Indian Retail - Time To Change Lanes

CONSUMER MARKETS
IndianRetail:
Timetochangelanes
KPMG IN INDIA
Foreword
TheadventofNewYear2009heraldedinterestingyetchallengingtimes
fortheGlobalRetailindustry.TheIndianretailindustry—oneofthe
fastestgrowingindustriesinthecountryoverthepastcoupleofyears—
isnoexception.While2008showedgrowthfortheindustryonthe
whole,thelastquarterof2008wasimpactedbytheeconomic
slowdownandliquiditycrunch,andthisisexpectedtocontinueinthe
currentyear.
Theyeargonebywaspackedwithseveralsignificantdevelopmentsfor
theIndianretailindustry,includingtheentryofmanyglobalplayers,
growingacceptanceofthemodernformats,thesuccessofmany
specialityretailformats,andtherisingcompetitionintheregional
marketsbeyondthemetrosandTier1cities.
Ontheotherhand,theaftereffectsoftheglobaleconomicturmoilare
beingfeltinIndiaaswell,andtheeconomyisexpectedtogrowata
significantlylowerrateoverthenext2years(between5to7percent
accordingtovariousestimates*).Consequently,overallconsumption
levels,particularlydiscretionaryspendandimpulsepurchaseshavebeen
affected,which,inturn,hasresultedinalowergrowthrateforthe
industryforthecurrentyear.Moreover,thistrendisexpectedtocontinue
in2009.
Giventheindustry’schanginglandscapeandemergingchallenges,the
focusofindustryplayerstooischanging;withastrongemphasison
profitablegrowthinthecurrentscenario.Hence,retailcompaniesare
increasinglyconcentratingonstrengtheningexistingoperationsand
assessingoptionsforgrowththroughconsolidation,whilecontinuingto
innovate.
Lookingatthechangingcontoursoftheindustry,therearecertaindrivers
whicharelikelytohaveanimpactacrossretailcategories,andwehave
examinedthesedriversindetailinthisreport.Factorslikerenegotiating
rentals,storerationalization,workingcapitalmanagement,
regionalization,costoptimizationandmanpowerresizingaresomeofthe
keyTopofMind(TOM)issuesforretailersinthecurrentcontextofthe
downturn.Wehavefocusedonhowthesedriversareaffectingvarious
playersacrosstheretailvaluechainandtheirstrategiestohelpcopewith
theslowdown.
Theanalysesandpointofviewpresentedinthereporthavebeen
validatedthroughextensivediscussionswithindustryplayers.Wetake
thisopportunitytothanktheindustryplayersformakingthisendeavor
possible.
*IMF,CushmanandWakefieldReport,2009
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependent
memberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
Table of Contents
ExecutiveSummary 01
India’sRetailJourney-Fromgearfivetogear… 04
Livinginuncertaintimes 06
DisappointingFootfalls 07
Margincontraction-Interestburdenadverselyimpactsprofits 08
Rolloutdelaystocompoundproblems 09
Besidestheweakeconomyandthefeebleconsumersentiments,
thedisappointingretailgrowthisalsoattributedto… 10
Mistakesbyretailershavealsoaddedtoexternaltroubles 11
Strategiestohelpretailerscopewiththeslowdown 12
Tougheninternalefficiencies 13
Decodeconsumerbehavior 21
Enteringintoalliancesandleveragingexpertise 23
Buildacompetentsupplychainmanagementsystem 27
Ventureintounderpenetratedmarkets:RuralRetailing 28
Innovate:categories,services,businessmodels… 31
FutureOutlook 33
EXECUTIVE SUMMARY
TheIndianRetailsectorhascaughttheworld’simaginationinthelastfewyears.
Toppingthelistofmostattractiveretaildestinationlistforthreeyearsinarow,it
hadretailgiantslikeWal-Mart,CarrefourandTescosizinguppotentialpartnersand
waitingtoenterthefray.1
India’sretailgrowthwaslargelydrivenbyincreasingdisposableincomes,
favorabledemographics,changinglifestyles,growthofthemiddleclasssegment
andahighpotentialforpenetrationintourbanandruralmarkets.However,with
theonsetoftheglobalfinancialcrisis,Indianretailershavebeensufferingfrom
theeffectsofrapidcreditsqueeze,highoperatingcostsandlowcustomer
confidence.
TheimpactofcurrentslowdowninIndianretailsectorissummarizedalongkey
operatingparametersasfollows:
Impact of slowdown on key parameters

TopLine/Sales
BottomLine/Profitability CostCompetitiveness CostofFinance
Turnover
WorkingCapital
StockTurns/Rotations RealEstateAvailability RealEstateCost
Availability
StoreExpansion Footfalls TierII/IIIExpansion AdvertisingSpends
IntensityofConsumer
Attrition Headcount/Recruitment InvestmentsinIT
Promotions
PositiveImpact NoImpact/StatusQuo AdverseImpact
Source: KPMG Retail Survey, March 2009
1 ATKearney'sGlobalRetailDevelopmentIndex(GRDI),2008
1
Inthisreport,wehavesuggestedstrategiesfortheretailsectortohelpcope
withimpactofslowdownandvalidatedthemthroughextensivediscussionswith
keyplayersintheindustry.
Strategies to help cope with the recession

•Optimizecosts(Cutcostsinawaythatdoesn’tharmthe
business)andoptimizeresources.Keyamongstthemare:
-improvelaborproductivity
ManageCosts
-manageinventoryefficiently,
-renegotiatetherentals
•Adoptarevenuesharemodelagainstfixedsharemodel
•Implementtechnology–speciallyinareasofmanpower
Optimizetechnologyusage training,realestatemanagement,supplychainandlogistics
managementandday-to-daystoreoperations
•Streamlinestoreprocesses,increasestorevisibility,manage
Efficientstoremanagement
staffeffectivelyandlookintostorelayoutandproductrange
•Classifystoresclearlyintocategories:profitable,highcost-high
Re-evaluatestoreviabilityandexpansionplans sale,lowcost-highpriceandunviableandtakeaction
accordinglyforeachcategory
•Investinconsumerresearch,payingcloseattentiontothe
Decodeconsumerbehavior diversitypresentinIndia’sgeography,tobemoresharperin
delivery
•Forgealliancesandpartnershipstoleverageoneachother’s
Enterintoalliancesandleverageexpertise
financialmuscleandexpertise
•Offercompetitivein-storelabelstoearnhighermargins—a
Developprivatelabels win-winsituationforbothcustomerandretailer(thekeyisto
improvequalityofin-storebrand)
•Focusonlogisticsintermsofminimizingthecostsand
Buildcompetentsupplychainmanagement knowledgeaggregation
•Leverageontechnologyandexpertiseofforeignplayers
•Thinkbeyondthemetropolitancities,targettheopportunity
Tapunderpenetratedmarkets offeredbytherapidlydevelopingandlargelyunder-penetrated
TierII,TierIIIandruralmarkets
•Standoutofthecrowdandkeepofferingnewideas,services,
Innovate
experiencestothecustomers
2
Some of our thoughts on future outlook and
how it may impact behavior in retail sector are
as follows:
•Itiswidelybelievedthatthecurrentslowdownmightlastfor12–18months-
dependingongovernmentincentivesinincreasingspendsoninfrastructure,
developmentinitiativesandotheractivitiestostimulatetheeconomy
• Weexpectanincreasedfocusonvalueretailinthecomingmonthsandashift
awayfromlifestylegoods,thankstotheimpactofthecurrentslowdown
• ThereisexpectedtobeincreasingactioninfoodretailingandFMCGproducts
asthissegmentislargelyinsulatedfromtheslowdown,whilesectorssuchas
homefurnishingarelessfavored
• Retailersarelikelytostartclosingunprofitablestoresandrationalizecapital
expenditure,asapartofcostoptimization
• Churninmallsislikelytoincreaseintheshorttermwhensomeretailersopt
forlow-rentpremisesasameansofsustenanceinthecurrenteconomic
situation
• AsTierIcitiesbecomesaturated,retailersmaymovetoTierII,TierIIIcities
whereprofitsarehigherduetolowerrentalsandoperatingcosts
• Therearegoingtobeincreasedinvestmentsinshorteningofsupplychain.
Thisismainlyduetotheincentivesofferedbythegovernmentandthe
potentialforhigherprofitmargins
• Thefrequencywithwhichretailersliquidateslow-movinggoodsbyoffering
discountstoreduceinventoryislikelytoincrease.
Thelongtermprospectsforretailchainexpansionarestillveryattractiveandthis
periodofuncertaintyisseenbyretailersasanimportantconsolidationimperative
foranindustrythathasbeengrowingat30-40percentp.a.2 overthepast
decade.
2 JonesLangLasalleMeghrajReportonIndiaRetail2008
3
INDIA’S RETAIL JOURNEY -
FROM GEAR FIVE TO GEAR...
Inthepastfewyears,India’sretailjourneyseemedpictureperfectwith
themostattractive‘stops’stillunexploitedandunder-penetrated.
Favorabledemographics,steadyeconomicgrowth,easyavailabilityof
credit,andlargescalerealestatedevelopmentswerefuellingthegrowth
ofIndia’sapproximatelyUSD25billion3 organizedretailmarket.The
opportunitywasthereforalltoseeandIndiawasthedestinationof
choicefortopglobalretailers.Inthisenvironment,India’sownbluechip
companieslikeReliance,BhartiandRPGdiversifiedtoaddretailtotheir
sectorportfolio4.Allthingsconsidered,itwasagoodtimeforIndian
retail.
Thiswasthescenariotillafewmonthsago.Entertheglobalmeltdown
andIndiadidnotfinditselfcompletelyinsulatedfromitsharsheffects.
AspertheCartesiansurvey,almostallkeyindustriesinIndiahavebeen
negativelyimpactedbytheslowdownandretailisnoexception.
Industry-wise Impact
Source: Cartesian Economic Meltdown Survey, Dec 2008

