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					The Indian Retail Sector
India Retail Industry: Snapshot of Indian Retailer, Indian Consumer,
Indian Retail Market Size and Potential



   •• The Indian retail industry accounts for 10% of the GDP and 8% of employment.
    •• India is being touted as the next big retail destination with an average CAGR of 40% to
    45%
    •• The sheer size of the population demands attention from retailers worldwide and the
    potential for growth in this nascent industry is tremendous.
    •• As per AT Kearney‟s GRDI for 2008, India ranks second to Vietnam. It topped the list in
    2007.
    •• India is the world‟s 4th largest economy in terms of Purchasing Power Parity, after USA,
    China and Japan; it is expected to move to the third position by 2010.
    •• India is rated ahead of China on the Foreign Direct Investment Confidence Index (FDICI)
    making it an attractive retail market among other emerging economies in the world.
    •• According to a study conducted by the Associated Chambers of Commerce and Industry
    (ASSOCHAM), the annual retail sale that was close to US$ 6 billion in 2007, is expected to
    reach USD 17 billion by 2010.
    •• The ICRIER study found that total Indian retail business would grow at 13%, from US$
    322 billion in 2006-07 to US$ 590 billion in 2011-12. The unorganized retail will grow 10%
    from US$ 309 billion 2006-07 to US$ 496 billion in 2011-12.
    •• India is rated in the highest category of the Aspirational Index in Asia as per the AC
    Nielsen Online Omnibus Survey 2005
    •• According to NCAER, only 14% Indian households will have annual household incomes
    less than US$ 921.66 by 2012.
    •• An Economic Times study of 50 top consumer goods and services firms in the June
    quarter of 2008-09 saw sales grow at an average rate of 24% year on year.
                    Industry Evolution

   Traditionally retailing in India can be traced to
     –   The emergence of the neighborhood ‘Kirana’ stores catering to the convenience of the
         consumers
     –   Era of government support for rural retail: Indigenous franchise model of store
         chains run by Khadi & Village Industries Commission
   1980s experienced slow change as India began to open up economy.
   Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and
    Grasim first saw the emergence of retail chains
   Later Titan successfully created an organized retailing concept and established a
    series of showrooms for its premium watches
   The latter half of the 1990s saw a fresh wave of entrants with a shift from
    Manufactures to Pure Retailers.
   For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music
    World in music; Crossword and Fountainhead in books.
   Post 1995 onwards saw an emergence of shopping centers,
     –   mainly in urban areas, with facilities like car parking
     –   targeted to provide a complete destination experience for all segments of
         society
   Emergence of hyper and super markets trying to provide customer with 3 V’s - Value,
    Variety and Volume
   Expanding target consumer segment: The Sachet revolution - example of reaching
    to the bottom of the pyramid.
   At year end of 2000 the size of the Indian organized retail industry is estimated at
    Rs. 13,000 crore
               Retailing formats in India

   Malls:                                                                       Department Stores:
    The largest form of organized retailing today. Located mainly in              Departmental Stores are expected to take over the apparel business
    metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft       from exclusive brand showrooms. Among these, the biggest success
    to 7,00,000 sq ft and above. They lend an ideal shopping experience           is K Raheja's Shoppers Stop, which started in Mumbai and now has
    with an amalgamation of product, service and entertainment, all               more than seven large stores (over 30,000 sq. ft) across India and
    under a common roof.Examples include Shoppers Stop, Piramyd,                  even has its own in store brand for clothes called Stop!.
    Pantaloon.


   Specialty Stores:                                                            Hypermarts/Supermarkets:
    Chains such as the Bangalore based Kids Kemp, the Mumbai books                Large self service outlets, catering to varied shopper needs are
    retailer Crossword, RPG's Music World and the Times Group's music             termed as Supermarkets. These are located in or near residential
                                                                                  high streets. These stores today contribute to 30% of all food &
    chain Planet M, are focusing on specific market segments and have             grocery organized retail sales. Super Markets can further be
    established themselves strongly in their sectors.                             classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft
                                                                                  and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft.
                                                                                  having a strong focus on food & grocery and personal sales.


