Indian Retail Scene

Retail Scenario In India: An Unlimited Opportunity

CHAPTER 1

THE RETAIL SCENARIO – GLOBAL & INDIAN

1.1 Global Retail Scenario Retail stores constitute 20% of US GDP & are the 3 rd largest employer segment

in USA. China on the other hand has attracted several global retailers in recent times.

Retail sector employs 7% of the population in China. Major retailers like Wal-Mart &

Carrefour have already entered the Chinese market. In the year 2003, Wal-Mart &

Carrefour had sales of US $ 70.4 Crore & US $ 160 Crore respectively.

The global retail industry has traveled a long way from a small beginning to an

industry where the world wide retail sales is valued at $ 7 x 10 5 Crore. The top 200

retailers alone accounts for 30 % of the worldwide demand. Retail turnover in the EU is

approximately Euros 2,00,000 Crore and the sector average growth is showing an upward

pattern. The Asian economies (excluding Japan) are expected to grow at 6% consistently

till 2010.

On the global Retail stage, little has remained same over the last decade. One of

the few similarities with today is that Wal-Mart was ranked the top retailer in the world

then & it still holds that distinction. Other than Wal-Mart's dominance, there's a little

about today's environment that looks like the mid-1990s. The global economy has

changed, consumer demand has shifted & retailers' operating systems today are infused

with far more technology than was the case six years ago.

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Given Below a List of World's Top 15 Retailers:

DT Rank 04 Country of Origin

Company name

Formats 2003 retail sales (US $ Crore)

1 US Wal-Mart Discount, Hypermarket, Supermarket, Superstore, Warehouse

25,632.9

2 France Carrefour Discount, Hypermarket, Supermarket, Specialty, Convenience, Cash & Carry

7,979.6

3 US Home Depot DIY 6,481.64 Germany Metro Hypermarket,

Superstore, Specialty, Convenience, Cash & Carry, Departmental, DIY, Food Service

6,050.3

5 US Kroger Discount, Convenience, Supermarket, Super center, Warehouse, Specialty

5,379.1

6 US Kroger Discount, Convenience, Supermarket, Super center, Warehouse, Specialty

5,379.1

7 UK Tesco Department, Hypermarket, Supermarket, Superstore, Convenience

5,153.5

8 US Target Department, Discount, Super center

4,678.1

9 Netherlands Ahold Discount, 4,458.4

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Hypermarket, Supermarket, Specialty, Convenience, Cash & Carry, Drug

10 US Costco Warehouse 4,169.311 Germany Aldi Einkauf Discount,

Supermarket4,006.0 e

12 Germany Rewe Hypermarket, Superstore, Super market, Specialty, Convenience, Cash & Carry, Departmental, DIY, Food Service, Discount, Drug

3,893.1e

13 France Intermarche Superstore, Super market, Specialty, Convenience, Cash & Carry, DIY, Food Service, Discount

3,747.2e

14 US Sears Department, mail order, Specialty

3,637.2

15 US Safeway, Inc. Supermarket 3,555.316 US Albertsons Convenience,

Drug, Supermarket

3,543.6

e= estimate.

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1.2 Indian Retail Scenario Retailing in India is the largest employer after agriculture. It employs almost 7%

of the total work force in India and has a contribution of 14% to the national GDP. In the

year 2004, the size of Indian organized retail industry was Rs 28000 Crore, which was

only 3% of the total retailing market. Organized retailing is projected to grow at the rate

of 25%-30% p.a. and is estimated to reach an astounding Rs 1,00,000 Crore by 2010. The

contribution of organized retail is expected to rise from 3% to 9% by the end of the

decade.

Though with a population of a billion and a middle class of 300 million (upper

middle class= 40, Middle class =150 & lower middle class = 110), organized retailing is

still at its infancy in India. The great Indian middle class is estimated to grow to over 60

Crore by 2010 making India one of the largest consumer markets of the world. It is

projected that by the year 2010, 65% of the Indian population will be in the age group of

10-49 years, which makes the scenario even more attractive. India has the largest retail

network with 1.2 Crore outlets but only 4% of them are larger than 500 sq. feet in size.

USA on the other hand has 9 Lakh outlets catering to more than 13 times the total retail

market size of India. Thus India has the highest number of outlets per capita in the world

with a widely spread retail network but with the lowest per capita retail space (@ 2 sq.ft.

per person). AT Kearney has ranked India as the 2nd most attractive retail market after

Russia, in its Global Retail Development Index 2004 report.

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Retailing, one of the largest sectors in the global economy, is going through a

transition phase in India. For a long time, the corner grocery store was the only choice

available to the consumer, especially in the urban areas. This is slowly giving way to

international formats of retailing.

A Look at the Evolution Process:

Detailing reasons why Indian organized retail is at the brink of revolution, the

IMAGES-KSA report says that the last few years have seen rapid transformation in many

areas and the setting of scalable and profitable retail models across categories. Indian

consumers are rapidly evolving and accepting modern formats overwhelmingly. Retail

Space is no more a constraint for growth. India is on the radar of Global Retailers and

suppliers / brands worldwide are willing to partner with retailers here. Further, large

Indian corporate groups like Tata, Reliance, Raheja, ITC, Bombay Dyeing, Murugappa &

Piramal Groups etc and also foreign investors and private equity players are firming up

plans to identify investment opportunities in the Indian retail sector. The quantum of

investments is likely to skyrocket as the inherent attractiveness of the segment lures more

and more investors to earn large profits. Investments into the sector are estimate at INR

2000 - 2500 Crore in the next 2-3 years, and over INR 20,000 Crore by end of 2010.

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CHAPTER 2

TRADITIONAL RETAIL v/s ORGANISED RETAIL

In India, traditional formats have dominated the retail scene. These formats include:

1. The food and non-food neighborhood counter stores called the kiranas, the Indian

version of the Western mom-and-pop stores;

2. The paan shops, that is, kiosk-like small shops selling tobacco, betel leaf and

other products;

3. Mandis;

4. Village haats;

5. Push cart vendors; and

6. Other shops like the tailoring shops, which catered to garment needs before

readymade stores came in vogue and

7. The Sonars who crafted jewellery as per customer requirements, etc.

2.1 Key Characteristics of Traditional RetailIndia has sometimes been referred to as a nation of shopkeepers. A high density

of population and the need for convenience has facilitated the operation of over 12

million stores in India. Of these, nearly 78 per cent are small family-run operations,

which use only household labour. The key characteristics of these stores are:

1. Small size: Such stores are small in size. They range in area from 200 square

feet or less to 1,500 square feet, depending on the area of operation.

2. Low operating costs and overheads: These stores are run by family members

and thus, there are no labour costs involved. Little money is spent on lighting,

power, fuel and ambience.

3. Proximity to consumers: These shops are located within residential areas and

can be accessed by customers on foot. This makes it convenient for households

to buy items on a daily basis.

4. Strong customer bond: These shop owners know their customers

personally and have strong relationships with them. This helps them gauge

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likes and dislikes, and accordingly meet the individual needs of each

household.

5. Additional services: These small stores provide services like a month's credit,

which many customers find very useful. Such stores have also been

concentrating on offering customers the additional convenience of home

delivery and obtaining a product on order.

6. Non-payment of taxes: Since such small stores do not normally generate bills,

they manage to evade taxes. This saves them money, which they can re-invest

and also makes it possible for them to offer lower prices to select customers.

2.2 S.W.O.T Analysis of Traditional Stores

Strength Low capital requirement (due to

uncontrolled low rents and minimal

operating overheads) helps them turn

faster and increase in number with

easy entry and exit.

Proximity to consumers and strong

relationships help them gauge

customer needs and stock accordingly,

thus gaining more business.

These stores are located in prime

residential areas. The rentals in these

areas and other logistics are mostly

unviable for large stores.

They enjoy a near monopoly in areas

that are backward or do not have a

population with sustainable

purchasing power (like rural areas),

since organised retailers are unlikely

Weakness Storekeepers often do not provide

quality assurance, especially of goods

sold loose. However, with FMCG

companies themselves branding

various goods like flour, pickles,

sugar, etc, this might check the

problem.

Small storekeepers are increasingly

becoming conscious of hygiene

issues.

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to enter such regions.

Opportunity Traditional stores have low or no

bargaining power due to their small

scale of operations. Thus, the biggest

threat they face from organised

players is the latter's ability to provide

quality products at a discount.

