%

     9                 China                           40%

     10                Russia                          39%

     11                United States                   39%

     12                Netherlands                     38%

     13                Singapore                       38%

     14                Belgium                         37%

     15                Ireland                         35%



     Source: CB Richard Ellis Press Release

It is also found that luxury goods dominated international retail scene, with almost 90 per cent
respondents in the segment having a presence in more than 10 markets. This was markedly more
than grocery, food and drinks, with just 60 per cent present in 10 or more markets.

In clothing, footwear and accessories segments, 54 per cent retailers had operations in more than


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10 markets. Many luxury retailers are well-known particularly for their clothing range, such as
Hugo Boss or Versace, reflecting the historical tendency for high fashion brands to be offered
internationally. Least division was the department stores with only 5 per cent being represented
in 10 or more markets.


1.2 Present State of Global Retail Industry

In 2009 in the retail industry Cutbacks, layoffs, closings and bankruptcy are the hottest retail
trends in 2008. History will point to 2008 as the official beginning of a massive global retail
recession. There were record-breaking declines in sales, inventories, and consumer confidence
that caused revenue losses.

As it was predicted in the Deloitte report, ―2008 Industry Outlook: A look around the corner,‖
U.S. retailing is challenging due to fears about the housing market, tightening credit, not to
mention high gas prices and cost of living increases. The big retailers have been compensated
top U.S. CEOs in fiscal year 2008 which ranged from a high of $30.6 million to a low of $1.00,
according to Salary.com. Robert Iger, Walt Disney Co. received $30.6 million and Steve Jobs,
Apple received $ 1.00 (source: About.com – Overview of retail sector)

As a result the retailers need to struggle to enhance sales by being creative and competitive but
it's not enough to just show up. History shows that the retailers who survive economic setbacks
are the ones who get inventive, get resourceful, and get noticed.

―One of the most exciting things to watch in the global retail landscape is the growth and
influence of the BRIC emerging markets (Brazil, Russia, India and China). China is already a
strong global performer and represented in the top 10 most international markets in our study.
Within the primary cities, such as Beijing, Shanghai and Guangzhou in China, there is a
significant concentration of wealth and it is around these cities that much of the international
retail activity is well centred‖, Mr. Davies underscored. `Deloitte in its report, ―Global retail
trends for 2009‖ has mentioned that successful retailers will find a way to enhance their
customer experience, improving risk management, cutting cost, human resource management,
multi-channel approach, thinking globally and branding.



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                                                                                 13




                                 Chapter 2
                 INDIAN RETAIL SECTOR




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                                                                                                    14

2. OVERVIEW OF INDIAN RETAIL SECTOR

India is one of the largest and highly fragmented Retail markets globally with the highest retail
outlets in the world crossing over 12 million with unorganized players accounting for around 5%
of market share. Among this unorganized player more than 80 percent of these run as small
family businesses in small towns and cities in the form of ‗kirana stores‘, ‘push cart vendors‘,
‘melas‘ and ‗mandis‘. In terms of employment the retail outlet in the unorganized sector feeds a
household of six to seven members. The big retail players are beginning to realize the
significance of this untapped market by entering these markets and are being accepted by these
rural consumers. The rural retail revenues are estimated to increase by 60 per cent by 2012, with
larger share of increase in demand for consumer and household products.


2.1 Structure of Indian Retail Sector

The Indian retail industry can therefore be broadly divided into organized and unorganized
retailing. Unorganized sector constitutes of the local kiranas, hand cart, the vendors on the
pavement etc. Unorganized retailing is still the backbone of the Indian retail industry
contributing to over 95 per cent of total retail revenues.

The organized sector on the other is hand trading undertaken by the licensed retailers who have
registered themselves to sales as well as income tax. They constitute of corporate backed
hypermarkets and retail chains. This modern retail has entered India as seen in sprawling
shopping centres, multi-storeyed malls and huge complexes offer shopping, entertainment and
food all under one roof.


Advantages of Conventional and Modern Organized Retail Formats

Conventional                                        Modern Organized
Large bargaining power                              Low operating-cost and overheads
Proximity to consumers                              Range and variety of goods
Long operating-hours Strong relations with Long operating-hours Quality assurance (brand
customers Convenience and hygiene                   related, durability) Quality assurance (brand
                                                    related, durability)


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2.2 Growth prospects in Indian Retail Sector

The Indian retail industry today is the 5th largest retail destination and the second most
attractive market for investment in the globe after Veitnam as reported by AT Kearney's
seventh annual Global Retail Development Index (GRDI), in 2008.The growing popularity of the
Indian retail sector has resulted in a growing awareness about brands and quality products. As a
whole Indian retail sector has made life convenient, easy, quick and affordable. Indian retail
sector, especially organized retail is growing rapidly, with the customer spending growing in an
unpredicted manner. It is undergoing a metamorphosis. The diagram clearly demonstrates the
evolution of the retail industry. Till 1980 the retail industry continued in the form of kiranas that
is unorganized retailing. Later in 1990s Branded retail outlets like Food world, Nilgris and local
retail outlets like Trinetra super market, Apna Bazaar, came into existence. Now big players like
Reliance, Bharti, Tatas, ITC and other reputed companies are entering into organized retail
businesses.


                 Graph 2.1 Total Share of Retail Sector in India




(Data Source: Datamonitor)

The big multinational retailers are slowly entering India in the form of direct entrance eg: - Nike,
Reebok, Metro etc or Joint Ventures e.g.: - Bharti with Wal-Mart and Tata‘s with Tesco. 2008
onwards the retail sector realized the significance of technology and understanding the

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opportunities the retail sector had to offer efforts have been made to leverage traditional formats.
It is estimated that 2011 will see a remarkable growth in retail sector in terms of investments to
optimally benefit from the unexplored retail market.


2.3 Evolution in Organized Retail
The Organized Retail Industry in India is estimated to be around US $25.4bn at the end of
CY2008, which only around 5% of total retail market. Among the BRIC countries only in India
the share of organized retail is low. The share of organized retail in other BRIC countries is,

                                            Evolution of Indian Retail
                                            Industry




                                                                                       M&A, Consolidation,
                                                                                        High Investments,
                                                                                       Confluence of Indian
                                                                                              Retail

                                                             Technology Adoption,
                                                                   Leveraging
   Growth




                                                              Traditional formats
                                                               for Modern Retail
                                        Range, Portfolio,
                                        Format Options,
                                        Beginning of the
                                                                           Per capita Retail Space
                                       Rural-Urban Retail
                 Entry, Growth,              Merge
               Expansion, Top Line
               Focus for Organized
                      Retail
            2000




                                     2005




                                                            2008




                                                                                    2011




                   1st Phase                2nd Phase              3rd Phase               4th Phase

              Source:IBEC



Brazil (36%), Russia (33%) and China (20%). Globally, Organised Retail accounts for around
52% of Total Retail. It is seen that the organized sector in India still has a long way to go


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because the unorganized retail still continues to dominate the retail market.

But the organized retailing is growing at a fast pace. The organized retail market is presently ~5
percent of the total retail, that is around Rs 67,310 crores and is expected to compound at 27
percent per annum, aggregating to Rs 1,75,103 crores (7.44 percent of the total retail) in 2010-
11. The organized Share of retail sector is expected to increase to 8-9 percent in 2010-11 as
compared to 4 percent in 2007.However due to urban rural divide the growth is likely to
concentrate more on metros and large cities.

Kamal Nath, India‘s minister for Commerce & Industry was quoted as saying ―The India Retail
Report 2009 is a well researched and professionally presented document that brings forth several
opportunities that could benefit the Indian consumers. I look forward to the Indian retail sector
continuing on its developmental growth path and spreading its benefit to all.‖


      Graph 2.2 Organized Retail as a % of Total Retail Sales - 2008




(Data Source:ICRIER Retail Report 2008)

The graph shows that the growth in the retail sector is assured and inevitable. In this sense the
retail industry does indeed spread its benefit to all. Today it contributes around 12% to the GDP
as compared to around 8-10% in 2007 and is likely to reach 22% by 2010 touching around US$
416 billion. McKinsey report 'The rise of Indian Consumer Market', estimates that the Indian
consumer market is likely to grow four times by 2025.That will be an incredible contribution in

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terms of employment.

In the present the Indian retail sector provides employment to 8 per cent of the nation's
workforce which is expected to augment in the future.

The food and grocery constitutes the highest retail volume and this share has shown a
tremendous growth over the years. This is the largest vertical of 74.4 percent of retail size that
compromises of fruits and vegetables, milk and milk products, staples, cereals and other eatables.
According to NSSO 60th round, 54 percent of the rural and 42 percent of urban expenditure was
on food.


                        Graph 2.3 Penetration of Organized Retail
                                                 Penetration of Organized Retail

     Books, Music and Gifts         13.08                                    86.92


                  Footwear                   32.84                                      67.16


               Beauty Care            3.56                              96.44


      Jewelry and Watches      6.19                                      93.81


           Home Décor and
                                   8.76                                    91.24
             Furnishing


       Consumer Durables             17.04                                      82.96


        Clothing and Textile         16.39                                      83.61


       Food and Beverages           0.98                                99.02


                               0                20                 40              60           80   100
                                                Organized Retail          Traditional Retail



           (Source: IBEC)
The second largest share is commanded by the apparels. Clothing and textile is a large organised
vertical and is dominated by big retailers like Pantaloon, Pyramyd, Koutons. This owes to the
increasing disposable incomes and change in the lifestyle.



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The organized retail is attracting and will continue to attract the entry of new players both
domestic and foreign as can be observed by the variety of domestic and international brands
available in stores.


(Organised Vs Unorganised) Vs Foreign Investors
There have been huge controversies regarding the organized retail taking over the unorganized
sector and the following adverse impact on the lives of various local retailers. The small retailers
feel that they cannot fight the big retailers like reliance fresh, spencers, food bazaar that are
taking away their market share.

For the security of domestic retailers there was a ban on foreign investment in multi brand
retailing that kept big foreign players like Wal Mart and Carrefour from entering India. But now
FDI of 51% is permitted in India though only through single branded retail outlets and not
through multi brand outlets. Again they can only enter the market through franchisees. This is
how global players are entering India, like Wal-Mart entering India in join hands with Bharati
Enterprises. However domestic companies like Reliance Industries, are confident that even if
foreign players enter the Indian market the domestic retail players will continue to have a
competitive advantage over them. Competitive advantage will be achieved due to low labor and
property costs. New entrants to the organized retail sector will also face higher labor and
property costs than traditional firms and must bear the additional expense of back-up power
supplies. Other barriers will include expensive and often inadequate supply-chain infrastructure,
inflexible labor laws, complicated property codes, multiple licensing requirements and a shortage
of skilled managerial staff.


2.4 Impact of Recession

Interestingly despite the global crisis when other sectors are struggling to survive the retail sector
has not been impacted in a big way as revealed by the ETIG analysis conducted by the economic
times. According to the second-quarter results of leading 70 consumer-related firms there was a
rise in their aggregate revenues by 8.5 per cent during the September 2008 quarter over the same
period in 2007. Even though this was lower than the 9 per cent growth posted during the first
quarter of 2008-09, it was a lot higher than the 7 per cent registered during the previous three


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quarters for these firms. There is further good news when the retail rentals dropped by around
30-40%. Further drops in rentals can be expected in 2009 which will open a plethora of
opportunities for the retailers in terms of their expansion plans.

The extraordinary role played by retail sector throughout the world in increasing productivity of
consumer goods and services are commendable. It is also becoming a major industry by creating
millions of employment opportunities for people directly and indirectly. Retail industry has
become one of the most dynamic sectors in India with numerous players entering the market and
this in turn has made the industry competitive and lucrative.




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                                                                                 21




                                 Chapter 3
       KEY DRIVERS, OPPORTUNITIES &
               CHALLENGES




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                                                                                                     22

3. KEY DRIVERS OF GROWTH IN INDIAN RETAIL

The Indian retail industry has a size of $300 billion and its contribution to the Indian economy
has been enormous. As a result of improvement in income dynamics, favorable demographics
and spending patterns India has witnessed an unprecedented consumption boom. The attitudinal
shift of the Indian consumer in terms of "Choice Preference", "Value for Money" and the
emergence of organized retail formats have transformed the face of Retailing in India. It has
helped improve the standard of living of most Indians and will continue to do so in the future.
Policy makers are optimistic about the growth prospects of the retail industry and its followed
impact on the Indian economy as a whole.

      70% of organised retail is concentrated in 6 major cities.
      Of 300 million Indian middle class, only 15% live in these 6 major cities, which means
       there‘s huge buying power in India‘s tier 2 and 3 cities, location of several of the Fund‘s
       developments (currently highly under serviced).

At present Organised Retail in India is at a blossoming stage but its growth is at a scorching
pace. The key drivers that will sustain this growth can be categorized as,

    Consumer or Demand-side drivers
    Retailer or Supply-side drivers.




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                                                                                                  23

3.1 Consumer or Demand-Side Drivers

   a) Increasing Disposable Income of Indian Middle class

The Indian Middle class comprising Seekers and Strivers is the consuming class and prime target
segment for Retailers in India. These two categories together constituted around 6.4% of Total
Households in India in 2005 but accounted for 20% of the disposable income.


              Graph 3.1 Growth in Private Consumer Spending




    The increase in the consumer spending over the five consecutive years has been above
       average from FYO4-FY08. The Indian Middle class is gaining weightage, both in terms
       of volume as well as value.


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                                                                                                  24

    The middle class is estimated to constitute around 25% of Total Households by 2015 and
       46% by 2025, controlling 44% and 58% of the total disposable income in the country by
       2015 and 2025, respectively.
    This growth in the Indian Middle class coupled with growth in their disposable income
       levels which will drive future growth of Organised Retail in India. population having
       incomes higher than Rs 90,000) is expected to reach 48 percent by 2009-10 from 20
       percent in 1995-95.
    During FY2004-08, the real per capita income growth averaged around 7.3%, which was
       higher than average Inflation of 5.1% during the period.
    This bodes well for Indian Retail as consumers are likely to spend more and stabilise
       their savings for future big-ticket purchases.
    We believe that long-term growth in per capita income will induce consumption Indian
       consumers that will result in growth of Indian Retail Industry.


   b) Personal Consumption as a percentage of GDP

Personal consumption as a percentage of GDP India is second only to Vietnam in Asia and a
close fourth globally. Robust growth of Indian economy will result in increase in personal
consumption as a percentage of GDP. According to IMA, Asia, India had one of the highest
personal consumption as a percentage of GDP in Asia at around 55% in 2007. This portends well
for Indian Retail as with per capita income growing, this personal consumption would translate
into higher Retail Sales. Hence, India with one of the highest personal consumption as a
percentage of GDP in Asia, seems to be a better and more opportunistic bet in the Retail Sector
compared to China (~35%), Singapore (~45%), Hong Kong (~50%) and South Korea (~46%)


   c) Population As a Growth Driver

Growing Working women population

The propensity to spend in the case of working women is higher by 1.3 times as compared by
housewives. According to the census report, the population of working women increased to 26
percent in 2001 as compared to 22 percent in 1991.