   Discount Stores:                                                             Convenience Stores:
    As the name suggests, discount stores or factory outlets, offer               These are relatively small stores 400-2,000 sq. feet located near
    discounts on the MRP through selling in bulk reaching economies of            residential areas. They stock a limited range of high-turnover
                                                                                  convenience products and are usually open for extended periods
    scale or excess stock left over at the season. The product category           during the day, seven days a week. Prices are slightly higher due to
    can range from a variety of perishable/ non perishable goods                  the convenience premium.




   Department Stores:                                                           MBO’s :
    Large stores ranging from 20000-50000 sq. ft, catering to a variety of        Multi Brand outlets, also known as Category Killers, offer several
    consumer needs. Further classified into localized departments such            brands across a single product
    as clothing, toys, home, groceries, etc.
                                                                                  category. These usually do well in busy market places and Metros.
Retailing formats in India
     India’s number of Domestic grocery chains and Early Foreign Entrants
                              Recent Trends
                                               Retail Sales in India
   Retailing in India is witnessing a huge
    revamping exercise as can be seen in
    the graph
   India is rated the fifth most attractive
    emerging retail market: a potential
    goldmine.
   Estimated to be US$ 200 billion, of
    which organized retailing (i.e. modern
    trade) makes up 3 percent or US$ 6.4
    billion
   As per a report by KPMG the annual
    growth of department stores is
    estimated at 24%
   Ranked second in a Global Retail
    Development Index of 30 developing
    countries drawn up by AT Kearney.
                            Recent Trends contd.

Traditionally three factors have plagued                                                Recent changes:
           the retail industry:



Unorganized : Vast majority of the twelve million stores are small     Experimentation with formats: Retailing in India is still evolving
"father and son" outlets                                               and the sector is witnessing a series of experiments across the
Fragmented : Mostly small individually owned businesses,               country with new formats being tested out. Ex. Quasi-mall, sub-
average size of outlet equals 50 s.q. ft. Though India has the         urban discount stores, Cash and carry etc.
highest number of retail outlets per capita in the world, the retail   Store design : Biggest challenge for organised retailing to create
space per capita at 2 s.q. ft per person is amongst the lowest.        a “customer-pull” environment that increases the amount of
Rural bias: Nearly two thirds of the stores are located in rural       impulse shopping. Research shows that the chances of senses
areas. Rural retail industry has typically two forms: "Haats" and      dictating sales are upto 10-15%. Retail chains like MusicWorld,
“Melas". Haats are the weekly markets : serve groups of 10-50          Baristas, Piramyd and Globus are laying major emphasis &
villages and sell day-to-day necessities. Melas are larger in size     investing heavily in store design.
and more sophisticated in terms of the goods sold (like TVs)           Emergence of discount stores: They are expected to
                                                                       spearhead the organised retailing revolution. Stores trying to
                                                                       emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar,
                                                                       RPGs.
                                                                       Unorganized retailing is getting organized: To meet the
                                                                       challenges of organized retailing such as large cineplexes, and
                                                                       malls, which are backed by the corporate house such as 'Ansals'
                                                                       and 'PVR„ the unorganized sector is getting organized. 25 stores
                                                                       in Delhi under the banner of Provision mart are joining hands to
                                                                       combine monthly buying. Bombay Bazaar and Efoodmart formed
                                                                       which are aggregations of Kiranas.
                    Recent Trends contd.
   Multiple drivers leading to a consumption boom:
      –    Favorable demographics
      –    Growth in income
      –    Increasing population of women
      –    Raising aspirations : Value added goods sales
   Food and apparel retailing key drivers of growth
   Organized retailing in India has been largely an urban phenomenon with affluent classes and
    growing number of double-income households.
   More successful in cities in the south and west of India. Reasons range from differences in
    consumer buying behavior to cost of real estate and taxation laws.
   Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural
    market across most categories of consumption
      –    ITC is experimenting with retailing through its e-Choupal and Choupal Sagar – rural
           hypermarkets.
      –    HLL is using its Project Shakti initiative – leveraging women self-help groups – to explore
           the rural market.
      –    Mahamaza is leveraging technology and network marketing concepts to act as an
           aggregator and serve the rural markets.
   IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change
    buying behavior across the globe.
   „e-tailing‟ slowly making its presence felt.
   Companies using their own web portal or tie-sups with horizontal players like Rediff.com and
    Indiatimes.com to offer products on the web.
                              Major Retailers

