Leading Issues

In Retail Sector
 Retailing : An Overview
• World’s Largest Private Industry
• Us$ 6.6 Trillion Sales Annually

TOP INTERNATIONAL RETAIL PLAYERS

1.Wal-Mart Stores Inc. (U. S.)
2.Carrefour Group (France)
3.The Home Depot Inc. (U.S.)
4.Metro AG (Germany)
S.)
5. Tesco PLC (U. K.)
6. Ito-Yokado Co. Ltd. (Japan)
7. The Kroger Co. (U. S.)
8. ITM Enterprises SA (France)
9. Costco Companies Inc. (U.
10. Royal Ahold (Netherlands)
 Indian Retailing

• Largest employer after agriculture - 8% of

working population
Highest outlet density in world
Around 12 mn outlets
Still evolving as an industry
$180 bn
 Evolution of Indian retail
Historic/Rural Traditional/Pervasiv Government Modern Formats/
Reach e Reach Supported International

Exclusive Brand
Outlets
Hyper/Super
Markets
Department Stores
PDS Outlets Shopping Malls
Khadi Stores
Cooperatives
Convenience
Stores
Mom and
Weekly
Pop/Kiranas
Markets
Village Fairs
Melas
Availability/ Shopping
Source of Neighborhood Low Costs / Experience/Efficie
Entertainmen Stores/Convenie Distribution ncy
t nce
 Classifying Indian retail
Traditional Format Retailers
 Kiranas: Traditional Mom and Pop Stores
 Kiosks
 Street Markets
 Exclusive /Multiple Brand Outlets

Modern Format retailers

Supermarkets (Foodworld)
Hypermarkets (Big Bazaar)
Department Stores (Shopper’s Stop)
Company Owned Company Operated
 Indian Organised Retail Industry

• The size of the organised Retail

industry estimated at ~ USD 7.8
The Organised Retailing Pie - 2004 bn in 2004 – 05 (only 3.5% of
Catering Services Books, Music & Gifts
Clothing, Textiles &
Fashion Accessories
total retail industry).
7% 3% 38%
Entertainment
2%
Food & Grocery
Source : Crisinfac11%
Jewellery
3% • Organised retailing is projected to
Furniture &
Furnishings grow at the rate of 25–30% p.a. to
8%
Watches ~USD 25 bn by 2010.
4%
Mobile handsets &
accessories Health & Beauty
3% Products (incl Hair & Beauty Care Footwear
Consumer Durables Pharma) Services 9%
9% 2% 1%
• Clothing, Textile & Fashion
accessories segments have a
dominant share in the organised
retail industry accounting for 39%
of the market.
Source : IMAGES – KSA Technopak Study
 Key Players
Existing Foreign Foreign Aspirants
Domestic Players
Players

Global Retail majors Waiting in the pipeline

Early entrants: through franchising (also scaling up
Pantaloon, RPG model: Pizza Hut, sourcing from India):
group, Shoppers McDonalds, Subway, JC Penny, Carrefour,
Stop, Westside, KFC, etc Tesco
Lifestyle, etc
Cash & Carry formats:
Other large business Shoprite and Metro
groups like Reliance,
Bharti, Piramal
Recent tie-ups: Bharti-
establishing/expandi
Wal Mart, Tatas-
ng presence in retail
Woolworths

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

• FDI
• INFRASTRUCTURE - Real Estates
• Employment
• Consumer Behaviour – Changing Trends
 Current FDI Scenario
• Current Indian FDI Regime
– FDI not permitted in retail trade sector, except in:
• Private labels
• Hi-Tech items / items requiring specialized after sales
service
• Medical and diagnostic items
• Items sourced from the Indian small sector
(manufactured with technology provided by the foreign
collaborator)
• For 2 year test marketing (simultaneous
commencement of investment in manufacturing facility
required)
 FDI in Indian retailing
• Entities established prior to 1997
– Allowed to continue with their existing
foreign equity components.
– No FDI restrictions in the retail sector pre-
1997
 International retailers in India:
Strategies
• Franchise
– International company gives name and
technology to local partner. Gets royalty in return
– In case master franchise is appointed for region
or country, he has right to appoint local
franchisees
• Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer,
Mango
• Manufacturing
– Company sets up Indian arm for production
• Bata India. It also has right to retail in India
 International retailers in India:
Strategies
• Distribution
– International company sets up local distribution
office
– Supply products to Indian retailers to sell
– Also set up franchised outlets for brand
• Swarovski, Hugo Boss

• Wholesale trading
– 100% FDI permitted
 Benefits of FDI
 Greater level of exports due to increased sourcing by
major players,
 Provides access to global markets
 Sourcing by Wal-Mart from China improved multifold after FDI
permitted in China
 Similar increase in sourcing observed for Metro in India

 Greater investment in the food processing sector

technology

 Better operations in production cycle and distribution

Tourism Development
A strong retailing sector boosts tourism as seen from the
experience of Singapore & Dubai
 Investment in whole Supply Chain
Improved product basket from India for exports