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                                                                                                    25

Adoption of Nuclear Family culture

The increase in per capita income paved way to increase the nuclear-family culture. The
proportion of nuclear families as a percentage of total household population has increased as
shown by fall in average household size from 5.57 in 1991to 5.36 in 2007, expected to fall
further to 5.02 by 2011. This will fuel the growth of organised retail.


Baby Boomer Effect

The demographics of Indian population has a steep growth in earning population (15-60 yrs). In
2000, 593 million people (58.3percent of total population) constituted the age bracket of 15-60
yrs – growing from an unprecedented level of 335 million people (54 percent of total population)
in 1975 at a rate of 77 percent (CAGR of 2.3 percent) in contrast to a population growth of 64
percent (CAGR of 2 percent) over the same period of 25 years. Over the next 15 years, the
earning population is expected to increase to 62.8 percent in 2015, translating into a population
of 782 million.


                          Graph 3.2 Growths in Population




Growth in Urban Population

Urbanization has increased at a rate of 2.7 percent over the last 10 years (1990-2000). In 2000,



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                                                                                                    26

the urban population was estimated to be 281 million (27.7 percent of the total population). This
trend is likely to continue and urbanization is expected to grow at 2.4.


   d) Plastic Money becoming a greater Pie of credit

According to Euro monitor, India is the second fastest growing Financial Cards market in the
Asia - Pacific region. India's Credit Card base is estimated to grow at an annual rate of 30-35%
from 27mn cards in 2007. It is expected that Credit Card growth would remain on high growth
trajectory and fuel growth in Modern Retail on Credit. The Indian Retail Market is estimated to
be US $511bn at the end of CY2008 out of which Credit Cards Sales are expected to contribute
around 1.2%, which is expected to be around 1.4% of the total Retail Sales in India at the end of
CY2010. Indian consumers are increasingly using Credit Cards for purchasing and shopping,
dining, jewellery and durable goods due to attractive and consumer friendly schemes by various
banks. A natural progression for Retailers like Pantaloon and Shoppers' Stop has been the
Loyalty cards that and either standalone or in collaboration with banks and offer discounts and
free purchases to the cardholders. Also it is believed that these Loyalty cards hold the key to
future growth of Modern Retail in India.


   e) Internet Driving Awareness and Online Purchases

There has been a substantial increase in the number of Indians using the Internet. Indians have
started using the Internet not only for increasing awareness but also to shop online. This, along
with the increase in Credit Cards and options like cash-on-delivery have opened new avenues for


                  Graph 3.3 Increase in Internet Usage in 2008




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Indian consumers. Indian Retailers are missing out on the opportunity that Amazon.com and
EBay are providing to the US consumer. Recently, Future Group, the owner of Pantaloon,
launched futurebazaar.com to capture the ever-growing Internet savvy Indians. Such web portals
not only provide the convenience of home shopping but also provides the advantage of savings
on costs managed by Organised Retailers. Since there will be demographic shift in population
growth, urbanization and migration due to transition in urban household growth and income
distribution. The total retail market in the top 67 cities in India in 2006 was Rs. 2.55 trillion,
which is expected to increase to Rs. 3.91 trillion in 2011. According to CRISIL, around 87
percent of the retail opportunity comes from top 25 cities compromising

    Metro: Delhi, Mumbai, Calcutta
    Mini Metros: Hyderabad, Chennai, Bangalore, Ahmedabad and Pune
    Tier I cities: Kanpur , Nagpur, Surat and Ludhiana
    Tier II cities: Coimbatore, Chandigarh, Lucknow, Kochi, Jaipur
    Tier III cities: Vadodara, Vizag, Indore, Vijaywada, Thiruvananthpura,Bhopal, Nashik
       and Madurai.


   f) Increasing technology adoption

    With modern retail store formats growing players are increasingly deploying advanced
       Information Technology tools for managing their supply chain, warehousing and logistics
       requirements.
    Retail sector constituted 8 per cent of the IT export revenues in 2005-06. Apart from the
       industry giants, the small scale retailers are also embracing IT solutions to optimise their
       operational efficiencies. Big league IT firms like IBM India, Oracle and SAP are
       developing solutions for smaller retailers‘ requirements.
    The Food & Grocery (F&G) segment enjoys dominant market share of 75% of the Indian
       Retail Sector but has miniscule 1% penetration in Organised Retail Hypermarts to lead
       the Future growth in Organised Retail.




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3.2 Retailer or Supply-Side Drivers

   a) Increased Investments in Retail

    According to the E&Y estimates investments in Organised Retail will possibly touch US
       $25bn in 2010, up from US $3bn in 2006. Funds would essentially flow into the sector
       through Private Equity, IPO route and infusion of funds through warrants.
    This will allow organised players in Retail to expand at a very high rate and play on
       economies of scale in the Supply Chain and procurement.
    Also it is believed that due to the current economic environment and delays on part of
       Real Estate developers of around 18-24 months in terms of execution, around half of US
       $25bn of investments would materialise by FY2011E.
    At an average investment of Rs3,000 per sq. ft. By Retailers, these investments would
       translate to 175mn sq. ft. of Organised Retail space by FY2011.
    All key Retailers in India have chalked out substantial investments over next 3-4 years to
       fuel their expansion plans.
    Pantaloon is expected to invest around Rs6,000 cr over the next four years to fuel its
       three-fold expansion plan and take its total Retail space to 26mn sq. ft. by FY2012.
       Vishal Retail is expected to invest Rs3,000cr to fuel its ambitious five-fold expansion
       plan to take its total Retail space to 10mn sq. ft. by FY2011.


   b) Tier- II & III cities to fuel future growth of Modern Retail

The initial Retail revolution in India began in the big Tier-I cities. However, now the Retail hubs
in India are now finding their way to the smaller Tier-II and III cities as well, which have
hitherto been left out of it. The changing landscape of Indian Retail and increasing competition
has also forced Retailers to tap growth opportunity in Tier-II and III cities in India. The Top-784
cities in India constitute about 26% of population and contribute 35% to Total Retail Sales. Tier-
II and III cities account for 18% of the overall population and contribute 22% to the Total Retail
sales. Thus, there are substantial opportunities to be tapped in Tier-II and III cities of India
for expansion of the Retail footprint

Growth Markets: Organised Retail in places like Lucknow, Ludhiana, Jaipur, Chandigarh and


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Kochi are at growth phase as the people in these cities have the money to spend but don‘t have
enough Organised Retail outlets. So this is where the next big opportunity for Retailers lies.

Emerging Markets: Amidst the Retail activity, due to development, the distant and emerging
towns like Agra, Amritsar, Indore, Nashik, Mysore, etc. are understanding the meaning of
Organized Retail and discovering the shopping experience at Malls. It can be estimated that
Organised Retail can strengthen its base here over the next 4-5 years to reap profits.

Nascent Markets: At the end of the Retail spectrum lie towns like Varanasi, Srinagar, Bhopal,
Rajkot and Guwahati where consumers are getting aware about the concept of Organised Retail
and its benefits. However, these places are still at a nascent stage of the Retail activity and are
expected to grow over the next 8-10 years.


   c) Shortened Supply Chain benefits consumers

A Traditional supply chain in India comprises 5-6 levels from Wholesaler to Sub-Wholesaler to
the Distributor to the Local Mom and Pop stores to the Consumers. Two major disadvantages of
this Supply Chain are as follows:

     a) Cost of the product increases at every stage of the Supply Chain resulting in increase
        in the price of the products due to cascading effect, and
     b) Increase in shrinkage at every stage of the Supply Chain results in loss of goods for
        consumption.




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                             Traditional v/s Modern supply chain




One of the biggest advantages of a Modern Retail Supply Chain has been elimination of the
middlemen thereby reducing the intermediaries to 2-3. This shortening of Supply Chain favours
the farmers (in case of agricultural goods) or manufacturers as they get better price for their
products and consumers benefit from the low prices that retailers can afford to offer due to the
savings arising out of shortening of the Supply Chain. Both the Traditional and Modern Supply
Chain work in tandem in the current Retail environment in India.




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3.3 Opportunities of Retail Sector

India is going to be an attractive destination for global operations with leading retailers seeking
emerging markets overseas. India presents a significant market with a young population just
beginning to embrace lifestyle changes.


   a) Rapid Economic Growth

    The fast and furious pace of the Indian economy is the driving force for the Indian
       consumerism, confident about earnings , and also spending a large proportion of their
       disposable incomes.
    Projections by various analysts suggest that India has the potential to be labelled the
       fastest-growing economy and the developed economies by 2050. India, promises a
       continued robust growth story.


   b) The Young India

                       Graph 3.4 Growing Young Population




    India possesses the advantage of having a largely young population. 35 percent of India‘s
       population is under 14 years of age and more than 60 per cent of the population is

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                                                                                                     32

      estimated to constitute the working age group (15-60) till 2050.
    This trend is projected to continue for the next decade, with the share set to reach its
      maximum in 2010. The large proportion of the working-age population translates to a
      lucrative consumer base vis-à-vis other economies of the world, placing India on the
      radar as one of the most promising retail destinations of the world.


   c) Potential Untapped Market

    India ranks first, ahead of Russia, in terms of emerging market potential.
    Organised retail penetration is on the rise and offers an attractive proposition for entry of
      new players as well as scope for expansion for existing players. A steadily rising
      percentage of rich and super rich population and impressive disposable incomes offers a
      spectrum of opportunities, spanning from rural retailing to luxury retailing.
    Pantaloon Retail India Limited, one of India‘s retail giants captures a mere 0.3 per cent of
      total market; compared to Tesco Plc, which captures 14.3per cent of England‘s market
      and Walmart which captures 20 per cent of USA‘s market; giving an insight into the
      large untapped market potential.


   d) Abundant Availability of Skilled Labour

    India has a vast resource base of talent and skilled labour. Over 37,000,000 students were
      enrolled in about 150,000 pre-college institutes and over 11,700,000 in 14,000 higher
      education institutions in 2005-06
    With English being the language for business in India, the language skills of the Indian
      workforce score higher than that of emerging economies.
    Retail Management is a sought after education stream amongst students, with over 15
      premier institutes offering specialised courses in Retail Management.


   e) Emergence of India as the Retail Hub

    Riding on the back of a strong manufacturing industry, India is fast emerging as an
      important global sourcing hub for top international brands. India has had a continued
      presence in the global scenario as one of the leading exporters of apparels and textiles.


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                                                                                                 33

    The expiry of the Multi Fiber Arrangement has further widened the global markets for
       apparel. Many international brands have identified India as one of the important supply
       centres for procurement of textiles and apparels
    Wal-Mart‘s sourcing operations was estimated at US$ 1 billion, Tesco‘s around US$ 100
       million


         Graph 3.5 Labor Cost per Worker across Asian Countries




   f) Low Cost of Operations

The most attractive component of India‘s value proposition is its cost attractiveness. Leading
players are turning towards the TIER 1 & TIER 2 cities as these cities offer cost advantage in
terms of low cost labour .Also well educated individuals are turning to these cities are ideal
candidates to boost the growth of modern organised retail formats.




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3.4 Key challenges impeding the growth of Organised Retail in India

The key challenges facing Organised Retail in India are acceptance of Organised Retail by the
Traditional retailers (which is leading to tougher regulatory measures by the government), supply
chain inefficiencies, high real estate costs, increasing personnel costs, high execution risks in
terms of store rollouts and high shrinkage that hits Retailers' Bottom-lines. We believe that these
challenges would result in Margin contraction for most players. However, increasing economies
of scale and scope would result in savings for the Retailers and mitigate Margin contraction to a
large extent

    Formats like ―Wedding Malls‖, which are unheard of in the far west are found to be very
       successful in the Indian market. The Wedding Malls for instance, stock the complete
       range of wedding product offerings from apparel to jewellery.
    The retail industry players are successfully blending knowledge from the experiences of
       the global retail industry with the unique requirements and preferences of the Indian
       consumer. Such customisation to the latent needs of the Indian consumer has brought
       about a great deal of innovation in the product offerings as well the retail formats in
       which they are being sold.
    Khadi & Village Industries Commission is set to roll out a string of swanky ―Khadi
       Plazas‖, which would showcase the traditional handloom textiles in a completely new
       form.
    Over 7,000 existing outlets are to be beefed up to cater to the changing tastes of the
       young Indian consumer and thereby provide a boost to the presently stagnant sales of the
       khadi textiles. The latest   addition to the list of diverse retail formats are the ―Village
       Malls‖, with the fair price shops being revamped to cater to larger needs of local
       populations. The Government of Gujarat has spearheaded one such initiative with 512
       ―Village malls‖ launched in the state with further plans for 508 such malls.
    Retailing as an industry in India has still a long way to go. To become a truly
       flourishingindustry, retailing needs to cross the following hurdles.

          Automatic approval is not allowed for foreign investment in retail.
          Regulations restricting real estate purchases, and cumbersome local laws.


