Industry Awareness- Retail Industry

Section F, Group 2 Amrit Jaiswal, Aparajit S, K Harita, Khuman Vijay, Rahul Singh, Shivani Shukla, Sumeet Kumar

Definition of Retail
In 2004, The High Court of Delhi defined the term retail as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale) A sale to the ultimate consumer. Retailing can be said to be the interface between the producer and the individual consumer buying for personal consumption

Overview of Indian Retail Industry

The Indian retail industry is divided into organised and unorganised sectors It is highly fragmented and more than 90% of the business is carried out by the unorganised sector

Organized Sector
Organised sectors include business carried out by licensed retailers They are registered for income tax, sales tax, and so on Corporate retail chains, hypermarkets, supermarkets, and specialty stores are examples of players operating within this sector

Unorganized Sector
The unorganised sector is characterized by family run stores Leads to lack of best practices when it comes to inventory control and distribution, absence of standardization it is a sector populated by anyone who has something to sell Local Kirana stores, general stores, hawkers, paan beedi shops

Organized Sector (Contd)

The organised sector, over the past decade, has been replacing the traditional format of selling in the retail industry The trend is attributed to a slew of organized retail formats offering a range of brands, and liberalisation adopted by the government They cater to the rapid growth in urbanisation, an increase in the disposable income, changes in the pattern of shopping, and demographic factors

Organized Sector (Contd)

Indian retail sector accounts for 22% of the country's GDP and contributes to 8% of total employment Hypermarkets accounted for 14% of mall space Demographic factor with over 50% of the countrys population under 25 years of age is a prime driving factor for modern retail sector

Organized Sector (Contd)

Rural retailing has been witnessing an intense focus from large brands Low cost handsets, agri-retail outlets, and other Fast Moving Consumer Goods (FMCG), are being targeted to rural consumers Utilization of technology is extensively done. The data is available to country real-time helping them take decisions quickly.

Indian Retail Industry - Major Market Players

Pantaloons retail (Future Group Venture): Key People: Kishore Biyani( MD and CEO) Started operations with Pantaloon Shoppe in 1993 Is now spread over 450 stores across 40 cities in India Pantaloons( fashion outlets), Big Bazaar( Indian hypermarket chain), Food Bazaar( a supermarket chain), Central( chain of seamless destination malls) Online portal- futurebazaar.com Market Capitalization:6679.66(Rs in cr)( BSE), 671.84(Rs. in cr)(NSE)

Indian Retail Industry - Major Market Players (Contd)

Shoppers Stop: Key people :Govind Shrikhande( Customer care associate & President and CEO) Started on Oct 27, 1991 by K. Raheja Corp. group of companies, has 34 stores across 15 cities in India Has progressed from being a single brand shop to a fashion and lifestyle store for families Only member of India to become a member of prestigious Intercontinental Group Of departmental Stores( IGDS) Market Capitalization: 3297.92 cr, listed on BSE

Indian Retail Industry - Major Market Players (Contd)

Trent (Westside,TATA): Key People: Jamshed Daboo( CEO) Established in 1998, revenues: US $ 53 million Westside( Lifestyle chain), Star Bazaar( hypermarket chain), Landmark( Books and music chain), Fashion Yatra( a complete familiy fashion store) Market Capitalization: Rs 2147 cr

Profile Of Key Personnel

Sunil Bharti Mittal, Bharti retail: Founder, Chairman and CEO of Bharti enterprises Has been awarded the Padma Bhushan Member of the board of trustees of the Carnegie Endowment for international peace Also on Indian Prime Ministers council on Trade & Industry Was the President of the Confederation of Indian Industry In 2007-08 Co-chairman of the world economic Forum in 2007(Davos)

Profile Of Key Personnel

Mukesh D. Ambani, Reliance Retail

Chemical Engineer from Institue of Chemical Technology, Mumbai Pursued MBA from Stanford University, USA Initiated Reliances backward integration journey from textiles into polyester fibers, then into petrochemicals Led the creation of petroleum refinery at Jamnagar

Profile Of Key Personnel

Member of Prime ministers Council on Trade & Industry Member of Board of governers of the National Council of the applied Economic Research, New Delhi Member of the Millenium Development Goals( MDG) Advocacy Group constituted by UN At RIL, he is Chariman ( Finance Committee), and a member of the Employees Stock Compensation Committee Promoter of the company, holds 36,15,846 shares of the company in his name, as on March 31, 2011