An impact score of 0-15 indicates low impact
An impact score of 16-50 indicates moderate impact
An impact score of > 50 indicates high impact
3 IBEF
4 Reliance, Bharti and RPG group websites
4
WiththeQ3growthnumbersofFY2008-09at10-12percentasagainst
35percentofthepreviousyear,the‘happygrins’arefastturninginto
‘nervoussmiles’.Whilethesectorisstillregisteringdecentgrowth,the
heavyinvestmentsmadeduringtheboomperiodmayweightheretailers
down.
Organized retail penetration - Gap created by slowdown
Source:KPMGAnalysisandRetailersAssociationofIndia
Organized retail penetration, which was expected to touch 16 percent by 2012

from the current 5 percent, is likely to trace 10.4 percent only
5
LIVING IN UNCERTAIN TIMES
As per KPMG’s survey, even though almost all retailers believe that
the current uncertainty is only near term and is likely to persist for
12-18 months, there exists certain degree of skepticism in achieving
targets. This is clearly indicated by the Cartesian study where 53
percent of retailer’s confidence levels have been shaken.
Retailer’s Confidence level in achieving targets
Source: Cartesian Economic Meltdown Survey, Dec 2008
6
Disappointing Footfalls
Alargenumberofretailershaveexperiencedadropinfootfallswhichis
mirroredbyslowingSameStoreSales(SSS)growthfigures.Thisalso
adverselyimpactsthetimetakentobreak-evenfornewstores.SSSat
someofIndia’sbiggestretailgroupshavebecomenegativeforthefirst
timeinsixyears.
Althoughretailersaretryingtheirbesttocombatthisslowdownthrough
constantpromotionaloffersanddeepdiscounts,consumersare
expectedtocutdownontheirdiscretionaryspending.Withtheglobal
recessionhavingnoclearendinsight,consumersseesenseinsaving
forarainyday.
According to KPMG’s survey, 70 percent of the respondents stated

that the slowdown has adversely affected their footfalls.
Year-on-Year Net Sales Growth
Source: KPMG Analysis, Prowess
7
Liquidity under pressure
Theslowingsalesareresultinginlowerinventoryturnoverandincreasingworkingcapital
requirementsforretailers.Thisinturnhasresultedinliquiditypressuresformanyretailers.To
freethecashthathasbeenlocked,alargenumberofcompanieshavebeentryingtoreduce
theinventoryontheirbooksandshortenworkingcapitalcycles.
Working Capital on the rise Decline in Inventory Turnover
Source: KPMG Analysis, Capitaline

Note: Retailer Average
Margin contraction- Interest burden adversely impacts profits

Ontheirpart,retailershavebeentryingtocompensateforfallingsalesbycurtailing
expenses.Thishascounteredtheeffectofthetoplineonoperatingmarginsleavingitlargely
unaffected.However,withworkingcapitalrequirementsandexpansioncapitalbeingfinanced
throughsizeabledebt,interestcostshavesignificantlydentedthebottomline.
Operating Profit Margin
Net Profit Margin
Source: KPMG Analysis, Prowess
8
Funding constraints
Alargenumberofretailersarehighlyleveragedandrelyonfreshequity
fundingforgrowth,whichisdifficulttocomebyinthecurrentmarket.
Banksareincreasinglyhesitanttofinanceretailersinthecontextof
fallingdemandandlowprofitability.Workingcapitalrequirementshave
alsobeendifficulttomeetas60percentofKPMG’ssurveyrespondents
confirmedthedryingupofcredit.
Roll out delays to compound problems

Theorganizedretailspacewasexpectedtoreceiveinvestmentstothe
tuneofUSD25billionoverthenext4-5years5.Howeversignificant
delaysinretailrealestatedevelopmentandoppositiontoorganizedretail
hasresultedindelaysininvestment.Alargenumberofretailershavenot
beenabletomeettheirstatedexpansionplans.Currently,withhigher
costoffundsandaslowdownindemand,developersarelikelytodelay
moreprojectsinthenearfuture.
“The slowdown and delay in development of quality malls have hindered our
expansion plans to a large extent.” -- Amit Kumar, Head, Retail, Fashion@bigbazaar
Pantaloon Retail: Delay in plans
Source:Edelweiss Research
5 www.ibef.org
9
Besides the weak economy and the feeble
consumer sentiments, the disappointing retail
growth is also attributed to…
Poor supply chain management and weak support infrastructure
•Poorinfrastructure–Underdevelopedsupplychains,lackofstrongcold
chains,poorwarehousingfacilities,badroads,etc.havebeen
contributingtoincreasedlogisticcostsfortheretailers.Globally,the
logisticscostcomponenttothetotalretailpriceisaround5percent,
whileinIndiaitisashighas10percent.6
• AbsenceofamatureThirdPartyLogistics(3PL)industry–Poor
infrastructure(roads,communicationandpower)makeslogisticsand
transportationinIndiaextremelydifficult.Further,internaloperationsof
retailers,suchaswarehouseprocessesanddistribution,areusually
fairlyadhocandinefficient.Retailersarekeentooutsourcetheir
logisticsto3PL.Butthereisanabsenceofamature3PLplayer
providinghighservicelevelsatcompetitiveprices.
• Fragmentedsupplybase–Thesupplybaseishighlyfragmentedwitha
largenumberofintermediariessqueezingthemarginsofallinvolved,
whichalsoincludestheretailer.Thisnotonlyhasanadverseaffecton
themarginsbutalsoresultsincasesofmishandling,theftand
increasedinstancesofshrinkage.
Rentals – skyrocketing to all time high