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         -Taxation, which favors small retail businesses.
         Absence of developed supply chain and integrated IT management.
         Lack of trained work force.
         Low skill level for retailing management.
         Intrinsic complexity of retailing – rapid price changes, constant threat of product


   a) Obsolescence and Low Margins

    The retailers in India have to learn both the art and science of retailing by closely
      following how retailers in other parts of the world are organizing, managing, and coping
      up with new challenges in an ever-changing marketplace.
    Indian retailers must use innovative retail formats to enhance shopping experience, and
      try to understand the regional variations in consumer attitudes to retailing. Retailing
      marketing efforts have to improve in the country- advertising, promotions, and
      campaigns to attract customers; building loyalty by identifying regular shoppers and
      offering benefits to them; efficiently managing high-value customers; and monitoring
      customer needs constantly, are some of the aspects which Indian retailers need to focus
      upon on a more pro-active basis.
    Despite the presence of the basic ingredients required for growth of the retail industry in
      India, it still faces substantial hurdles that will retard and inhibit its growth in the future.
      One of the key impediments was the lack of FDI status, which is now allowed.
    There is a limited capital investment in supply chain infrastructure, which is a key for
      development and growth of food retailing and also constrained access to world-class
      retail practices. Multiplicity and complexity of taxes, lack of proper infrastructure and
      relatively high cost of real estate are the other impediments to the growth of retailing.
    While the industry and the government are trying to remove many of these hurdles, some
      of the roadblocks will remain and will continue to affect the smooth growth of this
      industry. Fitch believes that while the market share of organized retail will grow and
      become significant in the next decade, this growth would, however, not be at the same
      rapid pace as in other emerging markets. Organized retailing in India is gaining wider
      acceptance.



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                                                                                                     36

    The development of the organized retail sector, during the last decade, has begun to
      change the face of retailing, especially, in the major metros of the country. Experiences in
      the developed and developing countries prove that performance of organized retail is
      strongly linked to the performance of the economy as a whole.
    This is mainly on account of the reach and penetration of this business and its scientific
      approach in dealing with customers and their needs. In spite of the positive prospects of
      this industry, Indian retailing faces some major hurdles, which stymied its growth.
    Early signs of organized retail were visible even in the 1970s when Nilgiris(food),
      Viveks(consumer durables) and Nallis(sarees) started their operations. However, as a
      result of the roadblocks, the industry remained in a rudimentary stage. While these
      retailers gave the necessary ambience to customers, little effort was made to introduce
      world-class customer care practices and improve operating efficiencies.


   b) Acceptance of Organised Retail

    Growth of Organised Retail in India largely depends on acceptance of the Modern Retail
      format in India.    There exists the challenge of Traditional Retailers accepting co-
      existence of Modern Retail in the ecosystem going ahead.
    It may be noted such opposition had also taken political overtones in recent times. A case
      in point was the hurdles faced by retailers like Reliance and Spencers' in opening their
      stores in UP and West Bengal, respectively. Another recent instance of Modern Retail
      getting impacted by political influence was Metro AG. not being able to open its Cash
      and Carry store in West Bengal due to cancellation of its APMC licence.
    At the end of it, the West Bengal government did allow the Metro AG shop. Nonetheless,
      the chain of events has forced Retailers to re-think their strategies to be in sync with the
      political bigwigs and trade unions before opening a store. Thus, even though Modern
      Retail has tremendous growth potential in India, the key players face a challenge from the
      local trade unions and political parties in the garb of upholding the rights of the
      Traditional Retailers
    Real Estate costs still high compared to global benchmarks According to industry
      experts, Real Estate costs are not in sync with sales and vary as much as 10% of sales,
      which is too high compared to 3-4% for the global Retailers. For instance, Pantaloon

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      shelled out over 8.4% in Rents and Mall Management fees in 2007-08. Such high Rental
      costs make the business model infeasible for most retailers as the current MRP regime
      does not allow Retailers to charge consumers different prices for the same product
      according to location, ie., higher price for the up-market stores and lower prices for
      downtown hypermarts.
    Moreover, many Retailers have moved out of prime destinations in various Malls in Tier-
      I cities as they are not clocking Sales in proportion to the Rent that they are paying,
      which is sometimes as high as Rs50lakh per month. Thus, it has become imperative for
      Real Estate developers and Retailers to work out a revenue-sharing model, which will
      result in a win-win situation for both. However, the final choice lies with the strategy a
      Retailer chooses to adopt.
    Vishal Retail plays on volume growth in Tier-II and III cities whereas Shoppers‘ Stop
      and Pantaloon rely on big-ticket purchases in Tier-I cities.
    Lack of specialist workers and management personnel has led to Supply-Demand
      imbalance in nascent sector.


   c) High Personnel costs

    On an average, the Indian Organised Retail players shell out upwards of 7% of Sales
      towardsPersonnel costs. For instance, Wal-Mart spends around 17% of its Revenues as
      Personnelcosts. Given that ratio, Indian salary to US salary is less than 30%, this means
      that the world's biggest Retailer, Wal-Mart spends around 5.1% of its Revenues on
      employees.
    Such high HR costs are essentially the costs incurred on training the employees as there's
      a huge deficiency of skilled labour in India. Attrition rates in the Industry are also as high
      as 50%, which is high compared to other Sectors. Factors that contribute to high rate of
      attrition in theIndian Organised Retail are change in career path, employee benefits
      offered by competition, flexible and better working hours and conditions.


   d) At the point of sale

    Instead of a PC or cash register, a growing number of Point of Sale (POS) solutions take



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       advantage of a colour touch screen at the sales counter. Many POS systems connect to
       instore computers that, in turn, link to computers at the company‘s headquarters.
    With well designed software, touch screens can provide a simple, easy-to-use mechanism
       for cashiers to handle just about any transaction—reducing training time while improving
       productivity and customer service. Touch screens are popular in the hospitality and
       convenience store industries and are rapidly gaining acceptance in other retail markets.
       Some businesses choose to combine other options with a touch screen POS.

For example, full motion video and integrated stereo speakers (or optional headphones) provide a
multi-media platform that allows these workstations to do double duty as Web- or computer-
based training during non-business hours. Add a swivel base and the associates will be able to
use a workstation to review services or products with customers.




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3.5 Retail Solutions from CISCO

Cisco retail solutions have four modules, each designed to meet specific needs in the retail
environment

STORE CONNECTIVITY              Increases operating efficiency across stores using world
                                wide-area networks(WAN‘s) and virtual private networks
                                (VPN‘S) to access corporate and store information including
                                radio   frequency identification (RFID)-based           inventory
                                management and standard retail applications
STORE MOBILITY                  Uses wireless technologies at the point of sale for faster
                                checkout and real-time product information in the store to
                                improve operations and throughout the supply chain to
                                reduce costs .
IP COMMUNICATION                Reduces retail costs through converging          data and voice
                                systems providing instant communication throughout stores
                                and with enterprise applications and resources.
STORE AS A MEDIUM               Supports employee training and productivity and maximizes
                                customer      satisfaction   within   the   store.   Broadcasting
                                multichannel shopping and digital signage as well as
                                revenue-boosting smart technologies and information kiosks.

    Retail POS printers, especially thermal printers, deliver fast, quiet printing of receipts and
       paper forms at the point of service.
    A quality thermal printer can have a positive impact on store productivity through
       intelligent design and operator-friendly features. Because of their speed, thermal printers
       can produce a record of most transactions in a fraction of a second.
    This makes it possible to add information and graphics, such as a company‘s logo, to the
       customer receipt, or to print multiple receipts for credit authorisation or for coupons,
       rebate offers or gift receipts, without adding to the transaction time.




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                                 Chapter 4
    MAJOR PLAYERS OF INDIAN RETAIL
               SECTOR




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                                                                                                    41

4. COMPANY ANALYSIS




4.1 SHOPPERS’s STOP LIMITED

Shoppers’ Stop Ltd. is a retail chain of branded and own label apparel, footwear, perfumes,
cosmetics, jewellery, leather products and accessories, home products, books, music and toys.
Shopper‘s Stop operates through 23 stores located in the cities of Mumbai, Delhi, Kolkata,
Chennai, Bangalore, Hyderabad, Pune, Jaipur and Gurgaon.

Apart from the retail store chain ‗Shoppers‘ Stop‘, the company has forayed into specialty stores
for books with ‗Crossword‘ Book Store having 41 outlets, home décor with Home Stop having 2
stores and in cosmetics and maternal care through exclusive retail agreements with international
brands like M.A.C. and Mother care having 11 stores respectively. Shopper‘s Stop Ltd. also
ventured in the Food & Beverages business by opening Brio – the café bistro having 12 outlets
and Desi Café. The Company is occupying an aggregate area of 1,152,590 sq. ft. and Crossword
Bookstores Ltd. occupies additional 201,890 sq ft.

4.1.1 Investment Strategies

   i. Aggressive store rollout

SSL has set for itself an aggressive retail expansion target of rolling out 79 stores from the
current 60, across its various store formats by FY09. It had raised Rs.1528m from its IPO to part
fund this expansion. This expansion will mark the entry of the company into Tier II cities like
Pune and Ghaziabad and also its foray into the bell weather value-retailing segment with hyper
city. The store rollout will broaden the company‘s target customer group and widen its presence
across retailing formats.



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   ii. Diversification of business to add value

SSL‘s initiative to expand into different retail formats like hypermarkets and specialty stores in
addition to its departmental store business will add significant value to the company. Though the
revenue contribution from these new formats will be small in comparison to the existing business
we expect the new divisions to add close to 30% to the profits of the company from FY07.

   iii. Strong loyalty base

SSL has one of the most successful loyalty programmes, which has resulted in its First Citizen
member‘s base increasing to 644,500, in Q1FY07 from around 400,000 in FY05. Their
contribution to sales has seen an upward spike from 50% in FY05 to 63%. This loyalty group
gives SSL a competitive advantage in terms of repeat business.

   iv. The organized retail advantage

The Indian domestic market has become an economic powerhouse with its large young working
population, burgeoning disposable income levels, and emerging opportunities in the services
sector.

Going forward, organized retailing is projected to grow at the rate of 25-30% and is estimated to
reach an astounding Rs.1, 000 bn by 2010.

   v. International Affiliations

Shoppers‘ Stop is the only retailer from India to become a member of the prestigious
Intercontinental Group of Departmental Stores (IGDS). The IGDS consists of 29 experienced
retailers from all over the world, which include established stores like Selfridges (England),
Karstadt (Germany), Shanghai No. 1 (China), Matahari (Indonesia), Takashimaya (Japan), C K
Tang (Singapore), Manor (Switzerland) and Lamcy Plaza (Dubai). This membership is restricted
to one member organization per country/region.


4.1.2 Strategies Adopted Over Time to Tackle Competition

The way to the customer‘s mind (and therefore his wallet) and the dynamics of maintaining the
novelty in a relationship have definitely changed and changed rather irrevocably. However, the

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basic tenets of identifying a customer and making him feel special have remained the same thus
providing some continuity to the ‗old school of marketing‘. Some of these basic rules or
guidelines which Shopper‘s Stop follows are:

Rule No 1: Know thy customer!

Rule No 2: Divide and Lure (with apologies to the British Empire!)

Rule No 2.1: Pamper the best

Rule No 2.2: Honour the rest

Rule No 3: Rewards do build loyalty!

Rule No 4: Show that you care

Rule No 5: Designing products to make their customer’s life better

Rule No 6: Don’t look now; the customer is changing

Rule No 7: Put the customer in charge

Shoppers‘ Stop is positioned as a family store delivering a complete shopping experience defined
by its mission, vision and values. The customers fall between the range of 16 years to 35 years
with an annual spend of around 1,50,000.

Shopper‘s Stop also has an online store that puts them way ahead of the competition. It was not
to create an alternative revenue-source to the offline stores, but to develop an extension to the
present business.

Shopper‘s Stop has launched co-branded credit cards with Citibank with a meaningful proportion
of sales already on credit cards, it would only increase going forward




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                                                                                                      44




4.2 TRENT LI MITED
Acquisition of a London-based retail chain Littlewoods by the Tatas was followed by the
establishment of Trent Ltd. which is the parent company of Westside store, Star Bazaar and
Fashion Yatra store which are chains of retail outlets promising customers an international
shopping experience and value-for-money. Contemporary, high quality designs and a plethora of
products have been successfully balanced to create the ultimate shopping experience for the
consumers. Westside has chain stores in Mumbai, Bangalore, Hyderabad, Chennai, Pune, New
Delhi and Kolkata with several departments to meet the varied shopping needs of customers
including menswear, womenswear, lingerie, kidswear, household accessories, cosmetics and
perfumes sections. Complementing the shopping ambience is a coffee shop, Cafe West, managed
by the Taj Group. Trent has 18 Westside stores and one Hyper-market in the year 2004-05.

4.2.1 Investment Strategies

   i. Rapid Growth In Stores

Trent with a total square foot area of 600,000 square feet is adding another 1 million square feet.
This means that the company expects to be about three times its size (aided with growth in same
stores sales) over the next two or three years.

   ii. Diversification strategy for business

In 2005, Trent Ltd. acquired Landmark, India's largest book and music retailer and recently the
stake has been increased to 79%. Landmark in the last 3 years has expanded rapidly with about
15 stores across the country. The subsidiaries of the Trent Ltd. are Trent Brands Ltd and Fiora
Services Ltd. In the year 2004-05, the company has acquired 100% of the share capital of
Satnam Developers and Finance Pvt. Ltd. This company is engaged in the business of


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                                                                                                    45

construction and development of real estates.

In 2006, Trent Ltd formed a strategic alliance with DLF Universal Ltd through either one or
more of its brands of Westside, Landmark and Star Bazaar has agreed to anchor the next 12 DLF
malls across various cities of India with 27 stores totaling to a million sq ft of space.

Recently in February 2009, Trent Ltd. announced a joint venture with Spain‘s fashion retailers
‗Inditex Group‘ to develop and promote ‗Zara‘ stores in India with a 49% share in it.

4.2.2 Strategies Adopted By Trent Ltd. to Tackle Competition

    Trent Ltd. has focused itself on a specific target segment that comprises of the youth.
       With major brands of apparel and jewellery under their store roof, Westside and other
       Trent Ltd. companies try to attract the younger lot.
    Trent has also been focused on social marketing by focusing on socially underprivileged
       children in order to provide them with a chance to have a better life tomorrow. Activities
       and rollouts like ‗Light a Diya‘ and ‗Angel‘s Tree‘ are some of the social causes that
       Trent works toward to get in the minds of the mass and remain ahead of the competition.
    Recently Trent has come out with various offers under its ClubWest customer schemes
       like GOURMETWEST, KidsWest, Westside women stores etc. that provides consumers
       with an all new value for money and differtiated services proposal to finally aid to the
       company‘s interests




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4.3 VISHAL RETAIL LIMITED

Vishal Retail is a hypermarket chain established in Kolkata in 1986 that currently functions in
major metro cities in India. The company is a pioneer in low prices everyday and does its
business in grocery, department and apparels. Currently the company has over 100 stores
throughout India which run under the name of Vishal Mega mart.


