Leading Issues In Retail Sector

Retailing : An Overview
• World’s Largest Private Industry • Us$ 6.6 Trillion Sales Annually

TOP INTERNATIONAL RETAIL PLAYERS
1.Wal-Mart Stores Inc. (U. S.) 2.Carrefour Group (France) 3.The Home Depot Inc. (U.S.) 4.Metro AG (Germany) S.) 5. Tesco PLC (U. K.) 6. Ito-Yokado Co. Ltd. (Japan) 7. The Kroger Co. (U. S.) 8. ITM Enterprises SA (France) 9. Costco Companies Inc. (U. 10. Royal Ahold (Netherlands)

Indian Retailing
• Largest employer after agriculture - 8% of working population Highest outlet density in world Around 12 mn outlets Still evolving as an industry $180 bn

Evolution of Indian retail
Historic/Rural Reach Traditional/Pervasiv e Reach Government Supported Modern Formats/ International

Weekly Markets Village Fairs Melas
Source of Entertainmen t

Convenience Stores Mom and Pop/Kiranas

PDS Outlets Khadi Stores Cooperatives

Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls

Neighborhood Stores/Convenie nce

Availability/ Low Costs / Distribution

Shopping Experience/Efficie ncy

Classifying Indian retail
Traditional Format Retailers

  

Kiranas: Traditional Mom and Pop Stores Kiosks Street Markets Exclusive /Multiple Brand Outlets

Modern Format retailers
Supermarkets (Foodworld) Hypermarkets (Big Bazaar) Department Stores (Shopper’s Stop) Company Owned Company Operated

Indian Organised Retail Industry
• The size of the organised Retail industry estimated at ~ USD 7.8 bn in 2004 – 05 (only 3.5% of total retail industry).

The Organised Retailing Pie - 2004
Catering Services 7% Food & Grocery
Source : Crisinfac11%

Books, Music & Gifts 3%

Entertainment 2%

Clothing, Textiles & Fashion Accessories 38%

Jewellery 3%

Furniture & Furnishings 8% Mobile handsets & accessories 3% Consumer Durables 9%

Watches 4% Health & Beauty Products (incl Pharma) 2% Hair & Beauty Care Services 1% Footwear 9%

• Organised retailing is projected to grow at the rate of 25–30% p.a. to ~USD 25 bn by 2010.

• Clothing, Textile & Fashion accessories segments have a dominant share in the organised retail industry accounting for 39% of the market.

Source : IMAGES – KSA Technopak Study

Key Players
Domestic Players Existing Foreign Players Global Retail majors through franchising model: Pizza Hut, McDonalds, Subway, KFC, etc Cash & Carry formats: Shoprite and Metro Recent tie-ups: BhartiWal Mart, TatasWoolworths Foreign Aspirants

Early entrants: Pantaloon, RPG group, Shoppers Stop, Westside, Lifestyle, etc Other large business groups like Reliance, Bharti, Piramal establishing/expandi ng presence in retail Large Franchisors: NIIT, Café Coffee Day, Aptech, etc

Waiting in the pipeline (also scaling up sourcing from India): JC Penny, Carrefour, Tesco

Leading Issues
Unorganized : Vast majority of the twelve million stores are small "father and son" outlets Fragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest. Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell day-to-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold

AGENDA for Discussion
• • • • FDI INFRASTRUCTURE - Real Estates Employment Consumer Behaviour – Changing Trends

Current FDI Scenario
• Current Indian FDI Regime
– FDI not permitted in retail trade sector, except in:
• Private labels • Hi-Tech items / items requiring specialized after sales service • Medical and diagnostic items • Items sourced from the Indian small sector (manufactured with technology provided by the foreign collaborator) • For 2 year test marketing (simultaneous commencement of investment in manufacturing facility required)

FDI in Indian retailing
• Entities established prior to 1997
– Allowed to continue with their existing foreign equity components. – No FDI restrictions in the retail sector pre1997

International retailers in India: Strategies
• Franchise
– International company gives name and technology to local partner. Gets royalty in return – In case master franchise is appointed for region or country, he has right to appoint local franchisees
• Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer, Mango

• Manufacturing
– Company sets up Indian arm for production
• Bata India. It also has right to retail in India

International retailers in India: Strategies
• Distribution
– International company sets up local distribution office – Supply products to Indian retailers to sell – Also set up franchised outlets for brand
• Swarovski, Hugo Boss

• Wholesale trading
– 100% FDI permitted

Benefits of FDI
 Greater level of exports due to increased sourcing by major players,
 Provides access to global markets  Sourcing by Wal-Mart from China improved multifold after FDI permitted in China  Similar increase in sourcing observed for Metro in India

 Greater investment in the food processing sector technology  Better operations in production cycle and distribution Tourism Development A strong retailing sector boosts tourism as seen from the experience of Singapore & Dubai