Asrealestatepricesskyrocketed,retailrentalsalsotouched
unsustainablelevelseatingdirectlyintotheprofitmarginsofretailers.
Untilafewmonthsback,storerentalswere300to400basispoints
higherthaneveninternationallevels.RetailrentalsinLinkingRoadin
Mumbai,SouthExtensioninDelhiandBrigadeRoadinBangalorehave
risenabout50percentinthepast3years7.
Rentals eating into profit margin of retailers
Source: Jones Lang Lasalle Meghraj Report on India Retail 2008, KPMG Analysis
6www.cmai.in
7JonesLangLasalleMeghrajReportonIndiaRetail2008
10
Mistakes by retailers have also added to external
troubles
Crowding in unattractive locations
Anotherreasonforslowgrowthinorganizedretailispoorchoiceof
locations.ClusteringisacommonthemeinretailinIndiaandretailmalls
appearwhereverrealestateisavailableratherthanwheretheyare
actuallyneeded.Thishasresultedinattractivecitycentersbeingdevoid
ofmallsandnewlydevelopedareashavingtoomany.
Inability to compete with traditional retail
Organizedretailershavenotbeensuccessfultoprovideservicesthat
matchthoseofkiranastores.Thetruereasonoftheirtroublesisthatthe
businesscapacityofthekiranashopownersandbuyersishighinIndia.
MomandPopstoresalreadyhaveamodelthatispreferredby
consumersandisalsocostefficient.Thebigstoresarestilltryingtoget
theirmodelrightinprovidinganalternativetoneighborhoodretailerswho
offerconvenience,creditandpersonalizedservice.
Over reliance on debt funding
Therapidexpansioninretailspaceinrecentyearswaslargelydebt
funded.Thishasresultedinsubstantialleverage,whichhasaddedto
retailersfinancingrisksintherecentscenario.Thedeclininginterest
coverageclearlyindicatedthatalargenumberofretailersarehighly
leveragedandarebattlinghighinterestpayments.
Interest coverage declining across players

“Funding is the biggest
issue for us. We are
borrowing at 14-15 percent
and this high cost of
borrowing has forced us to
keep our major expansion
plans on hold,”- Ambeek
Khemka, President, Vishal
Retail.
Source: KPMG Analysis, Capital IQ
Whateverbethereason,webelievethatplayerswhotakeimmediate
strategicmeasuresarelikelytobethedarkhorses.Beitstore
rationalization,changeofsupplychain,consolidationofoperations,
improvementinITinfrastructure,retailersneedtothinkquicktoprotect
theirmarginsandtoughenupformorechallengingtimes.
11
STRATEGIES TO HELP RETAILERS
COPE WITH THE SLOWDOWN
“Consumers are currently sitting on the fence and the challenge for retailers will be to offer the right
baits to get them back to stores. Retailers have to focus on growing profits through sales growth and not
mere cost-cutting strategies. There will be a sharp cut in overall sales growth this year, but a marked
improvement in bottomlines with players focusing on efficiencies"- Kishore Biyani, Chief Executive Officer,
Future Group
Source: The Economic Times, 30 January 2009
12
Toughen internal efficiencies
Managing Costs:
Subduedquarterlyresults,staffingcutsandfrozenbudgetshave
increasedthescrutinyoneachrupeespent.WhenKPMGaskedits
respondentstonamethemostimportantfocusareainthecurrenttimes,
about90percentoftheretailershighlightedcostsastheirfocalpointand
theremaining10percentmentionedevaluatingstoreviabilityandrevision
ofexpansionplansastheirmainconcern.
• Cost Cutting: Costcuttingisinevitableinadownturn,butstrategic
decisionswithalongtermviewshouldbethekeyfocuswhilemaking
costcontainmentchoices.Manyretailershavemadethemistakeof
cuttingthosecoststhatareeasiestandfastest.Aneffectivestrategy
shouldbeonethatidentifiesthecostsleastimportanttodelivering
whatcustomersvalue.Thisrequiresadeepunderstandingof
customers’needsandre-evaluatingthebusinessactivitiesthatactually
deliverwhatcustomersvalueandtheonesthatdonot.Thisensures
thatthecostscutnowdonotharmthefuturepotentialofthe
business.
Inmid2008,KishoreBiyaniannouncedanewstrategyforhisgroup:
“Garv se bolo hum kanjoos hain”
-Translated“Say ‘Yes, I am stingy’ with pride”
Withthiscampaign,thecompanyaimedtosaveUSD36.5millionina
periodofoneyear.Theideawastoopenlyacceptthatcost-cutting
needstobeimplementedandthenaggressivelyeliminate
inefficiencies.Themoveensuredthatinternaloverlappingoffunctions
wasavoidedwithinvariousdepartments.Attheback-end,human
resourcesandinformationtechnologywereintegratedinanorganized
manner.
Source:MumbaiMirror,Sep2008
13
• Resource optimization: Aretailerwantstobettermanageitsback-
endcenters,supplychainandstoreswhileimprovingitsprofitability.
Eachcustomeramongsthismillionsisdefinedbyadifferentbuying
history,adifferentbuyingpropensity,andadistinctservicingcost.This
raisesseveralquestions.
• Giventhecapacityandcostsforeachchannel,whichofthe
customers,shouldreceivewhatkindofoffers,throughwhichofthe
channels?
• Whatwillhappenifsomepartsofthebusinessareoutsourcedas
againstbuildingin-housecapabilities?
• Woulditbeviabletoinitiateanewmodel?
Ineachcasetheansweris“itdepends”.Thebestwaytoallocate
resourcesdependsonthenatureoftheresourcesandtheconstraints
athand:
Forexample,inordertoconserveresources,VishalRetailtoohas
decidedtolookatcentralizingsomeofitsoperations.Ithasalready
closeditslargedistributioncentersinMumbaiandKolkataandopened
acentralizedwarehouseinGurgaon,nearDelhi.*
FutureGrouphasmergedtheback-officeoperationsofitsdifferent
storestolowercostsamidtheglobaleconomicslowdown.“Ourback-
endoperationshavebeenconvergedtocatertomultipleformatsasa
partofourcost-cuttingandefficiencyenhancingexercise,”Rajan
Malhotra,ChiefExecutive,BigBazaar.Thegroupisalsoconsidering
reducingthesizeofsomeBigBazaarstores,andclosingtheworst
performingones.**
Companiesneedtoreviewtheiroptimizationstrategiesinthe
changingenvironment,aswitheffectiveoptimizationtheyarelikelyto
beabletobringaboutsavingsleadingtoimprovedcompetencieseven
inanunfavorableclimate.
• Improving labor productivity: Retailersareturningtheirattention

towardsemployeeproductivitytoboostsales.Manyretailersaregoing
slowonhiringinback-endoperationswithtrainingstaffhighontheir
agenda.
Koutons Retail has increased the performance target for its employees to deliver more. “We have
motivated our employees to give that extra 25 percent in the quality and quantity of work they do,” --D P S
Kohli, Chairman, Koutons Retail India.
Source: Business Standard, November 2008
*www.indiaretailbiz.com,March2009
**LiveMint,Jan2009
14
Vishal Retail is planning to start a performance-based remuneration process in its back-end operations,
whereby employees will get higher perks and salaries based on their performance. “Though we can’t do
much about labor cost at front-end operations, we are considering performance-based remuneration at the
back-end. We are encouraging our people to work harder so that they bring in more efficiency into the
system,”
Manpower retention and training: Inspiteofadownturn,the

