“INDIAN RETAIL INDUSTRY ITS PROSPECTS AND CHALLENGES”

Chapter 1

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“INDIAN RETAIL INDUSTRY ITS PROSPECTS AND CHALLENGES”

1. An Overview of Indian Retailing

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1. An Overview of Indian Retailing
Retail has been defined as business activities involved in selling goods and services to consumers for their personal, family or household use. Although retailing has been around for millennia, the 20th century witnessed a lot of changes in the retail sector, especially in the developed countries. Modern formats such as department stores, discount stores, Super markets, convenience stores, fast food outlets, specialty stores, warehouse retails and hypermarkets have emerged. Retailing has become more organized and chain stores have been growing at the expense of independent shops. India retailing is undergoing a process of evaluation and is poised to undergo dramatic transformation. The retail sector employs over 8% of the national workforce but is characterized by a high degree of fragmentation with over 5 million outlets, 96% of whom are very small with area of less then 50 m2. The retail universe more than doubled between 1978 and 1996 and the number of outlets per 100 people at an all India level, increased from 3.7 in 1978 to 5.6 in 1996. For the urban sector alone, the shop density increased from 4 per 100 people in 1978 to 7.6 per 100 people in 1996 because of their small size, Indian retailers have very little bargaining power With manufacturers and perform only a few of the flow in marketing channels unlike in the case of retailers in developing countries The corner grocer or the ‘kirana’ store is a key element in the retail in India due to the housewife’s unwillingness to go long distance for purchasing daily needs. Although convenience and merchandise were the two important reasons for choosing a store, the choice criteria varied across categories. Convenience was indicated by consumer as the moat important reason in the choice of groceries and fruit outlets, chemist and lifestyle items while merchandise was indicated as the most important in durables, book and apparel. The traditional format like hawkers, grocers and paan shop co exist with modern format like supermarket, and non store retailing channels such as multi level marketing and teleshopping. Example of modern formats include department store like Bigbazzar, supermarket like Food World, franchise store like Van Heusen and Lee, INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 3

“INDIAN RETAIL INDUSTRY ITS PROSPECTS AND CHALLENGES”

discount store like Subiksha, Shop-in-shops, Factory outlets and service retailers. Modern stores tend to be larger, carry more stock keeping units have a self service format and an experiential ambience. Modern format also tend to have higher level of sales per unit of space, stock turnover and gross margin but lower level of net margin as compared to traditional format. Modernization in retail formats is like to happen quicker in categories like Dry groceries, electronics, Men’s apparel, Books, Music, Some reshaping and adaptation may also happen in fresh groceries, Women’s apparel, Fast food and personal care product In recent years, there has been a slow spread of retail chain in some formats like supermarket, department store, malls and discount stores. Factors facilitating the spread of chain are the availability of quality product at a lower price, improved shopping standards, convenient shopping and display, and blending of shopping with entertainment, and the entry of industrial house like Goenkas, Rahejas, Piramals and Tatas into retailing. However formats are mot easily scalable across the country. Several companies have found that it is not easy to expand beyond some regions and cities as evident from the example of margin free market and Food world, which are active only in a few states or cities. Affordable real estate price and availability of sufficient number of economically well off household in the catchment area are critical requirement that will determine new store viability and thus the possibility of future expansion. According to Rao (2001), foreign direct investment in the retail sector in India, although not yet permitted by government, is desirable, ass it would improve productivity and increase competitiveness. New stores will introduce efficiency. Customers also gain as prices in the mew stores tend to be lower. The consequences of modernization in India may be somewhat different due to lower purchasing power and the new store may cater to only to branded products aimed at upper income segment. However it will be wise for old style stores to join together into wholesale and retail groups to improve bargaining power as experience in developed markets such as UK has that the modernization in retail has led to the decline of independent mom and pop stores. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 4

“INDIAN RETAIL INDUSTRY ITS PROSPECTS AND CHALLENGES”

The need for fresh perspective while developing theories to explain the new development has been stressed by Bennett et al (1998). The Indian retail environment is witnessing several changes on the demand side due to increased per capita income. Changing lifestyle and increased product availability. Experience of retailing in US show that existing theories of retail development based on changing consumer need are inadequate to explain new development. In developed markets, there has been a power shift with power moving from manufacturers towards retailers. The strategies used by retailers to wrest power include the development of retailers own brands, and the introduction of slotting allowances which necessitate payment by manufacturers to retailers for providing shelf space for new product. Retailers have also used technology effectively to obtain usable information about consumer buying pattern. The increased power of retailers has led to the introduction of new tactics by manufacture such as everyday low price, partnership with retailers and increased use of direct marketing methods because of these issues, a supply side perspective need to be fused with the demand side in developing theories for explaining modernization in retail

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Chapter 2
2. History of Indian Retail Market

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2.History of Indian Retail Market Retail is India’s industry it account for over 10% of the India’s GDP and around 8% OF The Employment. Retail sector is one of the India’s fastest growing sectors with a 5 % compounded annual growth rate. India’s huge middle class and its untapped retail industry are key attraction for global retail giants planning to enter newer market .driven by changing lifestyle, strong income growth and favorable demographic patterns, Indi retail is expected to grow 25% annually. It is accepted that retail in India could be worth US$ 175-200 Billion in 2016 The organized retail industry in India had not evolved till the early 1990s. Until then, the industry was dominated by the un-organized sector. It was a seller market, with a limited number of trained manpower, tax laws and government regulation all discouraged the growth of organized retailing in India during that period. Lack of consumer awareness and restriction over entry of foreign player into the sector also contributed in delay in the growth of organized retailing. Foundation for organized retail in India was laid by Mr. Kishore Biyani of Pantaloon Retail India Limited (PRIL) following pantaloon’s success venture a host of Indian business giants such as Reliance, Bharti, Birla and others are now entering into retail sector. A number of factors are driving India’s retail market. These include increase in young working population, hefty pay-packets, nuclear families in urban area, increasing working-women population, increasing in disposable income and customer aspiration, increases in expenditure for luxury items and low share of organized retailing, India’s retail boom is manifested in sprawling shopping center multiplex-malls and huge complexes that offer shopping entertainment and food all under one roof But there is a flip side to the boom in the retail sector. It is feared that the entry of global business giants into organized retail would make redundant the neighborhood kirana stores resulting in dislocation in traditional economic structure. Also, the growth path for organized retail in India is not hurdle free. The taxation system still favors small retail business. With the intrinsic complexities of retailing such as rapid price changes, constant threat of product obsolescence and low margins there is always a threat that the venture may turn out to INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 7

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be a loss making one. Retail in India is still at a very early stage. Most retail firms are companies from other industries that are now entering the retail sector on account of its amazing potential. There are only a handful of companies with a retail background. One such company is Nilgiri's from Bangalore that started as a dairy and incorporated other areas in its business with great success. Their achievement has led to the arrival of numerous other players, most with the backing of large groups, but usually not with a retail background. Most new entrants to the India retail scene are real estate groups who see their access to and knowledge of land, location and construction as prime factors for entering the market. New retails stores have traditionally started operations in cities like Mumbai and Delhi where there has been an existing base of metropolitan consumers with ready cash and global tastes. The new perspective to this trend is that new entirely on the metros. Spending poer in India is not concentrated any more in just the 4 metros (Delhi, Mumbai, Chennai, and Kolkata). Smaller but upcoming cities like Chandigarh, Coimbatore, Pune. Ahmadabad, Baroda, Trivandrum, Cochin, Ludhiana, Simla etc. will fast be catching up to the metros in their spending capacity. Cities in south India have taken to the supermarket style of shopping very eagerly and so far the maximum number of organized grocery and department stores are in Chennai, Bangalore and Hyderabad. The north has a long way to go to come up to par. International stores now prefer to gauge the reaction of the public in these cities before investing heavily in a nation-wide expansion. Milou, the Swiss children's wear retailer, recently opened up its first store in Chennai, bypassing Delhi and Mumbai. Besides the urban market, India's rural market has just started to be seen as a viable option and companies who understand what the rural consumer wants will grow to incredible heights. The bulk of India's population still live in rural areas and to be able to cater specifically to them will mean generating tremendous amounts of business. In the past decade, international companies entering India (Levi's, Pepe, Tommy Hilfiger, Marks and Spencer, Mango) have generally offered moderately priced to expensive items. They have aimed for the upper-middle and rich classes of Indian society. These are INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 8

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consumers who travel abroad often and can buy these items overseas quite easily. Instead, international companies should be focusing on the lower and lower-middle classes of India. This is where the real potential is, the inspirational class of consumers who want to lead a better lives and believe in education, hard work and absorb knowledge from every possible angle. The phenomenal success of Big Bazaar. Pantaloons version of Wal-Mart, is proof that there is enormous potential in providing products and services to this class of consumers. Companies entering India cannot have just one game plan to apply to the entire country as the people, their tastes, the lifestyle, the budgets etc. are all too divergent. International entrants must enter each market specifically focusing only on that area to be successful. Business, specifically retail business must focus on the most important factor in the Indian mind-set---Value for Money. Indian consumers are ready to pay almost any amount of money for a product or service as long as they feel they are getting good Value for Money. This is often misconstrued as being tight fisted or interested in lower priced and/or lower quality products. Retail growth in the coming five years is expected to be stronger than GDP growth, driven by changing lifestyles and by strong income growth, which in turn will be supported by favorable demographic patterns and the extent of which organized retailers success in reaching lower down the income scale to reach potential consumers towards the bottom of the consumer pyramid. Growing consumer credit will also help in boosting consumer demand. The structure of retailing will also develop rapidly. Shopping malls are becoming increasingly common in large cities, and announced development plans project at least 150 new shopping malls by 2008. The number of department stores is growing much faster than overall retail at an annual 24%. Supermarkets have been taking an increasing share of general food and grocery trade over the last two decades. However, Distribution continues to improve but it still remains a major inefficiency. Poor quality of infrastructure, coupled with poor quality of the distribution sector, results in logistics costs that are very high as a proportion of GDP, and inventories, which have to be maintained at an unusually high level. Distribution and marketing is a huge cost in Indian consumer markets. It's a lot easier to cut manufacturing costs than it is to cut distribution and marketing costs. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 9

“INDIAN RETAIL INDUSTRY ITS PROSPECTS AND CHALLENGES”

Growth of retail Market in India

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Chapter 3
3. Market Overview 3.1Indian retail on the fast-track 3.1.1GRDI 3.1.2GCCI 3.2Indian retail revolution 3.3Transition from traditional to modern retailing 3.4Growth across segments 3.5Increasing penetration of organized retail 3.6Future outlook

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3. Market Overview
3.1 Indian retail on the fast-track  The Indian retail market is the fifth-largest retail destination globally. It is estimated to grow from the US$ 330 billion in 2007 to US$ 427 billion by 2010 and US$ 637 billion by 2015.  Retail contributes to 10 per cent of India’s gross Domestic Product and provides employment to 8 per cent of India’s working population.  Higher disposable incomes, easy availability of credit and high exposure to media and brands has considerably increased the average propensity to consume over the years.

