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Indian retail scenario

Global Retail Industry

1999 2002 2005 2006
Total Retail (US$ Billion) 150 180 225 260

Organized Retail (US$ Billion) 1.1 3.3 7 9.1

% share of Organized retail 0.7 1.8 3.2 3.5

Top 10 Retailers World Wide
Retailer Home Country
Wal-Mart Stores USA
Carrefour Group France
The Home Depot, Inc USA
The Kroger Co. USA
Royal Ahold Netherlands
Metro AG Germany
Target Corporation USA
Albertson’s,Inc. USA
Sears, Roebuck and Co. USA
Kmart Corporation USA
Evolution of Retailing
The emergence of retailing in India now has more
to do with the increasing purchasing power of
buyers, especially post-liberalization, increase in
product variety, and the increasing economies of
scale, with the aid of modern supply and
distribution management solutions.
Name a few existing retailers in India who you
feel, are quite successful.
Evolution of Retailing
Important Stores opened in the Q4 FY 06

Store Particulars City Month

Lifestyle 7500 sq.ft Chennai March
Raymond Fashion outlet Kunnur March
Raymond Fashion outlet Chennai March
Landmark 22000 sq.ft Chennai March
Spinach Retail food & Mumbai March
grocery store
Allukas Jewellery store Hyderabad March
Indian Retail Scenario At A
 The contribution of retail industry to India’s GDP is
more than 13%.
 Indian retail industry (organized as well as
unorganized) spreads over more than 6 million outlets
(2.4 million urban and 3.6 million in rural).
 Even though India has well over 6 million retail outlets
of all sizes and styles, the country sorely lacks
anything that can resemble a retailing industry in the
modern sense of the term. This presents organized
retailing with a great opportunity.
 It was only in the year 2000 that the global
management consultancy AT Kearney put a figure to
Indian retail Industry – Rs. 400,000. Cr
 Retailing in India is still thoroughly unorganized.
There is no supply chain management perspective.
Indian Retail Scenario At A
 As much as 96 per cent of the 6 million-plus outlets are
smaller than 500 square feet in area. This means that
India per capita retailing space is about 2 square feet
(compared to 16 square feet in the United States).
India’s per capita retailing space is thus the lowest in the
 Just over 8 per cent of India’s population is engaged in
retail (compared to 20 per cent in the United States).
India’s per capita retailing space is thus the lowest in the
 Given the size, and the geographical, cultural and socio-
economic diversity of India, there is no role model for
Indian suppliers and retails to adapt or expand in the
Indian context. Hence Indian retailers have to find a
suitable model and adopt it to the Indian context.
Indian Retail Scenario At A
India’s first true shopping mall – complete
with food courts, recreation facilities and
large car parking space – was inaugurated
as lately as in 1999 in Mumbai. (This mall
is called “Crossroads”).
An FDI Confidence Index survey done by
AT Kearney, showed that the retail industry
is one of the most attractive sectors for FDI
(foreign direct investment) in India and if
allowed, foreign retail chains would make a
great impact on Indian retailing.
In India still, more than 60% sales in retail
comes from food items only.
A Few Indian Retailers:
Pantaloons – The different formats of Pantaloons are
1. Big Bazaar – The Discount Hypermarket
2. Pantaloons - The Family Store
3. Central Mall – One point shopping
4. Food Bazaar – Food & Grocery Super Market
5. God Bazaar – specialty store
RPG – The different retail formats of RPG group are:
1. Spencer’s (earlier known as Food World) – Super
2. Spencer’s Hypermarket
3. Health and Glow
4. Music World
Share of Organized
Retailing in Countries
Country/Region Share of Organized Retailing
USA 80%
Western Europe 70%