Government Policies
Factor Real estate Laws Pro tenant laws Non availability of Land and High stamp duties Differential sales tax rates across the states Multi point octroi Sales tax avoided by smaller stores Multiple licenses and clearances Consequences Due to these, it gets difficult to find proper real estate in terms of size and location. This results in advantage to the smaller stores since they receive a tax evasion. The distribution for the larger player becomes cost intensive This proves to be a deterrent for the entrance of new players and causes issues for existing players in their growth objective. Laws governing labour expect the employer to adhere to a fixed number of hours and wages. Limits flexibility.

Tax System

Legislations

Labour Laws

Stringent Labour Laws

FDI Policy In Retail Sector

India has kept the retail sector largely closed to the outsiders It allows only 51 % foreign investment in single-brand retail with prior government permissions FDI upto 100 % for cash and carry wholesale trading and export trading allowed under automatic route FDI not permitted in multi brand retailing

Impact Of FDI
The current FDI Policy will not make any difference for those brands which adopt the franchising route as a matter of policy. But they must rely on innovative structuring and arrangements of their choice in franchise arrangements to maximize their profits. For those companies which choose to adopt the route of 51% partnership, they must tie up with a local partner

Cold Supply Chain

Given the lack of infrastructure, preservation of the exported fruits and vegetables becomes difficult. The union budget of India, 2010-11, has therefore proposed: Augmentation of storage capacity through private entrepreneurs and warehousing corporations has been fast tracked. Capital investment in creation of modern storage capacity will be eligible for viability gap funding of the Finance Ministry.

International Presence In retail Industry

International Presence In retail Industry (Contd)

M & A Activity in the Industry

Deal Type Takeover Deal Date 22 Jul, 2011 Target/ Seller Co Big Shoe Bazaar India Pvt. Ltd Merged/Acquirer Nexus Venture Partners & Catamaran Ventures Future Value Retail Ltd. Qualified Institutional Buyers and other Insitutiions Shoppers Stop Ltd. Qualified Institutional Placement

Takeover Takeover

21 Apr 2011 29 Sep 2010

Future Ventures India Ltd. Shoppers Stop Ltd.

Takeover Takeover

30 Jun 2010 08 Jun 2009

Hypercity retail( India) Ltd. Pantaloon Retail( India) Ltd.

Technological Trends
Latest Innovations:
Method Customer Identification using RFID Description Customers are issued smart cards, helps recording customer preferences and shopping behavior A range of merchandise format is made available Can purchase goods by putting them in a shopping cart, preventing long queues Digital signboards to help customer to track products easily A detailed online customer database is available

E-Catalog Based selling Mobile Point of sale Digital Signage Intelligent database

Advantages offered by IT in Retail

Enhanced customer experience through use of kiosks, mobile POS, digital signage and e-catalogs. Consistency in business process. Transparency in business process. Operational efficiency through better management of supply chain, inventory and store Improved productivity through automation, e.g. use of POS. Easy tracking of inventory and leakage. Enables cross selling other products. Allows performance management across locations.

Current Scenario: IT perspective

IT innovations adoption still at an introductory phase Retailers have an advantage over their counter parts, as they know which solutions would work innovation and deployment is confined to the organized sector

The Way Forward

The unorganized sector is lagging behind in terms of IT usage Even with availability of technology, money, lack of education and comfort are constraints In organized sector, growth is constant and is expected to continue It is here that a lot more development can be expected in future

Industry Life Cycle Analysis

Retail Institutions show an S-shaped development through their economic life As retail organization mature with time, their attributes and strategy changes

Phases of Development
Innovation: During the initial stage, when organization tries to offer something different from the other retailers to the customers Accelerated Growth: rapid increase in sales take place, so the organization may face cost pressures

Phases of Development (Contd)

Maturity: The organization continues to grow, but the competitive pressure become intense Decline: the growth becomes negative, profitability becomes low and the overhead costs become so high that the organization loses its competitive edge