 Investment in whole Supply Chain Improved product basket from India for exports  Manpower and skill development Through retail training, & Greater managerial talent inflow from other countries  Better lifestyle
 Greater level of wages paid by international players  More product variety  Newer product categories  Increased purchasing capacity of consumers

Taking an advantage of Retail Boom & FDI,
 Big Indian retail players looking to expand their operations  Himatsingka Seide – Largest manufacturer of silk & silkblended fabrics  Welspun – Leading manufacturer of Terry towels  Reliance Industries Ltd. – Entering big way in retail sector

Benefits of FDI
Greater Per Capita Income Greater Consumer Spending due to economic boom GDP Growth

Employ Benefits Greater ment to Govt. Exports Increasing Tax Paying Population Increased Tax Revenues Reduced Tax Evasion Greater Sourcing From India

EMPLOYMENT
•ATTRITION •JOB POACHING •RECRUITMENT •JOB SATISFACTION

REAL ESTATE
• SPACE CRUNCH • RISE IN REALTY COSTS • HIGH OPERATION COST

SMALL VS MALL

Consumer Behaviour – Changing Trends
• Increased Purchasing Power
= 33% of Indian households are in the middle to high-income category in 2004. This is projected to increase to 49% by 2010. = India's consumer class with rising disposable income at 400 million people. = increasing no. of super rich and rich population [ Crorepatis and Lakpatis ] = Growing population of DINKS ( Double income no kids group ) =

Changing Lifestyles

• Changing Consumption Patterns
= increased aspirations caused by exposure to the satellite television, cable and other channels. = higher level of information - awareness about what is available in market = Brand loyalty is increasing. = Price sensitivity

Customer Behaviour – Changing Trends
• Changing Habit Patterns
= Use of mobile phones = Shopping has evolved from a need-based activity to a leisure-time entertainment = Increasing credit-card usage (estimated to reach 21mn the end of 2006). = fashion AND brand consciousness is growing

• Young Indian Consumers
= The Indian consumer segment is the youngest in the world with a median age of 24 , from 210m (25%of the total population) in 1991 to an estimated 312m (27% of the total population) by 2010.

• More Available Retail Space
= more items are available under the same roof , choice option increases , less
hassles , comfort in shopping = There are 220 mall project in the pipeline till 2007, 139 in the big 8 cities including the metros and 81 in other Tier II cities.

Customer Behaviour – Changing Trends
• • • • Shoplifting Online shopping - e-bay, amazon.com Cheaper non-branded substitutes Maintain customer relationship - CRM
1. Merchandising for the convenience of the customer.
2. Cleanliness of the store, fitting rooms, wrap desk 3. Care taken in packing the customers purchase. 4. Quality of bags, tissue, gift boxes etc. 5. Professional looking ads, marketing, business cards, website, etc. 6. Special services offered to customers, especially at no charge 7. Consistency of training so that customers are helped by everyone with the same courtesy. 8. Phone etiquette in answering customer calls as well as handling personal calls. 9. Professional looking employees who reflect the identity of the store. 10. Home delivery mechanism

few concerns

CONCLUSION
At the close, it may be considered that organized retailing in India is a sunrise sector. Despite being at a fairly nascent stage of its evolution and facing certain hindrances posed by socio- economic factors, it has a fine promise to emerge as a front runner in times to come.

Case study : Chinese retailing

FDI permitted in 1992. 40 foreign retailers have secured approval  Retail sales have grown@13.5% CAGR since FDI was permitted FDI initially restricted to 6 major cities (including Beijing, Shanghai and Guangzhou) and SEZs Foreign ownership initially restricted to 49% US$ 22 bn of FDI attracted, 3.6% of total FDI  In 2003, FDI in wholesale and retail was US$ 1.1 bn (Around 30% of our total FDI in 2003) Current restrictions on FDI will be phased out over 5 years as condition of WTO entry

Total wholesale and retail trade 375 300

US$ bn

225 150 75 FDI in retail allowed

7 8

8 0

8 5

9 0

9 1

9 2

9 3

9 4

9 5

9 6

9 7

9 8

9 9

0 0

0 1

0 2

Years

Retail sales grew @ 19.6% CAGR for the next 4 years after the introduction of FDI in 1992

28

Employment in retailing is increasing
Employment in Retailing
60
Employment in Retail and wholesale (Mn) 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 90 91 92 93 94 95 96 97 98 99 00 01 Year Employment %

50 40 30 20 10 0

% of Total Labor force

China: The effect of FDI
Type Traditional Supermarkets Convenience Hypermarkets No. of stores in 1996 1,920,604  13,079 No. of stores in 2001 2,565,028 152,194 18,091 593

 

Modern formats have grown after FDI But so have traditional players

30

Lessons from China

Strong evidence in favor of FDI  FDI improves the entire size of the industry Retailing in China has grown at a compound rate of 15% per annum after FDI inflow  Employment growth  Evolution of modern formats  Local players can survive and even beat foreign competition Need for a strong retailing industry in India  Scale is the key to success for local retailers

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