Malaysia 50%
Thailand 50%
Brazil 40%
Argentina 40%
Phillippines 35%
Indonesia 25%
South Korea 15%
China 10%
Organized Retailing in India
Organized retail INR 28,000 crore
Clothing, Textiles &Fashion 39%
Footwear 9%
Jewellery & Watches 7%
Mobile handsets & accessories 3%
Health & Beauty (including services) 2%
Food & Grocery 18%
Durables 13%
Books, Music & Gifts 3%
Home 3%
Forces Governing Indian
1. Consumer Pull: Rising income and greater purchasing
power of the Indian customer and the tremendous
growth of the middle class in the post-liberalization
2. Growing urbanization leading to a variety of
customer needs.
3. Significant increase in the number of brands in the
Indian market leading to a larger option set for the
Indian customer.
4. Media boom leading to an increased level of
awareness levels and exposure to the international
trends and concepts.
5. Changing demographics propelling the growth of
retail industry.
6. Psychographic changes in the Indian consumer
7. Shopping is becoming an outing or a way of family
entertainment that means that families now spend
greater time in shops.
Retailing : The Road Ahead
India is a nation of shopkeepers and it has more outlets
than any other country in the world. But retail outlets
still exist in all shapes and sizes –Panwalla to Shoppers’
Stop. However most of these retail outlets are kirana
shops that are smaller than 500 sq.ft. in area, provide
very basic offerings and hardly use any technology.
According to Mr. Nedungadi, President, Madura Coats,
“Retailing is becoming all about great ambience, more
choice and convenient location. An emerging trend is
also that of the value consciousness of the consumer.”
So Indian retail industry has a long way to go. With
corporate investments coming to organized retailing, the
scope and growth of organized retailing is looking bright
for Indian retail Industry.
Opening the door partly –
51% FDI permitted to Single
Brand Retail
The most significant development in regulatory
aspects influencing the Indian retail industry is
the government’s decision to allow foreign direct
investment (FDI) up to 51% in retail outlets
meant exclusively for ‘single brands’. Previously
single brands had to enter India only through
joint ventures or the franchisee route. Now
brands can enter with a majority stake of 51%
along with a local partner. This definitely gives
the international brands more space to play
Some of the other regulatory
aspects in India presently
Foreign-owned Indian companies cannot own
and operate retail outlets except some
specific areas
Variable stamp duties on transfer of property
from state to state.
City urban planning prohibiting bigger
commercial plots, rigid building and zoning
laws for procurement of retail space.
Strong pro-tenancy laws
Urban Land Ceiling Act and Rent Control
Foreign Direct Investment in
“Foreign direct investment reflects the objective of
obtaining a lasting interest by a resident entity in one
economy (“direct investor”) in an entity resident in an
economy other than that of the investor (“direct
investment enterprise”). The lasting interest implies
the existence of a long-term relationship between the
direct investor and the enterprise and a significant
degree of influence on the management of the
enterprise. Direct investment involves both the initial
transaction between the two entities and all
subsequent capital transactions between them and
among affiliated enterprises, both incorporated and
Second largest employer after agriculture
Highly fragmented sector primarily
consisting of the small, independent ‘Mom
and Pop’ or kirana stores
Reasons for the boom in Indian retail
The rise and fall of organized retail
The fightback by the local stores
The Indian Story
 10th largest economy in the world based on GDP

