RESEARCH PROJECT 1

ON
“RETAIL INDUSTRY”

PROJECT REPORT SUBMITTED TO

ITM BUSINESS SCHOOL, WARANGAL

SUBMITTED BY:

NOORMOHAMMAD TABASUM

(ROLL NO: 27)

UNDER THE GUIDANCE OF

DR.P.SATISH CHANDRA

INSTITUTE OF TECHNOLOGY AND MANAGEMENT

(RECOGNISED BY AICTE)
 Introduction to India’s Retail Sector

The Indian retail industry is divided into organised and unorganised sectors. Organised
retailing refers to trading activities undertaken by licensed retailers, that is, those who are
registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets
and retail chains, and the privately owned large retail businesses. Unorganised retailing,
on the other hand, refers to the traditional formats of low-cost retailing, for example, the
local kirana shops, owner operated general stores, paan/beedi shops, convenience stores,
hand cart and pavement vendors, etc. India’s retail sector is wearing new clothes and with
a three-year compounded annual growth rate of 46.64 per cent, retail is the fastest
growing sector in the Indian economy. Traditional markets are making way for new
formats such as departmental stores, hypermarkets, supermarkets and specialty stores.
Western-style malls have begun appearing in metros and big cities alike, introducing the
Indian consumer to an unparalleled and new shopping experience. The Indian retail sector
is highly fragmented with 97 per cent of its business being run by the unorganized
retailers like the traditional family run stores and corner stores. The organized retail
however is at a very nascent stage though attempts are being made to increase its
proportion to 9-10 per cent by the year 2010 bringing in a huge opportunity for
prospective new players. The sector is the largest source of employment after agriculture,
and has deep penetration into rural India generating more than 10 per cent of India’s
GDP.
 Indian Retail Sector and range covered
India was the world’s third-largest steel producer and third-largest steel consumer in
2017%. The growth in the Indian steel sector has been driven by domestic availability of
raw materials such as iron ore and cost-effective labour. Consequently, the steel sector
has been a major contributor to India’s manufacturing output.
The Indian steel industry is very modern with state-of-the-art steel mills. It has always
strived for continuous modernisation and up-gradation of older plants and higher energy
efficiency levels.
Indian steel industries are classified into three categories such as major producers, main
producers and secondary producers.
Sectorial Growth over the past few years:
Domestic Growth and major players in the market:

The big players in Indian retail landscape now are the Future Group, Shoppers Stop,
Westside, Subiksha and RPG Spencer. The newcomers who are knocking at the gates are
Reliance Retail, Bharti Walmart and Aditya Birla Trinethra. Here, we intend to do a brief
profiling of the major players in order to understand the retail business in a better manner.

1 The Future Group:

The Future Group, which was earlier known as PRIL (Pantaloon Retail India Limited)
began as a trouser manufacturer in the mid-1980s. The Future Group is divided into
six verticals – Future Retail, Future Capital, Future Brands, Future Space, Future
Media and Future Logistics. The Future Group started operations in the mid 1987s by
incorporating the company as Manz Wear Private Limited. The company went on to
manufacture readymade trousers under the “Pantaloons” brand name. It came out with
a public issue in 1991 and later changed their name to Pantaloons Fashions (India)
Limited (PFIL).
The first exclusive men’s store called Pantaloon Shoppe was inaugurated in 1992.
Pantaloons went for a franchisee route to expand the number of retail outlets and by 1995,
it had reached to a crucial number of 70. The first departmental store called Pantaloons
was opened in Kolkata in 1997 with an investment of Rs 0.7 million. The store was a
success and recorded revenues of Rs 100 million within the first year of operations. In
1999, the company’s name was changed to Pantaloon Retail (India) Limited (PRIL).

2 Shoppers Stop:
Shoppers’ Stop, promoted by the real estate group K Raheja, was one of the first movers
to have set up a large retail outlet in New Delhi with international ambience. Shopper’s
Stop Ltd now has a considerable presence all over the country with overr 7 lakh square
feet of retail space and stocks over 200 brands of garments and accessories. The stores are
spread all over India with presence in Mumbai, Delhi, Bangalore, Hyderabad, Jaipur,
Pune, Kolkata, Gurgaon, and Chennai & Ghaziabad.