 Manpower and skill development

Through retail training, &
Greater managerial talent inflow from other countries

 Better lifestyle

 Greater level of wages paid by international players

 More product variety
 Newer product categories
 Increased purchasing capacity of consumers
Taking an advantage of Retail Boom & FDI,

 Big Indian retail players looking to expand their

operations

 Himatsingka Seide – Largest manufacturer of silk &

silk-
blended fabrics

 Welspun – Leading manufacturer of Terry towels

 Reliance Industries Ltd. – Entering big way in retail

sector
 Benefits of FDI

Greater Consumer
Greater Per
Spending due to
Capita Income
economic boom
GDP Growth

Employ Benefits Greater

ment to Govt. Exports
Increasing Greater
Tax Paying Sourcing
Increased Tax
Population From India
Revenues

Reduced Tax
Evasion
 EMPLOYMENT

•ATTRITION
•JOB POACHING
•RECRUITMENT
•JOB SATISFACTION
 REAL ESTATE
• SPACE CRUNCH
• RISE IN REALTY COSTS
• HIGH OPERATION COST
SMALL VS MALL
 Consumer Behaviour – Changing Trends

• Increased Purchasing Power

= 33% of Indian households are in the middle to high-income category in 2004. This is
projected to increase to 49% by 2010.
= India's consumer class with rising disposable income at 400 million people.
= increasing no. of super rich and rich population [ Crorepatis and Lakpatis ]
= Growing population of DINKS ( Double income no kids group )
= Changing Lifestyles
• Changing Consumption Patterns
= increased aspirations caused by exposure to the satellite television, cable and
other channels.
= higher level of information - awareness about what is available in market
= Brand loyalty is increasing.
= Price sensitivity
Customer Behaviour – Changing Trends
• Changing Habit Patterns
= Use of mobile phones
= Shopping has evolved from a need-based activity to a leisure-time
entertainment
= Increasing credit-card usage (estimated to reach 21mn the end of 2006).
= fashion AND brand consciousness is growing
• Young Indian Consumers
= The Indian consumer segment is the youngest in the world with a median
age of 24 , from 210m (25%of the total population) in 1991 to an estimated
312m (27% of the total population) by 2010.
• More Available Retail Space
= more items are available under the same roof , choice option increases , less
hassles , comfort in shopping
= There are 220 mall project in the pipeline till 2007, 139 in the big 8 cities
including the metros and 81 in other Tier II cities.
Customer Behaviour – Changing Trends
few concerns
• Shoplifting
• Online shopping - e-bay, amazon.com
• Cheaper non-branded substitutes
• Maintain customer relationship - CRM
1. Merchandising for the convenience of the customer.
2. Cleanliness of the store, fitting rooms, wrap desk
3. Care taken in packing the customers purchase.
4. Quality of bags, tissue, gift boxes etc.
5. Professional looking ads, marketing, business cards, website, etc.
6. Special services offered to customers, especially at no charge
7. Consistency of training so that customers are helped by everyone with the
same courtesy.
8. Phone etiquette in answering customer calls as well as handling personal
calls.
9. Professional looking employees who reflect the identity of the store.
10. Home delivery mechanism
 CONCLUSION
At the close, it may be considered
that organized retailing in India is a
sunrise sector. Despite being at a
fairly nascent stage of its evolution
and facing certain hindrances posed
by socio- economic factors, it has a
fine promise to emerge as a front
runner in times to come.
Case study : Chinese retailing
 FDI permitted in 1992. 40 foreign retailers have secured approval
 Retail sales have grown@13.5% CAGR since FDI was

permitted

 FDI initially restricted to 6 major cities (including Beijing,

Shanghai and Guangzhou) and SEZs

 Foreign ownership initially restricted to 49%

 US$ 22 bn of FDI attracted, 3.6% of total FDI

 In 2003, FDI in wholesale and retail was US$ 1.1 bn (Around

30% of our total FDI in 2003)

 Current restrictions on FDI will be phased out over 5 years as
condition of WTO entry
 Total wholesale and retail trade
375

300
US$ bn

225

FDI in retail allowed

150

75

7 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0
8 0 5 0 1 2 3 4 5 6 7 8 9 0 1 2

Years

 Retail sales grew @ 19.6% CAGR for the next 4 years after the
introduction of FDI in 1992

28
 Employment in retailing is
increasing
Employment in Retailing

60 8.00%
7.00%

% of Total Labor
50
wholesale (Mn)
Employment in

6.00%
Retail and

40 5.00%

force
30 4.00%
3.00%
20
2.00%
10 1.00%
0 0.00%
90 91 92 93 94 95 96 97 98 99 00 01
Year

Employment %
 China: The effect of FDI
Type No. of stores No. of stores in
in 1996 2001
Traditional 1,920,604  2,565,028

Supermarkets 13,079 152,194

Convenience 18,091

Hypermarkets 593

 Modern formats have grown after FDI

 But so have traditional players

30
 Lessons from China
 Strong evidence in favor of FDI
 FDI improves the entire size of the industry

Retailing in China has grown at a compound rate of 15%

per annum after FDI inflow

 Employment growth

 Evolution of modern formats

 Local players can survive and even beat foreign competition

Need for a strong retailing industry in India

 Scale is the key to success for local retailers