                   Graph 4.1 Presence of Vishal Retail across




The apparels rolled out by the company are under private label and the FMCG & Non-Apparel
are under both private and renowned brands. The company is focused on increasing the private
label products on its shelves.

Vishal Retail's net profit has dropped by 86.7% for the quarter ended 31 December. The
company has posted net profit worth Rs 2.15 crore compared with Rs15.55 crore for the same
quarter FY'08 (Source: www.topnews.in)



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                                                                                                    47

4.3.1 Strategy employed by Vishal Retail Ltd.

    Vishal is from the existing 53 Mega marts expanded to 81 Mega marts by FY08 and
      aiming to further enhance it to 106 by FY‘09 (Source: JRG Capital Benefits)
    To compete with its competitors, Vishal Retail follows the strategy of value pricing, time
      pricing and discount pricing.
    The company also rolls out festive offers like ‗Dhanteras Dhamaal‘ to keep the customers
      interested and loyal.
    The company is in Tier II, III and IV cities strategically to rech the target customers that
      prefer value pricing as done by them.
    Vishal promotes heavily through print media and rarely ahs come out with television or
      other means of advertisement. Advertisements as offer brochures and pamphlets along
      with the local dailies serve them to be in an effective reach for their customers.
    The company sports an effective website that displays all the products under Vishal‘s
      roof.
    Sales promotios like ‗shop and fly‘ and ‗ghar basane ke char bahane‘ offers are also
      effective as far as promotion is considered for Vishal Retail Ltd.
    Vishal Retail is moving into strategic alliances with the local kirana stores turning them
      into their franchise which would help the kirana stores to compete with the organized
      sector and observe economies of scale while Vishal would completely take over the
      kirana stores which would help them expand fast




====================================             =======================================
                                                                                                      48




4.4 PROVOGUE (INDIA) Ltd

Provogue (India) Limited (PIL) was incorporated on 17th November 1997 as Acme Clothing
Private Limited and commenced its operations as a manufacture and retailer of apparel for men
under the brand Provogue. Provogue stands for fashion and not pure apparel, its designs are
cutting edge and radical. Divisions of the company include accessories, women's wear and men's
wear. The Company's manufacturing unit is situated at Nani Daman, Daman.

To capitalize the opportunities in the retail business, the company through its subsidiary, Prozone
Enterprises Pvt. Ltd collaborated with UK based, Liberty International Plc, is in the process of
developing properties for commercial purposes including development of shopping malls.
Promart, a division of Provogue will offer consumers their favorite brands at a great value
through their off-price retail stores.

The Company had launched the fashion brand Provogue' in March of the year 1998. After a year
in 1999, PIL had introduced the brand Provogue in National Chain Stores like Piramyd,
Shopper's Stop and Lifestyle. The Company had opened the first Provogue Studio (an exclusive
brand outlet) in Lokhandwala, Andheri at Mumbai during the year 2000. Further, PIL had
opened its second Studio Store in Chandigarh during the year next.

        PROZONE

Prozone-Liberty is in high gear preparing for launch of the first mall in FY 2010. Construction at
Aurangabad is well advanced and teams are well entrenched in the process of completing India‘s
first regional shopping centre in a Tier 2 city. With a local catchment area of over 2 million
inhabitants, the world class retail and entertainment concept will offer a large catchment area in
the State of Maharashtra a chance to enjoy a shopping experience – an experience the whole
family can enjoy time and time again.


====================================              =======================================
                                                                                                       49

Prozone-Liberty plans to develop a number of regional mixed-use retail centric shopping centres
across India and Aurangabad will pave the way for our business model.

        PROMART

Promart, a division of Provogue launched its first store in Ahmedabad in May of the year
2007.2008 saw the launch of our first two Promart stores in Ahmedabad and Indore. The success
of the concept has inspired to rollout stores in other cities . Promart offers the consumer a
chance to own valued brands at discounted prices year round. The Promart concept is a seamless
offprice department store housing India‘s finest brands in fashion and lifestyle. Promart is a new
environment for customers who ―need a bargain‖ or ―want a bargain‖ without comprising on the
shopping experience. The store is designed to work for retailers needing a reliable, trusted outlet
for off-price merchandise and to inspire customers to share in the promise of new India. Off-
price retail stores are increasingly popular in developed economies. Established brands are
turning over collections at a faster rate as the traditional fashion seasons evolve into a continuum
of smaller range augmentations to keep offers fresh and exciting every visit.

4.4.1 Expansion Plans

Provogue India, a Mumbai-based retail company, has announced a Rs 90-crore expansion plan
on 3rd October 2008, which will be funded through internal accruals and a preferential offer
made earlier. The company had raised about Rs 314 crore through a preferential offer to Acacia
Partners, T Rowe Price, Genesis and others.

Provogue plans to expand in tier 2 cities by having ten new Promart stores- a smaller retail part
of Provogue - in cities such as Jaipur, Lucknow and Coimbatore.

Provogue is also expanding its exclusive brand outlets, which have a store size in the range of
1500 sq. ft. to 6000 sq. ft.

4.4.2 Marketing Strategy

ACME‘s strategy for popularizing the Provogue brand included high profile ground events and
retailing through selective stores which covered national chain stores like Shoppers‘ Stop, multi


====================================              =======================================
                                                                                                      50

brand outlets and company exclusive studios.

The lack of a product range was made up by an aggressive advertising campaign strategy which
was backed by series of fashion shows across the country. ―The uniqueness of the fashion shows
were that only women were invited, which generated curiosity and excitement and the customer
was ready to accept the madness.

There was also a growing realization that a distribution network had to be established. Therefore,
Provogue first found space in Multi-brand outlets (MBOs) and progressed to be present in 120
MBOs by the end of 1999 and there on a distribution network was established across 30 A and B
class cities. ―Before making a foray into a region, Provogue organized fashion shows to generate
interest levels and then the product was rolled out for the public. This gave us positioning as the
events were done by designers unlike a clothing manufacturer like us. Thus what we achieved
was a designer brand tag, which made pricing relative in the minds of the consumers.

While the distribution network was being developed the company simultaneously developed its
strategy for brand building. Initially some faces were needed to create awareness. Personalities
like John Abraham, Hrithik Roshan and the current brand ambassador Fardeen Khan have given
considerable brand image to Provogue. One would be curious at this point to know whether just
having a single face would have given consistency as far as brand image is concerned? ―No,‖
asserts Mr Chaturvedi, who said that association with faces does not guarantee sales but it is the
aspirational value, which the personality generates. ―A new face adds freshness to the brand,‖ he
adds.

For the image positioning, the company has launched Provogue Lounge bar, a studio which
doubles up as a Lounge bar at night. According to Mr Chaturvedi, the concept of Lounge bars is
more aimed at creating a positioning for Provogue in the minds of the consumers. ―Maybe,
Lounge bars is a non conformist idea but worldwide it is conforming to the norm. Lounge bar is
an image and if it becomes an independent profit centre, we will look at expanding the concept to
other places,‖ said Mr Chaturvedi.




====================================              =======================================
                                                                                                   51

4.4.3 Investment Strategy

By 2000, Provogue was ready to foray into other product lines like men‘s trousers, socks,
wallets, T shirts and women‘s wear. But the expansion of the range necessitated the need for
retail space, which was minimal, less than 10,000 square feet around the country covering only
MBOs and a single exclusive store in Mumbai. That‘s when the company decided to build up the
exclusive studio strategy, with plans to open 36 studios in the next two years.

The idea behind calling it a studio was the strategy to personalise the entire business and the
range of products on offer. The studios gave the company the ability to display the entire range
and also add on the product lines with launch of knitwear, wollens, ties, ladies handbags and
scarves.

In July 2001 the second studio was opened in Chandigarh and by the end of 2002, 30 more
studios were opened across the country. Simultaneously, efforts at the back end enabled the
company to save upon costs. To further cut cost the company set a factory at Daman which
enabled it to enjoy tax holidays.

Though it started with only men‘s shirt, today, its product range include the whole range of
men‘s wear (shirts, T-shirts, bottom wear, wollens, accessories etc) and women‘s wear which
include blouses, knit tops, trousers & skirts and accessories.

For all this the company has its own design studio and to make it products distinct the company
not only sources merchandise from the domestic market but also overseas.

The price strategy of the company reveal that it has deliberately placed itself in the medium
range with men‘s shirts starting at Rs 695 and trousers at Rs 1095. The women‘s wear are also at
affordable rates with tops starting at Rs 595 and trousers at Rs 995. The company also has
accessories to go with the outfits which include ties at Rs 595 onwards, socks for Rs 245 (two
pairs), wallets at Rs 695 onwards and belts at Rs 695 and above.




====================================               =======================================
                                                                                                      52




4.5 PANTALOON RETAIL (INDIA) LIMITED

Pantaloon Retail (India) Limited, is India‘s leading retailer that operates multiple retail formats
in both the value and lifestyle segment of the Indian consumer market. Headquartered in
Mumbai (Bombay), the company operates over 12 million square feet of retail space, has over
1000 stores across 71 cities in India and employs over 30,000 people

Multiple retail formats including Collection i, Furniture Bazaar, Shoe Factory, E-Zone, Depot
and futurebazaar.com are launched across the nation in the year 2006. The Company had signed
a Memorandum of Understanding (MOU) with Blue Foods Private Limited to form a 50-50 Joint
Venture Company in July 31st of the year 2006 for setting up food courts and speciality
restaurants across the country. In January of the year 2008, the company had entered into joint
venture with US based Staples Indian office products business unit, Future Office. As at
February 2008, Pantaloon awarded a comprehensive USD 50 million 5-year IT outsourcing
contract to Wipro Infotech. The Company initiated its flagship hypermarket retail store 'Big
Bazaar' in Barrdhaman city during January of the year 2008. Pantaloons launched an exclusive
line of film merchandise 'TASHAN Collection' across all its 40 stores in April of the year 2008.
Pantaloon Retail was recently awarded the International Retailer of the Year 2007 by the US-
based National Retail Federation (NRF) and the Emerging Market Retailer of the Year 2007 at
the World Retail Congress held in Barcelona.

Pantaloon Retail is the flagship company of Future Group, a business group catering to the entire
Indian consumption space.

Future Group, led by its founder and Group CEO, Mr. Kishore Biyani, is one of India‘s leading
business houses with multiple businesses spanning across the consumption space. While retail


====================================              =======================================
                                                                                                    53

forms the core business activity of Future Group, group subsidiaries are present in consumer
finance, capital, insurance, leisure and entertainment, brand development, retail real estate
development, retail media and logistics

The company follows a multi-format retail startegy that captures almost the entire consumption
basket of Indian customers. In the lifestyle segment, the group operates Pantaloons, a fashion
retail chain and Central, a chain of seamless malls. In the value segment, its marquee brand, Big
Bazaar is a hypermarket format that combines the look, touch and feel of Indian bazaars with the
choice and convenience of modern retail. Future Group‘s joint venture partners include, US-
based stationery products retailer,




====================================             =======================================
                                                                                 54




                                 Chapter 5
               QUANTITATIVE ANALYSIS




====================================   =======================================
                                                                                                    55

5. QUANTITATIVE ANALYSIS

5.1 Ratio Analysis

Industry

This segment of the report aims to analyse industry trends on the macro level and the
performance of the companies at a micro level with the help of key ratios. The analysis focuses
on analyzing the solvency, operating efficiency and profitability position of the 5 companies and
their comparison with the state of the industry as whole



                                       Industry - Retailing


 Year                                      Latest          2006         2005         2004


 Debt-Equity Ratio                         0.67            0.67         0.75         0.62


 Current Ratio                             1.57            1.57         1.46         1.45


 Inventory                                 5.59            5.59         5.78         5.69


 Interest Cover Ratio                      4.99            4.99         4.02         2.8


 PBIDTM (%)                                8.36            8.36         8.72         8.8


 PBITM (%)                                 6.84            6.84         7.2          7.18


 PBDTM (%)                                 6.99            6.99         6.92         6.23


 ROCE (%)                                  14.66           14.66        17.1         13.99


 RONW (%)                                  13.52           13.52        17.24        12




====================================               =======================================
                                                                                                           56

            Graph 5.1 Past 5 year Ratio analysis for Retail Sector

  20
  18
  16
  14
  12                                                                                              Latest
  10                                                                                              2006
   8                                                                                              2005
   6                                                                                              2004
   4
   2
   0
       Debt-Equity   Current Ratio   Inventory   Interest Cover    ROCE (%)     RONW (%)
         Ratio                                        Ratio

YEAR: 2008


                                 Pantaloon      Vishal                                     Provogue
                                 Retail (India) Retail            Trent       Shoppers     (India)
                                 Ltd            Ltd               Ltd         Stop Ltd     Ltd
Debt-Equity Ratio                1.21             1.95            0.13        0.48         0.36
Current Ratio                    1.83             1.64            1.53        1.11         2.27
Turnover Ratios
Inventory                        4.57             2.49            6.8         8.47         2.58
Interest Cover Ratio             1.92             2.62            7.71        2.29         2.98

PBIDTM (%)                       9.28             12.91           8.14        5.39         17.27

PBITM (%)                        7.71             10.16           6.42        2.13         14.81

PBDTM (%)                        5.27             9.03            7.31        4.46         12.3
ROCE (%)                         12.82            17.42           5.87        5.87         12.64
RONW (%)                         8.76             20.43           5.07        2.36         9.04




====================================               =======================================
                                                                                         57

YEAR: 2007

                            Pantaloon          Vishal                         Provogue
                            Retail (India)     Retail   Trent     Shoppers    (India)
                            Ltd                Ltd      Ltd       Stop Ltd    Ltd
Debt-Equity Ratio           1.17               1.49     0.2       0.3         0.31

Current Ratio               1.96               1.55     1.4       1.54        2.19
Turnover Ratios

Inventory                   4.87               3.68     7.18      9.94        2.78
Interest Cover Ratio        1.98               3.5      9.93      12.07       4.61
PBIDTM (%)                  6.58               11.68    10.47     8.75        14.78
PBITM (%)                   5.49               9.14     8.72      5.91        12.73
PBDTM (%)                   3.8                9.07     9.59      8.27        12.02
ROCE (%)                    10.59              22.17    10        14.42       12.48