Due to their small size, traditional

stores are unable to stock a variety of

goods, which is what consumers are

now demanding owing to increasing

awareness.

Traditional stores rarely invest in

ambience. They also do not provide

the customer the chance to look at

various brands and varieties before

making a choice.

Threat Long operating hours might be

threatened with organised players and

associations demanding 24 X 7

operating permissions.

The additional services that were

unique to them are now being

replicated by all players. The

increasing use of credit cards provides

easy credit even otherwise.

With huge stores coming up in

catchments areas of 5-7 kilometers of

approachable distance and large

chains planning to set up hub- and-

spoke smaller stores, the very

existence of traditional stores is in

danger.

The boundaries that once existed between food chains and one-shop vendors are

gradually disappearing. Single- shop owners are becoming increasingly aware of

customer needs, hygiene and variety requirements. At the same time, chains are opening

stores in residential areas and focusing on customer-relationship management.

Chains have also drafted plans for entering residential areas with a hub-and-spoke

model, where one large store will support various smaller stores in nearby residential

areas. With efficient supply chain management and the availability of space and

technology, this will not take much time.

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Kirana stores are becoming aware of the disadvantages inherent in their

lower bargaining power and their inability to offer discounts. Thus, they are coming

together to form cooperatives, which allow for bulk purchases, thus providing them a

competitive edge.

The opening up of the retail sector to FDI will create huge opportunities

in areas like processing, but will simultaneously lead to the displacement of at least

some such single-shop establishments.

However, both organised retail and traditional retailing have their own advantages.

Sr. No. Traditional Organized1 Low operating costs and overheads Greater bargaining power2 Proximity to consumers Range and variety of goods3 Long operating hours Quality and variety of goods4 Additional services (like home delivery,

credit convenience and customised products)Attractive ambience

5 Strong relationship with customers Convenience and hygieneSource: CRIS INFAC

Thus, in the long term, even after a consolidation in the period following the

spread of organised retail, traditional retailers are unlikely to vanish from the retail scene.

Instead, both types will probably co-exist, providing consumers with the best quality,

greater variety and more affordable prices along with increased convenience.

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CHAPTER 3

ORGANIZED RETAIL TO GET BIGGER

Indian organized retail market is growing at a fast pace due to the boom in the

Indian retail industry. In 2005, the retail industry in India amounted to Rs 10,000 billion

accounting for about 10% to the country's GDP. The organized retail market in India out

of this total market accounted for Rs 350 billion which is about 3.5% of the total

revenues.

Retail market in the Indian organized sector is expected to cross Rs 1000 billion

by 2010. Traditionally the retail industry in India was largely unorganized, comprising of

drug stores, medium, and small grocery stores. Most of the organized retailing in India

have started recently and is concentrating mainly in metropolitan cities.

The growth in the Indian organized retail market is mainly due to the change in

the consumer’s behavior. This change has come in the consumer due to increased

income, changing lifestyles, and patterns of demography which are favorable. Now the

consumer wants to shop at a place where he can get food, entertainment, and shopping all

under one roof. This has given Indian organized retail market a major boost.

Retail market in the organized sector in India is growing can be seen from the fact

that 1500 supermarkets, 325 departmental stores, and 300 new malls are being built.

Many Indian companies are entering the Indian retail market which is giving Indian

organized retail market a boost. One such company is the Reliance Industries Limited. It

plans to invest US$ 6 billion in the Indian retail market by opening 1000 hypermarkets

and 1500 supermarkets.

Pantaloon is another Indian company which plans to increase its retail space to 30

million square feet with an investment of US$ 1 billion. Bharti Telecoms an Indian

company is in talks with Tesco a global giant for a £ 750 million joint venture. A number

of global retail giants such as Wal-mart, Carrefour, and Metro AG are also planning to set

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up shops in India. Indian organized retail market will definitely grow as a result of all this

investments. Indian organized retail market is increasing and for this growth to continue

the Indian retailers as well as government must make a combined effort.

3.1 What Is Organized Retail? Retail

"Retail' is defined as "the sale of goods and commodities in small quantities to the

ultimate consumer'. Thus, retailing is the last leg in the channel through which goods

travel from the producer to the consumer. Generally, a retailer does not effect any

significant change in the product. (However, there may be exceptions like soft-drink

vending machines that take in concentrate and give out a ready-to-drink beverage.)

Our discussion of retail throughout this report adheres to this definition.

Therefore, services (for example, beauty salons, multiplexes, restaurants, etc) have been

excluded from the purview of our analysis although they may be available at the same

location (such as a mall) where goods are retailed. This study also excludes tobacco

products and pharmaceuticals from its purview, as these products, by-and-large, use

specialized channels of delivery.

Value Proposition

The value proposition that a retailer offers to a consumer is the availability of the

desired product in the desired quantity at the desired time, thereby creating time, place

and form utility.

Organised Retail

Organised retail may be said to refer to a form of retailing, whereby

consumers can buy goods in a similar purchase environment across more than one

physical location. This report attempts to analyze the structure of and the outlook

for the "organised retail of goods' excluding tobacco products and pharmaceuticals.

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Such retail may entail the use of different store formats like single-product stores,

department stores, malls, etc. The categories of goods retailed would include food,

grocery, apparel, consumer durables, jewellery, footwear, accessories, beauty products,

home décor, books, music, etc.

3.2 Retail Evolution In spite of steep growth, the turnover of the top five retailers in India (Pantaloon

Retail, Shoppers' Stop, RPG, Trent and Lifestyle) was less than Rs 30 billion, which was

about 8 per cent of the total organised retail market in 2004-05. In a bid to garner larger

market shares, nearly all major players have announced huge expansion plans.

Retailing in India has witnessed tremendous growth in the last few years.

Textile manufacturers like Bombay Dyeing, Raymond, S Kumar's and Grasim were the

first to set up retail chains. Thereafter, Titan successfully implemented the organised

retailing concept in India by establishing a series of elegant showrooms.

Organised retailing first started picking up in South India, primarily due to the

availability of land at prime locations and cheaper real estate prices.

The early '90s saw the establishment of shops by Madura Garments and Zodiac,

which focused on "one brand'. By the latter half of the decade, players in various

segments were making their presence felt on the retail scene: Foodworld, Subhiksha and

Nilgiris in food and FMCG; Planet M and Music World in music; Crossword and

Fountainhead in books.

Since then organised retailing in India has witnessed a radical transformation.

Shoppers' Stop was the pioneer in department stores and the concept of malls evolved

with Spencers in Chennai, Ansals in Delhi and Crossroads in Mumbai. Initially, the

players making forays into the mall scene were those that had a construction background

like the Rahejas and the Piramals. Gradually, competition increased with more retail

chains entering the business and setting up stores.

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At present, most players have announced ambitious expansion plans. In order to

differentiate and grow, players have adopted different strategies. Some have chosen to

operate in multiple formats, some are expanding to smaller cities and others are

focusing on supply chain management and operations. The strategies adopted by these

players will not only determine turnover growth but also their profitability.

3.3 Segments in Retail Retail as a whole can be broken into categories, depending on the type of products

serviced. Food and groceries form the biggest category in the retail pie, accounting

for around 76 per cent. However, it has the lowest organised retail penetration. This is

indicative of the opportunity for organised retail growth in this segment. The footwear

and clothing segments boast the highest penetration of organised retail, as players in these

segments started setting up stores over a decade ago.

Organised Retail: Category Wise Share and Penetration

Category Total retail-----------------------------Estimated market size

(2005) Rs billion

Organised retail--------------------------------------------

Market size Market share PenetrationRs billion Per cent Per cent

Food, beverage and tobacco

7,738 75.8 65 19 1

Clothing & textiles

716 7.0 141 40 20

Consumer durables

416 4.1 43 13 10

Jewelleries & watches

416 4.1 25 7 6

Home décor & furnishing

300 2.9 25 7 8

Beauty care (products)

214 2.1 7 2 3

Footwear 104 1.0 32 9 31Books, music & gifts

87 0.8 11 3 13

Total 9,990 100.0 349 --- ---Source: CRIS INFAC

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Of the organised retail market, clothing and textiles have the largest share at 40

per cent. There are exclusive brand stores that stock and sell apparel; in addition,

clothing is available in speciality chains, hypermarkets and department stores.