 7.5% GDP growth forecasted over 2005-2007

 Real estate sector growing at 30% per annum and one of the largest
employer – a key contributor to GDP

 Residential market is 80% of the total real estate market

 Gap between supply and demand in residential market is 41 billion sq.ft.

 Office space demand of 66 million sq.ft. for IT industry over next 5 years
 Real Estate in India projected to be USD 50 billion in 2008

 Organized retail space demand of 40 million sq.ft. over next 3-4 years

 India is ranked the 5th largest retail destination across the globe

 Consumerism – the order of the day, which is fueling the growth in both
the commercial as well as the retail sector

 Globalization of Indian Economy

Indian Retail Scenario
 Total Private Consumption Expenditure in India – 375 Billion USD

 Retail Sale – 205 Billion USD (55%)

 Organized Retail – 6.2 Billion USD (3%)

 Retailing – 35% of GDP

 Outlet Estimates – Over 12 Million

 Format – Only 4% larger than 500 sq.ft.

 Second Largest Employer after Agriculture

Retailing in India

 Emergence of modern retail formats

 Increased pressure on opening up FDI in retail sector

 Rapid Evolution of New-age Young Indian Consumers

 Rapidly increasing middle class

 Rising Incomes levels

 Increased Awareness Level among Consumers

 Exposure to International Brands

 Retail Space is no more a constraint for growth

Malls in India

 A decade ago - not a single mall

 A year ago - less than half a dozen

 Today - 40-50 malls

 2 years from now – 300-500 malls


 Barriers to FDI which limits entry of global players and limits

exposure to best international practices

 Lack of industry status which restricts financing and therefore the

growth and scaling is limited

 Poor Infrastructure which restricts retail growth, creates supply chain

bottlenecks and increases wastage of farm produce
The Way Ahead

 India is amongst the least saturated of all major global markets in terms of
penetration of modern retailing formats

 Many strong regional and national players emerging across formats and
product categories

 Most of these players are now gearing up to expand rapidly after having gone
through their respective learning curves

 Real Estate Developers are also moving fast through the learning curve to
provide qualitative environment for the consumers

 The Shopping Mall formats are fast evolving

 Partnering among Brands, retailers, franchisees, investors and malls

 Improved Infrastructure

The demanding assertive Indian consumer is now sowing the seeds

for an exciting retail transformation that has already started bringing
in larger interest from International Brands / formats.
With the advent of these players, the race is on to please the Indian
consumer and its time for the Indian Consumer to sit back and
enjoy the hospitality of being treated like a King.
The Indian Retail Sector

Lakshmi Narayanaswamy
Mudit Sharma (222/43)
Industry Evolution

 Traditionally retailing in India can be traced to

 The emergence of the neighborhood ‘Kirana’ stores catering to the convenience of the consumers
 Era of government support for rural retail: Indigenous franchise model of store
chains run by Khadi & Village Industries Commission
 1980s experienced slow change as India began to open up economy.
 Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and
Grasim first saw the emergence of retail chains
 Later Titan successfully created an organized retailing concept and established a series
of showrooms for its premium watches
 The latter half of the 1990s saw a fresh wave of entrants with a shift from
Manufactures to Pure Retailers.
 For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music
World in music; Crossword and Fountainhead in books.
 Post 1995 onwards saw an emergence of shopping centers,
 mainly in urban areas, with facilities like car parking
 targeted to provide a complete destination experience for all segments of society
 Emergence of hyper and super markets trying to provide customer with 3 V’s - Value,
Variety and Volume
 Expanding target consumer segment: The Sachet revolution - example of reaching to
the bottom of the pyramid.
 At year end of 2000 the size of the Indian organized retail industry is estimated at Rs.
13,000 crore
Retailing formats in India

 Malls:  Department Stores:

The largest form of organized retailing today. Located mainly in Departmental Stores are expected to take over the apparel business
metro cities, in proximity to urban outskirts. Ranges from 60,000 from exclusive brand showrooms. Among these, the biggest success
sq ft to 7,00,000 sq ft and above. They lend an ideal shopping is K Raheja's Shoppers Stop, which started in Mumbai and now has
experience with an amalgamation of product, service and more than seven large stores (over 30,000 sq. ft) across India and
entertainment, all under a common roof.Examples include even has its own in store brand for clothes called Stop!.
Shoppers Stop, Piramyd, Pantaloon.

 Specialty Stores:  Hypermarts/Supermarkets:

Chains such as the Bangalore based Kids Kemp, the Mumbai books Large self service outlets, catering to varied shopper needs are
retailer Crossword, RPG's Music World and the Times Group's music termed as Supermarkets. These are located in or near residential
high streets. These stores today contribute to 30% of all food &
chain Planet M, are focusing on specific market segments and have grocery organized retail sales. Super Markets can further be
established themselves strongly in their sectors. classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft
and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft.
having a strong focus on food & grocery and personal sales.

 Discount Stores:  Convenience Stores:

As the name suggests, discount stores or factory outlets, offer These are relatively small stores 400-2,000 sq. feet located near
discounts on the MRP through selling in bulk reaching economies of residential areas. They stock a limited range of high-turnover
convenience products and are usually open for extended periods
scale or excess stock left over at the season. The product category during the day, seven days a week. Prices are slightly higher due to
can range from a variety of perishable/ non perishable goods the convenience premium.

