The Indian Retail Sector

Lakshmi Narayanaswamy (203/43)

Mudit Sharma (222/43)

Industry Evolution

Traditionally retailing in India can be traced to

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

The emergence of the neighborhood Kirana stores catering to the convenience of the
consumers

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.

Retailing formats in India

Indias number of Domestic grocery chains and Early Foreign Entrants

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.

Recent Trends contd.

Traditionally three factors have plagued
the retail industry:

Unorganized
Unorganized :: Vast
Vast majority
majority of
of the
the twelve
twelve million
million stores
stores are
are
small
small "father
"father and
and son"
son" outlets
outlets
Fragmented
Fragmented :: Mostly
Mostly small
small individually
individually owned
owned businesses,
businesses,
average
average size
size of
of outlet
outlet equals
equals 50
50 s.q.
s.q. ft.
ft. Though
Though India
India has
has the
the
highest
highest number
number of
of retail
retail outlets
outlets per
per capita
capita in
in the
the world,
world, the
the retail
retail
space
space per
per capita
capita at
at 22 s.q.
s.q. ftft per
per person
person is
is amongst
amongst the
the lowest.
lowest.
Rural
Rural bias:
bias: Nearly
Nearly two
two thirds
thirds of
of the
the stores
stores are
are located
located in
in rural
rural
areas.
areas. Rural
Rural retail
retail industry
industry has
has typically
typically two
two forms:
forms: "Haats"
"Haats" and
and
Melas".
Melas". Haats
Haats are
are the
the weekly
weekly markets
markets :: serve
serve groups
groups of
of 10-50
10-50
villages
villages and
and sell
sell day-to-day
day-to-day necessities.
necessities. Melas
Melas are
are larger
larger in
in size
size
and
and more
more sophisticated
sophisticated in
in terms
terms of
of the
the goods
goods sold
sold (like
(like TVs)
TVs)

Recent changes:

Experimentation
Experimentation with
with formats:
formats: Retailing
Retailing in
in India
India is
is still
still evolving
evolving
and
and the
the sector
sector is
is witnessing
witnessing aa series
series of
of experiments
experiments across
across the
the
country
country with
with new
new formats
formats being
being tested
tested out.
out. Ex.
Ex. Quasi-mall,
Quasi-mall, subsuburban
urban discount
discount stores,
stores, Cash
Cash and
and carry
carry etc.
etc.
Store
Store design
design :: Biggest
Biggest challenge
challenge for
for organised
organised retailing
retailing to
to
create
create aa customer-pull
customer-pull environment
environment that
that increases
increases the
the amount
amount
of
of impulse
impulse shopping.
shopping. Research
Research shows
shows that
that the
the chances
chances of
of
senses
senses dictating
dictating sales
sales are
are upto
upto 10-15%.
10-15%. Retail
Retail chains
chains like
like
MusicWorld,
MusicWorld, Baristas,
Baristas, Piramyd
Piramyd and
and Globus
Globus are
are laying
laying major
major
emphasis
emphasis &
& investing
investing heavily
heavily in
in store
store design.
design.
Emergence
Emergence of
of discount
discount stores:
stores: They
They are
are expected
expected to
to
spearhead
spearhead the
the 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 the
the
challenges
challenges of
of 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 as
as '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 are
are joining
joining hands
hands to
to
combine
combine monthly
monthly buying.
buying. Bombay
Bombay Bazaar
Bazaar and
and Efoodmart
Efoodmart formed
formed
which
which are
are aggregations
aggregations of
of Kiranas.
Kiranas.

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.

Major 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

Leading Retailers

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 (@ 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.

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.

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.

Sources
AT Kearny
Forrester

Research 2006
KPMG-FICCI Report
http://www.indiainbusiness.nic.in/