The Indian Retail Sector

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:

The largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts. Ranges from
60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal shopping experience with an amalgamation of product,
service and entertainment, all under a common roof.Examples include Shoppers Stop, Piramyd, Pantaloon.

 .
 Specialty Stores:
Chains such as the Bangalore based Kids Kemp, the Mumbai books
retailer Crossword, RPG's Music World and the Times Group's music
chain Planet M, are focusing on specific market segments and have
established themselves strongly in their sectors.
 Department Stores:
Large stores ranging from 20000-50000 sq. ft, catering to a variety of
consumer needs. Further classified into localized departments such as
clothing, toys, home, groceries, etc.

Discount Stores:
As the name suggests, discount stores or factory
outlets, offer discounts on the MRP through selling in bulk
reaching economies of scale or excess stock left over at the
season. The product category can range from a variety of
perishable/ non perishable goods
 Department Stores:
Departmental Stores are expected to take over the apparel
business from exclusive brand showrooms. Among these, the
biggest success is K Raheja's Shoppers Stop, which started in
Mumbai and now has more than seven large stores (over
30,000 sq. ft) across India and even has its own in store brand
for clothes called Stop!.

 Hypermarts/Supermarkets:
Large self service outlets, catering to varied shopper needs are termed
as Supermarkets. These are located in or near residential high streets.
These stores today contribute to 30% of all food & grocery organized
retail sales. Super Markets can further be 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
 Convenience Stores:
These are relatively small stores 400-2,000 sq. feet located near
residential areas. They stock a limited range of high-turnover
convenience products and are usually open for extended periods during
the day, seven days a week. Prices are slightly higher due to the
convenience premium.
 MBO’s :
Multi Brand outlets, also known as Category Killers, offer several
brands across a single product
category. These usually do well in busy market places and Metros.
 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.
Traditionally three factors have plagued the retail
industry:

 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 (like TVs)
Recent changes:

Experimentation with formats: Retailing in India is still

evolving and the sector is witnessing a series of experiments
across the country with new formats being tested out. Ex.
Quasi-mall, sub-urban discount stores, Cash and carry etc.
Store
 design : Biggest challenge for organised retailing to create a
“customer-pull” environment that increases the amount of impulse
shopping. Research shows that the chances of senses dictating sales are
upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus
are laying major emphasis & investing heavily in store design.
Emergence of discount stores: They are expected to spearhead the

organised retailing revolution. Stores trying to emulate the model of Wal-
Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs.
Unorganized retailing is getting organized: To meet the challenges of

organized retailing such as large cineplexes, and malls, which are backed
by the corporate house such as 'Ansals' and 'PVR‘ the unorganized sector is
getting organized. 25 stores in Delhi under the banner of Provision mart
are joining hands to combine monthly buying. Bombay Bazaar and
Efoodmart formed which are aggregations 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 consumption
 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 Amazon.com to eBay to radically change buying behavior across
the globe.
 ‘e-tailing’ slowly making its presence felt.
 Companies using their own web portal or tie-sups with horizontal players like Rediff.com and Indiatimes.com 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
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
 These Walmart wannabes
have the economy of scale
to be low –medium cost
retailers pocketing narrow
margin
 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.
 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.
 Sources
 AT Kearny
 Forrester Research 2006
 KPMG-FICCI Report
 http://www.indiainbusiness.nic.in/