 Department Stores:  MBO’s :

Large stores ranging from 20000-50000 sq. ft, catering to a variety of Multi Brand outlets, also known as Category Killers, offer several
consumer needs. Further classified into localized departments such brands across a single product
as clothing, toys, home, groceries, etc.
category. These usually do well in busy market places and Metros.
Retailing formats in India
India’s number of Domestic grocery chains and Early Foreign Entrants
Recent Trends
Retail Sales in India
 Retailing in India is witnessing a
huge revamping exercise as can be
seen in the graph
 India is rated the fifth most
attractive emerging retail market:
a potential goldmine.
 Estimated to be US$ 200 billion, of
which organized retailing (i.e.
modern trade) makes up 3 percent
or US$ 6.4 billion
 As per a report by KPMG the annual
growth of department stores is
estimated at 24%
 Ranked second in a Global Retail
Development Index of 30
developing countries drawn up by
AT Kearney.
Recent Trends contd.

Traditionally three factors have plagued Recent changes:

the retail industry:

Unorganized :: VastVast majority
majority of of the
the twelve
twelve million
million stores
stores are
are Experimentation
Experimentation with with formats:
formats: Retailing
Retailing in in India
India isis still
still evolving
small "father
"father and
and son"
son" outlets
outlets and
and the
the sector
sector isis witnessing
witnessing aa series
series ofof experiments
experiments across across the the
Fragmented country
country with
with new
new formats
formats being
being tested
tested out.
out. Ex.
Ex. Quasi-mall,
Quasi-mall, sub- sub-
Fragmented :: Mostly
Mostly small
small individually
individually ownedowned businesses,
businesses, urban
urban discount
discount stores,
stores, Cash
Cash andand carry
carry etc.
average size
size of
of outlet
outlet equals
equals 50 50 s.q.
s.q. ft.
ft. Though
Though IndiaIndia has
has the
highest number
number of of retail
retail outlets
outlets perper capita
capita in in the
the world,
world, the
the retail
retail Store
Store design
design :: Biggest
Biggest challenge
challenge forfor organised
organised retailing
retailing to to
space per
per capita
capita at
at 22 s.q.
s.q. ftft per
per person
person is is amongst
amongst the the lowest.
lowest. create
create aa “customer-pull”
“customer-pull” environment
environment thatthat increases
increases the the amount
Rural of
of impulse
impulse shopping.
shopping. Research
Research shows
shows that
that the
the chances
chances of of
Rural bias:
bias: Nearly
Nearly twotwo thirds
thirds ofof the
the stores
stores areare located
located inin rural
rural senses
senses dictating
dictating sales
sales are
are upto
upto 10-15%.
10-15%. Retail
Retail chains
chains likelike
areas. Rural
Rural retail
retail industry
industry hashas typically
typically two two forms:
forms: "Haats"
"Haats" andand MusicWorld,
“Melas". Haats
Haats are
are the
the weekly
weekly markets
markets :: serveserve groups
groups of of 10-50
10-50 MusicWorld, Baristas,
Baristas, Piramyd
Piramyd andand Globus
Globus are are laying
laying major
villages emphasis
emphasis & & investing
investing heavily
heavily inin store
store design.
villages and
and sell
sell day-to-day
day-to-day necessities.
necessities. Melas Melas areare larger
larger in
in size
and more
more sophisticated
sophisticated in in terms
terms of of the
the goods
goods sold
sold (like
(like TVs)
TVs) Emergence
Emergence of of discount
discount stores:
stores: They
They are
are expected
expected to to
spearhead thethe organised
organised retailing
retailing revolution.
revolution. Stores
Stores trying
trying to to
emulate the
the model
model of of Wal-Mart.
Wal-Mart. Ex. Ex. Big
Big Bazaar,
Bazaar, Bombay
Bazaar, RPGs.
Unorganized retailing
retailing is is getting
getting organized:
organized: To To meet
meet the the
challenges ofof organized
organized retailing
retailing such
such asas large
large cineplexes,
cineplexes, and and
malls, which
which are
are backed
backed by by the
the corporate
corporate house
house such such asas 'Ansals'
and 'PVR‘
'PVR‘ the
the unorganized
unorganized sector sector is
is getting
getting organized.
organized. 25 25 stores
in Delhi
Delhi under
under the
the banner
banner of of Provision
Provision mart
mart areare joining
joining hands
hands to to
combine monthly
monthly buying.
buying. Bombay
Bombay Bazaar
Bazaar and and Efoodmart
Efoodmart formed formed
which are
are aggregations
aggregations of of Kiranas.
Recent Trends contd.
 Multiple drivers leading to a consumption boom:
 Favorable demographics
 Growth in income
 Increasing population of women
 Raising aspirations : Value added goods sales
 Food and apparel retailing key drivers of growth
 Organized retailing in India has been largely an urban phenomenon with affluent classes and growing number of double-
income households.
 More successful in cities in the south and west of India. Reasons range from differences in consumer buying behavior to cost
of real estate and taxation laws.
 Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of
 ITC is experimenting with retailing through its e-Choupal and Choupal Sagar – rural hypermarkets.
 HLL is using its Project Shakti initiative – leveraging women self-help groups – to explore the rural market.
 Mahamaza is leveraging technology and network marketing concepts to act as an aggregator and serve the rural markets.
 IT is a tool that has been used by retailers ranging from to eBay to radically change buying behavior across the
 ‘e-tailing’ slowly making its presence felt.
 Companies using their own web portal or tie-sups with horizontal players like and to offer products
on the web.
Major Retailers