   India‟s top retailers are largely    Leading Retailers
    lifestyle, clothing and apparel
    stores
   This is followed by grocery
    stores
   Following the past trends and
    business models in the west
    retail giants such as
    Pantaloon, Shoppers‟ Stop
    and Lifestyle are likely to target
    metros and small cities almost
    doubling their current number
    of stores
   These Walmart wannabes
    have the economy of scale to
    be low –medium cost retailers
    pocketing narrow margin
                            India vs. World

   Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9
    million outlets in USA, catering to more than 13 times of the total retail market size as compared to India
   India has the highest number of outlets per capita in the world - widely spread retail network but with the
    lowest per capita retail space (@ 2 sq. ft. per person)
   Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail
    industry. Almost 100 times more than the turnover of HLL (India's largest FMCG company).
   Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store
    (Shoppers' Stop, Westside, Lifestyle) can compare.
   The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in
    Wal-Mart are about 1.3 million where as the entire Indian retail industry employs about three million
    people.
   One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HLL's annual turnover.
   Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing
    (against 7 percent employed in India today).
   60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of
    the fastest-growing 50 retailers have just one format
   Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average inventory
    turns ratio of about 18. Many Indian retailers KPMG surveyed have inventory turns levels between 4 and
    10.
   Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail
    shelves (translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers
    surveyed ranged from 5 to 15 percent.
        Future direction: Positives


   AT Kearney has estimated India‟s total retail market at US$ 202.6 billion which is expected to
    grow at a compounded 30 per cent over the next five years.
   With the organised retail segment growing at the rate of 25-30 per cent per annum, revenues
    from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010.
   The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the
    next decade
   Over next two years India will see several Indian retail businesses attaining a critical mass as
    growth in the industry picks up momentum driven by two key factors:
      –    Availability of quality real estate and mall management practices
      –    Consumer preference for shopping in new environments
   Wal-Mart : huge plans for India. Moving a senior official from its headquarters in Bentonville,
    Arkansas, to head its market research and business development functions pertaining to its
    retail plans in India.
   New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty major DLF
    Properties to set up shop in a mall in New Delhi.
   Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, Ahmedabad,
    Lucknow and Bangalore in the next four months.
          Future direction: Concerns


   68 million square feet of mall space is expected to be available by end of 2007, which might lead
    to over-capacity of malls
   Lack of differentiation among the malls that are coming up. One option may be to look at
    specialization.
   Poor inventory turns and stock availability measures - retailers clearly need to augment their
    operations.
   Operations of retailers and suppliers are not integrated. Efficient replenishment practices
    practiced in the Indian auto and auto-component industry can be leveraged to implement efficient
    supply chain management techniques.
   Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity
    ordered, is an issue
   Sales tax laws - lead to retailers having state-level procurement and storage leads to Indian
    retailers having higher inventories. VAT has helped alleviate this a bit.
   Increased adoption of IT and shrinkage management will be a critical area.
   Supply chain and customer relations followed by merchandising, facilities management and
    vendor development are areas which have significant gaps and proactive training is a key
    imperative for overcoming these.
                    Sources

   AT Kearny
   Forrester Research 2006
   KPMG-FICCI Report
   http://www.indiainbusiness.nic.in/