Key Events in the Past 2-3 Years

DATE 30/8/2011 26/8/2011 13/1/2011 3/1/2011 7/9/2010 11/6/2010 EVENTS HUL, Trent join hands to fund poor kids' schooling Pantaloon plans one store a day this quarter Starbucks Coffee to form partnership with Tata Coffee Carrefour opens new first cash and carry store in India Big Bazaar launches first store in Maharashtra Paul & Shark opens first Indian store in New Delhi Bestseller plans to introduce new brands in India 1/6/2010 31/5/2010 3/5/2010 16/12/2009 12/11/2009 8/10/2009 25/9/2009 11/6/2009 Bharti Retail announces expansion plans Bata India announces expansion plans Future Group enters into agreement to open Carrefour hypermarkets in India - Marks & Spencer to expand operations in India - Bharti Wal-Mart to open 40 new stores in India - - Future Group and Clarks to form footwear retail joint venture in India - Aditya Birla Retail plans to offer more products under private label brands - Indian government clears FDI proposals of Damas and Danone and 23 other brands

11/6/2009 9/6/2009 3/6/2009 21/5/2009 8/4/2009 17/3/2009

- Tesco to conclude supply chain integration with India's Star Bazaar - Wal-Mart to award multiple contracts to Indian firms worth $500 million - Pantaloon Retail's unit and Carrefour likely to sign equity partnership deal - Bharti Wal-Mart to open first cash-and-carry store in India - Mahindra Retail launches flagship store of Mom & Me in Delhi - Pantaloon Retail plans to spin off Big Bazaar and Food Bazaar chains

Key Drivers for Growth

Economic boom brought many retail brands into the industry Franchise model has gained popularity recently Disposable income of Indian middle class is increasing Population as a growth driver Increasing awareness and usage of credit cards Increasing internet usage amongst Indians Increased growth in retail in tier- II & III cities Benefits of a shortened supply chain model

General impact of union budget 201112 on Retail Industry

Higher income tax exemption limit will result in higher disposable incomes in the hand of consumers which is a positive for the sector. 15 Mega Food Parks to be set-up to address the issues relating to bottlenecks in retailing capacity of vegetables and fruits under The Eleventh Plan. Further, Policy initiatives to be introduced to achieve efficiencies in the marketing and distribution systems of food grains, fruits and vegetables.

Impact of specific changes in excise duty relating to Retail Industry

Branded garments to be costlier as levy of excise duty on garments made mandatory at a unified rate of 10% for branded garments. Imposition of marginal 1% excise duty on precious metals like gold and silver will hurt branded jewellery retailers.

Appendix

As of Assets Gross Block Less : Accumulated Depreciation Less:Impairment of Assets Net Block Lease Adjustment Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets EBITDA PAT Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Inventory Debtors

Pantaloon Brandhouse Retail Provogue Shoppers V2 Retail Retails Ltd (India) Ltd (India) Ltd Stop Ltd Trent Ltd Ltd Mar-10 Jun-10 Mar-11 Mar-11 Mar-11 Mar-10 67.03 21.72 0 45.31 0 0.28 0.05 195.22 268.35 0.54 54.8 518.91 58.74 16.21 0.38 0.13 1.01 12.82 143.31 1,417.04 294.89 0 1,122.15 0 59.68 2,002.91 1,270.67 123.57 100.54 423.02 1,917.80 676.56 179.56 0.33 0.12 3.13 2.25 3.55 105.33 39.28 0 66.05 0 0.36 290.18 271.88 171.46 19.94 219.34 682.62 81.05 33.41 0.31 0.26 2.47 6.13 142.81 505.64 193.5 0 312.14 0 44.65 237.19 151.14 16.01 2.61 279.8 449.56 159.37 75.18 0.84 0.62 1.66 4.13 42 330.19 66.27 0 263.92 0 27.83 424.97 130.57 6.66 300.34 462.15 899.72 86.27 43.04 1.22 0.59 1.42 3.93 2.7 363.7 142.19 0 221.51 0 0 0.38 219.96 2.92 10.98 59.69 293.55 -500.69 -414.72 0 0 1.23 2.49 383.18

References
http://timesofindia.indiatimes.com/home/union-budget-2011/Highlightsof-Union-Budget-2011-2012/articleshow/7592642.cms http://indiabudget.nic.in/ub2011-12/bh/bh1.pdf CII, Retail Scenario in India, Unlimited Opportunity Economywatch.com Legal India Express Computer Capitaline Database Business Beacon Data Monitor Database CRISIL Reports IBEF Report Market & Research