RONW (%)                    7.4                25.86    8.55      9.27        10.79


YEAR: 2006



                                   Pantaloon Vishal                          Provogue
                                   Retail      Retail   Trent     Shoppers   (India)
                                   (India) Ltd Ltd      Ltd       Stop Ltd   Ltd
Debt-Equity Ratio                  1.19        0.75     0.14      0.4        0.58
Current Ratio                      1.45        1.84     1.41      1.39       2.26
Turnover Ratios
Inventory                          5.01        4.99     7.61      11         2.98
Interest Cover Ratio               3.42        7.05     12.66     16.54      4.92
PBIDTM (%)                         7.68        9.38     13.06     8.37       13.97
PBITM (%)                          6.62        7.52     10.75     6.32       11.68
PBDTM (%)                          5.74        8.31     12.21     7.99       11.6
ROCE (%)                           15.9        24.02    13.48     16.79      14.77
RONW (%)                           17.21       25.44    10.02     14.87      15.66




====================================         =======================================
                                                                                       58

YEAR: 2005



                              Pantaloon     Vishal                          Provogue
                              Retail        Retail    Trent     Shoppers    (India)
                              (India) Ltd   Ltd       Ltd       Stop Ltd    Ltd
Debt-Equity Ratio             1.67          0.71      0         0.84        1.01
Current Ratio                 1.6           2.7       1.75      0.9         1.86
Turnover Ratios
Inventory                     5.01          5.07      7.61      9.19        3.81

Interest Cover Ratio          2.88          6.1       15.56     6.33        4.12
PBIDTM (%)                    8.72          6.08      10.83     6.63        12.82
PBITM (%)                     7.49          4.09      8.89      4.86        11.2
PBDTM (%)                     6.12          5.41      10.26     5.86        10.1
ROCE (%)                      19.47         16.11     9.86      15.19       23.18
RONW (%)                      24.6          13.89     7.12      21.22       27.09


YEAR: 2004



                             Pantaloon      Vishal                         Provogue
                             Retail         Retail   Trent     Shoppers    (India)
                             (India) Ltd    Ltd      Ltd       Stop Ltd    Ltd
Debt-Equity Ratio            1.36           0.85     0         0.75        1.76
Current Ratio                1.5            1.79     1.95      1.02        1.71
Turnover Ratios
Inventory                    4.84           5.32     7.53      8.48        3
Interest Cover Ratio         2              7.33     17.77     2.92        1.94
PBIDTM (%)                   8.75           3.42     13.54     6.78        10.88
PBITM (%)                    7.41           1.75     11.57     4.92        8.77
PBDTM (%)                    5.04           3.18     12.89     5.09        6.36
ROCE (%)                     14.77          8.92     8.96      14.47       19.5
RONW (%)                     14.11          4.07     7.03      14.3        19.05




====================================        =======================================
                                                                                                           59

5.2 Comparative Analysis of Companies with the Industry

5.2.1 Debt Equity Ratio

The industry has a ratio of 0.67 which signifies that out of Rs 100 contributed Rs 67 is raised
through debt .As far as the individual firms in the industry are concerned Vishal retail ltd has a
debt equity ratio of 1.95 which is highest among the all the major players .Trent ltd has a ratio of
0.13 which is the least among the existing firms it states that Vishal retail ltd has got more
exposure to debt as compared to Trent ltd which relies more on equity resources. Shoppers stop
ltd and Provogue India ltd have a ratio of .48 and .36 respectively which is close to the industry
trend. It can be inferred from the ratios of two companies that there is a possibility of raising
additional finance through debt .PRIL has a ratio of 1.21 which exceeds the industry ratio by
0.54 which means PRIL has relied more on debt as a source of finance than other players in the
industry.


        Graph 5.2 Comparison of Debt Equity Ratio of Major players

  2.5


    2


                                                                            Pantaloon Retail (India) Ltd
  1.5
                                                                            Vishal Retail Ltd
                                                                            Trent Ltd
    1
                                                                            Shoppers Stop Ltd
                                                                            Provogue (India) Ltd
  0.5


    0
            2008        2007         2006        2005         2004



Looking at the past 4 years as a whole the industry‘s debt equity ratio has been in the range of
0.63 to.75 wheras all the three market players except PRIL and vishal retail ltd operated at a
adebt equity ratio below the industry standard.PRIL‗s debt –equity position can be considered as
the best throughout the five years which shows how effectively the company has been able to

====================================              =======================================
                                                                                                           60

maintain balance between the debt and equity as source of funds.


5.2.2 Current Ratio

The current ratio states the relationship between the current assets and current liabilities. As far
as the industry trends the ratio stands at 1.57 which states that the current assets are 1.57 times of
current liabilities when we come to the level of individual firms, Provogue india ltd has a ratio of
2.27 which portrays a strong working capital management of provogue india ltd. PRIL,Vishal
retail ld & Trent ltd are closer to the industry trend whereas Shoppers stop has a current ratio of
1.11 which is a red signal for the same and suggests that the firm requires to pay more attention
in this regard.


              Graph 5.3 Comparison of Current Ratio of Major players

    3


  2.5


    2
                                                                            Pantaloon Retail (India) Ltd
                                                                            Vishal Retail Ltd
  1.5
                                                                            Trent Ltd

    1                                                                       Shoppers Stop Ltd
                                                                            Provogue (India) Ltd
  0.5


    0
            2008        2007         2006        2005         2004




Over the past five years the industy is operating at an average current ratio of 1.5 which is
considered to be good for the same.At the micro level, All companies except Shoppers stop ltd
has been able to operate at a ratio higher than that of the industry standard.Market players like
Vishal retail ltd and Provogue India ltd hsve been able to effectivley manage their working
capital than others. Considering the nature of the industry where working capital plays a crucial



====================================               =======================================
                                                                                                     61

role, companies like PRIL, Trent has the opportunity to maintain balance between the current
assets and current liabilities to gain competitive advantage.

5.2.3 Inventory Turnover Ratio

This ratio indicates the relationship between the cost of goods sold during a year and the average
stock kept during that year.

The ratio of the industry as whole stands at 5.59.Among the exisiting players in the industry
shoppers stop ltd comes out to be the one having the highest ratio of 8.47 as compared to PRIL,
Vishal, Trent ltd,SSL &PIL which are having ratios of 4.57 ,2.49,6.8 and 2.58.it shows that
shoppers stop ltd ‗s sales policies are comparatively effective than its competitors. in simple
words it can be said that Shoppers stop ltd has been able to convert its stock into sales more
rapidly when compared with its rivals


  Graph 5.4 Comparison of Inventory Turnover Ratio of Major players

  12


  10


   8
                                                                      Pantaloon Retail (India) Ltd
                                                                      Vishal Retail Ltd
   6
                                                                      Trent Ltd
                                                                      Shoppers Stop Ltd
   4
                                                                      Provogue (India) Ltd

   2


   0
          2008        2007         2006        2005        2004



The overall position of the industry pertaining to the Inventory turnover over the past few years
has been more or less the same wherein the industry had an average of 5.5 .looking at
thecompanies,Shoppers stop has been the front runner with the inventory turnover of above 8

====================================               =======================================
                                                                                                           62

with Trent limited also showing sufficient balance between the cost of goods sold and the stock
with the company.PRIL,Vishal& Provogue India ltd has not been able to effectively convert their
stock into sales which is reflected in their ratio over the past 5 years.


5.2.4 Interest Cover Ratio

It is a measure of protection available to creditors for payment of interest charges to the
company.

The industry ratio is 4.99 which states that the PBIT is approximately 5 times of the total interest
expense .looking at the companies, Trent ltd has a maximum ratio of 7.71 which reflects its
soundness in paying interest charges to creditors. Among other players, PRIL has got the least
ratio of 1.92 which cannot be considered sound from a creditor‘s point of view. Vishal retail ltd,
shoppers stop ltd and provogue ltd have got a ratio of 2.62, 2.29 & 2.98 respectively which states
that they have to boost up their profitability with the industry trend.


       Graph 5.5 Comparison of Interest Cover Ratio of Major players

  20
  18
  16
  14
                                                                            Pantaloon Retail (India) Ltd
  12
                                                                            Vishal Retail Ltd
  10
                                                                            Trent Ltd
   8
                                                                            Shoppers Stop Ltd
   6
                                                                            Provogue (India) Ltd
   4
   2
   0
           2008        2007         2006        2005         2004



Industry has been operating at an average of 4.2 as interest cover for the past five years.At the
micro level,Trent ltd has been one of the first movers in gaining confidence among the concerned
parties when it comes to the obligation of interest payment.Vishal Retail were initially able to
maintain sufficient cover for the interest payment but oflate the condition is changed which is


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                                                                                                      63

self evident from the chart above depicting fall in the interest cover for the company.All the
others market players haave been operating below the industry standard which is a cause of
concern .


5.2.5 Return on Capital Employed

Return on capital employed shows the return generated on the net capital employed including
owned and borrowed funds.

The industry ratio stands at 14.666% which says that out of Rs 100 invested into the business
approximately Rs 15 is earned as a return .at the micro level ,Vishal retail ltd has got a ROCE of
17.42% which is the highest among other major market players. It tells us that Vishal retail ltd
has been able to generate more return on its capital employed when compared with its
competitors


            Graph 5.6 Comparison of ROCE Ratio of Major players

  30


  25


  20
                                                                       Pantaloon Retail (India) Ltd
                                                                       Vishal Retail Ltd
  15
                                                                       Trent Ltd
                                                                       Shoppers Stop Ltd
  10
                                                                       Provogue (India) Ltd


   5


   0
            2008      2007        2006        2005        2004




Over the past 5 years the ROCE of the industry has been around 15 % wheas major players like

====================================             =======================================
                                                                                                      64

Vishal retail ltd, Provogue India ltd and PRIL has been generating a return greater than the
industry standard and has been operating with ratio of 15% and above.But trent ltd, oflate has not
been able to maintain consistency in the return generated.Shoppers stop ltd‗s return on capital
employed has also declined in the recent years which were above the industry standard during
2004-05.

5.2.6 Return on Net Worth

Return on net worth describes the return generated on the owned funds which represents the
owners of the business. At the macro level the industry generates 13.52% return on the net
worth. Looking at the companies, Vishal retail limited comes out to be the leader with a return of
around 20.4% .Shoppers stands on the weaker side with a return of 2.36% which states that it has
been not been able to live up to the expectations of its shareholders. PRIL, Trent & Provogue
India ld have maintained a single digit RONW rate less than the industry trend which itself
showed double digit growth.


 Graph 5.7 Comparison of Return on Net Worth Ratio of Major players

  30


  25


  20
                                                                       Pantaloon Retail (India) Ltd
                                                                       Vishal Retail Ltd
  15
                                                                       Trent Ltd
                                                                       Shoppers Stop Ltd
  10
                                                                       Provogue (India) Ltd


   5


   0
           2008       2007        2006        2005        2004




====================================             =======================================
                                                                                                        65

The average rate of return on net worth for the industry is around 14%which is very good
considering the nascent stage in which the Indian organized sector is operating on. At the
company level, Vishal Retail ltd has shown tremendous growth over the past 5 years and has
built confidence among its shareholders .on the other hand players like Provogue India Ltd
,Shoppers stop Ltd,Trent Ltd has not been able to generate sufficient return on their net worth
which is reflected in their ratios over the past five years .the incapability of not even meeting the
industry standard has als0 been one of the disappointing factors and it can be the deciding factor
for the future performance of these companies with the government‘s decision of liberalising
FDI investment in single brand and multi brand retailing in recent FDI policy there will be stiff
competition to maintain and grow in these ever growing industry.




====================================               =======================================
                                                                                                        66

5.3 Trend Analysis

The growth of the five major players of the retail sector is being studied with the trend analysis
by taking the variables like sales, expenditure and profit. With the past five year values a trend
equation by using least square method is obtained. The line has an equation, Y = a + bt




Where, Y – Projected value (sales, expense, profit)

         a – Intercept of Y

         b – Slope of the line

          t – Any value of the time series

Using this equation the values of the sales, expenses and profit for the year 2009 and 2010 is
being forecasted for the five companies.

5.3.1 Shopper’s Stop

From the past five years value the linear equation for the different variables the linear equation is
calculated as,

Sales Turnover = -9.3 + 237.65 t

Total Income = -8.88 + 249.04 t

With the help of the linear equation shown above the forecasted values are being found and
shown in the graph.




====================================               =======================================
                                                                                                    67

                Graph 5.8 Shopper’s Stop – Sales Trend Analysis

  2000.00

  1800.00                                                 1734.44 (E)

                                                                  1654.21 (E)
  1600.00                                   1485.39 (E)

  1400.00                                                  1416.56 (E)
                                      1209.17
  1200.00
                                                     1146.01                    Sales Turnover
  1000.00                                                                       (Rs.crore)
                                  898.96

   800.00                                   838.69
                                                                                Total Income
                            637.84
                                                                                (Rs.crore)
   600.00              530.83      619.68
                414.47      510.65
   400.00            402.93

   200.00

     0.00
         2003   2004   2005   2006   2007     2008     2009    2010     2011



The graph shows that the sales turnover and the total income is growing at the rate of Rs. 237.65
crore and Rs. 249.04 crore respectively. This growth trend is shows that the company has
potential growth in the future if the same trend follows.