requirementforskilledmanpowerstillpersists.Companiesneedto
understandhowtoretaintheirmostdesirablestaffwhileensuring
theirfuturedevelopment.Thisbecomesabiggerconcernparticularly
whenmanagementdevelopmentcostsareunderpressure,asthisisa
leadershipchallenge.
Oneofthecommonproblemswithretailfirmsisthattheyhirefresh
graduateswithoutanyexperienceintheretailsector.Thishasledto
over-ambitiousexpansionplanswhichhasleftthefirmsstruggling.The
currentdownturnhashighlightedthisissueandmadefirmsrealize
thattosucceedtheyneedexperiencedtalentwithanunderstandingof
thegroundrealitiesfacedbytheIndianretailsector.
Withscarcityofanexperiencedtalentpool,talentdevelopmenthasto
bebroughtin-house.Theneedistofocusonselectedsenior
managers,todeveloptheircapabilitiestocoachandmentorothers.
Indianplayershavealreadystartedtotakestepstocurbthisproblem
andareopeningacademiestomeettheirmanpowerneeds.
In2008,twocompanies—BhartiRetailandVishalRetail—
announcedthelaunchofretailtrainingacademiesinLudhianaand
Delhirespectively.The2facilitiesareexpectedtochurnaround5,000
trainedpersonseveryyear.Thenewschoolsareinadditiontothe
existingacademiesincludingSpencer'sPragati,SubhikshaRetail
InstitutesinMumbai,Delhi,BangaloreandHyderabad,andFuture
LearningandDevelopmentAcademiesinAhmedabad,Bangaloreand
Kolkata.8
• Inventory Management: Inanyretailoperation,restraininginventory

costisofutmostimportance.Improperinventorymayresultinstock-
outsforsomeofthecategorieswhereasexcessstockforothers.
LowerinventoryturnsarelikelytohavenegativeimpactonROIand
moresoforcategorieswheregrossmarginisquitelowlikefruitsand
vegetables,milk,staples,mobiles,etc.Inaddition,higherinventory
mayresultinobsoletestock,marginleakages,damagesandhigh
carryingcost(interest,space,handlingcosts,etc.).
8BusinessStandard,April2008
15
Retailers should aim to:
Reducestock-outs Whenaniteminnotavailableitreducesdirectsalesandcan
leadtocustomersshoppingelsewhere
Avoid Buyinghugequantitiesofgoodsatlowpricesbutthenbeing
bargainhunting unabletosellthestockmayleadtoincreasedcostofinventory.
Increaseinventoryturnoverand,inturn,reduceexcessinventory
Increase stock-Thisisbothimportantanddifficultasitmayrequirea
Inventoryturnover changeinretailermindsetandtoughdecisionsintermsofwrite-
downs.
InIndiashrinkageisequivalentto2.9percentofretailsalesandis
Controlshrinkage thehighestintheworld.Reducingshrinkagethroughwell-defined
processesforphysicalcountingofinventory,digitalsurveillance,
Electrictags,etcmighteffectivelysavecostsandimprove
Source: KPMG Analysis, Technopak's Retail Summit 2008
• Bringing down Real estate costs: Realestaterentalsconstitutethe
biggestcostitemforretailersatabout10-15percentofsales.Quite
frequently,ithasbeenobservedthatoneofthemajorcostsforretail
storesi.e.rentalcostisignoredbyretailers.
Renegotiating Real estate costs: Thecurrentenvironmentis

conduciveforretailerstore-negotiatetherentalsandbringdownthis
cost.LargeretailersliketheFuturegroup,RelianceRetailandAditya
BirlaRetailareinthemidstoffuriouslyrenegotiatingrentalstobring
downcosts.Someplayershavemanageda40to50percentreduction
instorerentals9.
Rent constitutes major chunk of retailer’s cost
“The rentals have fallen

dramatically in the past few
months, bringing retailers
and the developers on equal
footing. Now, the developers
are ready for flexible
revenues instead of fixed
rentals,” - Samar Shekhawat,
Source: KPMG Analysis
Vice-President, Spencer’s
Entering into revenue sharing model as against fixed rental
Retail.
model: Althoughpreviouslydevelopersandlandlordswereunwillingto
Source: Business Standard,
enterintorevenuesharingmodel,theyarenowreadytoleaseout
November 2008
theiremptyspaces.Themodel,underwhichretailerssharea
percentageoftheirsaleswithrealestatecompanies,isseenasafair
wayofsharingrisksbetweenthetwostakeholders.Revenue-sharing
modelincreasestheresponsibilityofthedevelopertobringinfootfalls
inthemallbyprovidinggoodupkeepoftheinfrastructure.Themodel
issustainableduringthedownturnastheretailersdonothavetotake
thehitalone.Playerscanleveragethisopportunitybycollaborating
withdeveloperstoworkoutawin-winmodelandarevenuesharing
deal.
“We believe this is the way forward for all the retailers as it is
beneficial for both the developer and the retailer,” - Kishore Biyani,
Chief Executive Officer, Future Group.
9HinduBusinessLine,February2009,Companywebsites,KPMGAnalysis
17
Leveraging Information Technology
OrganizedretailinIndiafacesmanyhurdlesintheabsenceofproper
supply-chaininfrastructureanddevelopmentofeffectiveelectronic
paymentanddeliverychannels.
Thetechnologiesthatretailershavedeployedovertheyears,toserve
theirdistributednetworks,arewithoutstandards.Goingforward,
technologyislikelytobeakeydifferentiatortobringaboutefficiencies,
saveoncostsandofferbetterservicestocustomers.Theproblemwith
oldtechnologyisthattherearenostandardsandinmanyinstances,one
doesnotintegratewithanother.
Alltheelementswithintheretailindustryrightfromdatawarehouses,
logistics,supplychain,storemanagement,pointofsale,etc.arelikelyto
getimpactedpositivelywiththeusageoftechnologybeitRFID,GPS,
intelligentvideoanalytics,point-of-salesterminalsorsensor-basedshop
carts,etc.
AlthoughIndianretailchainshavestarteddeployingthesetechnologies,
therestillexistsachallengetoimplementthemsimultaneouslyandmake
theprocessmoreefficient.
Theadvantagesofimplementationoftechnologycouldbescaled
manifoldbycarefullychoosingsolutionsincontextofthesaidbusiness
andbyuseoftechnologyinfollowingdomains:
• Manpower training: Retailersneedtogearupwithgoodpeople
managementprograms.Onewaythiscanbedoneisthrough
certificationprogrammes.Suchprogrammesarelikelytoenable
employeestoupgradetheirbasicskillsinretailoperationsandresult
betterutilizationoftheavailableresources.
• Real Estate Management: Informationtechnologycanbeleveraged

toprovideprojectmanagementcapabilitiestomonitortheprogressof
storelaunches.Timelylaunchofretailoutletscanprovideagoodhead-
startforretailersandsavesignificantfundsaswell.
• Supply chain visibility: ITcanhelpretailerssetupbasicforecasting,

replenishmentandsuppliermanagementsolutionstoimprovesupply
chainmanagement.Startingfromsensorbasedinventory
managementtoRFIDbasedcontrolovertheinventorycoupledwith
GPSbasedtracking;ITcanhelpinmaintainingtheoptimallyminimal
inventoryenablingreducedinputcosts.
18
• Store operations: InnovativeuseofIntelligentVideoAnalytics,point-
of-salesterminalsandsensor-basedshopcartscanhelpretailers
enhancecustomerexperienceandsimultaneouslyreducecostsby
controllingshrinkage.
• Logistics management: RetailerscanleverageITforback-end

supportand3PLcompaniesforphysicalinfrastructuresuchas
warehousespaceandatransportationfleet.GPStechnologyis
extremelyusefulinrealtimetrackingofthegoodsmoment.
Case Example
Shopper’s Stop: FifteenpercentofShopper’sStop’snetworthis
investedinIT.Thecompanyhasreapeditsbenefitsthroughreduction
inshrinkagelevelsandenhancingcustomer’sexperience.Shopper’s
Stophasoneofthelowestshrinkagelevelsintheindustry(0.4
percent)
“We have found that 50 to 55 percent of a customer’s experience
revolves around two components: The availability of merchandise, and
the ease and speed of a billing process. Out of the two, the availability
of merchandise is more important. Here, I see IT playing a much more
important role.”--B.S.Nagesh,ManagingDirector,Shopper'sStop
FuturePlans:SincethebaseofShopper’sStopITstructureismoreor
lessinplace,progressivelyalargepartoftheirinvestmentsis
expectedtobeinclinedtowardsusereducation.Thecompanyplansto
investinunderstandingitscustomersusingCRMtechnologiesby
buildingdatawarehousing,data-mining,andCRMcapabilities.Thereis
alsolikelytobefurtherinvestmentsinenhancingcorporate
governance,informationinsight,scalingandmanagingSKUs,network
andinfrastructuremanagement,anddisasterrecovery.
Source: CIO India
19
Reevaluating store viability and expansion plans
Withcatchmentsturningunviable,rampantstoreclosuresandformat
rationalizationisonthecards.Rationalizationislikelytointensifyin
comingquarters.Retailersmayneedtoshutdownunviablestoresto
conservecashandinventory.
Givenhighdebtlevelsanddormantequitymarket,capitalforgrowthhas
becomescarce.Expansionplansneedtobere-lookedbecauseofcapital
scarcityandcatchmentreassessment.
Source: KPMG Analysis
Efficient store management

