Organized Retail Industry in India

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"We believe that India is a rising star at the beginning of a

growth cycle, with consumer spending increasing at a
strong rate, and people seeking and demanding a better
quality of life. India is going to be one of the fastest-
growing regions of the future. All conditions are right to
invest in India."1

- Jeff Immelt, Chief Executive, GE.

"FDI in retail trade can not only organize a significant part

of the largely unorganized domestic retailing, but also
invite established global retail brands into the Indian
market, thereby creating greater outlets for outsourcing
and marketing Indian products."

- Recommendations from Economic Survey2 of 2004-05.

Introduction

Retailing is the second largest

industry in the US in terms of
number of people employed.
Wal-Mart, the largest retailer
in the world with annual sales
of US$ 284 billion is also the
largest employer in the US
(Refer Exhibit I for share of
organized retailing across the
globe and Exhibit II for top
retailers in the world). The
retailing industry in the US
employs more than 22 million
Americans and generates more
than $3 trillion in sales
annually. Like the US, many
developed and developing
economies rely on this sector
for growth. In India, the retail
industry is broadly divided
into the organized and
unorganized sectors. The total
market in 2005 stood at Rs.
10,000 billion, accounting for
about 9-10% of the country's
gross domestic product (GDP).
Of this total market, the organized sector accounted for Rs.
350 billion (about 3.5 % of the total) of the total revenues.
According to AT Kearney3, the organized retailing industry
is expected to cross Rs. 1000 billion revenue mark by 2010
(Refer Exhibit III for share of organized retailing in India
and Exhibit IV for percentage contribution of different
sectors to organized retailing in India).

Traditionally, the retail

industry in India comprised of
large, medium and small
grocery stores and drug stores
which could be categorized as
unorganized retailing. Most of
the organized retailing in India
had recently started and was
mainly concentrated in
metropolitan cities.

The retailing industry seems

poised for a significant growth
in the coming years owing to
the presence of a vast market,
growing consumer awareness
about product quality and
services, higher disposable
income of consumers and the
desire to try out new products
(Refer Exhibit V for shopping
trends in India). In the past
couple of years, the organized,
multi-outlet retailing concept
had gained acceptance in
India.

Organized Retail Industry in India

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Introduction Contd...

Leading global retailers such as Wal-Mart, Tesco and others

are keen to enter the Indian retailing industry. The Chicago-
based Sara Lee Corporation is planning to enter the Indian
apparel market. Dior, the well known watch brand from the
Louis Vuitton Moet Hennessy (LVMH) group, is planning to
include India among its top 12 world markets.

The Rosy Blue Group, the

world's largest diamond
manufacturer, is planning to
invest Rs 900 million in setting
up 40 exclusive Orra diamond
jewelry showrooms in India
over the next three years. Since
foreign direct investment (FDI)
in the retailing sector was not
permitted as of mid 2005, most
global players were opting for
the franchisee route.

According to the Global Retail

Development Index4 of 2005
conducted by AT Kearney,
India was ranked #1 among 30
'most attractive' retailing
destinations across the globe.
Kamal Nath, Union Minister
for Commerce and Industry in
India, expressed optimism with
regard to the retail sector in
India.
In a seminar conducted by the Federation of Indian Chambers
of Commerce and Industry (FICCI)5 in February 2005, he
said, "The importance of the retail sector in the national
economy is not in dispute. All economists have agreed that
giving the retail sector a thrust will not only result in boosting
the economy, but also that the retail sector has the potential
to be leveraged in order to rejuvenate specific targeted
sectors, including the rural economy."6

Organized Retailing in India

According to Euro Monitor

International, a leading
provider of global consumer
market intelligence, sales from
 large format stores
(supermarkets and
hypermarkets) is expected to
increase by 30% in 2005. In the
year 2002, food-related items
accounted for nearly 71% of
retail sales in India. However,
it was interesting to note that
there had been a decline in the
purchase of food-related items.
These had earlier registered a
73% sale in 1999. In recent
years, there has been higher
spending on non-food items.
The main factors for this
change are:
• Rising incomes and a consequent increase in disposable
incomes (Refer Exhibit VI for household income across
India).
• Better infrastructure.
• Rise in consumer awareness.
• Consumer keenness to buy branded products.
• Consumer desire to purchase quality products and
services...
Organized Retail Industry in India