Raw Materials = 7.6 + 158.94 t

Employee Cost = 0.17 + 15.20 t

Selling and Admn Expenses = 0.03 + 23.93 t

Total Expenses = 8.01 + 213.05 t

Operating profit = -1.01 + 34.21 t

Reported net Profit = 1.1 + 6.46 t



====================================                    =======================================
                                                                                                                        68

            Graph 5.9 Shopper’s Stop – Expenditure Trend Analysis

  1600.00
                                                                                  1483.36 (E)
  1400.00
                                                           1270.31 (E)

  1200.00                                                                                           Raw Materials
                                                  1042.27                         1105.03 (E)       (Rs.crore)
  1000.00
                                                                         946.08 (E)                 Employee Cost
                                                                                                    (Rs.crore)
   800.00                                  756.61
                                                               751.71                               Selling and Admin
                                   530.72                                                           Expenses
   600.00
                              461.63                  560.24                                        (Rs.crore)
                                                                                                    Total Expenses
                   364.54                                                                           (Rs.crore)
   400.00                                  387.33
                                362.99
   200.00            283.91                          132.69 143.59 (E) 167.52 (E)
                               39.60     64.30 86.39                     106.25 (E)
                   36.03                                       91.05 (E)
     0.00     22.27             28.50      39.91 58.37 78.14
           2003    2004      2005 2006          2007      2008      2009     2010     2011


                  Graph 5.10 Shopper’s Stop – Profit Trend Analysis

  300.00



  250.00
                                                                              238.51 (E)


  200.00                                                              204.29 (E)


                                                             158.59
  150.00
                                                                                                Operating Profit
                                                    131.51                                      (Rs.crore)

  100.00                                  99.94
                                                                                                Reported Net Profit
                                68.69                                                           (Rs.crore)
   50.00              49.46                                      37.66 (E)     44.12 (E)
                                       27.11      26.20
                            19.03
                   12.02
                                                             6.97
    0.00
       2003       2004      2005    2006       2007    2008      2009      2010     2011



====================================                              =======================================
                                                                                                         69

The expenditure shows that the raw materials consume the maximum percentage, the employee
cost and selling and administrative expenses consume a minor percentage. The trend analysis
shows that the raw materials cost is increasing at the rate of Rs. 158.94 crore followed by
employee cost at the rate of Rs. 15.2 crore and the selling & administrative expenses at the rate
of Rs. 23.93 crore. By taking all the expenses into consideration it is found that their total
expense is increasing at the rate of about Rs. 831.68 crore every year. This increased expenditure
in raw materials is in order to keep up with the increased demand with the customers. Their total
expense is increasing because of their rapid expansion plan.

From the linear equation it is calculated that their operating profit is increasing at the rate of Rs.
34.21 crore and their reported net profit is increasing at the rate of Rs. 6.46 crore. This huge
difference between their operating profit and their reported net profit is because of the interest.
As a whole, linear trend is being observed in their growth in their future.


5.3.2 Trent

From the past five years value the linear equation for the different variables the linear equation is
calculated as,

Sales Turnover = -3.4 + 114.455 t

Total Income = -4.2 + 124.57 t

Raw Materials = 1.71 + 63.28t

Employee Cost = 0.15 + 7.53 t

Selling and Admn Expenses = 1.05 + 25.22 t

Total Expenses = -3.02 + 110.39 t

Operating profit = 0.99 + 8.3 t

Reported net Profit = 0.7 + 8.55 t



====================================               =======================================
                                                                                                                  70

                  Graph 5.11 Trent Limited – Sales Trend Analysis

  1000.00

   900.00                                                              867.76 (E)

   800.00                                                                     797.78 (E)
                                                       743.19 (E)
   700.00                                                              683.33 (E)
   600.00                                                                                   Sales Turnover
                                                    552.09
                                                                                            (Rs. Crore)
                                           491.31             514.16                        Total Income (Rs.
   500.00
                                                     452.00                                 Crore)
   400.00                         372.41
                                           346.44
   300.00                260.58
                                  234.47
   200.00        171.06
                       152.74
   100.00

     0.00
          2003     2004     2005     2006     2007      2008    2009      2010      2011


            Graph 5.12 Trent Limited – Expenditure Trend Analysis
 900.00

 800.00                                                          769.70 (E)

 700.00                                                 659.31 (E)

 600.00
                                                                                           Raw Materials (Rs.
                                                501.62                                     Crore)
 500.00
                                      438.44                            441.25 (E)
                                                                                           Employee Cost (Rs.
 400.00                                                377.97 (E)                          Crore)
                             326.82
 300.00                                             278.26                                 Selling and Admin
                                           259.92
                        229.20                                                             Expenses (Rs. Crore)
                                  193.40
 200.00
             144.67                                        150.27 (E) 175.49 (E)
                         131.76                                                            Total Expenses (Rs.
                                                       115.21
                                                                                           Crore)
 100.00      77.30           69.92 94.92
                 43.26 49.74       28.80 36.96
                                               45.04 (E)52.57 (E)
                 10.98 14.86 20.60
   0.00
      2003       2004    2005     2006     2007      2008     2009     2010   2011




====================================                             =======================================
                                                                                                         71

                Graph 5.13 Trent Limited – Profit Trend Analysis

  70.00

                                                                59.18 (E)
  60.00
                                                                     57.13 (E)
                                                  50.62 (E)
  50.00                                                       48.82 (E)


  40.00
                              35.22                                              Operating Profit
                                         33.07                                   trend (Rs. Crore)
                                                    32.58
  30.00                                                                          Reported Net
                                          31.58
                                                                                 Profit (Rs. Crore)
                      19.83           24.38
  20.00       17.20
                                                     18.30
                          19.06
                  13.16
  10.00


   0.00
       2003   2004     2005   2006      2007     2008   2009    2010      2011



The graph shows that their sales and expenditures follows almost linear pattern. Only their
operating profit has decreased drastically from Rs. 33.07 crore in the year 2007 to Rs. 18.3 crore
in the year 2008. But if the same trend follows their operating profit for the year 2009 is
expected to increase to Rs. 48.82 crore. Because of this fluctuation in the operating profit their
reported net profit has also seen some fluctuation in the year 2008. Their difference in the
operating profit and the reported net profit has seen fluctuations in the past but it is expected that
there will be only a minimum difference between the both in the future.

It is expected that their sales will shows a positive growth in the future also the company is in the
rapid expansion program. Their total income is calculated and found to increase at the rate of
Rs.124.57 crore every year and the total expenses at the rate of Rs. 110.39 crore every year. In
their total expenses raw materials consumes the major part followed by selling and
administrative expenses which is followed by employee cost. Their employee cost is calculated
to increase at a very minimum rate of Rs.7.53 crore every year.



====================================                           =======================================
                                                                                                         72

5.3.3 Vishal

From the past five years value the linear equation for the different variables the linear equation is
calculated as,

Sales Turnover = 15.35 + 136.94 t

Total Income = 22.63 + 174.61 t

Raw Materials = 14.91 + 116.64 t

Employee Cost = 1.38 + 7.97 t

Total Expenses = 19.88 + 159.59 t


                 Graph 5.14 Vishal Retail – Sales Trend Analysis



  1400.00
                                                  1313.52

                                                                          1244.93 (E)
  1200.00
                                                            1070.32 (E)

  1000.00
                                                                          973.91 (E)
                                                    1005.31
                                      831.34                    836.98 (E)
   800.00
                                                                                        Sales Turnover
                                                                                        (Rs.crore)
   600.00                                       602.65
                                                                                        Total Income
                                                                                        (Rs.crore)
   400.00
                             329.47
                                       288.46
   200.00                161.82
                 96.23        146.31
                     88.10
      0.00
         2003     2004   2005    2006     2007     2008     2009   2010      2011




====================================                      =======================================
                                                                                                                            73

            Graph 5.15 Vishal Retail – Expenditure Trend Analysis

  1400.00

                                                            1183.74
  1200.00
                                                                                        1137.05 (E)

  1000.00                                                                      977.46 (E)

                                                                     862.68             831.39 (E)    Raw Materials (Rs.
   800.00
                                            760.94                                                    Crore)
                                                                              714.75 (E)              Employee Cost (Rs.
   600.00                                                                                             Crore)
                                                         573.47
                                                                                                      Total Expenses (Rs.
                                                                                                      Crore)
   400.00
                                   302.52

   200.00                   152.93             216.74
                   93.22                                        72.31
                                     104.77                                 49.22 (E)
                           66.49               30.01                                    57.20 (E)
                  3.02              6.04 15.13
     0.00
           2003     2004         2005      2006      2007     2008      2009       2010       2011

                    Graph 5.16 Vishal Retail – Profit Trend Analysis

  140.00
                                                            122.02
  120.00


  100.00
                                                                                  88.76 (E)

   80.00                                                                                              Operating Profit
                                            68.01                     74.40 (E)                       (Rs.crore)
   60.00                                                                                              Reported Net Profit
                                                                                                      (Rs.crore)
                                                            40.64
   40.00                                                                           36.90 (E)
                                   26.64
                                                      25.07           31.75 (E)
   20.00
                            8.75             12.39
                   2.90
    0.00                  0.38     3.02

       2003        2004      2005       2006      2007      2008     2009     2010      2011



====================================                                  =======================================
                                                                                                        74

Operating profit = 14.36 + 19.88 t

Reported net Profit = 0.85 + 5.15 t

When the same trend follows in the future the sale of Vishal Retail is predicted as Rs.1070.32
crore. From the linear equation it is calculated that their annual sales growth rate is Rs.136.94
crore and the total income at the rate of Rs. 174.61 crore.

There is a dramatic change in their expenditure from the year 2007 because of their rapid
expansion plan program. With the same trend their total expense for the year 2009 is estimated
as Rs.977.46 crore with the raw material to be Rs.714.75 crore.

The operating profit and reported profit are calculated to increase at the rate of Rs.19.88 crore
and Rs.5.15 crore respectively every year.


5.3.4 Provogue

From the past five years value the linear equation for the different variables the linear equation is
calculated as,

Sales Turnover = 1.51 + 59.56 t

Total Income = 1.74 + 66.06 t

Raw Materials = 0.76 + 38.99 t

Employee Cost = 0.17 + 2.19 t

Selling and Admn Expenses = 0.14 + 11.31 t

Total Expenses = 1.19 + 57.29 t

Operating profit = 0.38 + 7.91 t

Reported net Profit = 0.04 + 4.91 t



====================================               =======================================
                                                                                                                  75

                   Graph 5.17 Provogue – Sales Trend Analysis

  500.00
                                                                               464.17 (E)
  450.00
                                                           398.11 (E)          418.45 (E)
  400.00                                         377.84
  350.00                                                               358.89 (E)
                                                             336.14                             Sales
  300.00                                                                                        Turnover
                                        258.41                                                  (Rs.crore)
  250.00
                                                   238.67
  200.00                       177.78
                                                                                                Total
  150.00                                 156.41                                                 Income
                      121.98                                                                    (Rs.crore)
                               115.02
  100.00
              63.60
   50.00              54.76

    0.00
       2003    2004     2005      2006         2007     2008    2009       2010     2011


              Graph 5.18 Provogue – Expenditure Trend Analysis

  450.00
                                                                       402.24 (E)
  400.00
                                                          344.95 (E)
  350.00
                                                320.55
  300.00                                                                                    Raw Materials
                                                                                            (Rs.crore)
                                                                             273.72 (E)
  250.00                                                                                    Employee Cost
                                        223.90                      234.72 (E)              (Rs.crore)
                                                           213.96                           Selling and Admin
  200.00
                                                                                            Expenses (Rs.crore)
                               156.57
  150.00                                         153.71                                     Total Expenses
                                                                                            (Rs.crore)
                      107.82
                                        110.18
  100.00                                                                   79.34 (E)
              56.50            75.39                  63.56 68.03 (E)
   50.00                                   43.81
           35.46                  28.55
                                                         15.26 13.35 (E)15.55 (E)
                   14.90 19.60          5.26     8.67
                     2.12 2.51
    0.00
       2003    2004     2005     2006      2007       2008     2009     2010      2011




====================================                            =======================================
                                                                                                         76

                     Graph 5.19 Provogue – Profit Trend Analysis

  60.00
                                                                     55.78 (E)

  50.00
                                              47.59           47.87 (E)


  40.00

                                     32.71                           34.37 (E)
                                                                                     Operating Profit
  30.00                                                       29.45 (E)              (Rs.crore)
                                                      25.97
                                                                                     Reported Net
                          20.66                                                      Profit (Rs.crore)
  20.00                                       19.60
                      13.77
                                      11.94
  10.00       8.80
                              7.22
              5.90
   0.00
       2003   2004    2005      2006    2007    2008    2009    2010      2011



The overall growth of the Provogue retail is linear with a positive trend. The linear regression
equation has shown that their sales are growing annually at the rate of Rs.59.56 crore and their
total income at the rate of Rs.66.06 crore.

The estimated total expense for the year 2009 is Rs.344.95 crore and for the year 2010 Rs.402.24
crore. The raw material cost, selling and administrative expenses to grow at the rate of Rs.38.99
crore, Rs.2.19 crore and Rs. 11.31 crore respectively. Only their employee cost is increasing at
the lower rate.

Their operating profit is calculated to increase at the rate of Rs.7.91 crore and the reported net
profit at the rate of Rs.4.91 crore. The operating is increasing at the higher rate from the year
2007. This is because of the huge demand among the customers is increasing. This same linear
trend is predicted to follow in the future also if the same condition prevails. The difference in the
operating profit and reported net profit is also increasing from the year 2007.



====================================                          =======================================
                                                                                                               77

5.3.5 Pantaloons

From the past five years value the linear equation for the different variables the linear equation is
calculated as,

Sales Turnover = 58.63 + 806.65 t

Total Income = 68.15 + 902.77 t

Raw Materials = 48.59 + 623.38 t

Employee Cost = 3.59 + 43.77 t

Selling and Admn Expenses = 7.55 + 120.6 t

Total Expenses = 62.09 + 831.68 t


                          Graph 5.20 PRIL – Sales Trend Analysis

  7000.00

                                                        5927.34                 6387.54 (E)
  6000.00
                                                                  5484.77 (E)
                                                                                5705.21 (E)

  5000.00                                                  5295.88    4898.55 (E)
                                                                                              Sales Turnover
  4000.00                                                                                     (Rs.Crore)
                                       3851.44
                                                       3393.47
  3000.00

                               2198.69                                                        Total Income
  2000.00                                    1960.86                                          (Rs.Crore)
                      1219.91
  1000.00        684.90            1084.39
                          658.35

      0.00
         2003      2004     2005     2006      2007      2008     2009   2010       2011




====================================                             =======================================
                                                                                                            78

                  Graph 5.20 PRIL – Expenditure Trend Analysis

7000.00


6000.00                                                           5883.85 (E)
                                               5446.88                                Raw Materials
                                                                                      (Rs.Crore)
                                                          5052.17 (E)
5000.00

                                                                        4412.24 (E)   Employee Cost
4000.00                                                                               (Rs.Crore)
                                                  4170.62      3788.86 (E)
                                  3537.64

3000.00                                                                               Selling and Admin
                                              2601.65                                 Expenses (Rs.Crore)
                             2042.74
2000.00
                                                                                      Total Expenses
                                   1502.30
                   1127.32                                                            (Rs.Crore)
1000.00                                                      851.79 (E)
                                                    731.19 (E)
           631.05       844.18       556.70 724.18
                 474.86       313.11
              92.97    159.89          207.74 275.78 266.25 (E) 310.02 (E)
                                112.72
   0.00         27.61 50.75
       2003 2004 2005 2006 2007 2008 2009 2010 2011


                       Graph 5.20 PRIL – Profit Trend Analysis

   500.00
                                               463.41
   450.00
                                                                     446.04 (E)
   400.00
                                                           383.10 (E)
   350.00

   300.00

   250.00                                                                                  Operating
                                           217.95                                          Profit
   200.00
                                                                                           (Rs.Crore)
   150.00                         152.27

   100.00
                          84.49           69.68                      81.42 (E)
    50.00           53.14             60.96
                                                         69.93 (E)
                  4.56 14.54    27.67
     0.00
          2003        2005             2007             2009           2011




====================================                       =======================================
                                                                                                       79

Operating profit = 5.41 + 62.95 t

Reported net Profit = 1.03 + 11.48 t

The trend in the PRIL is positive and also from the year 2006 it is increasing at a rapid rate. This
is because of their improvements in the supply chain management and introduction of new
technologies for the maintenance of the stores. Because of which their expenses were also
increasing. With this same trend the sales for the year 2009 is estimated as Rs.5484.77 crore.
Their sales and total income is increasing annually at the rate of Rs. 902.77 crore and Rs.806.65
crore respectively.