Evenaftersettingupstores,retailersmayfaceissuesinrunningstores
efficiently.Therearecurrentlynostreamlinedanddefinedprocessesfor
allocationofproducts/categories,inventorymanagement(bothonshelfand
Issues facing retailers inbackroom),workforcemanagementandstoreinfrastructuremanagement.
New • Marketinginadequate:-Insufficienthypeduringstorelaunch,lackofregularinstoreevents
Customers • Storevisibility:-Storenotdistinctlyvisiblewithinmalloronstreetoutside
• Staffknowledgeandmotivation:-Highattritionrates,lowproductknowledge,poorcustomerinteraction
skills,inadequatecompetitionandincentives
Loyaltyand • Productrange:-Wearrangeofcertaincategories
Spend • PricePerception:-PricecommunicationnotstronglybroughtoutthroughVMandproductadjacencies
• LayoutandVM:-ReducedshoppabilityduetolayoutandVMnotbeingoptimal
• GCmanagementnotaggressive:-InadequatemonitoringandincentivesonGCrecruitmenttargets
• Rent:-Veryhighrentals,poorretailtocarpetandcarpettochargeableratios.Lowpackingdensityof
options
Costs
• Power:-Absenceofmonitoringmechanismsandmetricsforpowercontrol
• Personnel:-Largenumberofidlepersonnelleadingtohighcosts
20
Players need to take multiple initiatives to fix retail basics and ensure growth to meet the
targets.
Decode consumer behavior

Indiaisadiversenationwithmulti-lingual,crossculturalpopulation
spreadacrossdifferentgeographicalregions.Retailershavetorecognize
thefactthatastrategythatholdstrueforaparticularregionandsetof
peoplemaynotholdtrueforothers.
WhileIndiahasagreatmarketpotential,mostretailerstendtoignorethe
basicfactaboutthediversityofitscustomerbase.Anyretailerwhodoes
notdohisgroundworkintermsofunderstandinghiscustomerneeds
standsagreatriskoffailingevenwithoneofthebestmodelsathand.
AcaseinpointisdiscountshoppinginIndia.Indiandiscountshoppingis
stillfragmentedbecauseofdiverseculturewhilewesternretailersare
abletotreattheentirecustomerbaseasone.Thishelpsthemgain
benefitsoflargescalepromotionsandoffers.Theopportunitylieswith
theIndianretailerstocustomizediscountseasonsbasedonfestivalsof
differentregions.However,annualplanningofsalesbasedongeography
andfestivalsisstillatanascentstageinIndia.
21
Retailersshouldrecognizethatconsumeristhekingandcannotbe
ignored.Thetruemetricofsuccessmaynotbeintermsofnumberof
newstoresaddedbyacompany,rather,increaseinsamestoresales
throughathoroughunderstandingofconsumerrequirements.
AccordingtoKPMG’ssurvey,whileattractingthecustomerswasoneof
thetopconcernsoftheretailers,investmentinconsumerresearchwas
notamongsttheirtoppriorities.Retailershavestartedespousing
differentapproachestoseizeashareinconsumers’wallet.Someofthe
strategiesadoptedbyretailers:
Mostretailershaveadvancedoff-seasonsalesplansandsome
OfferingDiscounts haveextendeddiscountsalesperiodsfrom15daystoamonth.
Thediscountsonofferhavegoneupfrom25-30percentto40
percent,evenhigherforcertainlifestyleproducts
Certainretailersaremovingtowardsadopting“FirstPriceRight“
LoweringPrices approach.Underthistheretailerdoesnotofferdiscounts,rather
directlycompetesonthesellingpricebyofferingbestprice
withoutanymarkdowns.
OfferingValueAdded Companiesareofferinginnovativevalueaddedserviceslikehappy
Services hoursonshoppingdeals,offersforseniorcitizens,contestsfor
students,lotterygains,etc.
Withanaimtokeepcustomerslongerontheshopfloorand
Leveraging increaseconversions,retailersarenowpitchingtopartnerwith
partnerships manufacturers,serviceproviders,financialcompanies,etc.to
createabuzzaroundcertainproductcategories
KPMGbelievesthatcompaniesthatinvestinCRMandconsumer
researchanalyticsmaystandtogainagainstthosewhotakecustomers
forgranted.BigBazaarhassetupCustomerAdvisoryBoards(CABs)asa
measureforreceivingvaluablecustomerfeedback10.ThroughCABsthe
managementaimstogetclosertocustomersandgivethemaplatform
tovoicetheiropinionsaboutthestores.CABsconsistof8-10influential
peopleofthecommunitylikelocaldoctorsandlawyerswhohold
meetingandcollectfeedbackfromconsumers.Thefeedbackisthen
assessedandimplementedbymanagementtodevelopbettercustomer
relationships.
10www.ibef.org
22
Entering into alliances and leveraging expertise
Inthecurrentscenarioretailersshouldbeonlookoutforopportunitiesto
partnerwithforeignretailersasitcouldpossiblybringinthemuch-
neededcapitalandexpertise.Therelationshipcouldinvolvejoint
contributionbypartieswithsharedcontrol/ownershipandhassome
degreeofexclusivityattachedtoit.
Retailerscanalsoconsiderenteringintoanalliancewith:
• Aretailerfromthesamechannel
• Aretailerfromadifferentchannel
• Vendors
• Back-endserviceproviderslikethirdpartylogisticsplayersandIT
serviceproviders
Alliancesenableretailersinenteringnewmarkets,categories,expanding
valuepropositionandcapturingnewconsumersegments.Whileglobally,
it’sacommontrend,Indianretailersareslowlyrecognizingthe
importanceofsuchpartnershipsandthereforeactivelyseekingfor
opportunitiestounlockvalue.
Tapnewconsumer Extendintonew Enterintonew Enhancevalue