Shoppers’ Stop is also very well known for having pioneered several quality retailing
concepts in India like CROSSWORD, HyperCITY and Mothercare. They are the only
retailer from India to become a member of the prestigious Intercontinental Group of
Departmental Stores (IGDS).

Shoppers’ Stop is positioned as a family store delivering a complete shopping experience.

With its wide range of merchandise, exclusive shop-in-shop counters of international
brands and excellent customer service, Shoppers’ Stop brought international standards of
shopping to the Indian consumer providing them with an excellent shopping experience.
Shoppers’ Stop’s core customers represent a strong SEC a skew. They fall between the
age group of 16 years to 35 years, the majority of them being families and young couples
with a monthly household income above Rs. 20,000/- and an annual spend of
Rs.1,50,000/-. A large number of Non - Resident Indians visit the shop for ethnic clothes
in the international environment they are accustomed to.

3 Trent – Westside:
Established in 1998, Trent operates some of the nation's largest and fastest growing retail
store chains. A beginning was made in 1998 with Westside, a lifestyle retail chain, which
was followed up in 2004 with Star India Bazaar, a hypermarket with a large assortment of
products at the lowest prices. In 2005, it acquired Landmark, India's largest book and
music retailer.

In a recently signed deal, Trent has agreed to anchor 12 malls set up by DLF Universal
Ltd across the country, at its Westside, Landmark and Star India Bazaar outlets. This
amounts to about 27 locations, totaling to about a million square feet of space.

Trent retails garments and household accessories for men, women and children, cosmetics
and perfumes at Westside, food, beverages, health and beauty products, vegetables, fruits,
dairy products, consumer electronics and household items at Star India Bazaar and books,
music and stationery at Landmark.

Westside has 25 outlets across 17 cities in India offering a variety of designs and styles in
garments, footwear and accessories, as table linens, artifacts, home accessories and
furnishings. Well-designed interiors, sprawling space, prime locations and coffee shops
enhance the customers' shopping experience.
Foreign competitors to Retail Industry:
With India being an attractive retail market, there is a high level of competition.
Competition is characterised by many factors, including assortment, products, price,
quality, service, location, reputation, credit, convenience offered, etc. Aggressive e-
commerce and digital retailing coupled with new entrants such as business houses and
international players are intensifying the competition at a rapid pace.

PESTEL analysis of the retail industry

New forces and trends are shaping the retail landscape. Particularly, it is the technological
and economic trends that are  having the deepest effect on it. However, with time the
competitive pressure is also growing which is because of the growth in the number of
players and proliferation of the e-retail. 2015 was a year of whopping growth for e-retail.
Amazon has grown rapidly. Since the recession passed, retail sales globally have kept
growing and by 2020, they are expected to have grown to $28 trillion. Globally, retail is a
major contributor to the GDP of nations and employs a very large workforce. However,
several forces in the macro environment affect it and are going to shape its future. So that
they can exploit the changing demographic and economic trends, retailers are expected to
make better use of technologies like Cognitive intelligence and Artificial Intelligence to
better serve their customers and grow their market share. Here is a PESTEL analysis to
show how the various forces affect the retail industry.

Political:

Political factors like government policies and regulation of the retail industry affect its
revenue and profitability. The political environment affects so many things including
economic environment of a nation and international supply chains of businesses. Political
stability means better business because political disruption leads to the disruption of
supply chain and sales. Moreover, political issues can also become hindrance to smooth
business operation. The antitrust issues have continued to trouble Amazon and the issue
seems to have reignited with Trump as president. In all the nations, the business
environment is affected by the political landscape. The Asian economy is  growing at a
faster rate than other parts of the globe. However, the government and Red tape can be a
big problem in the Asian nations. For the big International retailers it can be quite
difficult to expand into the Asian countries. India still has  difficult laws and restrictions
on Foreign Direct Investments. All these factors can make it difficult for the retail brands
to operate profitably in the international environment.