Their total expense is increasing at the rate of Rs.831.68 crore with their raw materials, selling &
administrative expenses and employee cost increasing at the rate of Rs. 623.38 crore, Rs. 120.6
and Rs. 43.77 crore respectively. Their operating profit with the same trend is estimated to be
around Rs.383.10 crore and the reported net profit to be Rs.69.93 crore respectively. This also
shows that the company has a huge opportunity for growth in the future.




====================================              =======================================
                                                                                 80




                                 Chapter 6
                QUALITATIVE ANALYSIS




====================================   =======================================
                                                                                                  81

6. QUALITATIVE ANALYSIS

6.1 Porter’s Five Forces of Analysis

 Threat of New         Threat of         Bargaining          Bargaining        Competitive
   Entrants           Substitutes         Power of            Power of          Rivalries
                                          Suppliers          Consumers


      HIGH               HIGH               LOW             MODERATE              HIGH



                                      Rivalry among
                                       competitors



                                            High


                                                                          Threat of New
     Threat of                                                              entrants
     Substitutes      High                                       High

                                      Industry
                                    Competitivenes
                                         s


                             Moderate                      Low


                   Bargaining power                     Bargaining power
                       of buyers                          of suppliers


       i. Threat of New Entrants

One trend that started over a decade ago has been a decreasing number of independent retailers.
Walk through any mall and you'll notice that a majority of them are chain stores. While the
barriers to start up a store are not impossible to overcome, the ability to establish favorable

====================================            =======================================
                                                                                                        82

supply contracts, leases and be competitive is becoming virtually impossible. Their vertical
structure and centralized buying gives chain stores a competitive advantage over independent
retailers. 95% of the market is made up of small, uncomputerised family-run stores. Now there
are finally signs that the Indian government is dropping its traditionally protectionist stance and
opening up its retail market to greater overseas investment. Last month it eased restrictions on
foreign investment, allowing overseas retailers to own 51% of outlets as long as they sell only
single-brand goods.

For the first time, chains like McDonalds, Marks & Spencer, Body Shop and Ikea can, if they
want to, open and control their own operations in India. Previously, many of them had gone
down the path of working with franchise partners, a policy followed by M&S which supplies
clothes to eight "Planet Sports" stores. They look like M&S stores on the inside, but they are
owned by local retailers, and the UK retailer has no plans for that to change. On the whole there
is threat on new entrants in the retail industry.


    i. Power of Suppliers

Historically, retailers have tried to exploit relationships with suppliers. A great example was in
the 1970s, when Sears sought to dominate the household appliance market. Sears set very high
standards for quality; suppliers that didn't meet these standards were dropped from the Sears line.
You could also liken this to the strict control that Wal-Mart places on its suppliers. A contract
with a large retailer such as Wal-Mart can make or break a small supplier. In the retail industry,
suppliers tend to have very little power.


    ii. Power of Buyers

Individually, customers have very little bargaining power with retail stores. It is very difficult to
bargain with the clerk at Safeway for a better price on grapes. But as a whole, if customers
demand high-quality products at bargain prices, it helps keep retailers honest. Taking this from
the pother side of the coin we can say that customers have comparatively higher bargaining
power in case of unorganized sector than organized sector. As the customer demands products
from the organized units he will be focused more towards the quality aspect.



====================================                =======================================
                                                                                                      83

   iii. Availability of Substitutes

The tendency in retail is not to specialize in one good or service, but to deal in a wide range of
products and services. This means that what one store offers you will likely find at another store.
Retailers offering products that are unique have a distinct or absolute advantage over their
competitors.

For example:-MORE(A Birla Brand) provided variety of products which are more or less of
similar nature and thus aids in making available different goods.


   iv. Competitive Rivalry

Retailers always face stiff competition. The slow market growth for the retail market means that
firms must fight each other for market share. More recently, they have tried to reduce the
cutthroat pricing competition by offering frequent flier points, memberships and other special
services to try and gain the customer's loyalty. The major market players in the Indian context i.e

      Shoppers' Stop
      Westside (Trent)
      Pantaloon (Big Bazaar)
      Lifestyle
      RPG Retail (Foodworld, Musicworld)
      Crossword
      Wills Lifestyle
      Globus
      Piramals ( Pyramid & Crosswords)
      Ebony Retail Holdings Ltd

are giving each other stiff but healthy completion which is evident from their aggressive
marketing strategy and segment policies.




====================================              =======================================
                                                                                              84

6.3 SWOT Analysis

6.3.1 Shopper’s Stop

For assessing the advantages and disadvantages shopper stop enjoys the SWOT analysis of the
company has been done as:

Strengths:

    Pioneer in departmental format.
    Loyal customer base accounts for 63% of revenue.
    Low risk and sturdy business model.
    Presence across retail segments; lifestyle, value and specialty retailing.
    Healthy financial position with low gearing.
    Low rentals due to long lease contracts.

Weakness:

    Late foray into value retailing with 51% stake in promoter owned company.
    High spend on store makeovers and interiors to ensure pleasant shopping experience.
    Competition from standalone specialty stores.
    No standardization of product.

Opportunity:

    30% CAGR in organized retailing to result in better footfalls and conversion rates.
    Entry into TIER II and III cities.
    Benefit from the 16% increase in discretionary spend in Indian consumers because of
       presence across formats.
    Collaborations with foreign players because of a national brand.

Threats:

    Impact of slowdown in consumer spends to be felt on department stores.
    Opening up of economy for free entry of foreign retail players.
    Employee shortage due to rapid growth in retailing.


====================================             =======================================
                                                                                                85

    As it could be observed that percentage of sales dropped till 2006 but after that, the
      company seems to be more stable and less risky.
    Revenue of the company is increasing over the years. This signifies that company is
      trying to increase their market share and with the increasing consumption. It sales has
      increased very steeply over the years.




====================================           =======================================
                                                                                                  86

6.3.2 Trent Limited

Strengths:

    Sold in house brand only – higher margins, more control over manufacturers
      (quality,cost), no intermediary costs.
    Focus on 2 parameters – style and affordability
    Huge financial base is there at the company‘s disposal which amounts to around Rs 2
      billion from sale of Lakme
    Adept at conducting marketing research often and has a good in house team for it.
    Reach is very good with continuous growth in the number of stores at a rapid rate.
    Trent has a strong supply chain functioning.

Weakness:

    The company is too focused only on apparels and jewellery which are seasonal in nature
      and is not willing to diversify into other product types.
    The company is still concentrating much on the renowned brands instead of own brands
      with the ratio of 70:30. If own brands could be focused on, they could bring in more
      loyalty, flexibility and high returns. (Source: Crisil)
    Trent invests very heavily in promotion and brand building but still suffers from poor
      economies of scale.

Opportunities:

    There is 10 billion dollar untapped market in India for Trent to capitalise on.
    Trent could enter the food retail business as a study on food and grocery retail market as
      the food retail sales make up for close to 63 per cent of total retail sales in American
      retail chains. (Source: KSA Technopak)
    Trent positions its products in Westside as value for money which could be further
      enhanced by venturing into low cost product business to tap the lower middle class
      market through a downward stretch.




====================================              =======================================
                                                                                               87

Threats:

    Organised sector is open for other players and with new and new retailers improving the
      competition in the market by mushrooming their retail outlets.
    Market share of the unorganised sector still is ranges to 95% and if not looked upon,
      might increase further. (Source: Crisil)




====================================             =======================================
                                                                                                   88

6.3.3 Vishal Retail Limited

Strengths:

    Vishal follows the concept of EDLP, time pricing and price discounts.
    Vishal Retail is into wide range of consumer goods which are sold under the value retail
      tag.
    Vishal emphasizes on backward integration.
    To reduce cost, Vishal does in house production of apparels, procurement of goods
      directly procurement of goods from the small and medium size vendors and
      manufacturers.
    Vishal has a very strong logistics and distribution system.
    Vishal targets the middle and lower middle class customers that form a very huge
      percentage of the total shopping population in India.
    Vishal has a strong recruitment cell that manages its human resources very well.

Weakness:

    Apperels comprise of 63% of the revenue of the company which could be a risky figure
      looking at the season nature of the products. The company should try focus on evening it
      out and concentrating on the other product offerings as well. (Source: BLB Research)
    Vishal suffers from a high attrition rate of 35% which is not a good figure for a retail
      sector company to manage its resources. (Source: BLB Research)
    With the store cost skyrocketing, Vishal still operates in large space outlets.

Opportunities:

    Vishal could focus more on the FMCG retail and has huge scope of own brand promotion
      to a different level.
    Vishal retail could extend itself into tier III and tier IV cities more to challenge the
      unorganized retailers with a different shopping experience for the consumers.
    Vishal could diversify into a brand retailer, retailing the major apparel in India as well.




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Threats:

    Vishal faces serious competition from the unorganized sector with whom it directly
      competes with through its pricing strategies.
    More and more stores are mushrooming in India providing latest in fashion apparels, to
      compete with these and maintain its value prices, Vishal Retail needs to devise strong
      strategies.




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6.3.4 Provogue India Limited

Strengths:

    Strong brand recognition in the high fashion casual branded apparel Segment
    The management has strong understanding of fashion industry
    Having built a strong equity, Provogue is extending its reach as also add product
      categories - women's wear, innerwear, footwear and fashion accessories
    The Provogue brand continues to build its strong emotional connection with its customers
    Understanding of what India‘s a contemporary fashion consumer want and need has led
      to the development of an iconic brand, which continues to be our key differentiator in
      India‘s fashion and lifestyle market.
    Having successfully established itself as the brand of choice for youthful fashion
      conscious customers,
    Enduring appeal across apparel and accessories and we continue to strategically develop
      and expand the merchandise collections.
    Provogue is available through 228 outlets in 66 cities across the country. 124 own stores
      are now open and we‘re proud of our shop-in-shop partners who have dedicated space
      to the provogue brand. These partners are the leading department stores and specialty
      fashion formats in India.
    The Company regards its human resources as amongst its most valuable assets and
      proactively reviews policies and processes by creating a work environment that
      encourages initiative, provides challenges and opportunities and recognizes the
      performance and potentials of its employees

Weakness:

    Margins could be under pressure, due to opening of newer stores and increasing
      advertisement and promotional expenses
    Risks of operating in a highly volatile fashion industry

Opportunities:

    Retail is the primary driver of the consumption story and the total retail market, now at


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      about US$350 billion, is growing at over 10% per annum. Within this, the organized
      sector is growing at over 30% CAGR and expected to represent over 15% of total retail
      within 5 years creating a market approaching US$90 billion from US$17 billion last year.
      This will result in demand for new retail space of over 250 million square feet, requiring
      investments of over US$50 billion.
    The strong brand positioning and state of the art manufacturing capabilities further help
      to leverage the opportunity. Large investments and new retail concepts are changing the
      rapidly evolving organized retail landscape in India. This is not just restricted to the
      metros but has also spread to Tier- II and Tier-III cities. Provogue, Promart and Prozone
      are expected to benefit tremendously and the retail growth and the growth of the
      consuming class in Tier-II and Tier-III cities continues.
    A large pool of highly skilled workers, greater integration with the world economy and
      increasing domestic and foreign investment suggest that the Indian economy will
      continue its growth momentum for several years to come. This will also provide impetus
      to theretail industry, which is estimated to grow to $430 billion by 2010 from $330
      billion in 2007. Hence we do not expect to be significantly affected by this risk.

Threats:

    A slowdown in economic growth in India could cause the business to suffer as the
      Company‘s performance is highly dependent on the growth of the economy, which in
      turn leads to a rise in disposable incomes and consumption in the country.
    Apart from ever moving fashion trends, China may emerge as a viable rival in the longer
      run to the Indian retail industry as it has rapidly been increasing its manufacturing base.
    The demand for skilled man power outstrips the supply.
    The Company operates in upper market life style products associated with high
      advertisement costs and risk related to brand management. The inventory cost related to
      lifestyle garments is traditionally a matter of risk, however through effective inventory
      management the Company has reduced the risk to a minimal level.
    This risk would arise through the Company‘s inability to set trends and understand
      changing fashion styles, which can lead to lower sales and profitability.



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6.3.5 Pantaloons Retail India Limited

Strengths:

    Presence of the Company and its group formats in almost all segments
    Specialized services give niche advantage to the Company to have better and faster
      access to the customer needs.
    Cost control initiatives and frugal culture that is critical in a retail operations business
    Periodical reviews of the various operations have been done on regular basis to identify
      the any possible threat and address the same within time.
    Process of Enterprise Risk Management as a continuing process, in order to identify the
      new risks and to define and establish the control process to mitigate the identified risks.
    Controls in SAP.

Weakness:

    Increased size of operation has the risk of execution and management.

