Retail

Retailing : An overview

•Indian Retail
•The change Factor
•FDI
•Recommendations
 Retailing Status

·World’s largest private industry

·US$ 6.6 trillion sales annually
· Indian retailing
·Largest employer after agriculture – 35% of
GDP
·Highest outlet density in world
·Around 12 million outlets and 4% >500 square
feet
·Organized and unorganized retailing
·Still evolving as an industry (US retail market
13 times more than India.)
 Organized retailing

· Trading activities by licensed retailers, that

is, those who are registered for sales tax,
income tax, etc. These include the corporate-
backed hypermarkets (groceries+general
merchandise) and retail chains, and also the
privately owned large retail businesses.
·Formal Retailing Sector
·Typically large retailers
·Greater enforcement of taxation
mechanisms
·High level of labor usage monitoring
 Organized retailing in India

·India’s top retailers are largely lifestyle,

clothing and apparel stores
·This is followed by grocery stores
·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.
·Growth at (25-30)% per annum.
·Sales to touch US $24 billion by 2010.
 Evolution of Indian retail
Historic/Rural
Traditional/Pervasive
Reach Government ReachModern Formats/ In
Supported
Exclusive
Brand
Outlets
PDS
PDS Hyper/
Outlet
Outlets Super
Convenien sKhadi Markets
ce Stores Khadi
Stores Department
Weekly Mom and Stores
Cooper Stores
Markets Pop/Kirana tives
atives Shopping
Village s
Malls
Fairs
Source of Entertainment
Neighborhood Availability/ Low CostsExperien
Shopping
Stores/Convenience / Distri
Melas
 Categories of Indian Retail

·Corporate
- Tatas: Tata Trent
- RPG group: Food World, Health and
Glow, etc
- ITC: Wills Life Style
- Rahejas (ShoppersStop),
Hiranandani(Haiko)
·Dedicated brand outlets
- Nike, Reebok, Zodiac etc
·Multi-brand outlets
-Vijay Sales, Viveks etc
·Manufacturers/ Exporters
- Pantaloons, Bata, Weekender
Classification of Indian Retail

mat retailers
·Supermarkets (Foodbazar)
·Hypermarkets (Big Bazaar)
·Department Stores (Shoppers Stop,
Pantaloons dept store)
·Specialty Chains (Ikea)
·Company Owned Company Operated

·Traditional Format Retailers

·Kiranas: Traditional Mom and Pop Stores
·Kiosks
·Street Markets
·Exclusive /Multiple Brand Outlets
 Large Indian Retailers

·Hypermarke
t
·Big Bazaar
·Giants
·Shoprite
·Star
·Department
store
·Lifestyle
·Pantaloons
 Large Indian Retailers

·Shoppers
Stop
·Trent
·Entertainmen
t
·Fame Adlabs
·Fun Republic
·Inox
·PVR
 Indian consumer

·Greater per capita income

-Increase in disposable income of middle class
households
-21%* growth in real disposable income from
1999.
·Growing high and middle income population
-Growing at a pace of over 10%* per annum
over last decade
·Affordability growth
- Falling interest rates
- Easier consumer credit
- Greater variety and quality at all price points
Indian consumer

·The urban consumer

- Getting exposed to international
lifestyles
- Inclined to acquiring asset
- More discerning and
demanding than ever
·No longer need-based shopping
- Shopping is a family experience
·Changing Mindset
- Increasing tendency to spend
- Post Liberalization children
coming of age
- Tend to spend freely.
 Dynamics in retail

·Low domestic competition

- Because of fragmented nature of industry
·Lack of exposure to global best practices
- Low entry barriers for unorganized retailing
- Moderate entry barriers for organized retailing
·Wholesale system under-invested leading to 20-
40% wastage
·Wide differences in treatment of small and
large retailers (e..g. suppliers may offer
favorable terms to large retailers).
Real Estate Issues

·Highly distorted real estate market

·Pro-tenant laws
·Zoning laws (protection of existing businesses)
·Zoning laws also vary from state to state
·Non-availability of government land, and
fragmented private holdings makes it difficult
for retailers to acquire land
·Government is largest property owner in
country
·Urban Land Ceiling act is archaic
·Stamp Duty and registration charges at high
levels. Also vary from state to state
 GRDI and its implications

·India ranked first in the Global A.T Kearney

Retail Development Index. (GRDI developed in
order to help investors invest in emerging markets.
GRDI uses 25 macroeconomic and retail specific
variables). Ranks top 30 countries. India followed
by Russia and China.
·Least saturated of all global markets studied
·The least competitive of all global markets
studied.
 GRDI and its implications
·Implies lower barriers of entry for global
players
·Considering tremendous market size,
excellent potential for foreign players
·Economic growth, forecasted at 8 percent
GDP
·Government will allow foreign companies to
own up to 51 percent of a single-brand retail
company
 Foreign Direct Investment in Retail

·Entities established prior to 1997

-Allowed to continue with their existing foreign
equity components.
- No FDI restrictions in the retail sector pre-
1997
·Foodworld
- 51:49 between RPG and Dairy Farm
International,
- Leading food retailer in India now
·Mc Donalds
Qualities of FDI

Advantages
-Consumer is benefited by both price reductions and
improved selection,
- Superior technology and know-how of foreign playe
the market.
- Greater output and domestic consumption
- Greater level of exports due to increased sourcing b
major players
 Qualities of FDI

Advantage (continued)
- Sourcing by Wal-Mart from China improved
multifold after FDI permitted in China
-Similar increase in sourcing observed for Metro
in India
-Provides access to global markets for Indian
producers
-Investment in technology
·Cold storage chains solve the perennial problem
of wastage
·Greater investment in the food processing sector
technology
·Better operations in production cycle and
Qualities of FDI

·Manpower and skill development

·Through retail training and
·Greater managerial talent inflow from other
countries
·Tourism Development
·A strong retailing sector boosts tourism as seen
from the experience of Singapore and Dubai
·Investment in whole supply chain
·Improved product basket from India for exports
·Long term benefits
·Up-gradation of agriculture
·Development of efficient small and medium size
industries
 Strategies of International Retailers

·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
Strategies of International Retailers

·Distribution
-International company sets up local
distribution office
-Supply products to Indian retailers to sell
-Also set up franchised outlets for brand
· Hugo Boss
·Wholesale trading
-Cash and Carry operations
-100% FDI permitted
· Metro Cash n Carry
Recommendations for success

·Grant industry status to retail (e.g. abolition of

inter-State levies and uniform VAT established)
·Permit FDI in Retail in phases
·Invest in supply chain infrastructure
·Ease distribution – infrastructure creation,
octroi
·Ensure single window clearance for retail
chains
·Organize market for real estate
·Ensure proper rent laws
·Enforce zoning laws and city development plan
·Increase land supply
·Ensure flexibility of labor laws