Food and grocery has the maximum scope for growth; at present, it accounts for

only 19 per cent of the organised retail market.

Segment-Wise Growth of Organised Retail (2005)

Source: Company report

Organised retail is expected to grow at 25-30 per cent per annum, with

home décor, and food and grocery emerging as the fastest-growing segments. The

proliferation of hypermarkets and supermarkets has led to a growth in food and

grocery retail; thus, value retailing is seen to be gaining ground in India. The

other high growth verticals are apparel and durables. Impulse goods like books and music

are also gaining a larger share in the organised retail market, with players making stores

more accessible to consumers.

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3.4 S.W.O.T Analysis of Indian Organized Retail Industry

Strength Retailing is a “technology-intensive" industry. It is technology that will help the

organized retailers to score over the unorganized retailers. Successful organized

retailers today work closely with their vendors to predict consumer demand,

shorten lead times, reduce inventory holding and ultimately save cost.

Example: Wal-Mart pioneered the concept of building competitive advantage

through distribution & information systems in the retailing industry. They

introduced two innovative logistics techniques – cross-docking and EDI

(electronic data interchange).

On an average a super market stocks up to 5000 SKU's against a few hundreds

stocked with an average unorganized retailer.

Weakness Less Conversion level: Despite high footfalls, the conversion ratio has been very

low in the retail outlets in a mall as compared to the standalone counter parts. It is

seen that actual conversions of footfall into sales for a mall outlet is

approximately 20-25%. On the other hand, a high street store of retail chain has

an average conversion of about 50-60%. As a result, a stand-alone store has a ROI

(return on investment) of 25-30%; in contrast the retail majors are experiencing a

ROI of 8-10%.

Customer Loyalty: Retail chains are yet to settle down with the proper

merchandise mix for the mall outlets. Since the stand-alone outlets were

established long time back, so they have stabilized in terms of footfalls &

merchandise mix and thus have a higher customer loyalty base.

Opportunity The Indian middle class is already 30 Crore & is projected to grow to over 60

Crore by 2010 making India one of the largest consumer markets of the world.

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The IMAGES-KSA projections indicate that by 2015, India will have over 55

Crore people under the age of 20 - reflecting the enormous opportunities possible

in the kids and teens retailing segment

Organized retail is only 3% of the total retailing market in India. It is estimated to

grow at the rate of 25-30% p.a. and reach INR 1, 00,000 Crore by 2010.1

Percolating down: In India it has been found out that the top 6 cities contribute for

66% of total organized retailing. While the metros have already been exploited,

the focus has now been shifted towards the tier-II cities. The 'retail boom', 85% of

which has so far been concentrated in the metros is beginning to percolate down

to these smaller cities and towns. The contribution of these tier-II cities to total

organized retailing sales is expected to grow to 20-25%.

Rural Retailing: India's huge rural population has caught the eye of the retailers

looking for new areas of growth. ITC launched India's first rural mall "Chaupal

Saga" offering a diverse range of products from FMCG to electronic goods to

automobiles, attempting to provide farmers a one-stop destination for all their

needs." Hariyali Bazar" is started by DCM Sriram group which provides farm

related inputs & services. The Godrej group has launched the concept of 'agri-

stores' named "Adhaar" which offers agricultural products such as fertilizers &

animal feed along with the required knowledge for effective use of the same to the

farmers. Pepsi on the other hand is experimenting with the farmers of Punjab for

growing the right quality of tomato for its tomato purees & pastes.

Threat If the unorganized retailers are put together, they are parallel to a large

supermarket with no or little overheads, high degree of flexibility in merchandise,

display, prices and turnover.

Shopping Culture: Shopping culture has not developed in India as yet. Even now

malls are just a place to hang around with family and friends and largely confined

to window-shopping.

3.5 Levels of Retail

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While organised retail is possible in many categories, the extent of its growth varies

according to the category. Organised retailers can operate as specialized chains catering

to a particular category of retail or can be present in more than 1 retail category through a

department store, a supermarket or a hypermarket.

Thus, we can conclude that organised retail can operate at three levels:

Level I: Specialty stores catering to a particular category.

Level II: A department store, a supermarket or a hypermarket catering to 2-3 categories

of retail.

Level III: A "mall', which is an agglomeration of department stores, hypermarkets and

specialty stores.

Speciality stores cater to a specific vertical, which is depicted as Level I in the

diagram below. Two or more segments from the Level I come together to form Level II

stores. Food and grocery and households goods from the Level I together form

Supermarkets (Level II). Some supermarkets also stock pharmaceuticals. Similarly, a

hypermarket stocks food and grocery, apparel, household items, durables, footwear,

accessories, electronics, furniture, etc. A department store stocks products with a

lifestyle proposition and branded clothes, footwear, home décor, durables, high-end

jewellery and watches.

Level III is made up of malls. These will have stores from both Level I and Level

II. In addition to these, malls also have beauty parlours, restaurants and food courts,

entertainment zones and multiplexes with a huge parking area.

Levels in Retail

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Players Operating At Different Levels

18

Beauty Products

LEVEL II LEVEL III

Food & Grocery

Household & other FMCG

Apparel

Footwear

Fashion Accessories

LEVEL I

Electronics & Accessories

Consumer Durables

Furniture & Home Decor

Jewellery

Supermarket

Hypermarket

Department Store

Mall


Level 1 Level 2 Level 3Pantaloon Food Bazaar

PantaloonBig Bazaar Central

Shopper’s Stop Shopper’s StopRPG Food World

Music WorldSpencer’s Hypermarket

Landmark Group LifestyleTata- Trent West Side Star India BazaarGlobus GlobusPiramal Group Pyramid CrossroadsSource: CRIS INFAC

Another popular medium for shopping in India is the high street. These are streets

with many shops that stock a variety of items catering to the customer’s needs. For

example, Linking Road in Mumbai is a high street for apparel, while Nai Sarah in

Delhi is the equivalent for books. Since these are considered to be prime shopping areas,

the rentals here are expensive.

.

CHAPTER 4

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VERTICALS IN RETAIL

Retailing can be broken down into different categories, each of which has

different levels of organised retail penetration.

Total Retail (Segment-Wise Distribution)

Category Total retail----------------------------------Estimated market size (2005) Rs billion

Organised retail----------------------------------------------------Market size Market share PenetrationRs billion Per cent Per cent

Food, beverage and tobacco

7,738 75.8 65 19 1

Clothing & textiles

716 7.0 141 40 20

Consumer durables

416 4.1 43 13 10

Jewelleries & watches

416 4.1 25 7 6

Home décor & furnishing

300 2.9 25 7 8

Beauty care (products)

214 2.1 7 2 3

Footwear 104 1.0 32 9 31Books, music & gifts

87 0.8 11 3 13

Total 9,990 100.0 349 --- ---Source: CRIS INFAC

4.1 Food and Grocery The largest vertical in the Indian retailing industry is food and grocery retail. This

segment includes the sale of fresh fruits and vegetables, milk and milk products, staples,

cereals, grains, pulses, processed food, ready-to-cook and ready-to-eat meals, spices and

other eatables.

On an average, the largest opportunity in organised retail is in the food

segment. According to the National Sample Survey Organization (NSSO), 58th

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round, 55 per cent of total rural and 42 per cent of total urban expenditure was on

food.

However, food retail is the most unorganized. Its retail penetration is the lowest at

1 per cent. The Indian food market is characterized by small retailers and food service

operators.

Traditional Formats

In India, food is essentially bought through one of the following traditional formats:

Kiranas: These are close-to-home stores where a household buys its daily use

goods. They stock a range of goods from staples to FMCG products and milk

products, etc. They range from the very small 200 sq ft stores to 1,500 sq ft

establishments. Often those running the stores know the households personally

and provide additional services like obtaining unstocked items on request,

delivering goods to the doorstep and granting a month's credit.

Paan shops: These are unique to India. They are very small shops manned by a

single individual whose chief occupation is the making of paan (betel leaf with a

few additions). Such shops also stock tobacco, chocolates and some FMCG

articles.

Cart vendor: Cart vendors sell fresh fruits and vegetables in residential areas and

housewives buy from them on a daily basis. They sell their produce off a cart,

which allows them the freedom to move around from place to place. They often

give credit of a few days.