segments categories geographies proposition
Shoppers’Stophas
Fabindiahasacquireda
enteredintoanalliance
Relianceretailhastied FutureGroupis 25percentstakein
withMothercareUKto
upwithPearleEurope leveragingBlueFoods UK'sbohemian
expanditsvalue
tolaunchachainof expertiseinfoodand women'swearretailer
propositioninmother
opticalstoresinIndia beverages(F&B) EAST,tohelpFabIndia
careandkidswear
sellitsgarmentsinUK
section
Spencer'senteredinto
Trent,hasenteredinto
Fortappingthekids partnershipwith ABRetailacquired90
ajointventurewith
segmentinIndia, specialistslikeSankalp, percentstakein
InditexGroupto
Spencerretailhastied Rajdhani,YoChinaand TrinethrafromIndia
developandpromote
upwithWoolworthsfor SingaporebasedBread ValueFundstogaina
ZarastoresinIndiaand
marketingitsChad Talktoopenchainof strongretailfootprintin
thusleverageonZara’s
Valleyrangeoftoys foodoutletsinits SouthIndia
internationalexperience
stores
Source:Companywebsite,EconomicTimes,October2008;BusinessStandard,September2008;HinduBusinessLine,March2008;
KPMGAnalysis
23
It’s the time of Private Labeling
Privatelabelsenableretailerstoofferqualityproductsandearnhigher
margins.Theretaileralsoderivesmanyadvantagesofusingprivate
labels.In-storelabelsareatleast5-20percentcheaperacrossvarious
categories11.Thisisbecausetheycutoutmiddlemencostsandpasson
thebenefittotheconsumer.Privatelabelsenhancethebargainingpower
oftheretailerwhilenegotiatingwithmanufacturer(national/international)
brands.Inthelongrun,theretailercanusethePrivateLabelstoattract
customerstohisoutlet.Thus,manyretailersareconsideringincreasing
theirprivatelabelofferingssignificantly.
AdityaBirlaRetailisaggressivelypursuingthestrategyofpromoting
salesofprivatelabels.Currently,thesegmentaccountsforaround3
percentofitstotalsales.ABRetail,whichoperatessupermarketand
hypermarketformats,under‘MoreforYou’foodandgrocerychain,is
targetingtoincreaseprivatelabelsalesto10-15percentinthenext2-3
years.12
WhenweaskedMr.AmitKumar,Retailhead,Fashion@bigbazaaron
privatelabeling,hesaidthatheplanstoincreasehisprivatelabelsfrom
60percentto90percentinthenextthreeyears.Accordingtohim
privatelabelsprovidefourkeymerits:
• Givestheopportunitiestostandoutfromthecrowd
• Helpsmaintainconsistencyinstocks.Outsidebrandsmayormaynot
beavailableinthefutureleadingtoapotentiallossofcustomers.
• Enablesretailerstocontrolmarginsbyimprovingtheirbargaining
power
• Facilitatesmovementintoaplannedenvironment.Sinceprivate
labelingrequireslongtermplanning,itenablestheretailersto
understandallthenuancesofitsproductsasagainstanopportunity
stockwhichcouldturnintoanopportunitycostinthelongrun
Globally,ownlabelbrandscontributeto17percentofRetailSaleswitha
growthof5percentperannum.InternationalRetailerslikeWal-Martof
USAandTescoofUKhave40percentand55percentownlabelbrands
representationintheirstores,respectively.InIndiathereisanincreasing
trendtowardsacceptanceofPrivateLabelbrandsandthustheir
11ImagesRetailReport,2009
12IndiaRetailing,February2009
24
penetrationisontheriseespeciallyintheApparel,ConsumerDurables,
HomeCareandFMCGsegments.Overall,inIndia,PrivateLabels
constitute10-12percentoftheorganizedretailproductmix.13
Private label penetration (%)
Source: Images Retail Report 2009
PlayerslikeShoppersStop,TataTrent,Pantaloon,Reliance,Spencers,
Subhiksha,andVishalhavemovedtowardsadoptingprivatelabelsto
addressconsumerneedsandtoincreaseprofitabilityoftheirretail
businesses.14
InIndia,veryfewplayersareintoownmanufacturingofprivatelabels
andaredependentonthirdparties–Forexample,VishalRetailis
increasinglyshiftingfrommanufacturingtothirdpartysourcingprimarily
becauseofincreaseincategoriesforprivatelabelingandvolumes.
25
Recession spears private label appeal
Privatelabelsarelikelytocontinuetogrowinthecurrentfinancial
environmentascash-strappedconsumers'perceptionoftheproductsas
a'cheaperoption'changes.Partofprivatelabelgrowthinarecessionis
permanentlysustainable.Asconsumerslearnabouttheimprovedquality
ofprivatelabelsinrecessions,asignificantproportionofthemarelikely
toremainloyaltoprivatelabels,evenafterthenecessitytoeconomize
onpurchasesisnolongerrequired.
Higherprofile,quality-focusedprivatelabelbrandsarelikelytoprosperas
consumersbegintoreassesstheirviewsofown-brandgoods.Also,with
increaseincompetitionandrisingpressureonmargins,privatelabelare
increasinglygettingattentionduetotheaggressivemarketingofretailers
atparwithbrandedgoods.
“Today with the margins

Private label sales growth (%)
that the FMCG companies
offer, no one can survive.
Even global retailers such as
Wal-Mart, Carrefour and
others are successful
because of their strong focus
on private labels. No retailer
can survive on high rentals
and low margins, adding that Source: Images Retail Report 2009
margins on private labels are

higher, as much as 35-
Snapshot of retailer’s depth of private labeling
40percent”- Thomas
Varghese, Chief Executive
Officer, Aditya Birla Retail
Source: Images Retail Report 2009
26
Build a competent supply chain management
system
Strengthen support infrastructure
WiththelargeplayerslikeReliance,Bharti-Wal-Mart,Tata’senteringinto
inretailmarket,thereislikelytobeenhancedfocusonimprovementsin
logisticsandsupplychaininfrastructure.Retailersaswellasthirdparty
logisticsprovidersmayincreasetheirinvestmentinlogistics
infrastructure.Togaincostleadershipinthemarket,bigplayersmayhave
tominimizecostsbydevelopingsupplychaininfrastructure.Warehouses,
distributioncentersandtransportationarelikelytoseemodernization.
Warehouses
Alargenumberofplayersinthisindustryaresmall/medium
entrepreneursrunningthewarehouseforoneormorecompanies.The
scaleofthesewarehousesisnotlargeenoughtotaplargescale
economiesorjustifyinvestmentsinhigherstandards.However,going
forward,theimplementationofVATregimeisexpectedtodrive
consolidationandhencelargerscalewarehouses.Alsotherapidgrowth
oforganizedretailisexpectedtodrivesophisticationandefficiencyin
warehousingpractices.
Cold Chain
ThereisanuntappedpotentialofUSD2.6billionforprovidingefficient
coldstoragefacilities.15 Drivenbyagrowingdemandforconvenience
foods,weexpectretailerstopartnerwithlogisticsspecialiststomeet
theircoldchaininfrastructureneeds.
Third Party Logistics (3PL)

3PLmarketinIndiaisstillinarelativelynascentstage.However,realizing
thecostbenefitsthatthesecompaniesbring,retailersaregearingupto
use3PLservicesfortheirlogisticsfunction.Asthesizesofretailers
growwithapotentialforscaleeconomies,weforeseethemtomoveto
3PLserviceproviders.
15InhousemagazineofgroupTCI2008,KPMGAnalysis
27
Backward integration
Thereisaneedtoreducethenumberofintermediariessoastoincrease
theefficiencyandprofitabilityofretailers.Oneofthewaystodothatis
tointegratethefunctionsinthesupplychain.Therehavebeeninitiatives
inthisregardinruralIndiafollowingthegovernment’sapprovalof
contractfarmingandlandleasing.Thisislikelytoallowaccelerated
technologicaltransfer,capitalinflowsandassuredmarketforcrop
production.Thisislikelytoeliminatetheintermediariessuckingawaya
largechunkofthemargins.Pepsico’scontractfarminginPunjab,ITC’se-
chaupalandMahindraShubhlabhservicesareexamplesofthisvertical
co-ordinationleadingtoanincreasinglyefficientsupplychain.16
Optimize Processes
ITcanhelpretailersoptimizetheirprocessesinalotofwaysincluding
improvingforecastingaccuracy,reducingstock-outs,increasingsourcing
efficiency,increasingproductmovementvisibility,reducingleadtimeand
optimizingtransportation.Startingfromsensorbasedinventory
managementtoRFIDbasedcontroloverinventory,ITcanhelpin
maintainingoptimalinventoryresultinginreducedinputcosts.
Venture into under penetrated markets: Rural