3.1.1 GRDI India ranked first for the third consecutive year on the global Retail Development index – 2007, conducted by at Kearney across 30 emerging economies. India is ranked as the most preferred retail destination for international investors.

3.1.2 GCCI India ranked first for the fifth time on the global consumer confidence index – June 2007, conducted by the Nielsen Company. Indians were judged as the world’s most optimistic consumers, with high financial confidence about their income for the next 12 months.

3.2 Indian retail revolution  Modern retail would increase its share in the total retail market to 22 per cent by 2010.  Indian retail showed a growth rate of 49.73 per cent with a turnover of US$ 25.44 billion in 2007-2008 as against US$ 16.99 billion in 2006-2007.  Organized retail segment is expected to grow from five per cent to about 14 to 18 per cent by 2015.

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Total Retail Sales
2005-06 2004-05 2003-04 2002-03 2001-02 0 100 200 US$ Billion 300 400

Source: Data monitor

 The market is witnessing a migration from traditional retailing to modern/organized retailing formats, with an explosive proliferation of malls and branded outlets.  Modern retailing outlets in India are increasingly matching up to global standards and witnessing intense competition.

Projected Retail growth

201011P 200607P 2005-06E 0 100 200 Organised Retail 300 400 Total Retail 500

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Source: Crisis Research

Exchange Rate: US$ 1 = INR 41

3.3Transition from traditional to modern retailing  With a share of over 95 per cent of total retail revenues, traditional retailing continues to be the backbone of the Indian retail industry.  Over 12 million small and medium retail outlets exist in India, the highest in any country.  Traditional retail formats are highly popular in small towns and cities with primary presence of neighborhood “kirana” stores, push-cart vendors, “meals” and “mandis”.  Modern/organized retailing is growing at an aggressive pace in urban India, fuelled by burgeoning economic activity.  Increasing number of domestic and international players are setting up base in the country and expanding their business to tap this growing market. 3.4Growth across segments  The food and beverages segment accounts for the largest share over 74 per cent of the total retail pie.  Traditional retail dominates food, grocery and allied products sector, with grocery and staples largely sourced from the “kiranas” and push-cart vendors.  Apparel and consumer durables verticals are the fastest growing verticals.

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FoodandBeverages consumer Durables home Decor

clothingand textile Jewelleryand watches Beautycare

6% 5% 9%

3%

2% 1% 1%

73%

Source: Crisil Research Revenue of Verticals Food and Beverages clothing and textile consumer Durables Jewelers and watches home Decor Beauty care Footwear Books, Music and gifts Source: Crisil Research US$ 231,951 million US$ 29,024 million US$ 15,171 million US$ 19,390 million US$ 9,463 million US$ 6,854 million US$ 3,268 million US$ 2,610 million

 With high telecom penetration in towns and villages and five million new users having added every month, the mobile phone category is one of the highest growth product categories.  With the reducing average age of Indians buying homes, the home décor sector is growing rapidly coming down.  Beauty care, home décor, books; music and gifts segments are gaining traction predominantly in the urban areas and emerging cities. 3.5Increasing penetration of organized retail INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH

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 Organized retail in India is largely restricted to the urban and semi-urban regions, with consumer exposure to modern retailing formats like malls and stand-alone stores, etc., for specific product categories.  Penetration of organized retail is projected to increase to 9.52 per cent in 2009-2010, with revenues from organized retail touching US$ 43,829 million in 2009-2010.  Clothing and textiles/apparel segment dominates the organized retail sector with revenues worth US$ 4.76 billion, contributing to over 36 per cent of the organized retail pie.

Size of Indian retail market across segments, 2007 Segment Food and grocery Textile and apparel Jewelers and watches Consumer durables Parma Home solutions Books, music and gifts Others Total Source: Crisil Research  Apparel is one of the fastest growing verticals, with higher number of domestic and foreign brands, and increasing consumer willingness to pay for quality.  Footwear has the highest organized retail penetration, primarily due to players like Bata India Pvt. ltd. and liberty, with wide distribution network and customer confidence. Total Retail 6,422 980 554 415 364 351 115 1,159 10,360 Organized Retail 50 185 30 43 10 32 15 111 475

Increasing penetration of organized retail
Comparative penetration of organized retail

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India 3% China Indone… Thailand Malaysia Taiwan US 20% 30% 40% 55% 81% 85% Organised Retail

97% 80% 70% 60% 45% 19% 15% Traditional Retail

Source: Ernst & Young research

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3.7Future outlook  Retail sector revenues pegged at US$ 460.6 billion by 2010-11  organized retail projected to grow to US$ 43.8 billion  Modern retail is expected to adapt and imbibe from the traditional formats  Unorganized formats converging from organized formats, in the form of mushrooming village malls
Changing Paradigm: The Confidence of Modern and Traditional Retail

1st Phase

2nd Phase

3rd Phase

4th Phase

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Segmental size of Indian retail market

Source: IBEF research  large Indian retail players have already begun formulating strategies for the rural retail space  The food and beverages (F&B) sector is expected to touch US$ 116 billion mark by the end of 2008-2009.

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Chapter 4
4. Advantage India 4.1Fastest Growing Economy 4.2Young India 4.3Potential Untapped Market 4.4Abundant Availability of Skilled Labor 4.5 Low Costs of Operations

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4 Advantage India
4.1 Fastest Growing Economy  GDP growth rate of 9.4 per cent posted in 2006-07 is highest ever in last 18 years. With the first quarter growth rate for 2007-08 estimated at 9.3 per cent, the economy is well poised to continue its growth story.  The fast pace of GDP growth is the driving Indian consumerism; Indian consumers today are more confident and willing to splurge

Gross Domestic Product

Growth Rate (per cent)

Source: Reserve bank of India

4.2 Young India INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 21

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 Two-thirds of India’s population is under 35 year’s age and more than 60 per cent of the population will be in the working age group (15-60) till year 2050.  The median age of 23, opposed to the world median age of 33, sets the emerging young India apart  India is home to about 20 per cent of the global population under 25. Growing young Population

4.3 Potential Untapped Market  Organized retail penetration is on the rise and offers an attractive proposition for entry of new players as well as scope for expansion for existing players  Diverse needs of the Indian consumer offer a spectrum of opportunities, spanning from rural retailing to luxury retailing  India is home to the largest base of consumers, and a steadily rising rich and super rich population  Impressive retail space availability and growing trend of consumerism in the emerging cities and small towns add to the market attractiveness  Indian Retailing giant, Pantaloon Retail India limited, captures a mere 0.3 per cent of total market in India, compared to Tesco Plc, England’s 14.3 per cent and Wal-Mart USA’s 20 per cent, signaling out the large untapped potential INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 22

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Share of organized and traditional Retail
India 3% China Indonesia Thailand Malaysia Taiwan US 20% 30% 40% 55% 81% 85% Organised Retail Traditional Retail 97% 80% 70% 60% 45% 19% 15%

S Source: Ernst & Young Retail Report

4.4 Abundant Availability of Skilled Labor  Over 37 million students were enrolled in about 150,000 pre-college institutes and over 11.7 million in 14,000 higher education institutions in 2005-06.  Retail management is a sought after education stream amongst students, with over 15 premier institutes offering specialized courses in Retail Management.  Indian institute of Retail, New Delhi; RPG institute of Retail Management, Mumbai; and the Retail academy, Ahmadabad are some of the institutes focusing on the education needs of the retail sector.