Mandis: These are markets with a fixed place, where various sellers of a

commodity gather. Buyers visit mandis to make weekly purchases at reasonable

prices. Sabzi mandis specifically stock vegetables.

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Haat: A haat is more of a village phenomenon. Once a week, a market is

organised in a particular location, where sellers from different areas gather to sell

their products. Buyers congregate to buy an assortment of goods, ranging from

fruits and vegetables to household goods, clothes and accessories like bangles,

etc.

Mela: A mela is organised once every few months generally around the time of a

festival. In addition to the sale of a variety of goods not easily accessible to

villagers, the mela also provides entertainment.

Fresh Food Produce – A Clear Need Gap

In India, people like to cook meals with fresh produce twice a day.

Generally, this produce is bought approximately thrice a week from cart vendors who, in

turn, buy from wholesalers. This highlights an opportunity that organised retail could

exploit. Such retailing could work if located near residential areas. The fact that the

margin on fresh produce is higher than that on other groceries helps compensate the

retailer for wastages.

Growing awareness and an increasing trend of consumers shopping for themselves has

heightened the demand for a pleasant ambience and a range of goods to shop from.

Consumers are increasingly looking at quality assurance and a one-stop shop to fulfill

their needs. It is, therefore, possible to conclude that food retail can exploit the existing

growth potential by

Offering private retail products, that is, providing a private label and

positioning it based on customer requirements;

Offering fresh produce; and

Providing end-to-end logistics support.

South India has witnessed frenetic activity in food retail, especially in the

organised grocery segment. Foodworld is the largest chain in this category followed by

Subhiksha, Sabka Bazaar, Margin Free Markets, Trinethra and Nilgiris. All of these

stores, except for Sabka Bazaar, have concentrated on South India since this region offers

lower real estate prices, and the people here show a greater inclination to buy from

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supermarkets. Stores built on the format of Foodworld and Nilgiris in the South have now

started to expand their boundaries into other regions of the country.

Players like Subhiksha have combined the sale of food with the sale of

pharmaceuticals. Players like Pyramid are considering entering into the segment by

opening 117 Trumart stores.

Food and Grocery Retail: List of Players

Sr. No. Players1 Fab Mall2 Marginfree3 MK Retail 4 Namdhan’s Fresh5 Nature’s Basket6 Nilgiris7 Pantaloon (Big Bazaar, Food Bazaar)8 RPG (Giant, Food World)9 SPAR10 Subhiksha11 Trent (Star India Bazaar)12 Trinethra

4.2 Apparel Organised retail in India began with apparel. Although much smaller than the

food segment, this category is the next biggest. Initially, manufacturers like Raymond

and Bombay Dyeing started stores of their own. This created a change in consumer

preferences - people started buying readymade garments instead of getting clothes

stitched. (Initially, this trend was limited to men's wear).The opening of one-brand

(exclusive brand outlets) stores, which focused on their own apparel, followed these

manufacturer apparel stores. These included the Arvind Mills brand, Van Heusen, Arrow,

Lee, and Levis, etc.

Apparel can appeal to different customers for different reasons. A brand-

conscious customer might look at it as a source of prestige and style. Another customer

may identify clothing as a basic need. Apparel is sold through different kinds of stores,

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each catering to a different segment of population, depending on whether the audience is

looking for lifestyle and fashion or value for money.

The margins in apparel are among the highest in various verticals. The concept of

private labels also originated from apparel. This is a system whereby a store chain out

sources the manufacture of a range of garments and sells it under its in-house label.

These labels provide quality assurance to the customer and are priced lower than

premium brands. At the same time, for store chains, they earn almost twice the margins

that branded garments do.

Private Labels of Retailers

Private Labels

Pantaloons Retail (India) Limited

John miller shirtsPantaloonBareAnnabelleAjile

Honey T-2000Bare KidsPopeyeDisney

Shopper’s Stop LifeStop

KashishKarrot

Tata- Trent WestsideGlobus Stores Pvt. Ltd. Globus F21Ebony Retail Holdings Ebony ETCMadura Garments Louis Phillip

Van HeusenAllen Solly

SF JeansPeter England

Provogue (India) Ltd. ProvogueSource: Company reports & industry

Apparel retailing for men's wear has seen significant development in India.

Retailers are now looking for opportunities in the women's apparel (particularly

traditional wear for which women visit boutiques or sari stores) and children's wear

segments.

Apparel Retail: List of Players

Sr. No.

Players Sr. No.

Players

1 Arvind Brands (Arrow, Lee, Wrangler) 11 Mango

24


2 Benzer 12 Milky Stone3 Bombay Dyeing 13 Options4 Ebony 14 Pantaloon (Big Bazaar,

Pantaloon)5 Family Mart 15 Provogue6 Globus 16 Pyramid7 Indian Rayon ( Madura Garments-

Louis Phillip)17 Raymond

8 Indus League 18 Reliance (Vimal)9 ITC (Wills Lifestyle) 19 Trent (Westside)10 Lifestyle 20 ZodiacSource: Company reports & industry

4.3 Footwear The footwear segment in India boasts the highest organised retail

penetration. This has been primarily due to players like Bata who have set up a chain of

stores in various cities. As in the case of apparel, even the footwear segment attracts

different segments, with variations based on requirements, aspirations and

purchasing power. Bata and Liberty are seen as value-for-money chains, while

Metro is seen as a lifestyle chain. The brand conscious youth of today shop for

upper-end footwear from Nike, Adidas, Reebok, etc.

Footwear retail: List of players

Sr. No.

Players Sr. No.

Players Sr. No.

Players

1 Action 6 Loft 11 Habit2 Adidas 7 Metro 12 Lakhani3 Bata 8 Milky Stone 13 Lee Cooper4 Big Foot 9 Nike 14 Lifestyle5 Citywalk 10 Red Tape 15 Gaitonde

4.4 Jewellery, Fashion Accessories and Beauty Products The launch of the Titan stores initiated organised retail in jewellery in

India. Today, chains like Oyzterbay, Tanishq, Swaroski, etc have stores in India (at

least in the major cities); however, people still prefer going to jewellers they know

since the nature of this purchase in one that demands considerable trust. To build

25


a relationship of trust, stores like Gold Bazaar, etc have announced offers like

buy-back schemes and purity assurances.

High-end beauty products are sold through department and other specialty

stores. Advertising and promotion have a significant impact on the sales of such

products. Other cosmetics and toiletries might be bought from the neighborhood store.

Fashion accessories are impulse purchase items. These have a high inventory

turnover of up to 18 turns. Fashion accessories include trinkets and small gifts. These

items have to be positioned in stores, such that customers pick them up while shopping

for other products. In nearly all these categories, the buyer is usually a woman and

all promotion strategies are thus targeted at women.

Jewellery and Beauty Products: List of Players

Sr. No.

Players Sr. No.

Players

1 Amarsons 14 Milky Stone2 Anmol 15 Nakshatra3 Asmi 16 Nirvana4 Bharat Sons 17 Orra5 Chintamani 18 Oyzterbay6 Crossroads 19 Pantaloon (Gold Bazaar)7 D’damas 20 Patni8 Dwarkadas 21 PK Jewellers9 Gili 22 RK Jewellers10 HLL (Lakme Salons) 23 RPG (Health & Glow)11 Lifestyle 24 Shopper’s Stop12 Mangalore Jewellers 25 Tanishq13 Marico (Kaya) 26 TBZ

4.5 Electronics and Consumer Durables The sale of electronics and consumer durables started from exclusive company

showrooms. Today, these products are sold in multi-brand stores, where the retailer

stocks different products (televisions, refrigerators, DVD players, music systems, etc) and

more than one brand.

26


Increasing number of models and brands catering to various requirements has

meant that service has become the chief differentiator in retailing in this segment.

Specialty stores like Viveks and Vijay Sales provide sales support services and easy

financing, which encourages a higher ticket size and repeat purchases. Low-end

models of consumer durables are sold at a discount through hypermarkets too.

Increased competition has resulted in a fall in the prices of consumer durables.

However, customers have chosen to keep the same share of wallet for these goods and

buy high-end durables. The sale of mobiles and mobile accessories has also seen

remarkable growth. These are sold through organised outlets, department stores and

through authorized company dealers.

Electronics and Consumer Durables: List of Players

Sr. No.