Opportunities:

    The Company has formats for various segments of the customers and capturing the
      maximum customers from each segment by having appropriate locations for each format.
    Competitive advantage over competitors and also ensuring that the Company‘s expansion
      plans on track.

Threats:

    The organized retail business is evolving faster and with the availability of various
      options from the Company as well as the competitors, the business risk has increased.
    In the current environment, for any company the cost of doing business, including costs
      associated with energy, real estate, people etc and this can have an impact on the margins.
    With the increase of the size of operation the Company will also have the risk of the
      execution and management.




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                                 Chapter 7
             FUTURE OF INDIAN RETAIL




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                                                                                                     94

7. FUTURE OF INDIAN RETAIL

Retail is clearly the sector that is poised to show the highest growth in the next five years. The
sector is set for a revolution, as both the present players and new entrants are gearing up to
explore the market. There has been a 1% rise in January 2009 retail sales as compared to 2008.


7.1 Comparison of past and future

The following table states clearly the way the retail industry has evolved and what changes can
be expected in retailing in the future as compared to what it was in the past

                      Past                                             Future
Stability & consolidation                          Speed & imagination
delegation                                         abdication
TQM six sigma                                      Design management
hierarchy                                          seamlessness
Mass production                                    personalization
Technology supports change                         Technology drives change
Enforce order                                      Thrive in chaos
transactions                                       relationships



In the future modern retail development in India is expected to be focused on the following
cities. In the west Retail players will concentrate on cities like Mumbai, Pune and Ahmedabad.
In the North Delhi and the National Capital Region will see increased investments in terms of
retailing. In the south Chennai, Bangalore, Hyderabad and in the east Kolkata will be targeted for
retailing.

Companies like Shoppers Stop, Trent, Reliance, Lifestyle, Tanishq, Crossroads, Akbarallys' and
Tanishq already have planned to invest over Rs 5,000cr. Trent is on the edge to take both its
brands 'Star India Bazaar' and 'Westside' to new cities, meanwhile Shoppers' Stop has recently
geared up for expansion of present ones and to add 11 new stores including two hypermarkets.
Also, Pantaloon has planned to add eight 'Big Bazaar' malls within the next 6 to 8 months.


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Players like Big Bazaar, Shoppers' Stop, Piramyd are expanding to smaller towns and cities.

Reliance Industries Ltd (RIL) is substantially getting ready to enter in field of retailing. RIL is
poised to emerge as the single largest player in this sector. On the other hand, Tescos, Wal-Marts
or Safeways ultimately enter in the country. So finally, Shoppers' Stops, Westside, Pantaloons
and Westsides in coming years have will face stiff competition.

We in India need solutions tailor-made to our conditions. In a country, where culture and values
play a very huge role in our habits- we have to have Indianised solutions! Ours is perhaps the
only country in the world, where cigarettes are sold in singles and two‘s and not as packets-
forcing the companies to have a robust distribution system –that includes servicing a pan dabba
owner three times with a cycle driven salesman- and offer a few hours credit. Today, the Indian
consumer behaviour is rapidly changing with a shift in new generation's preference towards
luxury commodities.

With new boom in the retail industry, the country has identified new scope for real estate
development. The already revolutionizing urbanization and growing demand for finished
products has necessitated development of new space for retail outlets.

Retail sector essentially targets the middle class and with there being an estimated more than half
rise in middle class the future of retail looks bright.

The graph estimates the high income segment to more than triple by 2016 which again is an
indicator of optimistic future prospects for the retail sector.

The future of retail will adopt a consumer adopted approach by making attempt to maximize
value addition to the customer to gain market share as well as consumer loyalty. For this purpose
the retail sector will follow the following approach as can be seen in the diagram




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7.2 Private label development progression

              Graph 7.1 Private label development progression

                                                              Innovation
                                                              Leader
                                                   Category leadership via
                                                   New product Dev

   Share of                                 Specialist sub-brands
   Sales                                    e.g. healthy eating
                                   Good, Better, Best
                                   covering all price point
                             Entry-price
                             Own label fighter
                ‘Me-too’ and Cheaper
                Brand alternatives

                                           Time & Investment



The consumers today and in the future have a plethora of options to choose from and so they opt
for the best alternative. While making decisions they select the alternative keeping 4 essential
criteria in mind which can be seen as follows




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Thus we can conclude that the future of retail holds abundant opportunities both for the retailers
and for the consumers. The retailers will have to concentrate on product differentiation and
service differentiation to survive in the fiercely competitive market in the future.


7.3 The Best is yet to come
Between 2009 –2013, most of the current players would have expanded and consolidated (and
some merged / acquired) exponentially compared to the situation during 2003-2008. By 2013,
most of the major ―multi-national‖ retailers (across formats and categories) would have entered
India.

Modern Indian retail currently experiencing a steep learning curve: the current turbulence is not
entirely unexpected or undesirable. Investment options will further increase as the Government
will finally open up international investment in the retail sector during 2009 –2013 period.
(Source: Indian retail forum 2008).

According to Technopak Forecast as posted on the Indian retail forum 2008 for the year 2014,

   a) Size of modern retail in terms of Direct investment should be greater than US 30 Billion
         (2009-13)
   b) Revenues would be US$ 100+ Billion
   c) Share of total retail will be 16%
   d) Space occupied will be 500 Million sq ft
   e) Direct employment will be 2 Million
   f) Reach will be 600+ Towns, 50,000+ Villages

"Many countries specially in south east Asia like Malaysia, Indonesia and Thailand have put in
place regulations with a view to balance the conflicts of interests between modern retail and the
traditional retailers and suppliers to modern retail. We hope to achieve the best interests of the
Indian business through sustained efforts in this direction to make Indian retail truly competitive
with global standards." – Ajay Shankar, secretary, DIPP, Ministry of Commerce & Industry.




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In a report in the ―Thaindian News‖ on March, 2008 India ranked 44th on the list of most
preferred destinations by global retailers, according to a report by real estate consultant CB
Richard Ellis. The report took into consideration the globalization of the retail industry and
scrutinized retailer presence in relation to market sectors, country of origin, regional trends and
other influences. This means we still have a long way to go.


7.4 Facts and Figures

Markets

    Market size (total) 2006: US$ 300 bn/annum
    Market size (total) 2010: US$ 427 bn/annum
    Market size (total) 2015: US$ 637 bn/annum
    Market size (modern retail) 2006: US$ 9-12 bn/annum
    Market size (modern retail) 2011: US$ 60 bn/annum
    Annual rate of growth (modern retail): 35%
    Penetration (modern retail) 2006: 3 to 4%
    Penetration (modern retail) 2010: 10%
    Number of retail outlets (total): 12 million


Investment

    New Investment by 2011: US$ 30 bn


Employment

    No. of persons employed (total): 21 mn
    No. of new jobs in next two years: 2 mn.


Wealth

    No. of dollar designated millionaires in India(2006) 100,015


Retail Space
    Typical space per outlet: 100 to 500 sq.ft.


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    Space occupied (modern retail): 35 mn sq.ft.
    Operating Malls 2007: 114 (35 mn sq.ft.)
    New Malls under construction: 361 (117 mn sq.ft.)
    New space distribution: 65% (top 7 cities), 35% (tier II & III cities)
    New space distribution (among top 7 cities): NCR 34%, Mumbai 23%, Rest 43%


7.5 Recommendations

    Poor quality of infrastructure, coupled with poor quality of the distribution sector, results
       in logistics costs that are very high as a proportion of GDP, and inventories, which have
       to be maintained at an unusually high level. Distribution and marketing is a huge cost in
       Indian consumer markets. It's a lot easier to cut manufacturing costs than it is to cut
       distribution and marketing costs.
      To compete in this sector one needs to have up-to-date market information for planing
       and decision making. The second most important requirement is to manage costs widely
       in order to earn at least normal profits in face of stiff competition.
      Indian companies know Indian markets better, but foreign players will come in and
       challenge the locals by sheer cash power, the power to drive down prices. That will be the
       coming struggle.Strategic course of action for the coming years is required to be taken by
       the major players to sustain and grow in this ever growing market
      The Indian retailing sector is at an inflexion point where the growth of organized retailing
       and growth in the consumption by the Indian population is going to take a higher growth
       trajectory.
      Rural markets emerging as a huge opportunity for retailers reflected in the share of the
       rural market across most categories of consumption.It provides ample opportunities to the
       market players to capitalize on the same and take the first mover advantage.
      IT is a tool that has been used by retailers which has improved and eased thw way with
       which modern opeartions are carried on efficiently and still with foreing players coming
       up the opportunities for IT implementation in Retailing sector is very high .
      The increase in FDI flow has strengthened the foreign political relations and now
       foreign companies are trying to persuade the Indian Parliament to increase FDI capital



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       depending on the sector. There are some chief bodies and boards that have been set up for
       the purpose of Foreign Direct Investment, such as:
      Project Approval Board (PAB)
      Licensing Committee (LC)
      District Industries Centers
      Investment Promotion and Infrastructure Development Cell
      Foreign Investment Promotion Board (1991)
      Foreign Investment Promotion Council (1996)
      Foreign Investment Implementation Authority (1999)
      Investment Commission (2004)
      With ample opportunities in this industry government restricition are bound to be
       removed or reduced to certain extent
      With the 30-40 per cent drop in retail rentals, Indian retailers are a happy lot. In fact,
       retailers are also foreseeing further drops in rentals in 2009 and they are optimistic about
       their expansion plans for this year.




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                               References




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                                                                                             102

References

    http://rbi.gov.in

    http://www.indiaretailbiz.com/blog/

    http://www.inrnews.com/realestateproperty/indias_retail_revolution_begin.html

    http://www.scribd.com/doc/4204883/Productivity-in-retail-industry-in-India

    http://business.mapsofindia.com/india-retail-industry/

    REPORT from Angel Broking

    Segments in retail industry 2008

    IBEF REPORT from Ernst & Young on Retail market & Opportunities .

    Retail Scene in India by DEEPA GUPTA & MUKUL GUPTA from department of

      management studies .

    INDIAN RETAIL INDUSTRY –opportunities ,challenges and strategies by Prakash

      Chandra Dash, senior lecturer from Bhubaneswar Institute of Management & information

      Technology , Bhubaneswar

    http://Mospi.in

    Economic political weekly

    McKinsey Global Institute, 2008

    http://www.ibef.org

    http://www.in.kpmg.com

    http://www.equitymaster.com

    http://www.capitaline.com

    www.financialexpress.com

    www.franchisebusiness.in


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    www.shoppersstop.com

    www.nse-india.com

    www.wikipedia.com

    www.myiris.com

    www.moneycontrol.com

    www.geojit.com

    www.bseindia.com

    www.investopedia.com




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                             GLOSSARY




====================================   =======================================
                                                                                                        105

Glossary

      Compound annual growth rate (CAGR): The rate of return, usually expressed as a
       percentage that represents the cumulative effect that a series of gains or losses have on an
       original amount of capital over a period of time. Compound returns are usually expressed
       in annual terms, meaning that the percentage number that is reported represents the
       annualized rate at which capital has compounded over time.
      Earnings Per Share (EPS): The portion of a company's profit allocated to each
       outstanding share of common stock. EPS serves as an indicator of a company's
       profitability.



       Calculated as



      Debt-Equity Ratio: A measure of a company's financial leverage calculated by dividing
       its total liabilities by stockholders' equity. It indicates what proportion of equity and debt
       the company is using to finance its assets.

       Calculated as

      EBITA: It is an acronym that refers to a company's earnings before the deduction of
       interest, tax and amortization expenses. It is a financial indicator used widely as a
       measure of efficiency and profitability.
      Return on Capital Employed (ROCE): A ratio that indicates the efficiency and
       profitability of a company's capital investments.

       Calculated as

      FDI (Foreign Direct Investment): The liberal investment regime, rapid growth of the
       economy, strong macroeconomic fundamentals, progressive de-licensing of sectors and
       the ease in doing business has attracted global corporations to invest in India. Foreign
       Direct Investment (FDI) inflows to developing countries are estimated to have gone up to


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                                                                                                      106

       U.S.$ 149 billion in 1997 from U.S.$ 130 billion in 1996. India‘s share of global FDI
       flows raised from 1.8 per cent in 1996 to 2.2 per cent in 1997. On the other hand, India‘s
       share in net portfolio investment flows to the developing countries declined to 5.1 per
       cent in 1997 after increasing to 8.7 per cent in 1996.
      Turnover: For a company, the ratio of annual sales to inventory; or equivalently, the
       fraction of a year that an average item remains in inventory.
      Profit Margin ratio:      A ratio of profitability calculated as net income divided by
       revenues, or net profits divided by sales. It measures how much out of every dollar of
       sales a company actually keeps in earnings.
      Bargaining power: In negotiating, capacity of one party to dominate the other due to its
       influence, power, size, or status, or through a combination of different persuasion tactics.
      Economies of scale: Reduction in cost per unit resulting from increased production,
       realized through operational efficiencies. Economies of scale can be accomplished
       because as production increases, the cost of producing each additional unit falls.
      Product differentiation: Developing unique product differences with the intent to
       influence demand.
      Brand loyalty: Degree to which a consumer repeatedly purchases a brand.
      Patents: Grants made by a government that confers upon the creator of an invention the
       sole right to make, use, and sell that invention for a set period of time.
      Fragmentation: It means organization of production in which different stages of
       production are divided among different suppliers that are located in different countries.
       Now products traded between firms in different countries are components instead of final
       products. Final products may be sold to outside the region in which fragmentation
       happens (East Asian countries often sell their final products to Europe and the USA for
       example). Producers in less developed countries get positions of production chain that
       add less value to final product. Their challenge is to "climb upwards" on transnational
       production chain.
      Vertical integration: The term vertical integration describes a style of control. Vertically
       integrated companies are united through a hierarchy and share a common owner. Usually
       each member of the hierarchy produces a different product or service, and the products
       combine to satisfy a common need

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                                                                                                   107

      GDP: GDP is defined as the total market value of all final goods and services produced
       within a given country in a given period of time (usually a calendar year)
      Supply chain: A supply chain, logistics network, or supply network is the system of
       organizations, people, technology, activities, information and resources involved in
       moving a product or service from supplier to customer.
      Trend Analysis: An aspect of technical analysis that tries to predict the future movement
       of a stock based on past data. Trend analysis is based on the idea that what has happened
       in the past gives traders an idea of what will happen in the future.




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