Retailing
Indiahaswitnessedarapidincreaseinincomeswithpercapitaincomes
soaringtoUSD1000in2008fromminisculeUSD418in1998.The
growthhasnotbeenrestrictedtourbanIndia,asthepercapitaincome
inruralIndiahasgrownby50percentinpast10years.17
Amongkeyreasonsforthelatterarerisingcommodityprices,improving
productivityandhigherproduction.Theincreasingavailabilityofbasic
infrastructure,improvingaccesstofunding,employmentguarantee
schemes,betterinformationsystemsandgrowingliteracyaretogether
16 New Farm Supply Chain Initiatives in Indian Agriculture, Article by Dr. Rakesh Singh, Professor of Economics, Great Lakes Institute
of Management
17 Business Standard
28
ITC-CHOUPALSAGAR:ASuccessfulRuralRetailingModel
CONCEPT
HubandspokemodelinvolvingengagementwithfarmersinruralIndia.
Aruralshoppingmallwherefarmerscanselltheircommoditiesandcan
buyalmosteverythingincludingcosmetics,garments,electronics,
appliancesandeventractors.
Itservesasanagri-sourcingcenters,shoppingcenters,andfacilitation
centers
IMPACT
ChaupalSagarstoreshavebecomemeetingpointforfarmers
totransactcommerceandexchangeusefulinformation.
ITCawarded“InnovationforIndiaAward2006”fore-Choupal
intheSocialInnovationscategoryforbusinessorganizations.
e-ChoupalspeciallycitedintheGovernmentofIndia’s
EconomicSurveyof2006-07foritstransformationalimpacton
rurallives.
e-ChoupalisoneofthetopfivealternativechannelsforLIC
Policysales,andaccountsfor10percentofthenational
weatherinsurancemarket
Source: ITC’s Website, KPMG Analysis
helpingbringprosperitytoruralhouseholds.Withadditionalfiscal
incentivesprovidedbythegovernment,ruralIndiaissettowitness
furtherboostinoverallfarmincomes.
Overall,thereisahugemarketwhichiswaitingtobeserved,readyto
splurge,willingtoexplorenewproductsandservices.Retailerscantap
ontheirwalletsgiventheydotheirhomeworkwell.
AccordingtoIndiaRetailReport2009byImages,"India'sruralmarkets
offeraseaofopportunityfortheretailsector.Theurban-retailsplitin
consumerspendingstandsat9:11,withruralIndiaaccountingfor55
percentofprivateretailconsumption."
AsperIBEF,ruralIndiaaccountedforalmosthalfoftheIndianretail
market,whichwasworthaboutUSD300billion.Withmostoftheretail
marketsgettingsaturatedinTierIandTierIIcities,thenextphaseof
growthislikelytobeseenintheruralmarkets.
29
Majordomesticretailershavestartedsettingupfarmlinkages.Few
examplesinclude,DCM’sHariyaliKisanBazaars,PantaloonGodrej’sjoint
ventureAadhars,ITC’sChoupalSagars,Tata’sKisanSansarsandReliance
Fresharesomeoftheestablishedruralretailchains.18
ManyretailplayersarecapitalizingonruralIndia’spotentialbypartneringwithfarmers
Triveni (Khushali bazaar) Godrej Agrovet (Aadhar)

•Triveniaimsatincreasingthe • Completesolution
associationofrural providertothefarmers
communities.Currentlythe renderingfarmadvisory
companyhas2ownedand4 services,creditfacilityto
franchisesstores.Eachstore farmers,providingupto
providestofarmersagri dateinformationon
inputs,agriequipmentforsale weather,price,soil&
andrental,irrigation watertestingfacility,
equipment,cattlefeeds, FMCG/consumer
FMCG,petrol,diesel,two durables,etc.tofarmers.
wheelersandtractors,and
othergoodstocompletethe
farmer’sbasketofgoods Reliance Retail (Fresh &
Fresh plus)
• Focusingonsourcing
directlyfromfarmgate
ITC (e chaupal) forFresh&FreshPlus.
•IITCprocuresallmaterials • Aimedatconnecting
directlyfromtheproducers, farms&unorganized
therebycuttingdownthe retailbysettingup1600
middlemenalltogether farm-supplyhubsacross
•Itpaysupfronttothe thecountry.
producers,meaningthereis
nocreditsystem Tata (Tata Kisan Sansar)
• Provideend-to-end
solutions,rightfromwhat
cropstogrowtohowto
HUL (Shakti) sellthemforthe
• Accesstotheremoterural maximumreturns
areasandmarketpotential
• Sellitsproductsthrough M&M (Shublabh)

womenself-helpgroupswho • Shublabhinterfaceswith
operatelikeadirect-to-home DCM (Hariyali Kissan Bazaar) bankforthefinancing
teamofsaleswomenin • Catersforabout15-20,000 w.r.tthefertilizerand
inaccessibleareaswhere farminghouseholdsandat seedsfirm,aswellasfor
HLL'sconventionalsales least70,000acresof thedeliveryofproduceto
systemdoesnotreach. agriculturalland. theendbuyerand
paymenttofarmer
Source: Company websites, www.ibnlive.in.com, KPMG Analysis
18 Company Websites and IBEF
30
Innovate: categories, services, business models…
Intoday’sworldofinternettechnology,globalizationwheneveryoneis
connectedandwellinformed;retailershavetoensurethatthey
continuouslyunderstandthepulseoftheircustomersanddesigntheir
offeringsaccordingly.Thisrequiresnotonlyin-depthunderstanding
customerrequirementsbutalsothinkinglaterallytocomeupwith
innovativesolutionswhichwouldmaketheretailersstandoutofthe
crowd.
Withrapidglobalization,increasedconnectivityandheightened
awarenesstheconsumerismuchmoreconsciousabouthisneedsand
requirements.Henotonlyseekstopurchaseaproductbutalsothe
entireshoppingexperience.KPMGbelievesthatplayers,whocan
customizetheirofferingsaccordingtothespecificneedsoftheIndian
consumer,arelikelytoemergeasaleaders.Retailershavetostart
appreciatingthisfactandtakeouttheirthinkinghatstoplaninnovative
solutionsfortheircustomers.
Thecurrentenvironmentisagoodtimeforgeneratingtrials;the
“Innovation and newness
consumersareactivelylookingforthebestvalueandmaythereforebe
should be the name of the retail
morethanwillingtoexperiment.Internationally,withconsumers
game in India. As an industry we
have to be radically different in currentlydebatingoverwhetherornottospendtheirhard-earnedmoney
our approach towards consumers, onthatnextcupatStarbucks,McDonald'shasaperfectopportunityto
product offering, market provethattheirPremiumRoastcoffee—astepupinpricefor
segmentation and competition. McDonald's,butstillcheaperthanStarbucks—isaprettytastybrew.19
This would create demand within
the target segment and in turn
help attain viability for the
business model. Instant
gratification as envisaged by the
promoters in the past actually
reduced the share of the pie
resulting in the repelling impact
as witnessed today.”- Anurag
Rajpal, Vice President (Apparel),
Spencer’s Retail
Source: www.indiafashionforum.co.in
19 www.chiefmarketer.com
31
Mom & Me Stores: A Unique Specialty Retail Model
Business Model Target Audience
AspecialityconceptstartedbyMahindra& Theprimarytargetforcompanyincludes‘-9to9’
Mahindra'sinJanuary2009 whichmeanswomenwhoareexpecting,to
motherswhohavekidsuptotheageof9years,
Storesize:Rangebetween5,000and10,000sq.ft
andkidsfrom0-9years.
StorestobelocatedinMetros,majorcitiesat
highstreetormalllocations
Theconceptprovidesvariousfunctionally
importantproductsthatoffersafetyandquality
productsthatarecurrentlylackinginIndia
MOM
Product Offerings & Add on’s
ME
Productbasketwouldcompriseofmaternitywear, Valueaddedserviceslikefeedingarea,playarea
fashionapparelforbabies,toddlers&youngkids, forkids,nappychangearea,andotherfacilities
toys&games,wellnessproductsformothersand likeastrollertouseatthestore,readinglounge,
babies,nurseryandfurnishings,travel&safety etc.
products,personalproducts,foods,etc.
M&Mwillconductmorningcoffeemeetings,
Partnershipwithinternationalbrands: consultationswithexpertsandmanysuchmore
eventstobeasourceofknowledgeandexpertise
Startrit,BrainyBaby,MaryMeyer,CAM,Bugaboo,
forcustomers
Evenflo,andAvado
Thewebsitewillalsoserveasaforumfor
customerstoshareinformation
Source: Images Retail, 2009
BigBazaar’sChaosTheoryevolvedtocatertotheIndianMindset
Concept
Avalueformoneyhypermarketthatsubscribes
tothenotionthatchaosinstoresincreases
sales.
Impact
Mr.KishoreBiyanirealizedthatinabroad
hypermarketshavelong,narrowaisles,suitable BigBazaarandFoodBazaartobe
forindividualsshoppingaroundcartswhichwon’t hivedoffintoindependent
workinIndia,soinbigbazaarhecreated companies.
multipleclusterswithineverystore. BigBazaariseyeingaturnoverof
Thestoresaredesignedasanagglomerationof USD1700millionbythenextfinancial
bazaarswithdifferentsectionsellingdifferent year.
categories. In2007-08,Bigbazaarclocked110
TheU-shapedsectionandislandshaveprovedto millionfootfalls.
bemoreappropriatefortheIndiancontextthan KishoreBiyaniawardedthe'Retail
longaisles. FaceoftheYear’atImagesRetail
Broughtintheinnovativeconceptof‘sabse Awards2007.
saste3din‘whichoffers,dealsanddiscounts,
helpingensurethatthereissomethingfor
everyoneinthefamilytoshopfor,and
customersget'value-for-money'.
Sources: www.retailigence.wordpress.com , September 2008; Economic Times, January 2008; Book on Kishore Biyani’s
autobiography – ‘It happend in India’; company website; KPMG Analysis
32
FUTURE OUTLOOK
"We predict an increase in 'value for money' category and a decline in lifestyle category. Also we might
see lesser aggression in stores expansion and focus on store productivity, shrinkage and loss reduction"-
Narayanan Ramaswamy, Executive Director, KPMG.
Shift from lifestyle to ‘value for money’
Retail
Everydayusage Highticketretail Impulsepurchase Highendluxury
•Valueformat • HomeFurnishings/ • Books/Music/ • Apparel/Fashion