4.5 Low Costs of Operations  Existing players are increasingly turning to tier ii and tier iii cities for retail establishments and manpower sourcing  These cities offer significant cost advantage in the form of low-cost skilled resources and attractive lease rentals/real estate prices. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 23

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 With well-educated small town graduates turning to the urban cities for employment, these graduates are ideal candidates for sales and marketing executive roles in modern organized retail formats. Labor cost per worker across Asian countries
Singapore Korea Malaysia Thailand Philippines Indonesia India China 0 10000 US per annum $ 20000 30000

Source: Department of Industrial Policy & Promotion

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Chapter 5
5. Policy and regulatory framework 5.1Policy framework 5.1.1 Related liberalizations for Indian retailing

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5. Policy and regulatory framework
5.1Policy framework FDI up to 100 per cent allowed under the automatic route for cash and carry wholesale trading and export trading and FDI up to 51 per cent is allowed, with prior government approval for retail trade in ‘Single Brand’ products. FDI in retailing of goods under multiple Brands, even if the goods are produced by the same manufacturer, are not allowed under the current guidelines. Policy

Source IBEF research

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5.2 Related liberalizations for Indian retailing  Value added tax (vat) has been introduced and implemented in most states and union territories, and across most industry verticals (except a few like textiles) to resolve the multiple taxation issues and maintain uniform prices across the countries. Octroi has been abolished in many states to further trade in the retail sector.  Labor laws in India are under the scanner for higher liberalization, with the government relaxing certain norms or permitting flexibility in the laws for emerging retail hubs such as Bangalore and Hyderabad. laws like restriction on working hours, mandatory closure of the store once a week etc. are being modified to suit the modern retailing context, while ensuring no adverse impact on the benefits for employees.  The government is working towards reducing impediments by introducing a singlewindow clearance mechanism. This would reduce the entry and establishment timelines for new players in the market and facilitate timely and hassle free approvals.  The government is expected to adopt a calibrated approach in land and rent reforms to improve the real estate regulatory environment and facilitate easy access to retail space for international investors.  The government is releasing large tracts of undeveloped land for retail development in the Mumbai and national capital Region (NCR). This is soon to be followed by other State governments, with associated benefits for the governments in the form of access to impressive revenues from sale of land and tax collection from retail developments.  Solutions to problems related to lease rentals and pro-tenancy laws, which significantly deter international investors, are being pursued by the government, with initiatives such as Special economic zones (SEZs), allotment of government controlled land etc.  The agricultural Produce Marketing committee act (PMCA), which curtails direct sourcing of agricultural produce (grocery, food grains etc) is proposed to be amended soon, with a Draft Model act being legislated by the government. The new act promotes direct marketing to corporate by farmers, setting up of farmers’/consumers’ market and contract farming.  The government is encouraging contract farming, as it provides incentives to both the farmers and the corporate retailers, with the former gaining access to a larger market INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 27

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and the latter to a direct raw material procurement source at competitive prices. The government is currently pursuing development and modernization of eight strategically located “mandis” with availability of cold storage, sorting and grading facilities.

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Chapter 6
6. Key trends & Drivers 6.1Metros leading the way 6.1.1Maturing metros: Delhi and Mumbai 6.1.2Delhi 6.1.3Mumbai 6.2Emerging retail hubs 6.2.1Cities on the Fast–track 6.2.2Metros-in-the-making 6.3Thrust verticals across geographies 6.3.1Maturing Metros 6.3.2Metros-in-the-making 6.3.3Cities on the fast-track 6.4Mall space availability 6.5Evolving consumer behavior 6.5.1Changing face of the Indian consumerism 6.5.2Integrated retailing formats 6.6Growing urbanization and disposable incomes driving retail 6.6.1Higher disposable incomes 6.6.2Increasing urbanization 6.7Easy credit: another key driver 6.8Increasing investment activity 6.8.1International players eyeing the Indian market

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6. Key trends & Drivers
6.1 Metros leading the way 6.1.1Maturing metros: Delhi and Mumbai  Six million Indian households are classified as ‘rich’ with annual income over US$ 4,700 and over half of them live in Delhi, Mumbai and Bangalore.  62 per cent of the market for premium products in India is also concentrated in these three cities.  85 per cent of India’s retail market is concentrated in the country’s eight largest cities.  One million households at the top of India’s income map constitute the ‘super-rich’ in the country. Growing by 20 per cent every year, this segments’ buying behavior is in line with its corresponding international counterparts. While this segment is a worthy target for high-end premium products, it is not the key driver of the organized retail sector.

Available routes for foreign players to enter the retail sector
1994-95 • Rich (annual income > US$ 4,700) Benefit Maxi misers: own cars, Pcs 1 million households 1999-200 3 million households 2005-6 6 million households

• consuming (US$ 1,000-4,700) cost-benefit optimizers: have block of branded consumers goods, 70% of two-wheelers. refrigerators, washing machine

29 million households

55 million households

75 million households

• climbers (US$ 500-1,000) cash-constrained benefit seekers: have at least one major durable (mixer, sewing machine/television)

48 million households

66 million households

78 million households

• aspirants (US$ 350 - 500) new entrants into consumption: have bicycles, radios, fans

48 million households

32 million households

33 million households

• Destitute (less than US$ 350) hand-to-mouth existence: not buying

35 million households

24 million households

17million households

Source: Rao and Natarajan, National Council for Applied Economic Research, 1996

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6.1.2 Delhi  Delhi/NCR, the fashion capital of India and home to the highest number of rich and super-rich households, contributed close to US$ 12,683 million to 2005-06 retail revenues.  National capital Region (NCR) contributes US$ 16,342 million of retail revenues in 2005-06, and is projected to open doors to a market worth US$ 19,522 million by 201011.  NCR has the highest mall space availability and the highest number of affluent households. 6.1.3 Mumbai  home to a large percentage of high net worth individuals, Mumbai contributes close to US$ 10,195 million of the total retail revenue  The retail opportunity for this metro is projected at US$ 14,927 million for 2010-11  Mumbai is home to different income groups, from the aspirants to the super rich; each having significant contribution to the retail revenues through various retailing formats 6.2 Emerging retail hubs 6.2.1Cities on the Fast–track  Bangalore, Hyderabad, Chennai and Kolkata contribute to US$ 15,511 million worth retail revenues, and projected to touch US$ 25,610 million by 2010-11  Retail activity in Bangalore, Hyderabad and Chennai is growing at an exceptional rate, with phenomenal increase in mall space by the day  Most of the retail sector giants have a footprint in these cities, with future plans of expanding base, owing to the rapid transition of households from lower income groups to higher income groups  With the growth of the IT/ITEs sectors concentrated in these cities, the disposable incomes have increased rapidly over the years

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 Bangalore is considered the Silicon valley of India, with almost all the domestic and international it giants having a their presence here  These cities are projected to experience continued robust economic growth in the coming years 6.2.2Metros-in-the-making  the emerging and potential cities like Pune, Ahmadabad, Jodhpur, etc. account for about US$ 15,619 million of retail revenues. The combined retail potential of these cities is expected to soar to US$ 23,563 million by 2010-11.  Pune is the fastest emerging destination for the services sector, closely followed by Ahmadabad. These cities are now among the chosen business destinations by corporate houses.  The migration from traditional retail to the modern formats is largely noticeable in these two cities, with explosive increase in the mall space availability and branded outlets.  Approximately 315 hypermarkets are expected to come into existence in tier-I and tierII cities across India by the end of 2011.  52 leading towns are likely to emerge as retail hubs by 2011 with tier-iii towns gaining market potential to host five or more hypermarkets. Emerging retail hubs

Source: Crisil Research

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6.3 Thrust verticals across geographies 6.3.1 Maturing Metros  Delhi and Mumbai offer an attractive market for luxury and lifestyle retailing, with these cities being home to the highest number of households belonging to the affluent category (with income greater than US$ 24,000 per annum).  Delhi and Mumbai are home to the largest percentage of affluent households in the country, accounting for over 30 per cent of total retail revenues. The affluent household percentage is expected to double by 2010-11, and is projected to trigger high growth in the luxury retailing segment. 6.3.2 Metros-in-the-making  These cities currently are exposed primarily to the “value”  The consuming class accounts for over 60 per cent of the total households, offering potential in the food and grocery, consumer goods and apparel verticals.  Players like the Future group, ITC e-choupal, the aditya Birla nuvo group; Reliance Fresh, etc. are aiming to tap the agri-produce and allied market to gain the “first-mover” advantage.

6.3.3 Cities on the fast-track  Growing disposable incomes, the consuming class and the increasing standard of living across these cities translate to opportunities across all the retailing formats and verticals.  The mushrooming lifestyle formats in these cities bolstered the increasing exposure of consumer base to international brands and willingness to spend for quality.  These cities most often also serve as the test beds for innovative store formats.

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6.4 Mall space availability  The number of malls in Delhi, Mumbai, Hyderabad and Pune may touch 250 by 2010 against the present 40.  The total number of malls is projected to increase to 600 by 2010-2011. Total number of malls in top eight cities

Source: Indian Realty News, 2007  From the setting up of India’s first mall in 1999, there has been a steady migration of retail from the traditional to the organized format, the trend being more pronounced in the urban areas.  The total mall space across seven cities (NCR, Mumbai, Bangalore, Kolkata, Hyderabad, Pune and Chennai) was spread over 40 million Sq.ft. in 2006-2007. Mall space is projected to increase to over 60 million Sq.ft. in 2007-2008.

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Mall Space Distribution in top 7 cities (in million sq. ft.)

Mumbai

24% 47% 4% 9% 10% 2% 4%

Pune Kolkatta Hyderabad Bengaluru chennai NCR

Source: Jones Lang LaSalle Meghraj Retail Report

6.5 Evolving consumer behavior 6.5.1 Changing face of the Indian consumerism  The lifestyle patterns of India’s middle class are getting redefined with exposure to western values and growing brand consciousness  From a ‘saving’ to a ‘spending’ mindset, the outlook for Indian consumerism is buoyant  Marked increase in the number of new entrants and player revenues across all the verticals.  Due to increased consumer exposure to the latest trends and brands driven by the mass media, retail revenues are soaring 6.5.2 Integrated retailing formats  Retailers are rapidly integrating and diversifying their store formats to cater to emerging trends in consumer behavior.  Food Bazaar stocks staples in bulk; weighing and packing them for customers in their presence keeping in mind the ‘touch and feel’ mindset of buying staples while Reliance Fresh stocks fresh flowers and vegetables. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 35

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 Retailers are expanding into the emerging cities with modest store formats as opposed to the glitzy mall formats adopted for metros.
Source: IBEF Research

6.6 Growing urbanization and disposable incomes driving retail

Modern retailing formats: Malls Department Stores Discounters cash and carry

6.6.1 Higher disposable incomes  Disposable incomes are on the rise with the economy providing new avenues of employment in IT/ITEs and other sunrise sectors like biotech, hospitality etc.  Employers are offering attractive compensation packages and perquisites to skilled Indian professionals  Indians have an ability to spend over US$ 30,000 a year (PPP terms) on conspicuous consumption. Disposable incomes are expected to rise at an average of 8.5 per cent per annum till 2015. Personal Disposable income

Y-o-y Percentage growth INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 36

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6.6.2 Increasing urbanization  India’s urban population is estimated at 286 million, constituting 27.8 per cent of the total population, as of 2001  The urban population is projected to increase to 468 million, constituting 33.4 per cent of the total projected population of 1,200 million by 2010-11.  Increase in the number of young employed executives and the thinning gender divide is stimulating growth of modern retailing in urban areas.