Players Sr. No. Players

1 Agrani Switch 9 Plugin2 BPL 10 Samsung3 Discount Circuit 11 Sony Mony Electronics4 Girias 12 Videocon 5 LG India 13 Vijay Sales6 Onida 14 Vivek’s7 Pai International 15 Whirlpool8 Philips

4.6 Furniture and Home Décor In India, furniture was traditionally made in homes by carpenters, who

customized the product in keeping with the requirements of the household. However,

readymade furniture is increasingly gaining ground in India. Chains like Gautier, Godrej,

27


etc are making a foray into larger cities. For Indian retailers, home décor is a large

untapped segment. Pantaloon and Lifestyle are planning to enter this segment.

CHAPTER 5

MODERN STORE FORMATS

28


India's retail scene has derived inspiration from the West, but the various types of

stores gaining popularity in India are not mere replicas of international stores; instead,

they have evolved in response to the unique needs of the modern, developing Indian

society. The type of stores can be differentiated as value-based or lifestyle-based.

5.1 Value Retailing Value retailing comprises stores offering lower prices, better variety and a

superior shopping experience. Value- based purchases are not dependent on income

levels; they are driven by the need for quality goods with greater variety.

5.2 Supermarkets These are 3,000-10,000 square feet stores primarily catering to adjacent

residential areas. They are self-service retail outlets, one-stop shops catering to varied

consumer needs. In India, supermarkets primarily focus on the food and grocery segment.

Supermarkets like Subhiksha also offer discounts on products. Periodic promotional

offers are also common. Shelf space reflects the success of a product.

Supermarkets: Major Players

Pantaloon (Food Bazaar) RPG (Food World)Cities No. of outlets Cities No. of outletsMumbai 7 Bangalore 28Thane 1 Chennai 27Ahmedabad 3 Coimbatore 3Nagpur 1 Erode 1Nasik 1 Hyderabad 15Pune 1 Kodai 1Kolkata 4 Pondicherry 1Bhubaneshwar 1 Pune 7Gurgaon 1 Secundrabad 4Ghaziabad 2 Salem 1Durgapur 1 Trivandrum 1Bangalore 5 Velore 1Hyderabad 2Delhi 1Total 31 90Source: Company reports

29


5.3 Hypermarket These are large stores with space ranging from 50,000 to 70, 000 square feet or

more. The hypermarkets that are now coming up lean towards the higher end of the

spectrum. These are generally located in suburban areas or in malls as anchor tenants in

order to obtain sustainable rentals. Hypermarkets offer lower prices or discounts and a

variety of goods. They usually stock low-end goods, which have a high inventory turn.

Hypermarkets cater to a spectrum of segments like food and grocery, FMCG

goods, apparel, consumer durables, electronics, household items, furniture, etc. Margins

depend on the product mix, volumes and supply chain management. A higher share of

food and grocery or consumer durables would mean lower margins. On the other hand, a

higher proportion of apparel and furniture could increase margins. Higher volumes,

coupled with efficient supply chain management, would help the retailer provide better

bargains. By offering products at prices that are 5-50 per cent lower than most other

stores, hypermarkets are rapidly gaining popularity.

Hypermarkets: Major Players

Pantaloon (Big Bazaar) Spencer’s Hypermarket

Shoprite Trent- Star India Bazaar

Cities No. of outlets




Kolkata 2 Hyderabad 1 Mumbai 1 Ahmedabad 1Hyderabad 1 Mumbai 1Bangalore 3 Vizag 1Mumbai 2Gurgaon 1Nagpur 1Ahmedabad 2Bhubaneshwar 1Nasik 1Ghaziabad 1Durgapur 1Thane 1Delhi 1Total 18 3 1 1Source: Company reports

5.4 Lifestyle Retailing

30


An increase in purchasing power, awareness and international travel, in

addition to higher aspirations, have engineered a change in consumption patterns,

with the customer willing to pay more for a brand or a better product which

keeps him/her in vogue. Higher lifestyle aspirations, increasing urbanisation and

changing customer mindsets are encouraging greater footfalls in lifestyle stores.

5.5 Department Stores These are large stores that stock a wide variety of products, organised into

different departments, such as clothing, household items, furniture, appliances, toys,

accessories, cosmetics, etc. Department stores offer value as a one- stop shop with

different brands in various categories, thus catering to diverse consumer needs.

Department stores are gaining popularity as they offer novelty, variety, superior

ambience, entertainment and convenience all under one roof. These stores target

primarily the SEC A's where the ticket size is larger in spite of a lower footfall.

Department stores are expected to take over the apparel business from exclusive

brand showrooms. The gross margins of a department store will depend on the model in

place:

1. Outright: In this model, the store buys merchandise and sells it to customers.

There is inventory risk involved as in the case of private labels.

2. Consignment: Stores order and buy goods from a vendor but the vendor

shoulders the risk if the goods fail to sell. Many department stores have this

arrangement with brands in the apparel segment.

3. Concessionaire: Stores using this model rent out space to a vendor whose

employees handle sales. Usually such arrangements are made for the sale

of perfume and cosmetic brands that are high-end and attract footfalls.

Department Stores: Major Players

Shopper’s Stop Globus Lifestyle Cities No. of

outletsCities No. of


outletsDelhi 1 Indore 1 Chennai 1

31


Gurgaon 1 Chennai 2 Hyderabad 1Jaipur 1 Mumbai 1 Bangalore 1Bangalore 2 New

Delhi1 Gurgaon 1

Chennai 1 Bangalore 2 Mumbai 3Hyderabad 1Mumbai 6Pune 1Kolkata 2Total 16 7 7

5.6 Other Formats 1. Speciality stores: Focusing on a specific consumer need, speciality stores carry most

brands or categories in that particular segment. Their value proposition is one of

greater choice and a comparison between brands. Speciality stores cater to value-

oriented customers, operating in segments like health and beauty care or lifestyle

products like books, music, etc (for example, Crossword). Chains selling flowers or

wines could also be termed speciality stores.

2. Online, telephone and catalogue buying: Quite popular in developed countries,

online, telephone and catalogue buying have not gained much ground in India. This is

largely because of the absence of the touch-and-feel concept and the fact that retailing is

still in its early stages in India.

3. Shopping malls: Malls are enclosures that offer different retail formats under one

roof. These are the sophisticated versions of the old shopping centres, with huge space,

an air-conditioned ambience, elevators and escalators. A variety of shops catering to the

needs of different members of the family, food courts, ample parking spaces and

entertainment (with multiplexes and gaming zones) spots together make malls a one-stop

destination. Usually, malls have anchor tenants who cover large areas in the mall and are

important for attracting footfalls. These tenants book space before the mall is constructed

and promotions for the mall then feature their names as incentives for customers and for

other tenants. The anchor tenants pay a lower rental than that charged for smaller shops.

Most malls lease out floor space to individual shops, which are, in turn, enticed by the

economies resulting from the sharing of costs.

32


Operational Malls in India (Large Cities)

Name Location Sq.ft.( built up areas)

Mumbai InorbitHigh Street PhoenixNirmal LifestyleInfinityCenter OneR Mall Fun RepublicCiti Mall

MaladLower Parel MulundAndheriVashiMulund Andheri (W)Andheri (W)

450,000 700,000100,0000 200,000 130,000 280,000 120,000 100,000

Delhi (NCR) Ansal Plaza3C’sM2KMGF PlazaAnsal PlazaMGF MetropolitanSahara MallDLF City CentreCentrestageSab Mall

Siri Fort Road Lajpat NagarRohiniMG RoadFaridabadMG RoadMG RoadMG RoadNoidaNoida

170,000 70,000 60,000 100,000 125,000 250,000 250,000 250,000 150,000 70,000

Chennai Spencer Plaza Anna Salai 600,000Bangalore Forum

Bangalore CentralImperial Mall

Korma galaResidency RoadResidency Road

650,000 125,000 62,000

Hyderabad Hyderabad CentralPrasad LabsMPM Mall

PanjaguttaNecklace RoadAbids

225,000 100,000 150,000

Kolkata City CenterMetropolisForum

Salt LakeEM BypassLee Road

350,000 140,000 250,000

Source: Images Retail Mall management is becoming increasingly important in India, especially because

of the number of people involved in the construction and operation of a mall. Malls

organize promotional activities, which lead to revenue generation. They also conduct

events that increase footfalls by attracting people.

