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32317377 the Indian Retail Sector

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    Retailing formats in India Malls:

    The largest form of organizedretailing today. Locatedmainly in metro cities, in

    proximity to urban outskirts.Ranges from 60,000 sq ft to7,00,000 sq ft and above.They lend an ideal shoppingexperience with anamalgamation of product,service and entertainment, allunder a commonroof.Examples includeShoppers Stop, Piramyd,Pantaloon.

    .

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    Specialty Stores:

    Chains such as the Bangalore based Kids Kemp, the Mumbai booksretailer Crossword, RPG's Music World and the Times Group's musicchain Planet M, are focusing on specific market segments and haveestablished themselves strongly in their sectors.

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    Department Stores:Large stores ranging from 20000-50000 sq. ft, catering to a variety ofconsumer needs. Further classified into localized departments such asclothing, toys, home, groceries, etc.

    Discount Stores:As the name suggests, discount stores or factory

    outlets, offer discounts on the MRP through selling in bulkreaching economies of scale or excess stock left over at theseason. The product category can range from a variety ofperishable/ non perishable goods

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    Department Stores:Departmental Stores are expected to take over the apparelbusiness from exclusive brand showrooms. Among these, thebiggest success is K Raheja's Shoppers Stop, which started inMumbai and now has more than seven large stores (over

    30,000 sq. ft) across India and even has its own in store brandfor clothes called Stop!.

    Hypermarts/Supermarkets:Large self service outlets, catering to varied shopper needs are termedas 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 minisupermarkets 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 astrong focus on food & grocery and personal sales

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    ConvenienceStores:These are relatively small stores 400-2,000 sq. feet located nearresidential areas. They stock a limited range ofhigh-turnoverconvenience products and are usually open for extended periods duringthe day, seven days a week. Prices are slightly higher due to theconvenience premium.

    MBOs :Multi Brand outlets, also known as Category Killers, offer severalbrands across a single productcategory. These usually do well in busy market places and Metros.

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    RecentTrends

    Retailing in India is witnessinga huge revamping exercise ascan be seen in the graph

    India is rated the fifth most

    attractive emerging retailmarket: a potential goldmine.

    Estimated to be US$ 200billion, of which organizedretailing (i.e. modern trade)makes up 3 percent or US$6.4 billion

    As per a report by KPMG theannual growth of departmentstores is estimated at 24%

    Ranked second in a GlobalRetail Development Index of30 developing countries drawnup by AT Kearney.

    Retail Sales in India

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    Traditionally three factors haveplagued the retailindustry:

    Unorganized : Vast majority of the twelve millionstores are small "father and son" outlets

    Fragmented : Mostly small individually ownedbusinesses, average size of outlet equals 50 s.q. ft.

    Though India has the highest number of retail outletsper capita in the world, the retail space per capita at2 s.q. ft per person is amongst the lowest.

    Rural bias: Nearly two thirds of the stores arelocated in rural areas. Rural retail industry hastypically two forms: "Haats" and Melas". Haats are

    the weekly markets : serve groups of 10-50 villagesand sell day-to-day necessities. Melas are larger insize and more sophisticated in terms of the goodssold (like TVs)

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    Recent changes:

    Experimentation with formats: Retailing in India is stillevolving and the sector is witnessing a series of experimentsacross 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 acustomer-pull environment that increases the amount of impulseshopping. Research shows that the chances of senses dictating sales areupto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globusare laying major emphasis & investing heavily in store design.Emergence of discount stores: They are expected to spearhead theorganised retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs.

    Unorganized retailing is getting organized:To meet t

    he c

    hallengesof organized retailing such as large cineplexes, and malls, which are

    backed by the corporate house such as 'Ansals' and 'PVR the unorganizedsector is getting organized. 25 stores in Delhi under the banner ofProvision mart are joining hands to combine monthly buying. BombayBazaar and Efoodmart formed which are aggregations of Kiranas.

    Experimentation with formats: Retailing in India is stillevolving and the sector is witnessing a series of experimentsacross 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 acustomer-pull environment that increases the amount of impulseshopping. Research shows that the chances of senses dictating sales areupto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globusare laying major emphasis & investing heavily in store design.Emergence of discount stores: They are expected to spearhead theorganised retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs.

    Unorganized retailing is getting organized:To meet t

    he c

    hallengesof organized retailing such as large cineplexes, and malls, which are

    backed by the corporate house such as 'Ansals' and 'PVR the unorganizedsector is getting organized. 25 stores in Delhi under the banner ofProvision mart are joining hands to combine monthly buying. BombayBazaar and Efoodmart formed which are aggregations of Kiranas.

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    RecentTrends 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 affluentclasses and growing number of double-income households.

    More successful in cities in the south and west of India. Reasons range fromdifferences in consumer buying behavior to cost of real estate and taxation laws.

    Rural markets emerging as a huge opportunity for retailers reflected in the shareof 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 withhorizontal players like

    Rediff.com and Indiatimes.com to offer products on the web.

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    Major Retailers

    Indias top retailers arelargely lifestyle,clothing and apparelstores

    This is followed bygrocery stores

    Following the pasttrends and businessmodels in the westretail giants such asPantaloon, ShoppersStop and Lifestyle arelikely to target metros

    and small cities almostdoubling their currentnumber of stores

    These Walmartwannabes have theeconomy of scale to below medium costretailers pocketingnarrow margin

    Leading Retailers

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    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 timesof the total retail market size as compared to India

    India has the highest number of outlets per capita in the world - widely spreadretail 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 thesize 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 ofIndia'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 Indianretail industry employs about three million people.

    One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third ofHLL'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 surveyedhave 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 %).Thestock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.

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    Future direction:

    Positives

    AT Kearney has estimated Indias total retail market at US$ 202.6 billionwhich 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 currentUS$ 7.7 billion to US$ 24 billion by 2010.

    The share of modern retail is likely to grow from its current 2 per cent to15-20 percent over the next decade

    Over next two years India will see several Indian retail businesses attaininga critical mass as growth in the industry picks up momentum driven by twokey 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 itsheadquarters in Bentonville, Arkansas, to head its market research andbusiness development functions pertaining to its retail plans in India.

    New York-based high-end fashion retailer Saks Fifth Avenue has tied upwith 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 inDelhi, Ahmedabad, Lucknow and Bangalore in the next four months.

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    Future direction:Concerns

    68 million square feet of mall space is expected to be available by end of2007, which might lead to over-capacity of malls

    Lack of differentiation among the malls that are coming up. One option maybe to look at specialization.

    Poor inventory turns and stock availability measures - retailers clearly need toaugment their operations.

    Operations of retailers and suppliers are not integrated. Efficientreplenishment practices practiced in the Indian auto and auto-componentindustry can be leveraged to implement efficient supply chain managementtechniques.

    Supplier maturity, in terms of adherence to delivery schedules and deliveringthe quantity ordered, is an issue

    Sales tax laws - lead to retailers having state-level procurement and storageleads to Indian retailers having higher inventories. VAThas helped alleviatethis a bit.

    Increased adoption of ITand shrinkage management will be a critical area.

    Supply chain and customer relations followed by merchandising, facilitiesmanagement and vendor development are areas whichhave significant gapsand proactive training is a key imperative for overcoming these.

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    Sources AT Kearny

    Forrester Research 2006

    KPMG-FICCI Report http://www.indiainbusiness.nic.in/


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