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6.7Easy credit: another key driver

 Banks and financial institutions have increased their range and amount of retail credit and service offerings.  Average exposure of banks to retail loans was at 25.5 per cent of total loans in 2005-06.  growing acceptance of plastic money across small and medium Credit card growth (in millions)

Credit card growth (in percentage)

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 Disbursal of home loans and personal loans are surging, with banks and institutions issuing loans with attractive interest rates and easy monthly installment options. Debit card growth (in millions)]

Debit card growth (in percentage)

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6.8 Increasing investment activity 6.8.1 International players eyeing the Indian market  Wall-Mart has entered into a 50:50 Joint venture and Franchisee agreement with Bhatia Retail ltd. and plans to set up its first cash-n-carry outlet by 2007-08.  The Starbucks – Pepsi co. joint venture is expected to provide Indian market access to the world’s largest coffee chain.  French retail major, Carrefour, is set to finalize its entry route to India. target Provogue (India) Mudra lifestyle acquirer/investor Fidelity, new Vernon, Blackstone, genesis capital, artist capital and liberty International SIDBI venture capital and State Bank value in US$ million 33.24 3.27 22.73 12.00 82.00 25.00

Flemingo Duty Free citigroup venture capital Shops home Solutions Retail India S kumars nationwide Brandhouse Retail kotak Private equity ADM capital ADM capital

Source: IBEF Research

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11% 4% 6% 28%

5% 8% 10% 10%
IT-BPO Manufacturing Healthcare & Life S ciences BFS I Engg. & Construction Real Estate

18%

Source: NASSCOM Breakup of VC/PE investments in 2006(volume)
IT-BPO

25%

20%

BFS I Manufacturing Engg. & Construction Healthcare & Life S ciences Real Estate Media F&B and Retail

9% 2% 3% 13% 7%

13%

8%

Source: NASSCOM

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Chapter 7
7. Key Players 7.1Pantaloon Retail India Limited 7.2Shoppers Stop Limited 7.3Key players 7.4Players across verticals 7.5International retailers

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7 Key Players
7.1 Pantaloon Retail India Limited  Pantaloon Retail India limited (PRIL), a Future group venture, started its operations with Pantaloon Shoppe in 1993 and has since emerged to be the retailing giant of India with over five million square feet of retail space spread over 450 stores across 40 cities in India.  The company clocked revenues worth US$ 887 million in 2007-2008, a 75 per cent increase over 2006-2007. The net profit stood at US$ 29.75 million with a hike of 87 per cent over the previous year.  Pantaloon Retail has many firsts to its name in the Indian market, with discounted store formats like Brand Factory etc. setting benchmarks for new players entering the market. innovative store formats like hometown - a one-stop shop for all the home requirements, Sports Bar - a sports theme restaurant complete with game courts and screens for match viewing, health city - a value segment targeted spa and beauty care venture etc., are hitting the market, consolidating the market position of PRIL.  the unique selling proposition of Pantaloon Retail is the dual approach to tap both the “value” segment and ‘lifestyle and luxury’ segment, by establishing retail formats in each segment like Big Bazaar, Fashion Station etc. aimed at value retailing while central, Pantaloons etc. captures the lifestyle segment consumers.

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2006-07

95.6 846 33.2 472 21.1 264 11.2 161 0 100 200 300 400 500 600 700 800 900

2005-06

2004-05

2003-04

OperatingIncome

Retail Turnover

Source: Company Reports

7.2 Shoppers Stop Limited  Shoppers Stop, established in 1991 with its flagship store - Shoppers Stop, has now expanded to over 100 retail outlets spread across 1.1 million square feet of built-up area, spanning the entire spectrum of retailing verticals and formats.  Private labels account for more than 21 per cent of its retail revenues, with Shoppers Stop registering an impressive total number of transactions to customer footfalls ratio (conversion ratio) of 27 per cent.  Strategic partnerships with international retailing players like Mother care Plc of Britain and leisure & allied industries of Australia, are aiding Shoppers Stop in catering to niche markets.  Aggressive expansion plans are in pipeline for formats like time zone, a leisure and entertainment format venture and Brio - the coffee bar located strategically in their crossword bookstores.

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200607 200506 200405 200304 0

16.7 202 11.9 155 8.4 109 3.8 84

50

100

150

200

250

Retail Turnover

OperatingIncome

Source: Company Reports

7.3 Key players

Source: IBEF Reports

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Source: IBEF Reports

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7.4 Players across verticals

Source: IBEF Reports

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7.5 International retailers International retailers are fast expanding their business in India to tap the large consumer base. Reebok has set up its largest store in the world in Hyderabad, Tommy Hilfiger and Levis have over 20,000 square feet of retail space and stand-alone stores across major metros. The fast-food giants like Pizza hut, McDonalds, Subway etc. are expanding at a fast pace, with the emergence tier ii and tier iii cities and expanding markets in these cities.

Source: IBEF Reports

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Chapter 8
8. Key opportunities 8.1Innovative formats 8.1.1Players taking the “first-mover advantage” 8.1.2Specialty formats 8.2India as the sourcing hub 8.2.1Emergence of India as Retail Sourcing Hub 8.2.2Increasing Technology Adoption 8.3Click-to-buy phenomenon 8.3.1Online Retailing 8.4Emerging rural retailing 8.5Resplendent luxury market 8.6Leisure and entertainment 8.7Cashing-in on the transit channels 8.8Other opportunities 8.8.1Special Economic Zone (SEZ) synergies 8.8.2Tourism Related Opportunities

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8. Key opportunities
8.1 Innovative formats 8.1.1Players taking the “first-mover advantage”  More than 72 per cent of India’s population resides in small towns and rural areas with agric-produce retailing forming the lion’s share of total retail pie in these areas, offering immense potential for food and grocery verticals and value retailing  Players like Reliance Retail, aditya Birla nuvo group’s trinethra Supermarket, etc. have aggressive plans to tap these emerging cities.  Players which have established their presence in the top metros are planning their establishments in these emerging cities to gain the first-mover advantage over other entrants. 8.1.2Specialty formats  Formats like ‘wedding Malls’, which are unheard of in the far west are making their presence in the Indian market. These stores stock the complete range of wedding needs from apparel to jeweler.  Khadi & village industries commission (KVIC) is set to roll out a string of swanky ‘khadi Plazas’, which would showcase the handloom textiles in a new form. Over 7,000 existing outlets are to be beefed up to cater to the changing tastes of the young consumer.  a latest addition to the diverse formats are the ‘village Malls’, with the fair price shops being revamped to cater to larger needs of the local populations. Gujarat government has spearheaded this initiative with 512 “malls” launched and another 508 on the anvil.

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8.2India as the sourcing hub 8.2.1Emergence of India as Retail Sourcing Hub  Riding on the back of a strong manufacturing industry, India is fast emerging as an important global sourcing hub for top international brands  wall-Mart’s sourcing operations were estimated at US$ one billion, Tesco’s around US$ 100 million and Marks & Spencer around US$ 145 million  Textiles dominated the sourcing scenario through the 1990s, with the dawn of the new millennium ushering in wider markets for consumer goods and footwear.  Unilever sources major chunk of their FMCG products from its wholly owned Indian subsidiary, hindustanUnilever limited  Adidas, next and Calvin Klein are expected to increase sourcing from India, with adidas opening its first office in Bangalore. 8.2.2 Increasing Technology Adoption  With modern retail store formats growing in size, players are increasingly deploying advanced information technology tools for managing their supply chain, warehousing and logistics requirements.  Retail constituted eight per cent of it export revenues in 2005-06, and was also one of the key sectors driving the domestic it expenditure.  Apart from industry giants, the small scale retailers are also embracing it solutions to spruce up their operations.  Big league it firms like IBM India, oracle, SAP are developing solutions smaller retailers, such as merchandising solutions, solutions for store-level point of sale (POS) needs and hardware requirements, collaboration tools.

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8.3Click-to-buy phenomenon 8.3.1Online Retailing  increase in the number of broadband and dial-up internet connections, limited personal time, increased use of plastic money, and large young population that spends a considerable time online are facilitating growth of online shopping.  Players like Rediff.com, eBay. In, indiatimes.com was the first entrants in the Indian online retail space, clocking impressive revenues through online transactions. Recent players to enter this niche market include the Pantaloons Retail India ltd., through its Futurebazaar.com venture.  There is a growing trend among retailers maintaining their own portals for easy consumer access, facilitating online purchase of merchandise like Tata indicom’s ichoose.in, G&B’s godrejlifespace.com.  Many smaller retail portals are mushrooming on the World Wide Web, meeting niche Indian consumer requirements like ethnic apparel, handicrafts and jeweler.  with value-added services like cash-on-delivery to facilitate online transactions by consumers without credit/debit card, unique bidding schemes etc, e-commerce is fast gaining acceptance in India 8.4 Emerging rural retailing  Rural hypermarkets are growing at a blistering pace, providing multiple services from creating a platform to buy and sell farm produce to banks and restaurants.  ITC choupal Saagar: currently there are 14 outlets in operation, and ITC plans to increase the number to 700 over the next 7-10 years. Choupal Saagar retails products and also acts as a procurement hub for ITC’s e-choupals where farmers are offered better rates for their produce, as compared with the prevalent mandi rates for the same.  DSCL’s hariyali kisan Bazaar: over 70 outlets and proposed to touch 200 over the next 12 months.  Indian Oil Corporation’s kisan Seva Kendra: offers fuel, agri-produce, FMCG and value added services across a network of over 1400 outlets.