Economic:

Economic factors are always very important in the context of trade and business. The
state of the world economy decides the state of sale and profits for the industry. The
world economy has rebounded and is growing. Economic growth means that people are
going to spend more on shopping. However, even in the time of recession, the retail
industry had maintained impressive sales. In 2015, it achieved global sales of $20.8
trillion. Based on the economic scenario worldwide, the retail industry is predicted to
have grown to $28 trillion by 2020.    The labor market and the economy both are in very
good shape and an increase in disposable income has also boosted consumer confidence.
All of these are very good signs for the retail industry. The better the shape  of the
economy, the higher will be the revenue  and profits for the retail brands. Better economic
scenario  means a growth in sales and overall better shape of the retail sector.
Social:

Social trends are also a major impact on the retail sector and its profitability.
Demographic changes and changing consumer preferences are going to have a deep
impact on retail sector. The millenials have different preferences than the previous
generation. When it comes to customer service they want more personalized service.
Retailers will have to change the way they serve their customers and design their service
experience better to lure in millenials in higher numbers.  Demographic changes have
also affected the popularity of products. the technological products are in more demand
than ever. The demands of the new generation are much different than the older
generations.  The importance of customer service is growing and a lot of retailers’
popularity will depend on how well they have constructed their customer experience.
More focus shall have to be on customer engagement.

Technological:

Technological factors are now even more important whether in terms of supply chain,
customer service or sales. The growth of digital technology has also increased the number
of players in the retail industry. Technology affects several things including user
experience. If e-retail has enjoyed exponential growth then it is because of the additional
convenience provided by technology. More and more retailers are trying to make better
use of technology to make the customer experience better. A number of new technologies
like AI and cognitive intelligence are going to change the retail landscape in the coming
years.  Even cloud computing, IoT and Distributed intelligence are going to have a deep
impact on the retail sector. In the coming years several more things will be determined by
technology which will remain at the center.

Environmental:

Like the other industry sectors, the retail sector is also affected by the sustainability
concerns. Packaging, waste reduction, renewable energy and several other concerns
related to sustainability are there before the retail sector. The big brands like Amazon and
Walmart have already invested a lot in reducing their carbon footprint and in renewable
energy.  Apart from that, the focus is also on packaging and sourcing in an
environmentally responsible manner.  Amazon is always driving improvement in
packaging sustainability across the entire supply chain. It is focusing not just on reducing
its carbon footprint but also on achieving 100% renewable energy usage in the long term.

Legal:

The legal factors are also just as important for the retail sector. There are so many laws
related to business and employment that affect it. Labor laws are particularly a big pain
for the retailers who have to maintain low prices to remain competitive. Walmart has had
so many tussles with laws over labor related issues. Apart from that, the other laws like
product and packaging related laws also apply to the retail sector. Overall, the legal
scenario is quite complex and retailers have to be cautious since any violation can result
in big fines. Both Amazon and Walmart have had to deal with their fair share of  legal
issues in the past. These laws and the level of legal scrutiny differs from nation to nation
and everywhere the  retailers have to be cautious about compliance.

Porter’s Five Forces Model of Retail Industry:

Threats of New Entrants:

The retail industry face strong forces of threats from the new entrants. This is because;
new retail firms can easily enter the market, as most of running business is low; capital
cost is also moderate. Small retailers can compete with the existing giant firms in terms of
locality; specialty and convenience.

Threats of Substitutes:

Substitute of retail products are not available in any other industry. The threats of
substitutes exist among the firms under industry, for example, people can shift from Wal-
Mart to Tesco. Hence, force is strong. However, there is variety of products in the retail
sector and there is no other ways to shift.

Bargaining Power of Buyer:

Though the number of buyers is large and has strong forces, the individual purchase
amount is too small. Therefore, there is weak pressure that buyers can impose in this
industry. The purchase of each buyer is also diversified that cannot put force on the firms
under this industry.