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Entry of Large Business Houses

Organized retailing in India started picking up in South India

in cities like Chennai and Hyderabad, where real estate at
prime locations was available at cheaper rates than in cities
like Mumbai and Delhi. In the early 1990s, leading Indian
business houses started taking a keen interest in the retailing
sector...

A Profile of Major Indian Retailers

Pantaloon Retail India Limited
(PRIL)

Headed by Kishore Biyani

(Biyani), Pantaloon Retail
India Limited (PRIL) is one of
the leading retail outlets in
India. The retail chains which
are a part of PRIL include
Pantaloons, Big Bazaar, Food
Bazaar, Gold Bazaar and the
Central Mall.

PRIL was incorporated in

October 1987 as Manz Wear
Private Limited. It became a
public limited company in
September 1991. The company
sold products under the Bare,
Pantaloons and John Miller
brand names. The first
menswear Pantaloons Shoppe
outlet was set up in 1993...
RPG Group

The Rama Prasad Goenka or RPG Group registered a

turnover of Rs. 84 billion in the fiscal 2004-05. The group
has more than 20 companies in seven different industries -
Power, Tyres, Retail, Transmission, Entertainment,
Technology and the Specialties sectors (Refer Exhibit XIII
for contribution of business sectors to RPG Group's
turnover)...

Tata Group

The Tata group is one of India's

largest business houses. In
2005, the group owned 93
companies in seven business
sectors, namely information
systems and communications;
engineering; materials;
services; energy; consumer
products; and chemicals, and
employs nearly 220,000
people.

In 1997, the Tata's sold their

Lakme business to Hindustan
 Lever Limited (HLL) . The
group started its retail business
in 1998 with the purchase of
the Littlewoods retail stores,
originally owned by a UK-
based firm, in Bangalore...
Raheja Group

The K. Raheja group of companies is among India's largest

real estate players. They launched Shopper's Stop way back
in October 1991. This was the first mega apparel retail outlet
to be established in India. Shoppers' Stop is projected as a
Fashion & Lifestyle store for the family. From a single store
in 1991, Shopper's Stop has today grown into a 16 store retail
chain in major metropolitan cities across India...

Retail in India - A Challenge

The retail industry in India is growing at a significant pace. However, there are several problems faced by the
industry. The major challenges for the organized sector include:

• Taxation laws that favor small retailers.

• Different structure of sales tax in different
states.
• Multi-point octroi collection.
• Lack of trained workforce.
• Problems of supply chain and logistics.
• High cost of real estate.
• Limited land available at prime locations.

According to analysts, for this industry to thrive,

Indian retailers need to emulate worldwide retail
practices such as accuracy in financial reporting,
increased levels of corporate governance and
greater accountability among employees.
Retailers need to use the latest techniques to
enhance the consumer's shopping experience...

The Road Ahead

According to the 2005 Global Retail Development Index, a report by AT Kearney, India tipped Russia from the #1
spot as the most attractive destination for retail investment. At a retail convention held in September 2005 in
Mumbai, European and the US experts urged the Indian government to lift the ban on FDI and allow the entry of
foreign retailing companies.

During the convention, Bernd Hallier said, "In

Germany and Europe we have reached
saturation. India and Russia are emerging
markets, and in India there is an explosion in the
economy. It's a market for big investment."

Several retail companies such as Wal-Mart and

JC Penney of the US, Germany's Metro AG and
Hong Kong's Giordano International Limited
have expressed interest in entering the Indian
market.

Since 2000, the Indian economy has been

growing more than 6% on an average and has a
middle class that is estimated to be as large as
300 million people (Refer Exhibit XVIII for fact
sheet about India)...