CHAPTER 6

EMERGING TRENDS IN THE INDIAN RETAIL

INDUSTRY

33


The emerging trends in the Indian organized retail sector would help the

economic growth in India. There is a fantastic rise in the Indian organized retail sector in

a very short period of time between 2001 and 2006. Eventually, out of the shadows of the

unorganized retail sector, India has a chance of tremendous economic growth, both in

India and abroad.

The emerging trends in the Indian organized retail sector are also adding up to the

development of the Indian organized retail sector. The relaxation by the government on

regulatory controls on foreign direct investments has added to the process of the growth

of the Indian organized retail sector. The infrastructure of the retail sector will evolve

radically in the recent future. The emergence of shopping malls is increasing at a steady

pace in the metros and there are further plans of expansion which would lead to 150 new

ones coming up in India by 2008. As the count of super markets is going up much faster

than rate of growth in retail sector, it is taking the lions share in food trade.

The growth of the Indian organized retail sector is anticipated to be heavier than

the growth of the gross domestic product. Alterations in people's lifestyle, growth in

income levels, and encouraging conventions of demography are proving favorable for the

new emerging trends in the Indian organized retail sector. The success of this retail sector

would also lie in the degree of penetration into the lower income strata to tap the possible

customers in the lowest levels of society. The demands of the buyers would also be

enhanced by more access to credit facilities.

6.1 Movement towards Smaller Cities India has four metros - Mumbai, Delhi, Kolkata and Chennai - and the

same number of mini metros: Bangalore, Hyderabad, Ahmedabad and Pune. Initially,

most retail players launched their ventures in the metros and mini metros. However, of

34


late, the retail phenomenon is spreading to smaller cities. Players are entering these cities

early to gain a first mover advantage, that is, a larger customer base and a higher share of

loyal customers. Over the past few years, the share of these cities in the percentage of

organised retail has been growing steadily.

6.2 Large Players Ramping Up Rapidly Many large players have announced plans to set up stores in smaller cities. In

addition to providing them with the first mover advantage, this will help increase the total

number of their stores, ensuring a larger scale and faster growth. However, the outlets

that have been announced for these cities are value-based and the sizes of the stores are

smaller, depending on the city, taste and preference of people and the capacity to

purchase. The growth in the number of stores is boosted by the growth in the malls in

these cities. Malls provide retailers with a built-to-requirement set up and convenient

access. They are one-stop shops for customers, offering a right mix of stores catering to

different needs. Thus, they attract more footfalls than standalone stores.

Upcoming Malls in Smaller Cities (about 75)

Cities No. of Malls

Cities No. of Malls

Cities No. of Malls

Agra 3 Guahati 2 Muradabad 1Ajmer 1 Gwalior 2 Mysor 1Allahabad 1 Indore 1 Nagpur 4Amritsar 2 Jaipur 7 Nashik 3Asansol 1 Jalandhar 2 Surat 2Bareilly 1 Jammu 1 Trivandrum 3Bhopal 2 Kanpur 2 Udaipur 2Bhubaneshwar 1 Kochi 1 Vadodra 1Chandigarh 2 Lucknow 5 Varanasi 1Coimbatore 2 Ludhiana 2 Vishakapatanam 1Dehradun 1 Mangalore 1 Other Cities

(estimated)10

6.3 Tier-2 Cities Tier-2 cities are smaller than the metros and the mini metros in terms of

population and purchasing power. The cities in Tier-2 based on SEC classifications and

35


population are: Nagpur, Ludhiana, Chandigarh, Surat, Jaipur, Kanpur, Lucknow, Indore

and Bhopal.

Although these cities have sufficient purchasing power, their capacity in terms of

catchments is limited; therefore, their ability to accommodate a number of players is also

restricted. For example, Mumbai is spread over an approximate area of 440 sq kms, while

Chandigarh is spread over 114 sq kms and Nagpur over 217 kms. Thus, if the number of

players setting up stores in these cities is larger than can be sustained by the population,

players could make losses. Consequently, players are trying to gain the first mover

advantage in these cities, to earn customer loyalty.

Growing Aspirations

Trends in the metros are usually duplicated in Tier-2 cities with a lag effect.

Accordingly, a growth in the aspirations of people in Tier-2 cities has been observed.

Increasing travel, widespread media and growing awareness has only aided this growth.

Organised retailers are encouraging budding aspirations by letting people of all classes

enter their stores.

Existing Store Network (Player-Wise Classification)

Players Metros Mini metros Tier-2 & other cities

Total

Pantaloon 29 23 12 64Shopper’s Stop 11 4 1 16RPG 110 164 27 283Globus 4 2 1 7Provogue Studio

22 10 12 42

Lifestyle 5 2 0 7Tata- Trent (Westside)

8 3 6 17

Total 189 193 56 438

6.4 Retail Opportunities in Top 8 Cities Purchasing power is the highest in the top eight cities in India. All these

cities, except Bangalore, are listed among India's 10 richest cities for by NCAER.

36


Organised retail has witnessed significant growth in these cities. Based on income

classes, the retail opportunity in the country's top eight cities is depicted below.

Income Class (‘000)

DELHI

MUMBAI

KOLKATTA

CHENNAI

BANGALORE

HYDERABAD

PUNE

AHMEDABAD

TOTAL

Below 90 4 16 20 10 7 4 3 6 70

90-135 19 30 25 10 10 14 10 7 125

135-200 39 83 76 29 31 24 18 28 328

200-250 35 22 11 11 7 12 5 4 107

250-300 27 17 8 8 5 8 4 3 80

300-500 69 46 19 18 11 19 10 7 201

500– 750 46 32 11 11 6 10 7 5 128

750– 1000 28 20 6 6 3 5 4 3 75

1000– 1500 35 26 7 7 3 6 6 3 93

1500- 2000 21 16 4 4 2 3 3 2 55

2000- 3000 27 20 5 4 2 3 4 2 67

3000- 5000 28 22 4 4 2 3 5 2 70

5000- 7500 18 14 2 2 1 1 3 1 42

7500- 10000

10 9 1 1 0 1 2 1 25

Above 10000

27 23 3 2 1 1 5 2 64

TOTAL 435 396 202 127 91 114 89 76 1528Source: CSO, NCAER & CRIS INFAC6.5 Private Labels

37


Private labels are those that the retailer sells under his own brand. In the case of

apparel and accessories, the retailer might outsource or own the manufacturing, while in

the case of food items the retailer might outsource manufacture and package it under

his/her own label. These labels provide customers with quality assurance.

Although they are priced lower than premium brands, the gross margin earned by

the retailer on private labels is almost twice that earned on other premium brands. This is

because the retailer saves at every step in the supply chain and can still sell at a price

lower than premium brands as there is no margin to be given to the brand owner. These

goods can be outsourced from small-scale industries and designed, packaged or labeled

in-house.

Some of the private labels of major retailers and their share in total sales are listed below:

Private Labels of Retailers

Major Retailers Share of private labels (per cent)

Private labels

Pantaloon Retail (India) Limited

70 John Miller shirts HoneyPantaloon T-2000Bare AjileAnnabelle

Shopper’s Stop 17 Life KashishStop Karrot

Tata – Trent Over 90 WestsideGlobus Stores Pvt. Ltd. 50 GlobusEbony Retail Holdings Ebony ETCSource: Company reports & industry

Companies are also acquiring private labels in food and grocery and other value-

based segments. Hypermarkets sell both apparel and food items like tea leaves, sugar,

spices, etc after outsourcing them and labeling them in- house. This enables them to

provide cheaper products and obtain higher stock turnover and margins.

Companies have to manage private labels with due care. An improper mix of

private labels with other brands or targeting the wrong customers can lead to a higher

inventory. A company in India could operate in multiple formats. It could have private

labels in apparel for both lifestyle and value segments. However, it will not stock

38


premium brands in hypermarkets nor discount them there. Similarly, apparel priced

below a certain level will be available only in hypermarkets and not in lifestyle stores.

This enables the chain to tap both segments through different stores, thus increasing

sales.

6.6 Large Store Sizes Although store sizes differ according to the city and the catchment area, an overall

increase has been observed in the store sizes announced by large retailers. This is

indicative of the increasing demand for organised retail and the efforts made by retailers

to tap this opportunity. Players like Pantaloon, Shoppers' Stop, RPG, Lifestyle and

Pyramid have announced stores ranging between 60,000 and 100,000 square feet.

