The Indian Retail Sector

1
The Indian Retail Sector

• Lakshmi Narayanaswamy (203/43)
• Mudit Sharma (222/43)

2
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 Vs - 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

3
Retailing formats in India

• Malls
• The largest form of organized retailing today.
  Located mainly in metro cities, in proximity to
  urban outskirts. Ranges from 60,000 sq ft to
  7,00,000 sq ft and above. They lend an ideal
  shopping experience with an amalgamation of
  product, service and entertainment, all under a
  common roof.Examples include Shoppers Stop,
  Piramyd, Pantaloon.

• Department Stores
• Departmental Stores are expected to take over
  the apparel business from exclusive brand
  showrooms. Among these, the biggest success is K
  Raheja's Shoppers Stop, which started in Mumbai
  and now has more than seven large stores (over
  30,000 sq. ft) across India and even has its own
  in store brand for clothes called Stop!.

• Specialty Stores
• Chains such as the Bangalore based Kids Kemp,
  the Mumbai books retailer Crossword, RPG's Music
  World and the Times Group's music chain Planet M,
  are focusing on specific market segments and have
  established themselves strongly in their sectors.

• Hypermarts/Supermarkets
• Large self service outlets, catering to varied
  shopper needs are termed as Supermarkets. These
  are located in or near residential high streets.
  These stores today contribute to 30 of all food
  grocery organized retail sales. Super Markets
  can further be 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
• As the name suggests, discount stores or factory
  outlets, offer discounts on the MRP through
  selling in bulk reaching economies of scale or
  excess stock left over at the season. The product
  category can range from a variety of perishable/
  non perishable goods

• Convenience Stores
• These are relatively small stores 400-2,000 sq.
  feet located near residential areas. They stock a
  limited range of high-turnover convenience
  products and are usually open for extended
  periods during the day, seven days a week. Prices
  are slightly higher due to the convenience
  premium.

• Department Stores
• Large stores ranging from 20000-50000 sq. ft,
  catering to a variety of consumer needs. Further
  classified into localized departments such as
  clothing, toys, home, groceries, etc.

• MBOs
• Multi Brand outlets, also known as Category
  Killers, offer several brands across a single
  product
• category. These usually do well in busy market
  places and Metros.

4
Retailing formats in India
Indias number of Domestic grocery chains and
Early Foreign Entrants
5
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.

6
Recent Trends contd.
Traditionally three factors have plagued the
retail industry
Recent changes
Experimentation with formats Retailing in India
is still evolving and the sector is witnessing a
series of experiments across the country with new
formats being tested out. Ex. Quasi-mall,
sub-urban discount stores, Cash and carry
etc. Store design Biggest challenge for
organised retailing to create a customer-pull
environment that increases the amount of impulse
shopping. Research shows that the chances of
senses dictating sales are upto 10-15. Retail
chains like MusicWorld, Baristas, Piramyd and
Globus are laying major emphasis investing
heavily in store design. 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.
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
(like TVs)
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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.

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Major Retailers
Leading Retailers

• Indias top retailers are largely 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

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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 (_at_ 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.

10
Future direction Positives

• AT Kearney has estimated Indias 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.

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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.

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Sources

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