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 Reliance Retail and Pantaloon Retail are expected to venture more aggressively into the rural retailing space.  Asian Development Bank would lend US$ 150 million for revival of khadi. This will bolster employment in the rural areas. 8.5 Resplendent luxury market  Affluent households account for just about 4.5 per cent of the national population, but account for more than 22 per cent of the total retail sales, clocking US$ 62,340 million revenues.  The number of affluent households is projected to increase to 8.5 per cent, translating into a retail opportunity worth US$ 152,000 million in 2010-11  Delhi and Mumbai are the prime contributors to the luxury retail space, with the highest density of luxury brand outlets  The location these outlets are typically limited to five-star hotels and high-end mall spaces, with limited footfalls and consumer exposure.  Players have aggressive expansion plans in the pipeline, the investor confidence reinforced by the booming sales.  The two Louis vuitton stores in Mumbai and Delhi averaged monthly sales of US$ 13 million for 2005-06, and Hugo Boss is expanding to other metros, propelled by its 30 per cent sales growth in India. 8.6 Leisure and entertainment  Entertainment retail is redefining Indian lifestyles with multiplexes, gaming zones, etc. mushrooming as much as the malls.  Huge entertainment and leisure opportunity owing to the fact that that there exist 10 screens per million populations in India compared to 40 screens in the European market and 117 in the US.  The total leisure and entertainment revenues were pegged at US$ eight billion for 200506, a 14 per cent increase over 2004-05.

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 Organized retail grew at an average rate of 30 per cent over 2004-05, and is expected to maintain its pace for the coming years, with Indian players investing heavily in this market.  Reliance InfoTech’s adlabs and Shopper’s Stop’s time zone have aggressive expansion plans in the pipeline, with retailers exploring the JV option with international giants Operator Multiplexes Screens Operator Adlabs cinemas Cinemax Dt cinema e-city ventures inox leisure 15 ltd M2k cinemas PVR ltd Prasad IMAX Pyramid Saimira Shringar waves cinemas
Source: CB Richard Ellis

Multiplexes 22 11 3 25

Screens in 2005-06 80 36 6 95 54 5 82 5 325 30 13

Screens projected for 2010-11 225 141 NA 1500 165 NA 208 NA 2000 235 200

2 21 2 290 7 3

8.7 Cashing-in on the transit channels

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 Fast paced infrastructure development, including development of new international airports and metro rails is opening up new avenues for retail  The airport authority of India is embarking on the up gradation of 9 metro airports and 15 non-metro airports, with plans to spruce up the retail space in the airports as well  the joint-venture between shopper’s Stop and the nuance group-AG has won the contract for setting up duty-free and duty-paid retailing outlets at the upcoming Bangalore and Hyderabad international airports  Mass Rapid transit System, currently in operation in Delhi, and in the pipeline in other metro cities like Bangalore and Hyderabad is also expected to offer immense retailing potential  with 53 metro stations in operation and 79 stations proposed to come up by 2010 in Delhi’s Metro Rail, several retailers are in the fray to capitalize on the commercial potential  After the Delhi Metro Rail corporation awarded omaxe limited, the chawri Bazaar commercial Development”. Omaxe has entered into a consortium agreement with vishal Retail, a Delhi based retailing major. 8.8 Other opportunities 8.8.1 Special Economic Zone (SEZ) synergies  154 Special economic zones are notified as on October 3, 2007, spread over states and union territories of India.  SEZs offer ample retail opportunities, with a percentage of SEZ area earmarked for retailing in the non-processing zone.  The size of the area in the retailing space is calculated considering various parameters like type of SEZ, projected size of the residential population in SEZ, and population in the catchment area.  IT/ITES based SEZs offer impressive retailing opportunities; the target segment for such SEZs would be the urban population with high-disposable incomes.

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8.8.2 Tourism Related Opportunities  With tourist’s inflow increasing impressively with each passing year, tourism holds the key to a large retailing opportunity. In 2005-06, approximately 4.45 million foreign tourists arrived in India, a 13.5 per cent growth over 2004-05.  Retailing of regional handicrafts and artifacts has the potential to capture the interest of foreign tourists, given the rich and diverse cultural heritage of India  The Indian tourism Board’s Dilli haat (a crafts bazaar located in Delhi) retails the regional crafts of various states, attracting a large number of tourists.  The concept is fast gaining traction in other destinations in India such as Jaipur, Mumbai and Hyderabad.

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Chapter 9
9. FDI in Indian retailing sector 9.1Need for larger FDI 9.2Challenges Facing Larger FDI 9.3Benefits of larger FDI 9.4Political impact of larger FDI 9.5Social Impact of Larger FDI

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9 FDI in Indian retailing sector
Retailing is the largest private sector industry in the world economy with the global industry size exceeding $6.6 trillion and a latest survey has projected India as the top destination for retail investors. And the further upsurge is anticipated in the retail sector as the Government of opened up 51% FDI in single brand retail outlets. And as the government is in a process to initiate a second phase of reforms, it is cautiously exploring the avenues for multibrand segment. The Government is seeking for these options keeping in view the existing social framework of India and the will ensure that the entry of global retail giants do not displace the existing employment in the retail business. Industry experts are sensitive to the point that local markets have an edge over the retail investors in India as they have unique advantages such as an understanding of local needs and extended service like home delivery. As the FDI influence on the Indian retail sector sets in, the total size of the retail trade is expected to grow extensively in the coming years and the consumer segments patronizing the big malls will create frenzy for organized retailing predicting a growth of 25-30 per cent per annum over the next decade. Moreover, Indian retail chains would get integrated with global supply chains since FDI will bring in technology, quality standards and marketing thereby, leading to new economic opportunities and creating more employment generation. Industry trends for retail sector indicate that organized retailing has major impact in controlling inflation because large organized retailers are able to buy directly from producers at most competitive prices. World Bank attributes the opening of the retail sector to FDI to be beneficial for India in terms of price and availability of products as it would give a boost to food products, textiles and garments, leather products, etc., to benefit from large-scale procurement by international chains; in turn, creating jobs opportunities at various levels. As foreign investors exploring their potentials in the retail sector, are keen on developing malls in India, the size of organized retailing is expected to touch $30 billion by 2010 or approximately 10 per cent of the total. This has initiated market-entry announcement from some retailers and has signaled to international retailers about India’s seriousness in INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 58

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promoting the sector. While there are reports of international retailers like Wal-Mart analyzing business opportunities in India; Reliance, the largest Indian conglomerate is investing $3.4 billion to become India’s largest contemporary retailer. There are also reports of investments for ‘Hyper city Retail’ by K.Raheja Group to establish 55 hypermarkets by 2015. All these factors will contribute in taking Indian retail business to unexpected growth based on the consumer preference for shopping in congenial environs and also availability of quality real estate. 9.1 Need for larger FDI The need for larger FDI is because India is at a stage where it needs US investments, technology, and management policies to sustain and enhance its economic growth. In 2006, Foreign Direct Investment (FDI) in India amounted to US$37 billion, out of which only $5 billion was from the US. This was not a very encouraging figure in view of the goal of increasing the GDP by 34-36%. Therefore, there is a need for larger FDIs. India still requires an FDI component equal to 4% of the GDP. The US needs to invest more in various sectors of the Indian economy. There is a potential to attract more FDIs in areas like infrastructure, IT hardware, automobiles, leather, textiles, gems, jeweler, and the financial sector. As such, India is rated as the 2nd best economy to invest in, after China. Surprisingly, the US is rated 3rd in this domain! Focus is on the insurance and banking sector, in context with Foreign Direct Investments. Only 10% of the insurance sector has been tapped for foreign investment. Foreign companies need to persuade the parliament for increasing Foreign Direct Investment capital. The banking sector is in the process of liberalization which will continue till 2009. The insurance sector is looking forward to increase in the capital as more and more FDIs happen. So the insurance sector is also planning on liberalization, taking a cue from the banking sector. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 59

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The need for larger FDI calls for major issues and areas to be taken into consideration, such as:
   

Market potential and accessibility Political stability Market infrastructure Easy currency conversion

India is the ideal country to make Foreign Direct investments in because of its features like:
    

Developing economy Low salaried employees Low wage workers Abundant human resources Big private economy India is looking forward to a high growth rate of almost 16% – double that of the

current 8%. Hence, there is a distinct need for larger FDI. Further, FDI prospects are expected to be bright if liberalization is initiated in the telecom sector as well. Already, brands like Hutchison, Vodafone, and SingTel are in the Indian market and thanks to these investors, the FDI capital in this sector has been raised to 74%. There are others necessities which a larger FDI will cater to viz., employment generation, income generation, technology transfer, and economic stability. Hence, the need for larger FDI is a pressing situation these days in India. Foreign countries are well aware of this, and many of them are taking extra initiative to invest in the Indian economy 9.2 Challenges Facing Larger FDI The challenges facing larger FDI in India are in spite of the fact that more than 100 of Fortune 500 companies are already investing in India. These FDIs are already generating INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 60

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employment opportunities, income, technology transfer and economic stability. India is focusing on maximizing political and social stability along with a regulatory environment. In spite of the obvious advantages of FDIs, there are quite a few challenges facing larger FDIs in India, such as:

Resource challenge: India is known to have huge amounts of resources. There is manpower and significant availability of fixed and working capital. At the same time, there are some underexploited or unexploited resources. The resources are well available in the rural as well as the urban areas. The focus is to increase infrastructure 10 years down the line, for which the requirement will be an amount of about US$ 150 billion. This is the first step to overcome challenges facing larger FDI. Equity challenge: India is definitely developing in a much faster pace now than before but in spite of that it can be identified that developments have taken place unevenly. This means that while the more urban areas have been tapped, the poorer sections are inadequately exploited. To get the complete picture of growth, it is essential to make sure that the rural section has more or less the same amount of development as the urbanized ones. Thus, fostering social equality and at the same time, a balanced economic growth. Political Challenge: The support of the political structure has to be there towards the investing countries abroad. This can be worked out when foreign investors put forward their persuasion for increasing FDI capital in various sectors like banking, and insurance. So, there has to be a common ground between the Parliament and the foreign countries investing in India. This would increase the reforms in the FDI area of the country. Federal Challenge: Very important among the major challenges facing larger FDI is the need to speed up the implementation of policies, rules, and regulations. The vital part is to keep the implementation of policies in all the states of India at par. Thus, asking for equal speed in policy implementation among the states in India is important.