Bargaining Power of Supplier:

There are large numbers of supplier in this industry. Therefore, this industry can easily
affect them. Due to tough competition among the suppliers and availability of supplies,
make it difficult for them to affect the retail industry.

Intensity of Rivalry:

The firms under this industry are engaged in bottleneck competition. The large number of
firms in this industry imposes strong rivalry in this industry. they are often engaged in
price war.

GOVERNMENT POLICIES

India has liberalized its single brand retail industry to permit 100% foreign investment,
with regulatory issues and legal structures pertinent to establish operations in this new
dynamic market. India’s retail industry is estimated to be worth approximately
US$411.28 billion and is still growing, expected to reach US$804.06 billion in 2015. As
part of the economic liberalization process set in place by the Industrial Policy of 1991,
the Indian government has opened the retail sector to FDI slowly through a series of
steps:

• 1995 – World Trade Organization’s general agreement on trade in services, which

include both wholesale and retailing services, came into effect

• 1997 – FDI in cash and carry (wholesale) with 100% rights allowed under the
government approval route

• 2006 – FDI in cash and carry (wholesale) brought under the automatic route

• Up-to 51% investment in a single- brand retail outlet permitted

• 2011 – 100% FDI in single –brand retail permitted

• 2013 - India further eased foreign investment rules in retail on 1st August 2013 in
a renewed attempt to attract global supermarket chains. Foreign retailers have been keen
to enter India's

$500 billion retail market since the country allowed overseas investment in its
supermarket sector in September 2012 but ambiguity around entry rules has kept them
away.

a) FDI in “single-brand” retail - While the specific meaning of single-brand retail has
not been clearly defined in any Indian government circular or notification, single-brand
retail generally refers to the selling of goods under a single brand name. Up to 100% FDI
is permissible in single-brand retail, subject to the Foreign Investment Promotion Board
(FIPB) sanctions and conditions mentioned that are:

• Only single-brand products are sold (i.e. sale of multi-brand goods is not allowed, even
if produced by the same manufacturer)

• Products are sold under the same brand internationally

• Single-brand products include only those identified during manufacturing

• Any additional product categories to be sold under single-brand retail must first receive
additional government approval

FDI in single-brand retail implies that a retail store with foreign investment can only sell
one brand. For example, if Adidas were to obtain permission to retail its flagship brand in
India, those retail outlets could only sell products under the Adidas brand. For Adidas to
sell products under the Reebok brand, which it owns, separate government permission is
required and (if permission is granted) Reebok products must then be sold in separate
retail outlets.

b) FDI in “multi-brand” retail - The government of India has also not clearly defined the
term “multi-brand retail,” FDI in multi-brand retail generally refers to selling multiple
brands under one roof. Currently, this sector is limited to a maximum of 49% foreign
equity participation. On July 2010, the Department of Industrial Policy and Promotion
(DIPP) and the Ministry of Commerce circulated a discussion paper on allowing FDI in
multi-brand retail. The Committee of Secretaries, led by Cabinet Secretary, recommended
opening the retail sector for FDI with a 51% cap on FDI, minimum investment of
US$100 million and a mandatory 50% capital reinvestment into backend operations.
Notably, the paper does not put forward any upper limit on FDI in multi-brand retail.

The long-awaited scheme has been sent to the Cabinet for approval, but no decision has
yet been made. There appears to be a broad consensus within the Committee of
Secretaries that a 51% cap on FDI in multi-brand retail is acceptable. Meanwhile the
Department of Consumer Affairs has supported the case for a 49% cap and the Small and
Medium Enterprises Ministry has said the government should limit FDI in multi-brand
retail to 18%.

c) Government “safety valves” on FDI - There is concern about the competition presented
to domestic competitors and the monopolization of the domestic market by large
international retail giants. The Indian government feels that FDI in multi-brand retailing
must be dealt with cautiously, given the large potential scale and social impact. As such,
the government is considering safety valves for standardize FDI in the sector.