 India’s top retailers are Leading Retailers

largely lifestyle, clothing
and apparel stores
 This is followed by grocery
 Following the past trends
and business models in the
west retail giants such as
Pantaloon, Shoppers’ Stop
and Lifestyle are likely to
target metros and small
cities almost doubling their
current number of stores
 These Walmart wannabes
have the economy of scale
to be low –medium cost
retailers pocketing narrow
India vs. World

 Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9
million outlets in USA, catering to more than 13 times of the total retail market size as compared to India
 India has the highest number of outlets per capita in the world - widely spread retail network but with the lowest
per capita retail space (@ 2 sq. ft. per person)
 Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail industry.
Almost 100 times more than the turnover of HLL (India's largest FMCG company).
 Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store
(Shoppers' Stop, Westside, Lifestyle) can compare.
 The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-
Mart are about 1.3 million where as the entire Indian retail industry employs about three million people.
 One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HLL's annual turnover.
 Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing (against 7
percent employed in India today).
 60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of the
fastest-growing 50 retailers have just one format
 Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average inventory turns
ratio of about 18. Many Indian retailers KPMG surveyed have inventory turns levels between 4 and 10.
 Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail shelves
(translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers surveyed ranged
from 5 to 15 percent.
Future direction: Positives

 AT Kearney has estimated India’s total retail market at US$ 202.6 billion which is
expected to grow at a compounded 30 per cent over the next five years.
 With the organised retail segment growing at the rate of 25-30 per cent per annum,
revenues from the sector are expected to triple from the current US$ 7.7 billion to
US$ 24 billion by 2010.
 The share of modern retail is likely to grow from its current 2 per cent to 15-20
percent over the next decade
 Over next two years India will see several Indian retail businesses attaining a critical
mass as growth in the industry picks up momentum driven by two key factors:
 Availability of quality real estate and mall management practices
 Consumer preference for shopping in new environments
 Wal-Mart : huge plans for India. Moving a senior official from its headquarters in
Bentonville, Arkansas, to head its market research and business development
functions pertaining to its retail plans in India.
 New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty
major DLF Properties to set up shop in a mall in New Delhi.
 Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi,
Ahmedabad, Lucknow and Bangalore in the next four months.
Future direction: Concerns

 68 million square feet of mall space is expected to be available by end of 2007, which might lead to
over-capacity of malls
 Lack of differentiation among the malls that are coming up. One option may be to look at specialization.
 Poor inventory turns and stock availability measures - retailers clearly need to augment their
 Operations of retailers and suppliers are not integrated. Efficient replenishment practices practiced in
the Indian auto and auto-component industry can be leveraged to implement efficient supply chain
management techniques.
 Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity ordered, is
an issue
 Sales tax laws - lead to retailers having state-level procurement and storage leads to Indian retailers
having higher inventories. VAT has helped alleviate this a bit.
 Increased adoption of IT and shrinkage management will be a critical area.
 Supply chain and customer relations followed by merchandising, facilities management and vendor
development are areas which have significant gaps and proactive training is a key imperative for
overcoming these.
AT Kearny
Forrester Research 2006