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India must also focus on areas of poverty reduction, trade liberalization, and banking and insurance liberalization. Challenges facing larger FDI are not just restricted to the ones mentioned above, because trade relations with foreign investors will always bring in new challenges in investments. 9.3 Benefits of larger FDI The benefits of larger FDI can be tangibly felt in the domains pertaining to technological advancements, generation of export, production improvements, and hastening of manufacturing employment. Capital inflow into India has increased and so have the exports from the country. Thanks to the economic boom India is experiencing, some Indian companies are doing better than even the multinational corporations. The benefits of larger FDI have been briefly elaborated below:

Improved human capital: Indian industries are predominantly labor based but there is also a significant number of capital based companies. A capital intensive set up is indeed an expensive proposition but with the existing as well as potential labor intensive industries, India can look forward to more professional and sophisticated number of workers and employees at every level. Human capital, in terms of quantity was never a big problem in India, thanks to its huge population and quality and efficiency in work has been ushered in by the MNCs. Competition Effect: The benefits of larger FDIs will include the launching and marketing of new products and brands in the Indian market. New products are used by the multinational corporations and then demonstrated in the Indian market. The processes followed by MNCs in India serve to have a demonstration effect on Indian companies which in turn improves market competition and the standard of products. This had started in the 1980s due to Japanese firms and as a result, Indian firms started inculcating the practices of QC, JIT, and QA.

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Manufacturing Employment: Larger FDIs definitely generate more and more employment opportunities. The opportunities are highly experienced in the manufacturing area. This not only includes the quality human resource but also provides for quick and efficient work and effective outcomes. New Technology: Technological advancements take place as larger FDIs come in. In fact, three-fifths of the FDIs result in new and advanced technologies. The local industry is benefiting from this to a large extent. This as a result, would encourage more and more foreign firms for investment.

The benefits of larger FDI are, however, very few in number but as India capitalizes on the above mentioned benefits, there will be more competition in the market at large and the rural sector of the country will be in the process of reformation, thus bringing about a socioeconomic stability 9.4 Political impact of larger FDI The political impact of larger FDI in India has transformed the Indian investment scenario in various areas. The fact that more multinational corporations are investing in India signifies that India is increasingly focusing on the industrial sector. The increase in Foreign Direct Investments resulted in the Government of India making critical reforms in 1991 and since then, the emphasis on Indian industry has been constantly on the rise. The political impact of larger FDI is influencing the government to initialize and support concepts like liberalization. The political climate is focusing on liberalization of banking, telecom, infrastructure, and insurance sectors. The political scenario is changing gradually, and is accepting the concept of Foreign Direct Investment widely within the country. The government is looking forward to working on the rural areas and bringing about equality in terms of investment and wealth distribution with the urban areas.

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In November, 1991 there was tremendous activism against opening up the Indian market to multinational corporations. But now, the situation is completely different since there has been an increase in the investment of multinational corporations. The political scenario too is learning to accept globalization and privatization with an open and progressive outlook. Reformation in this regard is taking place in the public sector, financial services, and tax structures as well. The political scenario of India is looking forward to Foreign Direct Investment as a mechanism for development. In fact, there has been development in the fields of land use, water, power generation, and roads. This point towards the great political impact of larger FDI. The increase in FDI flow has strengthened the foreign political relations and now foreign companies are trying to persuade the Indian Parliament to increase FDI capital depending on the sector. There are some chief bodies and boards that have been set up for the purpose of Foreign Direct Investment, such as:
       

Project Approval Board (PAB) Licensing Committee (LC) District Industries Centers Investment Promotion and Infrastructure Development Cell Foreign Investment Promotion Board (1991) Foreign Investment Promotion Council (1996) Foreign Investment Implementation Authority (1999) Investment Commission (2004)

Thus, the political impact of larger FDI has made prospects for India's future relationships with foreign companies really bright and exciting. 9.5 Social Impact of Larger FDI The social impact of larger FDI is dependent on India's policies and institutions. The flexibility of the labor market would determine employment opportunities. The extents to which the lower income groups can take advantage of the growth policies determine the growth-poverty relationship. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 64

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The production in the fields of physical and social infrastructure determines the regional developments. The Indian industries are predominantly labor based but there are also many capital based companies. Capital intensive set up is an expensive proposition but India can look forward to more professional and sophisticated number of workers and employees at all levels. Human capital in terms of quantity was never a big problem in India due to its huge population added emphasis must be laid on the quality and efficiency in work. This is brought about by MNCs. Foreign Direct Investments foster relations, co-operation, and harmony between India and foreign countries. The social impact of larger FDI includes the product market as well because many new products come into the market as a consequence of FDIs. As a result, the people of India enjoy unprecedented exposure to branded and quality goods. In fact, various training methods, personality grooming, and soft skills are given by multinational corporations which impart value to human resources. Owing to social impact of larger FDI, India also enhances its educational system. Since 2003, the Indian government has been allowing 100% FDIs in education, which means that foreign schools, colleges, and universities can set up wholly owned subsidiaries in India. Students passing out of these institutes will be awarded foreign degrees and certificates. The social impact of larger FDI in education is such that the number of foreign students pursuing higher education in India has increased by a large margin. Also, the 'brain-drain' issue has also been checked to a significant extent since the number of students going out of India has also reduced. Even the civil society can work with the government and help in reducing bureaucratic hassles and interferences. The increase in FDI in India is also helping in the liberalization of labor through which the inequality in wage earnings will be reduced. There is implementation of higher education and training for the laborers. The health facilities also increase with better and sophisticated products and processes. India is definitely INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 65

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developing in a much faster pace now than before but in spite of that, it can be identified that developments have taken place unevenly. This means that while the more urban areas have been tapped, the poorer sections are inadequately reached out to. To get the complete picture of growth, it is essential to make sure that the rural section has equal amount of development as the urbanized ones. FDI helps to focus in this area thus, fostering social equality and at the same time a balanced economic growth. The social impact of larger FDI brings about a more broadminded outlook in the Indian society, leaving alone a few who would be a bit conservative. However, the condition of the Indian urban sector has improved drastically thereafter, which we still await the developments from other areas of the Indian economy

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Chapter 10
10. Challenges facing the Indian Organized Retail sector
10.1 E-Retailing in India 10.1.1 Problems with the Payment System 10.1.2 Problems with Shipping 10.1.3 Offline presence 10.1.4 Products offered at discounted rates 10.1.5 Language Problem 10.1.6 Some online retailing sites in India 10.1.7 Future of E-retailing in India

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10 Challenges facing the Indian Organized Retail sector
The challenges facing the Indian organized retail sector are various and these are stopping the Indian retail industry from reaching its full potential. The behavior pattern of the Indian consumer has undergone a major change. This has happened for the Indian consumer is earning more now, western influences, women working force is increasing, desire for luxury items and better quality. He now wants to eat, shop, and get entertained under the same roof. All these have lead the Indian organized retail sector to give more in order to satisfy the Indian customer. The biggest challenge facing the Indian organized retail sector is the lack of retail space. With real estate prices escalating due to increase in demand from the Indian organized retail sector, it is posing a challenge to its growth. With Indian retailers having to shell out more for retail space it is effecting there overall profitability in retail. Trained manpower shortage is a challenge facing the organized retail sector in India. The Indian retailers have difficultly in finding trained person and also have to pay more in order to retain them. This again brings down the Indian retailers profit levels. The Indian government has allowed 51% foreign direct investment (FDI) in the India retail sector to one brand shops only. This has made the entry of global retail giants to organized retail sector in India difficult. This is a challenge being faced by the Indian organized retail sector. But the global retail giants like Tesco, Wal-Mart, and Metro AG are entering the organized retail sector in India indirectly through franchisee agreement and cash and carry INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 68

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wholesale trading. Many Indian companies are also entering the Indian organized retail sector like Reliance Industries Limited, Pantaloons, and Bharti Telecoms. But they are facing stiff competition from these global retail giants. As a result discounting is becoming an accepted practice. This too brings down the profit of the Indian retailers. All these are posing as challenges facing the Indian organized retail sector. The challenges facing the Indian organized retail sector are there but it will have to be dealt with and only then this sector can prosper.

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10.1 E-Retailing in India E-retailing, most commonly known as e-tailing is nothing but shopping through the Internet and other media forms. There are many things that are common between direct retail stores and online retail stores. Both have the process of billing of the customers and have to maintain a relationship with the suppliers.

Bottlenecks Faced By E-Retailing in India
10.1.1 Problems with the Payment System People in India are not used to the online shopping system and moreover the online payment system through the credit card is also totally alien to them. Most of them do not avail of the transaction facilities offered by the credit cards. They are also dubious regarding the online payment system through the credit cards. Hence different payment options should be made available to them like the credit card, cash on delivery and net banking to give them further assurance. 10.1.2 Problems with Shipping lack of prompt delivery is there as it can be a fake side or a fake retailer be sitting on next end 10.1.3 Offline presence The customers should be assured that the online retailers are not only available online but offline as well. This gives them the psychological comfort that these companies can be relied upon. 10.1.4 Products offered at discounted rates
All the product are offered at a lower price as middleman’s role doesn’t happen there.

