Retail in India

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Retail in India

• Towards growth and profitability

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• THE GREAT INDIAN RETAIL STORY

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Timeline of Retailing in India
Source Citigroup Research
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India a nation on the move

• Current GDP 1 trillion
• 4th largest in terms of GDP (PPP) terms
• Target customer base 405 mn.
• Growth rate likely to be sustained above 8
• Changing consumer behavior - consumerism
• Growth in availability of infrastructure and mall
  space

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GDP growth and Retail
Retail, GDP growth
Organized Retail in 2010
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The organized players

• Foreign Players
• Nike (Single brand)
• Levis (Single brand)
• Wal-mart (JV)
• Metro (CashCarry)

• Indian companies
• Future Group
• Reliance Retail
• Bharti
• Shoppers'Stop
• Pyramid
• Aditya Birla Group
• Subhiksha
• Spencer Group
• Tata Westside,
• Tata Chroma

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Organized retail, revenue and volume growth
Total size of retail 300bln Size of
organized retail 8bln share of
Organized retail 3
Source Economics
times retail knowledge series
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• FORMATS

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Market Profile of Various Formats

• Department Stores Shopper Stop, Lifestyle,
  Pantaloons
• Hypermarkets Big Bazaar, Spencer
• Supermarkets and Conv. Stores Subhiksha,
  Trinethra

Source India Retail Report, 2007, Merrill Lynch
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Major Retail Formats
Department Stores Hypermarkets Supermarkets and Conv. Stores
Well established, limited competition Entrenched in Indian Mindset Score on shopping experience Stress on branding Price not critical as they cater to upper income class Relatively new concept, but already as big as department stores Growing fast, but competition to intensify Price Discount and Wide Varieties act as key attractions Key to success will be efficient Supply Chains and Store locations Main challenge to mom and pop stores How to compensate for facilities that mom and pop stores provide namely Home Delivery and Monthly Credit ? Immense Competitions, building scale to achieve cost efficiencies will be critical
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• OPPORTUNITY
• CHALLENGES

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Which categories will grow ?

• Food and Groceries
• Sector that the largest amount of consumer spends
  is concentrated.
• Maximum opportunity for investments
• Consumer durables
• With increasing purchasing power, consumers tend
  to spend the most on this category.
• There is nothing to prevent a company from
  putting up shops outside the city limits, because
  consumer durables are a premeditated purchase.
• Availability of finance options has increased
  spending in this sector.
• Home products
• With increasing private ownership of homes by
  relatively young couples, across most major
  cities in India, national retail chains offering
  home furniture (and accessories) have great
  potential.

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Growth Potential In India
Source AT Kearney , Citigroup Research Report
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• POLICIES

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Government Policies

• 51 FDI allowed in single-brand formats
• 100 FDI in cash-and-carry format
• NO FDI in multi-brand stores ( like Wal-Mart)
• Trends indicate that the FDI would open up in
  retail sector, however political consensus has to
  be reached before that happens

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Pros and Cons of allowingFDI in retail
Benefits of FDI in retail Drawbacks of FDI in retail
Inflow of investment and funds. Improvement in the quality of employment. Generating more employment. Increased local sourcing. Provide better value to end consumers. Investments and improvement in the supply chains and warehousing. Franchising opportunities for local entrepreneurs. Growth of infrastructure. Increased efficiency. Cost reduction. Implementation of IT in retail. Stimulate infant industries and other supporting industries. Would give rise to cut-throat competition rather than promoting incremental business. Promoting cartels and creating monopoly. Increase in the real estate prices. Marginalize domestic entrepreneurs. The financial strength of foreign players would displace the unorganized players. Absence of proper regulatory guidelines would induce unfair trade practices like Predatory
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• OPINIONS

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Growth Drivers Barriers
Growth Drivers Barriers to Entry
Consumption Boom, Higher Incomes Favorable Demographics Changing Lifestyles and Preferences Real estate boom Manufacturing Reforms Reduction in import duties-offering Regulatory barriers Fragmented Suppliers Lack of infrastructure Supply Chain Complexities Lack of skilled Human Resource Differential Taxation System Labor Legislation Clustering of Malls
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Opinions on Formats and Growth Potential

• Consumer financing will be an important tool to
  drive consumption Income growth alone may not be
  sufficient
• Margins to be driven by non-core businesses
• Retailing will remain concentrated in the top 10
  towns
• Multi-format retailing to thrive
• Large scope for rural retailing

Views of Mr Kishore Biyani, Pantaloon Retail
India Retail Forum
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Views of Foreign Players

• Environment not conducive enough
• Only 51 FDI in single brand retailing
• Many retailers (e.g.. IKEA) unwilling to enter
  without 100 FDI)
• Insufficient data on consumer behavior
• Focus in India only on growth and not
  profitability
• Scope for private labels (only 4 in Asia
  compared to 17 in western markets)

Source Morgan Stanley India Retail Key
Takeaways from the India Retail Forum
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Outlook and challenges

• Strong long-term growth potential
• Severe cost pressure largely related to property
  rentals
• Profitability likely to remain low - patient
  capital should survive but weak players likely to
  exit in the near term
• Consolidation is on the cards
• Driven more by traffic growth than ticket growth
• Convenience stores to remain integral part of
  retail
• Need for catering to local flavors
• Internet retailing still to pick up in India

Source Morgan Stanley India Retail Key
Takeaways from the India Retail Forum
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Heard from the street..

• India's Mahindra Group to enter retail sector
  (Reuters 10/10/2007)
• Reliance Retail Venture Falls Short of Opening
  Target (Bloomberg 12/10/2007)
• India's Populists Resist Big Retail (WSJ
  9/10/2007)
• Spencer's to reduce retail formats (ET
  14/10/2007)
• Small retailers embrace IT to boost operations
  (ET 12/10/2007)

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• THANK YOU