The Indian Retail Sector

Lakshmi Narayanaswamy (203/43)

Mudit Sharma (222/43)
 Industry Evolution
l 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
l 1980s experienced slow change as India began to open up economy.
l Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and
Grasim first saw the emergence of retail chains
l Later Titan successfully created an organized retailing concept and established a
series of showrooms for its premium watches
l The latter half of the 1990s saw a fresh wave of entrants with a shift from
Manufactures to Pure Retailers.
l For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music
World in music; Crossword and Fountainhead in books.
l 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
l Emergence of hyper and super markets trying to provide customer with 3 V’s - Value,
Variety and Volume
l Expanding target consumer segment: The Sachet revolution - example of reaching to
the bottom of the pyramid.
l At year end of 2000 the size of the Indian organized retail industry is estimated at Rs.
13,000 crore
 Retailing formats in India
l 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.
lSpecialty 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.
lDiscount 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
lDepartment 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.
lDepartment 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!.
lHypermarts/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.
lConvenience 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.
lMBO’s :
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.
Retailing formats in India
India’s number of Domestic grocery chains and Early Foreign Entrants
 Recent Trends
Retail Sales in India
l Retailing in India is witnessing a huge
revamping exercise as can be
seen in the graph
l India is rated the fifth most attractive
emerging retail market: a potential
goldmine.
l Estimated to be US$ 200 billion, of
which organized retailing (i.e.
modern trade) makes up 3 percent
or US$ 6.4 billion
l As per a report by KPMG the annual
growth of department stores is
estimated at 24%
l Ranked second in a Global Retail
Development Index of 30
developing countries drawn up by
AT Kearney.
l
 Recent Trends contd.

Traditionally three factors have plagued Recent changes:

the retail industry:

Unorganized
Unorganized :: VastVast majority
majority of of the
the twelve
twelve million
million stores
stores areare Experimentation
Experimentation with with formats:
formats: Retailing
Retailing inin India
India is
is still
still evolving
evolving
small
small "father
"father and
and son"
son" outlets
outlets and
and the
the sector
sector isis witnessing
witnessing aa series
series ofof experiments
experiments acrossacross the the
Fragmented country
country with
with new
new formats
formats being
being tested
tested out.
out. Ex.
Ex. Quasi-mall,
Quasi-mall, sub- sub-
Fragmented :: Mostly
Mostly small
small individually
individually owned owned businesses,
businesses, urban
average
average size
size of
of outlet
outlet equals
equals 50 50 s.q.
s.q. ft.
ft. Though
Though India
India has
has thethe urban discount
discount stores,
stores, Cash
Cash andand carry
carry etc.
etc.
highest
highest number
number of of retail
retail outlets
outlets perper capita
capita in in the
the world,
world, the
the retail
retail Store
Store design
design :: Biggest
Biggest challenge
challenge forfor organised
organised retailing
retailing to to
space
space per
per capita
capita atat 22 s.q.
s.q. ftft per
per person
person is is amongst
amongst thethe lowest.
lowest. create
create aa “customer-pull”
“customer-pull” environment
environment thatthat increases
increases the the amount
amount
Rural of impulse shopping. Research shows that
of impulse shopping. Research shows that the chances ofthe chances of
Rural bias:
bias: Nearly
Nearly two two thirds
thirds ofof the
the stores
stores areare located
located in in rural
rural senses
areas.
areas. Rural
Rural retail
retail industry
industry has has typically
typically two two forms:
forms: "Haats"
"Haats" and and senses dictating
dictating sales
sales are
are upto
upto 10-15%.
10-15%. Retail
Retail chains
chains like
like
“Melas". Haats are the weekly markets : serve groups of 10-50 MusicWorld,
MusicWorld, Baristas,
Baristas, Piramyd
Piramyd and and Globus
Globus are are laying
laying major
major
“Melas". Haats are the weekly markets : serve groups of 10-50 emphasis & investing heavily in store design.
villages
villages and sell day-to-day necessities. Melas are larger in size
and sell day-to-day necessities. Melas are larger in size emphasis & investing heavily in store design.
and
and more
more sophisticated
sophisticated in in terms
terms of of the
the goods
goods sold
sold (like
(like TVs)
TVs) Emergence
Emergence of of discount
discount stores:
stores: They
They are
are expected
expected to to
spearhead
spearhead thethe organised
organised retailing
retailing revolution.
revolution. Stores
Stores trying
trying to to
emulate
emulate the
the model
model of of Wal-Mart.
Wal-Mart. Ex. Ex. Big
Big Bazaar,
Bazaar, Bombay
Bombay Bazaar,Bazaar,
RPGs.
RPGs.
Unorganized
Unorganized retailing
retailing is is getting
getting organized:
organized: To To meet
meet thethe
challenges
challenges ofof organized
organized retailing
retailing such
such as
as large
large cineplexes,
cineplexes, and and
malls,
malls, which
which are
are backed
backed by by the
the corporate
corporate house
house such such asas 'Ansals'
'Ansals'
and
and 'PVR‘
'PVR‘ the
the unorganized
unorganized sector sector is
is getting
getting organized.
organized. 25 25 stores
stores
in
in Delhi
Delhi under
under the
the banner
banner of of Provision
Provision mart
mart areare joining
joining hands
hands to to
combine
combine monthly
monthly buying.
buying. Bombay
Bombay Bazaar
Bazaar andand Efoodmart
Efoodmart formed formed
which
which are
are aggregations
aggregations of of Kiranas.
Kiranas.
 Recent Trends contd.
l Multiple drivers leading to a consumption boom:
– Favorable demographics
– Growth in income
– Increasing population of women
– Raising aspirations : Value added goods sales
l Food and apparel retailing key drivers of growth
l Organized retailing in India has been largely an urban phenomenon with affluent classes and
growing number of double-income households.
l 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.
l 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.
l IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change
buying behavior across the globe.
l ‘e-tailing’ slowly making its presence felt.
l Companies using their own web portal or tie-sups with horizontal players like Rediff.com and
Indiatimes.com to offer products on the web.
l
l
l
l
 Major Retailers

l India’s top retailers are largely Leading Retailers

lifestyle, clothing and
apparel stores
l This is followed by grocery
stores
l 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
l These Walmart wannabes
have the economy of
scale to be low –medium
cost retailers pocketing
narrow margin
l
 India vs. World

l 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
l 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)
l 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).
l 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.
l 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.
l One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HLL's annual turnover.
l Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing
(against 7 percent employed in India today).
l 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
l 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.
l 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

l 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.
l 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.
l The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the
next decade
l 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
l 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.
l 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.
l Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, Ahmedabad,
Lucknow and Bangalore in the next four months.
l
 Future direction: Concerns

l 68 million square feet of mall space is expected to be available by end of 2007, which might lead
to over-capacity of malls
l Lack of differentiation among the malls that are coming up. One option may be to look at
specialization.
l Poor inventory turns and stock availability measures - retailers clearly need to augment their
operations.
l 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.
l Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity ordered,
is an issue
l 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.
l Increased adoption of IT and shrinkage management will be a critical area.
l 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.
l
l
l
–
l
 Sources
l AT Kearny
l Forrester Research 2006
l KPMG-FICCI Report
l http://www.indiainbusiness.nic.in/
l