10.1.5 Language Problem Most internet retail shops use English as their mode of communication. English may not be comprehensible to the majority of the Indian population . To increase the customer base, content in the online retail shops should be provided in local language. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 70

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10.1.6 Some online retailing sites in India E Bay is heading the race of online retailers. In this race it has become very difficult to determine the online retail store that makes the products available at convenient and cheap rates. From this very difficulty has cropped up comparison sites. Comparison is done on the basis of an index which is constructed from the data available from different shopping sites. The bechna.com and the ultop.com are such sites though many more sites are entering this zone. 10.1.7 Future of E-retailing in India There are divergent views on the future of e-retailing in India. Some experts are of the opinion that the giant, big brand retailers would dominate the small ones due to their wider investment capacities. It would be next to impossible for the small retailers and the kiranas to prove their existence in the battlefield of online retailing

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Chapter 11
11. Case Study of Pantaloon Retail Sector 11.1The lines of business of Future Group are 11.1.1 E-Commerce 11.1.2 Food 11.1.3 Fashion 11.1.4 Home & Electronics 11.1.5 Leisure & Entertainment 11.1.6 Wellness & Beauty 11.1.7 Books & Music 11.1.8 Major Achievements of Pantaloon Retail 11.2Major Achievements of Pantaloon Retail 11.3Major Milestones of Pantaloon 11.3.1- In 1987 11.3.10- In 2000 11.3.2- In 1991 11.3.11- In 2001 11.3.3- In 1992 11.3.12- In 2002 11.3.4- In 1993 11.3.13- In 2003 11.3.5- In 1994 11.3.14- In 2004 11.3.6- In 1995 11.3.15- In 2005 11.3.7- In 1996 11.3.16- In 2006 11.3.8- In 1998 11.3.17- In 2007 11.3.9- In 1999 11.4Financial Performance of Pantaloon in (2006-2007) 11.4.1Net Profit in 2006-2007 11.4.2Review of Performance
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11 Case Study of Pantaloon Retail Sector
Pantaloon Retail (India) Limited is India's leading retailer that operates multiple retail formats in both the value and lifestyle segment. Pantaloon has ushered a retail revolution in India and its founder Kishore Biyani is known as India's "King of Retail". Pantaloon's headquarter is in Mumbai. The company currently operates over 5 million square feet of retail space and has plans to increase it to 30 million sq. ft. by 2011. Pantaloon has plans to open over 3000 new stores by 2010. Pantaloon's origin can be traced to 1987 when the company was incorporated as Man's Wear Private Limited. The company launched Pantaloons trouser, India's first formal trouser brand. In 1992, Pantaloon launched its IPO. In 1994 the Pantaloon Shopee - exclusive menswear store in franchisee format was launched across the country. Pantaloon started distribution of distribution of branded garments through multi-brand retail outlets across the nation. In 2001, Big Bazaar, India's first hypermarket chain was launched. In 2002, Food Bazaar, the supermarket chain was launched. In 2006, Future Capital Holdings, the company's financial arm launched real estate funds, "Kshitij" and "Horizon" and private equity fund "Indivision". The company is also planning forays into insurance and consumer credit. Pantaloon Retail is the flagship company of Future Group.

11.1 The lines of business of Future Group are:
11.1.1 E-Commerce Pantaloon's website Futurabazaar.com has revolutionized the e-commerce business in India. It offers a wide range of products at affordable prices. It has been named as Best Indian Website 2007 in the Shopping category by PC World. 11.1.2Food In food business, the group offers a host of options. Food Bazaar- a chain of large supermarkets. Brew Bar- a beer bar; cafe Hollywood - a national chain of eateries; Chamosa - a pan-Indian chain of snack counters, and Sports Bar - a bistro focused on the world of sports. 11.1.3Fashion INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 73

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The group offers a variety of options in fashion. Its brands include ALL; blue Sky, Central, Etam, Fashion Station, Gini & Jony, Navaras, Pantaloons and Top 10. 11.1.4Home & Electronics Options include: collection I - a lifestyle furniture store; Electronics Bazaar - offers branded electronic goods and appliances; e-zone-trendiest electronics items; Furniture Bazaar entire range of Home Furniture; Home Town - one stop destination for all the home needs. 11.1.5 Leisure & Entertainment Options are: Bowling Co. - state-of-the-art premium family entertainment centre, offering multiple, novel and unique leisure and entertainment options; F 123 - offers a wide range of gaming options ranging from bowling and pool to redemption and interactive video games to bomber cars. 11.1.6 Wellness & Beauty Options are: Health Village - a state-of-the art spa and yoga centre; Star & Sitara; Beauty salon for men and women: Tulsi- provides access to the best allopathic, ayurvedic and homeopathic medicinal products; Turmeric offers beauty products like color cosmetics, fragrances, herbal and specialty skin items, hair products and bath accessories. 11.1.7 Books & Music Future Group's brand - "Depot" offers Books, CDs, and stationery items. 11.2 Major Achievements of Pantaloon Retail  Chosen as International Retailer for the Year 2007.  Chosen as Emerging Market Retailer of the Year 2007.  Best Employers in India (Rank 14th) in the Hewitt Best Employers 2007 survey.  Best Managed Company in India (Mid-cap) for the year 2006.  Won images Retail Awards 2006 for Best Value Retail Store, Best Retail Destination, and Best Food & Grocery Store. 11.3 Major Milestones of Pantaloon INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 74

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11.3.1- In 1987  The Company was incorporated on the 12th October, under the name of Man’s Wear Private Limited. 11.3.2- In 1991  The Company was converted into a Public Limited Company under the name of Man's Wear Limited on 20th September.
 The Company name was changed to Pantaloon Fashions (India) Limited vide certificate

of incorporation dated the 25th September.  The Company is engaged in the manufacture and marketing of quality Ready-made Garments for men, including Trousers, Shirts, Denims, Blazers and Slepp Suits, at its units located at Andheri in Bombay.  The Company's Products are being marketed under the brand name PANTALOON and BARE NECESSITTIES through a network of over 300 dealers spanning the Metro and Class I cities in the country.  The Company is promoted by Shri Kishore Biyani, friends and associates. 11.3.3- In 1992  The Company has successfully launched the Pantaloon Trousers, Shirts, Denims, Sleep Suits and other ready-made garments. 11.3.4-1993  The Company recently made a Public of 25, 55,000 equity shares of Rs. 10/- each for cash at par in May. The Company Has allotted 36, 57,100 Equity Shares on 28th July in consultation with the Stock Exchange Bombay.

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11.3.5- In 1994  The Company is launching a new brand of shirts called 'John Miller' at affordable prices. 11.3.6- In 1995  Pantaloon Fashions (India) Limited has launched John Miller shirts. 11.3.7- In 1996  Pantaloon Fashions (India) Ltd. has launched the Yorker to concede with the world cup.  The Company has issued 10, 00,000 Non-Cumulative preference Shares Rs. 10/each aggregating Rs. 1, 00, 00,000/- on Private Placement asis. 11.3.8- In 1998  The Company has introduced Shrishti range of Salwaar Kameez. The Company has also added Knitted T-shirts to its range of products. 11.3.9- In 1999  The Company opened a state-of-art family store at prestigious Crossroads, Haji Ali, Mumbai, spread over an area of 4,500 sq.ft.  The name of the Company was changed with the approval of the Members to Pantaloon Retail (India) Ltd.  The company has recently set up a state-of-the-art trouser manufacturing plant in Mumbai with a capacity of 1,200 pieces per day.  Entrepreneurial Jadeja is setting up a joint venture sports Wear Company with the promoters of Pantaloon Retail (India) Ltd.

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11.3.10- In 2000  The Company share transfer committee, have allotted 10, 00,000 No. of equity shares of Rs. 10/- each at a premium of Rs. 33/- per share on private placement basis to ICICI Ltd. A/c. Structured Products Fund.  The total paid up capital of the company is 1, 25, 19,413 No. of equity share of Rs. 10/0 each, ICICI Ltd. A/c. Structured Products Fund will be holding 7.99% of the enhanced share capital.  Pantaloon Retail (India) Ltd. has launched stainfree with scotchgard, a new range of formal shirts and trousers. 11.3.11- In 2001  Retail major Pantaloons has forged as alliance with Arvind Mills for the supply of fabric and apparel for its in-house brands.  Finalized a leasing deal to occupy 50,000 sq.ft. Of space for Rs. 25 lakh.  Issue of 4 million equity shares of Rs. 10/- each to the Promoters of the company on a preferential basis at a price as per SEBI Guidelines.  Tied up with Andhra Pradesh Handloom Weavers Co-operative Society and National Institute of Fashion Technology. 11.3.12- In 2002  Pantaloon Retail India Ltd. has informed that the Board or Director of the company has allotted 40 lac equity shares to the promoters and their associates on preferential basis at a price of Rs. 31.50 per share.  Promoters sell 584098 shares.  Pantaloon has launched a range of the movie-specific merchandise such as notebooks, folders, pens, mouse pads etc.  Incidence of fire occurred at one of ATM centre in Maheshwari Plaza Mall/Big Bazaar at Abids, Hyderabad.  Preferential Issue of 8, 65,000 Equity shares of Rs. 10sach at a premium of Rs. 40 per share to Promoters & Associates. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 77

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11.3.13- In 2003  Allotment of 8,65,000 equity shares to the promoters and their associates on preferential basis at a price of Rs. 50/- per shares as approved by the members of the company at their meeting held on December 20, 2002.  Acquires the trademark and exclusive licensing rights for apparel brand Norules in India, from US-based Norules Inc.  Forged an alliance with ICICI Lobard to offer one year free insurance cover to customers acquiring gold from Gold Bazaar.  Teams up with Italian apparel behemoth Moda & Musica to market its casual sportswear brand UMM in the domestic market.  Received a letter from ICICI Venture Funds Management Company Limited, in which they have stated that they have sold 2, 71,083 shares aggregating to 2.04% of the total paid-up capital of the Company as on September 12, 2003.  Promoters sell 4.6% stake of the company.  American Funds insurance Series Global Small Capitalization Fund have acquired 2,09,500 shares of Pantaloon Retail India Ltd. representing 1.152% of the total paid up capital of the Company. 11.3.14- In 2004  Pantaloon Retail (I) Ltd. enters into Strategic alliance with Arvind Brands Ltd.  Pantaloon Retail calls off strategic alliance with Arcus Ltd.  Ties up Arvind Brands ltd. for Ruf & Tuf brand at its Big Bazaar outlets across the country.  Pantaloon Retail (India) ltd. has signed a memorandum of understanding (MoU) with K.J. Somaiya Institute of Management & Research Studies to offer a specialized course in retail management.