Electronics Stationery/Travel wear
•Groceries/FMCG/
Beverages • Peoplearebuying • Retailersare • Retailersare
productswhich givingdiscounts offeringdiscounts
givesvalueinthe toincreasesales
longterm
Not effected Not effected Adversely effected Adversely effected
Thepastsixmonthshavebeendifficultfortheretailindustry.Retailhas
beenoneofthesevenindustriesinthecountrythathavebeenseverely
impactedbythedownturnineconomicconditions.Thesectorhas
enteredintoamodeofcorrectionremovingsomeoftheflabthathad
accumulatedoverthepast5yearsofrapidexpansion.Almostallretailers
thatwemetwithwereredrawingtheirexpansionplansandseriously
evaluatingoptionstocloseoutpoorperformingstores.Theseeffortsare
expectedtointensifyoverthenextfewmonths.Therecouldbesome
MergerandAcquisition(M&A)activitythathasbeenmissingoflatewith
thelong-termplayerslikelytoconsolidateandmoveaheadstrongly.
33
Thereisaconsensushoweverwithinthesectorthatthisrestructuring
exercisemaycontinueforthenext12-18monthsbeforeretailersbegin
anotherseriousroundofexpansion.
Thelongtermprospectsforretailchainexpansionarestillveryattractive
andthisperiodofuncertaintyisseenbyretailersasanimportant
consolidationimperativeforanindustrythathasbeengrowingat30-40
percentp.a.overthepastdecade.Therelativelylowratesofpenetration
oforganizedretailinmostcategoriescoupledwiththesheer
attractivenessofIndia’sdemographicandeconomicenvironmentis
expectedtocontinuetoaddmomentumtooverallprospectsofthis
sectorinthelongterm.
Short term outlook

• Thecurrentslowdownisexpectedtolast12–18monthsconditional
ongovernmentincentivesinincreasingspendsoninfrastructure,
developmentinitiativesandotheractivitiestostimulatethe
economy.
• Inlightoftheeffectsoftheslowdown,weexpectanincreased
focusonvalueretailinthecomingmonthsandashiftawayfrom
lifestylegoods.
• ThefocusislikelytoshifttowardsfoodretailingandFMCG
productsasthissegmentislargelyinsulatedfromtheslowdown.
• Retailersmaystartfocusingoncostreductionbyclosingthe
unprofitablestoresandrationalizationofcapitalexpenditure.
• Churninmallsislikelytoincreaseintheshorttermwhensome
retailersmayfinditdifficulttosustaininthecurrenteconomic
situation,insteadoptingforlowrentpremises.
• AsTierIcitiesbecomesaturated,retailersarelikelytomovetoTier
II,TierIIIcitieswhereprofitsarehigherduetolowerrentalsand
operatingcosts.
• Therearegoingtobeincreasedinvestmentsinshorteningofsupply
chain.Thisismainlyduetotheincentivesofferedbythe
governmentandthepotentialforhigherprofitmargins.
• Thefrequencywithwhichretailersliquidateslowmovinggoodsby
offeringdiscountstoreduceinventoryareexpectedtoincrease
34
in.kpmg.com
KPMGinIndia KPMGContacts
Mumbai Pradip Kanakia
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Indian Retail - Time To Change Lanes

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Indian Retail - Time To Change Lanes

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CONSUMER MARKETS

Impact of slowdown on key parameters

StoreExpansion Footfalls TierII/IIIExpansion AdvertisingSpends

PositiveImpact NoImpact/StatusQuo AdverseImpact

Source: KPMG Retail Survey, March 2009

Strategies to help cope with the recession

Source: Cartesian Economic Meltdown Survey, Dec 2008

Organized retail penetration - Gap created by slowdown

Organized retail penetration, which was expected to touch 16 percent by 2012

Retailer’s Confidence level in achieving targets

Source: Cartesian Economic Meltdown Survey, Dec 2008

According to KPMG’s survey, 70 percent of the respondents stated

Year-on-Year Net Sales Growth

Source: KPMG Analysis, Prowess

Working Capital on the rise Decline in Inventory Turnover

Source: KPMG Analysis, Capitaline

Margin contraction- Interest burden adversely impacts profits

Operating Profit Margin

Net Profit Margin

Source: KPMG Analysis, Prowess

Roll out delays to compound problems

Pantaloon Retail: Delay in plans

Rentals – skyrocketing to all time high

Rentals eating into profit margin of retailers

Interest coverage declining across players

• Improving labor productivity: Retailersareturningtheirattention

Manpower retention and training: Inspiteofadownturn,the

• Inventory Management: Inanyretailoperation,restraininginventory

Source: KPMG Analysis, Technopak's Retail Summit 2008

Renegotiating Real estate costs: Thecurrentenvironmentis

Rent constitutes major chunk of retailer’s cost

“The rentals have fallen

• Real Estate Management: Informationtechnologycanbeleveraged

• Supply chain visibility: ITcanhelpretailerssetupbasicforecasting,

• Logistics management: RetailerscanleverageITforback-end

Source: KPMG Analysis

Efficient store management

Decode consumer behavior

Tapnewconsumer Extendintonew Enterintonew Enhancevalue

Private label penetration (%)

Source: Images Retail Report 2009

“Today with the margins

margins on private labels are

Source: Images Retail Report 2009

Third Party Logistics (3PL)

Venture into under penetrated markets: Rural

Source: ITC’s Website, KPMG Analysis

Triveni (Khushali bazaar) Godrej Agrovet (Aadhar)

• Sellitsproductsthrough M&M (Shublabh)

Source: Company websites, www.ibnlive.in.com, KPMG Analysis

18 Company Websites and IBEF

Business Model Target Audience

Shift from lifestyle to ‘value for money’

Everydayusage Highticketretail Impulsepurchase Highendluxury

•Valueformat • HomeFurnishings/ • Books/Music/ • Apparel/Fashion

Not effected Not effected Adversely effected Adversely effected

Short term outlook

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