Retail Project By: Abhishek Jethwa

THE INDIAN ECONOMY

GDP growth for the year 2005-06 ended at 8.4%. Tops AT Kearney list of emerging markets for global retailers to enter. 2nd Fastest growing economy in the World Fourth in terms of Purchasing Power Parity next only to USA, China and Japan. 50% of the total GDP led by services such as IT, telecommunications, healthcare and retailing. Reserves crossed the $150 bn mark, showcasing India as one of the top ten holders of Foreign exchange reserves. Over 3.9 mn tourists visited India this year, up from 3.0 mn last year.

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

Indian Retail Industry- A Brief Overview

India is currently the ninth largest retail market in the world. The Indian retail market is estimated at US$ 215 billion. While organised retail in India is only two per cent of the total US$ 215 billion retail industry, it is expected to grow 25 per cent annually, driven by changing lifestyles, strong income growth and favourable demographic patterns. Organised retailing in small-town India is growing at a staggering 50-60 per cent a year compared to 35-40 per cent in the large cities. KSA-Technopak, a retail consulting and research agency, predicts that by 2010, organised retailing in India will cross the US$ 21.5-billion mark from the current size of US$ 7.5 billion. Food dominates the shopping basket in India. The US$ 6.1 billion Indian foods industry, which forms 44 per cent of the entire FMCG sales, is growing at 9 per cent and has set the growth agenda for modern trade formats.

Category-wise Private Final Consumption Expenditure

11% 3%
Rs 57,367 cr
Education, Recreation

43%
Rs 7,18,136 cr
Food, Beverage, Tobacco

Rs.1,78,998 cr Miscellaneous

15%
Rs 2,58,696 cr
Transport, Communication

Total Private Final Consumption Expenditure is Rs 16,90,000 cr 55% is Retail Sales i.e. Rs 9,30,000 cr

8%
Rs 1,42,143 cr
Medical, Health Care

5% 4% 12%
Rs 2,03,391 cr
Rent, Fuel, Power

Rs 79,631 cr
Clothing, Footwear

Rs 49,852 cr
Furniture, Furnishing, Appliance

SEGMENTWISE RETAIL & ORGANIZED RETAIL SALE

SEGMENT Retail Sale Rs cr
80,000 43,500 2,800 10,000 2,500 30,000 32,000 13,000 33,000 6,15,000 35,000 8,200 25,000

Organized Retail Sale Rs cr

10,900 850 1,110 2,500 150 550 2,500 840 2,200 2,950 2,000 800 650

% Share in Org. Retail

39 3 4 9 1 2 9 3 8 11 7 3 2

Clothing, Textile & Fashion Accessories Jewellery Watches Footwear Health & Beauty Care Services Health & Beauty Products (Incl. Pharma) Consumer Durables Mobile Handsets & Accessories Furniture & furnishings Food & Grocery Catering Services ( F & B ) Books, Music & Gifts Entertainment

Rs 9,30,000

Rs 28,000

100

ONLY 3 %

RETAIL INDUSTRY GROWTH

1400000 1200000 1000000 800000 600000 400000 200000 0 2004 2005 2006 2007 2008 2009 2010

By 2010 Rs 14,00,000 cr

Growth Rate is 8%

ORGANISED RETAIL GROWTH

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2004 2005 2006 2007 2008 2009 2010

By 2010 Rs 1,00,000 cr

9% of Total Retail Industry

Growth Rate is 30%

Discovering power of Indian Retail Key Growth Drivers

Favorable Demographics Rising Consumer Income Mall Boom

Favorable Demographics & Mall Boom

Indian Mall Scene in 2006 City Area Indore Jaipur Chandigarh Ludhiana Lucknow Ahmedabad Pune Chennai Calcutta Hyderabad Bangalore Mumbai NCR (Delhi) (mn sq ft) 0.06 0.67 0.12 0.2 1.07 1.95 2.03 1.22 1.15 1.26 2.12 4.8 10.62
Real estate is key for a retail business during its investment phase Drop in interest rates have made property buying and leasing viable 100% FDI in Construction & Real Estate now permitted Over 600 malls expected by 2010 Total investments of USD 5 bn would be required from organized retailers by 2010 Real Estate development in India poised for Dramatic growth

Retailing formats in India

Supermarkets (Foodworld,Spencers) Hypermarkets (Big Bazaar,Trent ) Department Stores (Shoppers Stop,LifeStyle) Specialty Chains (Spar) Discount Chains (Subhiksha) Cash N Carry (Metro) Petro Convenience (In & Out, Shell) Traditional Format Retailers Kiranas: Traditional Mom and Pop Stores Kiosks Street Markets Exclusive /Multiple Brand Outlets

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
Multiple drivers leading to a consumption boom: Favorable demographics Raising aspirations : Value added goods sales Growth in income Increasing population of women 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.

CHANGE IN RETAILING Counter Service Self Service

CHANGE IN RETAILING
Less Than 200 SKU 8000 to 10,000 SKU

CHANGE IN RETAILING
Few Hundred sq. ft. Shop 50,000 plus sq. ft.
Now Lakhs of sq.ft in pipeline

CHANGE IN RETAILING
No gadgets Advanced gadgets

CHANGE IN RETAILING
No IT Advanced IT

CHANGE IN RETAILING
No Bar coding Advanced RFID

CHANGE IN RETAILING
Dull Shopping Experience
Shopentertainment or Shoppertainment

TOP 15 RETAILERS OF THE WORLD

Sr
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

NAME
WAL MART STORES CARREFOUR ROYAL AHOLD METRO KROGER TESCO TARGET RWE COSTCO ALDI INTERMATCH (ITM) SAFEWAY ALBERTSON SWAZ GROUP WALLGREENS

COUNTRY
USA FRANCE NITHERLAND GERMANY USA UK USA GERMANY USA GERMANY FRANCE USA USA GERMANY USA

SALE $ BILLION
256. 329 87. 342 68. 224 65. 147 53. 791 50. 326 48. 163 44. 241 41. 693 41. 011 36. 723 35. 552 35. 436 33. 357 32. 505

TOP RETAILERS OF INDIA

Sr Name Company Sale (Cr)

1 Big Bazaar 2 Food World 3 Shopper Stop 4 Margin Free 5 Nilgiris 6 Life Style 7 Subhiksha 8 West Side 9 Adani 10 Piramyd 11 DMart

Pantaloon RPG K.Raheja Nilgiris Land Mark Vishwapriya Group Tata (Trent) Adani Piramals Avenue SuperMkt

650.00 545.00 404.00 300.00 250.00 230.00 200.00 130.00 100.00 79.00 78.00

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.