Stores Sizes: Existing & Planned

Player Existing store size Planned store size----------------------------------------------------

Average sq. ft.

Pantaloon Apparel CentralBig Bazaar Food Bazaar

19,667125,00042,4009,108

22,725150,75058,44913,404

Shopper’s Stop 44,285 63,753Tata- Trent 20,000 20,000Pyramid 30,000 75,000Nilgiris 2,500 5,000Source: CRIS INFAC

However, these stores are small compared to their international counterparts. In

most developed countries, there are large stores on the outskirts of the city. There are

discount stores spread over 100,000 square feet catering to almost all household needs.

Some of these stores are almost as big as the malls in India.

6.7 Shrinking Catchments - Smaller Store Versions

39


With the growth in the size of large cities, retailers have found that consumers are not

willing to travel far for purchases. Thus, players have been opening smaller stores closer

to consumers.

6.8 Impulse Goods Earlier, impulse goods like books or music were sold through standalone destination

stores. However, players have now opened smaller stores close to customers to get the

customer to buy when she/he is out shopping for other needs, thus increasing the spend

on unplanned impulse purchases.

For instance, Music World (RPG) now has 3 types of stores:

1. Destination stores, which have an area of over 4,000 sq ft. They store huge

varieties in different types of music.

2. Express stores are 300-600 sq ft stores. They stock chartbusters (Hindi, English,

regional and just released titles), essentials in each category according to area,

and also offer the facility to request and obtain an album.

3. Unplugged stores are small gondolas that operate as concessionaires in other

department/ large stores.

6.9 Hub-and-Spoke Model This model is being increasingly used by retail organisations for setting up

smaller stores. Under this model, one large store becomes a hub with large stocks and

feeds a few smaller stores, which operate as spokes. This helps large stores obtain

supplies from warehouses and supply to smaller stores. Under this model, the smaller

stores can also get the goods demanded by the customers from the hub store.

Piramyd retail recently announced 117 Trumart stores (food and grocery) in

Mumbai and Pune based on the same model. The smaller stores encourage residents in

nearby areas to buy from the store and thus increase sales by increasing the target

population and the share of wallet of consumers. Such stores will increase the penetration

levels of organised retailing.

40


Areas that are dominated by kirana stores become less accessible for retail chains

due to unavailability of space or other logistic reasons. However, kiranas are becoming

franchisees for organised retail chains and changing their ambience to meet the

requirement of organised retailers; consequently, the Indian market could witness a spurt

in hub-and-spoke retailing.

CHAPTER 5DRIVERS FOR GROWTH IN RETAILING

41


7.1 Higher Disposable Incomes The disposable income of Indian consumers has increased steadily. The

proportion of the major consuming class (population that has an annual income that is

higher than Rs 90,000) has risen from 20 per cent in 1995-96 to 28 per cent in 2001-02 to

35 per cent in 2005-06 and to 48 per cent by 2009-10.

Classification Income class

1995- 1996

2001- 2002

2005 - 2006

2009 – 2010 P

Per cent

Deprived < 90 131,176 135,378 132,250 114,394 -2 Aspirers 90 – 200 28,901 41,262 53,276 75,304 8Seekers 200- 500 3,881 9,034 13,813 22,268 12Strivers 500- 1,000 651 1,712 3,212 6,173 17Near rich 1,000-2,000 189 546 1,122 2,373 20Clear rich 2,000-5,000 63 201 454 1,037 23Sheer rich 5000-10,000 11 40 103 255 26Super rich > 10,000 5 20 53 141 28Total 164,876 188,192 204,283 221,945

P: ProjectedSource: NCAER

Growing Indian Middle Class

7.2 Higher Level of Working Women According to the 2001 census report, the population of working women has

increased from 22 per cent in 1991 to 26 per cent in 2001. The purchasing habit of a

42


working woman is different from that of a housewife, since the former has lesser time to

devote to the task. Working women would prefer a one-stop shop for purchasing their

regular products. Also, a working woman's propensity for spending is higher than that of

a housewife.

Average Spend By Working Women vs House Wives

Category SpendHousehold goods 2.2Eating out 2.0Music 2.5Gifts 2.9Mobile phones 3.8Computer peripherals 4.1Source: KSA Consumer Outlook

This will translate into higher spending on retail goods and work in favour of the

organised retailing format.

7.3 Higher Growth in Urban Population At present, organised retailing is focused in metros and is expected to expand to

Tier-2 cities. For the next 10 years, growth in organised retailing is expected to take place

in urban areas. Thus, the target market for organised retail players is the urban

population.

Urbanization has increased at a rate of 2.7 per cent over the last 10 years

(1990-2000). In 2000, the urban population was estimated to be 281 million (27.7 per

cent of the total population). This pace of urbanization is expected to be maintained, and

urbanization is expected to increase at 2.4 per cent from 2000 to 2015. In 2015, the

population in urban areas is expected to touch 401 million, accounting for about 32.2 per

cent of the total population.

Increasing Urbanisation

43


Source: Census 2001

Assuming a similar age profile in urban and rural India, the urban population in

the 15-60 age group is expected to grow from 164 million (18 per cent of total

population) in 2000 to 287 million (23 per cent of total population) in 2015. Since this is

the population that indulges in significant spending, the prospect for organised retail in

urban areas seems promising.

7.4 Higher Income Levels in Urban Population Greater growth in the numbers of the urban middle class and strong growth in

income levels augurs well for the growth of organised retailing, as we believe that in the

medium term organised retailing will be restricted to the urban areas of India.

Rising Income of Urban Middle Class

Source: CRIS INFACThe proportion in total population of the segment with an annual income higher

than Rs 90,000 (that is, the major consuming class) has increased from 20.4 per cent in

44


1995-96 to 28.1 per cent in 2001-02. However, the share of the major consuming class in

the urban region has increased at a higher rate, from 45 per cent in 1998-99 to 51 per cent

in 2001-02, and it is expected to touch 63 per cent by 2009-10. Further, the income levels

of the urban middle class are also expected to register a strong growth in the medium

term.

7.5 Change in Outlook on Branded Products In the last 4-5 years, Indian markets have witnessed a strong shift towards

branded products. Indian consumers have begun to believe that branded goods signify

better quality and offer grater value for money. This increase in the awareness of branded

goods has been the highest in the case of apparel.

We believe that increased exposure to international consumerism trends and fast-

changing lifestyles can result in a 10-15 per cent growth in branded goods, which will, in

turn, provide a platform for the growth of organised retail.

7.6 Growth in the Number of Retail Malls The last 2-3 years have witnessed a proliferation in malls in India, particularly in

the metros and mini metros. A mall provides an organised retailer a large space to

lease out (space has been a major bottleneck for many retailers, especially in high

street areas).

Players like Raheja's, the Piramal Group, the Sahara Group, the DLF Group and

other real estate developers have developed retail spaces. The growth in retail malls

provides more options for retailers, as it reduces the time required to set up a retail

outlet. It also provides retail space, which can be leased by retailers instead of investing

in building up their own store. This significantly reduces the capital intensity of the retail

industry.

Typically, a retail chain would prefer to lease store space in a mall instead of

setting up a standalone store, since this reduces capital investment, which can be

45


employed in their core business of retailing. To illustrate, for a store owned by a retailer,

rentals would average about Rs 100 per sq ft per month in Mumbai, while rentals in a

mall in the city would be Rs 60-80 per sq ft per month, which implies a saving of 30-40

per cent on the mall format.

7.7 Catalyst for Organised Retail In 2003, when the number of malls in operation in India had barely touched

double digits, there were only 14 companies that ran department stores, 2 with

hypermarkets and 10 with supermarket chains. With the increase in the number of

malls, more players want to tap the retail opportunity. As a result, the number of

stores has increased significantly. Players with large stores are increasingly tying up with

mall owners/developers to obtain space as anchor tenants. At least 50 new malls of

100,000 sq ft and above have gone into business in 2004 and another 200 malls are

estimated to come up in the next 2-3 years.

Upcoming Malls in India

City No. of mallsMetrosNational Capita Region MumbaiKolkattaChennai

602894

Sub-Total 101Mini Metros BangaloreHyderabadPune Ahmedabad

91595

Sub-Total 38Tier-2 citiesSub-Total 81Total 220Source: CRIS INFAC

7.7 Entry of International Players

46


At present, foreign direct investment (FDI) in retail chain stores is

restricted in India. However, many multinational companies (MNCs) have entered the

Indian retail scene through permitted routes.