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11.3.15- In 2005  The Pantaloon Retail has made an offer under Regulation 10 of the SEBI (SAST) Regulations to the Public shareholders of Galaxy Entertainment Corporation Ltd. (Target Company) to acquire up to 2,542,400 fully paid equity shares of Rs. 10/- each, representing in the aggregate 20% of the Post issue voting capital at a price of Rs. 51/(Rupees Fifty One only) per share (the Offer price) payable in cash subject to the terms & conditions mentioned.  Pantaloon sets up restaurant at Bangalore Central hall. 11.3.16- In 2006  Pantaloon Retail enters into an agreement with Capital and Singapore.  Pantaloon Retail joins hands with management schools across the country.  Pantaloon Retail India Ltd. launched its newest retail venture 'Depot'.  Pantaloon Retail - Strategic alliance agreement with Ruchi Soya Industries.  Pantaloon Retail signed MOU with Blue Foods on July 31, 2006.  Pantaloon Retail signs MOU with Manipal Health Systems on 11.3.17- In 2007  Pantaloon Retail India Ltd. has entered into a 50:50 joint venture (JV) with Axiom Telecom LLC, UAE, to do sourcing and wholesale distribution of mobile handsets, accessories and setting up service centre's and Authorized After Sales Service Centre's for mobile handsets in India. August 05.

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11.4Financial Performance of Pantaloon in (2006-2007) 11.4.1 Net Profit in 2006-2007 Net profit of the Company for the year under review stood at Rs. 119.99 crores as compared to Rs. 64.16 crores in the previous year, an increase of Rs. 55.83 crores and 87.01% over the previous year. 11.4.2 Review of Performance During the year, your company recorded growth in both top line as well as bottom line. Income from operations went up from Rs. 1868.97 Crores in FY05-06 to Rs. 3236.74 Croresin FY06-07 recording a growth of 73.18 percent. Profit before Depreciation, Interest and Tax stood at Rs. 307.62 Crores in 06.07, an increase of 105.58 percent over the preceding year. Profit after Tax for FY06-07 was Rs. 119.99 Crores, an increase of 87.03 percent over FY0506. The Company has doubled its retail space from 2.50 million square feet to 5.2 million square feet during FY06-07. The company has increased its presence from 23 cities to 42 cities during FY06-07.

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Chapter 12
12. SWOT Analysis 12.1 Strength: 12.2Weakness 12.3Opportunity 12.4Threat

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12 SWOT Analysis
A SWOT analysis of the Indian retail industry is presented below. 12.1 Strength:  Retailing is a "technology-intensive" industry. It is technology that will help the organized retailers to score over the unorganized retailers. Successful organized retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and ultimately save cost.  On an average a super market stocks up to 5000 SKU's against a few hundreds stocked with an average unorganized retailer.  Increase in per capita income which in turn increases the household consumption. Demographical changes and improvements in the standard of living Change in patterns of consumption and availability of low-cost consumer credit.  Improvement in infrastructure and enhanced availability of retail space.  Urbanization: increased urbanization has led to higher customer density areas thus enabling retailers to use lesser number of stores to target the same number of customer. Aggregation of demand that occurs due to urbanization helps a retailer in reaping the economies of scale. 12.2 Weakness  Less Conversion Level: Despite high footfalls, the conversion ratio has been very low in the retail outlets in a mall as compared to the standalone counter parts. It is seen that actual conversions of footfall into sales for a mall outlet is approximately 20-25%. On the other hand, a high street store of retail chain has an average conversion of about 5060%. As a result, a stand-alone store has a ROI (return on investment) of 25-30%; in contrast the retail majors are experiencing a ROI of 8-10%.  Customer Loyalty: Retail chains are yet to settle down with the proper merchandise mix for the mall outlets. Since the stand-alone outlets were established long time back, so they have stabilized in terms of footfalls & merchandise mix and thus have a higher customer loyalty base. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 82

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 Trained manpower shortage is a challenge facing the organized retail sector in India. The Indian retailers have difficultly in finding trained person and also have to pay more in order to retain them. This again brings down the Indian retailers profit levels. 12.3 Opportunity  The Indian middle class is already 30 Crore & is projected to grow to over 60 Crore by 2010 making India one of the largest consumer markets of the world. The IMAGESKSA projections indicate that by 2015, India will have over 55 Crore people under the age of 20 - reflecting the enormous opportunities possible in the kids and teens retailing segment.  Organized retail is only 3% of the total retailing market in India. It is estimated to grow at the rate of 25-30% p.a. and reach INR 1, 00,000 Crore by 2010.  Percolating down: In India it has been found out that the top 6 cities contribute for 66% of total organized retailing. While the metros have already been exploited, the focus has now been shifted towards the tier-II cities. The 'retail boom', 85% of which has so far been concentrated in the metros is beginning to percolate down to these smaller cities and towns. The contribution of these tier-II cities to total organized sales is expected to grow to 20-25%.  Rural Retailing: India's huge rural population has caught the eye of the retailers looking for new areas of growth. ITC launched India's first rural mall "Chaupal Saga" offering a diverse range of products from FMCG to electronic goods to automobiles, attempting to provide farmers a one-stop destination for all their needs. "Hariyali Bazar" is started by DCM Sriram group which provides farm related inputs & services. The Godrej group has launched the concept of 'agri-stores' named "Adhaar" which offers agricultural products such as fertilizers & animal feed along with the required knowledge for effective use of the same to the farmers. Pepsi on the other hand is experimenting with the farmers of Punjab for growing the right quality of tomato for its tomato purees & pastes.  Potential for Investment: The total estimated Investment Opportunity in the retail sector is around US$ 5-6 Billion in the Next five years. INTERNATIONAL INSTITUTE OF FOREIGN TRADE AND RESEARCH 83

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12.4 Threat  If the unorganized retailers are put together, they are parallel to a large supermarket with no or little overheads, high degree of flexibility in merchandise, display, prices and turnover.  Shopping Culture: Shopping culture has not developed in India as yet. Even now malls are just a place to hang around with family and friends and largely confined windowshopping.

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Chapter 13
13. Conclusion

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13 Conclusion
The Indian retail sector is largely traditional but stores in modern format are emerging. The contribution of organized retailing in the share of retail sales in India is currently very small. Based on an analysis of retail developments in countries such as Thailand. Brazil and Greece, and some experience in India, it is possible to conclude that modernization of retailing in India would be influenced by some important factors. There factors include economic development; improvements in civic situation; changes in consumer needs, attitudes and behavior, changes in government policies; increased investment in retailing and rise in the power of organized retail. The development of 18 modern retail will have several implications for managerial practice in manufacturing firms. Firms will need to proactively review and their sales structures, brand activities, logistics policy and price structure to cope with pressures from powerful/retailers. In India the retail sector is the second largest employer after agriculture, although it is highly fragmented and predominantly consists of small independent, owner-managed shops. There are over 12 million retail outlets in India, and organized retail trade is worth about Rs. 12, 90,000 crore . The country is witnessing a period of boom in retail trade, mainly on account of a gradual increase in the disposable incomes of the middle and upper-middle class households. More and more corporate houses including large real estate companies are coming into the retail business, directly or indirectly, in the form of mall and shopping center builders and managers. New formats like super markets and large discount and department stores have started influencing the traditional looks of bookstores, furnishing stores and chemist shops. The retail evolution, apart from bringing in sweeping, positive changes in the quality of life in the metros and bigger towns, is also bringing in slow changes in lifestyle in the smaller towns of India. Increase in literacy, exposure to media, greater availability and penetration of a variety of consumer goods into the interiors of the country, have all resulted in narrowing down the spending differences between the consumers of larger metros and those of smaller towns.

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However, the supply of quality real estate space would be instrumental in propelling the future growth momentum of the retail sector in India. The addition of better and affordable retail space would enable retailers to deliver better quality products and services to the consumers, resulting in increase in operational efficiencies and decline in costs for the supply chain. India is one of the complex real estate markets in the world due to the large degree of variation and inconsistence in the market practice and regulatory norms. A combined effort by both central and state government in terms of appropriate zoning laws, transparency in ownership, and availability of loans for retail land, is very much necessary for reducing existing bottlenecks. Accordance of industry status to retail in India is an issue that needs to be addressed soon. Recognition industry. An alignment of the retail sector with the tourism sector could also promote India as a global shopping hub. For the retail sector to achieve further growth, the spread of organized retailing has to become a national phenomenon. According to KSA Technopak, a leading consulting firm the organized sector will grow to almost Rs. 30,000 crores by 2005, representing 6% of the total retail market. The top 6 cities will account for 66% of total organized retailing. Although many international retailers and brands still regard India as too difficult, they felt India was changing. The growth of the organized retail industry in the country will mean thousands of new jobs, increasing income levels and living standards, better products, and services, a better shopping experience, and more social activities.

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Chapter 14
14. Reference 14.1Book Reference 14.2Web Reference

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14 References 14.1Book Reference
Book Retail Management Indian Garments industry How to export garments successfully Garments export Export Policy, procedures and Documentation M. I. Mahajan Authors Chetan Bajaj, Rajnish Tuli, Nidhi Shrivastava V Subbulakshmi R.S. Shukla Darlie O Kashy

14.2Web Reference
Sides
 www.indiaretailing.com  www.ibef.com  www.business.mapsofindia.com  www.indiafdiwatch.org  www.indianground.com  www.indiaretailing.com

Dated 6/4/2009 9/4/2009 14/4/2009 24/4/2009 23/4/2009 25/4/2009

Timed 23.45 22.00 12.20 00.25 01.00 18.35

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