Franchise: In the franchise model, an international brand gives its technology and

brand name to a domestic partner and gets royalty in return. Nike, Pizza Hut,

Subway, Tommy Hilfiger, Marks & Spencer, etc have adopted this route.

Joint venture: In this case, an international brand provides equity and support to

an Indian entity as in the case of McDonalds and Reebok. The MNC's share is

restricted to 49 per cent.

Manufacturing: Here, an international company sets up an Indian company to

manufacture its products and obtains the right to retail these products in India, as

in the case of Bata and Benetton.

Distribution: An international company sets up a distribution office in India and

supplies its products to local retailers. It can also set up franchised outlets for

brands as in the case of Swaroski and Hugo Boss.

Wholesale trading: In this model, an international company is allowed to

sell various products to local retailers as in the case of Metro Cash & Carry,

where Metro sells products to retailers, who, in turn, retail it to the end

consumers.

MNC retailers have followed varied entry strategies and their target segment has

also undergone changes, from the higher income group to a larger target segment.

Lifestyle and Dominos have targeted the higher income group, while McDonalds has

focused on a wider target population with its "value-for-money' positioning. Metro aims

to enter into the distribution chain of retailers and is focusing on end retailers as its

customers.

47


MNCs have, to date, focused chiefly on food, apparel and lifestyle product

segments. This basket is expected to expand further in terms of products and addressable

markets. This will lead to more players in the market. However, we believe that the level

of competition in the initial phase will be lower since there is enough room for growth for

each player.

This phenomenon will bring in fresh capital and technology, which will aid

the development of the industry. International companies will also bring in better

business practices and management techniques, which will prove to be beneficial to

existing domestic players and the industry as a whole. The opening up of the retail

sector for FDI will improve the state of the industry and fuel growth.

However, a few large international players have postponed their plans to

enter India on account of the uncertainty over FDI and the many regulations

governing the Indian retail industry. Following the ongoing debate on allowing FDI in

retail, we expect organised retail to be granted industry status, which will make it easier

for players to procure funds.

CHAPTER 8

48


FOREIGN DIRECT INVESTMENT IN INDIAN RETAIL INDUSTRY

The Government of India was initially very apprehensive of the introduction of

the Foreign Direct Investment in the Retail Sector in India. The unorganized retail sector

as has been mentioned earlier occupies 98% of the retail sector and the rest 2% is

contributed by the organised sector. Hence one reason why the government feared the

surge of the Foreign Direct Investments in India was the displacement of labour.

The unorganized retail sector contributes about 14% to the GDP and absorbs about 7% of

our labour force. Hence the issue of displacement of labour consequent to FDI is of

primal importance.

There are different viewpoints on the impact of FDI in the retail sector in India.

According to one viewpoint, the US evidence is empirical proof to the fact that FDI in the

retail sector does not lead to any collapse in the existing employment opportunities. There

are divergent views as well. According to the UK Competition Commission, there was

mass scale job loss with the entry of the hypermarkets brought about by FDI in the UK

retail market.

According to another school of thought, there is undoubtedly labour displacement

associated with FDI, but employment generation will occur in different dimensions.

Varied skills would be specialised.

Taking into consideration the pros and cons of introducing FDI in India, ICRIER

has recommended 49% of FDI. The opening up of FDI in India is also expected to be

gradual so that the domestic industries can tailor themselves according to the changes. At

the formative stage, the idea was to start with 26% of FDI in this sector. But soon the idea

changed as China's FDI moved up from 49% to 100% in the retail sector.

49


While the government is continuing its plans to liberalise FDI in the retail sector

in India, foreign companies like Wal-Mart are waiting on the threshold. They basically

wish to enter into partnership with various multinational chains. FDI would bring about

modern infrastructure that would help to boost the productivity of the organised retail

sector in India. Malls have mushroomed in various locations. They are the centers of

entertainment for the new generation.

FDI is not allowed in the retail sector and this is the reason why many prominent

global players like Dominos, Levis, Lee, Nike, Adidas, TGIF, Benetton, Swarovski,

Sony, Sharp, and Kodak etc are entering the retail market via licensee or franchisee. The

opening up of the economy to FDI in the retail sector is also expected to generate

employment. FDI can be a blessing instead of curse only if it produces backward linkages

relating to production and manufacturing. It may also, in the process help to push up

domestic production as well as exports.

In the present scenario, 51% Foreign Direct Investment is permitted in India only

through single brand retailing. The international retailers are entering the matket through

licensees just as Wal-Mart has entered through the franchisee, Bharti Enterprises.

International Players Likely To Enter the Indian Market

Players Country of Origin Retail Sector ActivityJC Penney USA Retail Major Department

StoreTarget Corporation USA Retail DiscountSara Lee Corporation USA Retail ApparelTesco UK Food RetailH & M Sweden Retail ApparelKarstadt- Quelle Germany Retail Major Department

StoreCarrefour France Food RetailSource: CRIS INFAC

50


Players Who Have a Presence in India and Are Likely To Expand Operations

Players Country of Origin Retail Sector ActivityGAP USA Retail ApparelWal-Mart USA RetailDiscountMetro AG Germany Food RetailBenetton France Retail ApparelMarks & Spencer UK Retail Major Department

StoreMcDonalds USA Food RetailSource: CRIS INFAC

Trends in international markets have shown that organised retail has grown faster

in countries where FDI was allowed in the retail industry. FDI was also responsible for

improvements in product quality, increased choice, better services and a superior

shopping experience.

In Latin America, the entry of foreign retailers had a positive impact on

the productivity and efficiency of domestic firms, who were compelled to consolidate

their operations, invest in supply chains and improvise their pricing structures. The

opening of the Indonesian retail sector provided unprecedented opportunities to foreign

retailers. Indonesia saw the growth of various formats like hypermarkets, department

stores, malls, plazas and convenience stores.

The introduction of FDI in retail in the Thai market resulted in stiff foreign

competition. Within a short span of time, foreign players affected a considerable

expansion of operations and marginalized local players, leading to the closure of a large

number of local businesses. However, the entry of foreign players also marked the

implementation of best practices and superior technology, and Thailand gradually

emerged as an important shopping destination.

China opened its doors to foreign retail players in a phased manner. According to

the data provided by the China General Chambers of Commerce, although foreign

players have entered the Chinese market, the increase in the number of stores of foreign

players has been slower (at 21 per cent) than the year-on-year growth (32.35 per cent)

51


recorded by domestic players, primarily because of the latter's knowledge of the local

market.

Retailing: Comparing Various Asian Economies (2002-03)

Country Total market ($ billion) Share of organized sector (Per cent)Taiwan 40 81Malaysia 20 45Thailand 32 40Indonesia 75 30China 325 15India 180 02Source: CRIS INFAC

According to CRIS INFAC, if FDI is allowed in the Indian retail industry, it could

increase the growth rate of organised retail and thus benefit other allied sectors like food

processing, textile manufacturing, IT and tourism. Organised retailing can lead to an

improvement in the quality of employment, as players will have to invest in training,

which would result in higher salaries and better working conditions. Although some job

displacement cannot be ruled out due to the reduction in the existing distribution chain of

intermediaries and middlemen, we believe that in a growing economy this loss can be

offset by new jobs created in the allied sectors mentioned above as well as in organised

retail itself.

A survey commissioned by the government and conducted by the Indian Council

for Research on International Economic Relations (ICREIR) reveals that about 65 per

cent of the unorganized retailers in India feel that growth in organised retailing has no

major impact on their business. Further, 48 per cent of this section believes that the entry

of international retail companies would leave them similarly unaffected. Therefore, the

systemic efficiency improvements brought in by FDI would be greater than the

cost of displacement.

ICRIER has recommended that FDI of up to 49 per cent be allowed in the initial

stages; this can then be raised to 100 per cent in 3-5 years depending on the growth of the

sector. The study suggests a 3-5 year time frame for 100 per cent FDI in order to give

domestic retailers sufficient time to adjust to the changes and the reforms.

52


CHAPTER 9

CHALLENGES FOR INDIAN ORGANISED RETAIL

Organised retail in India is expected to grow at 25-30 per cent per annum in the

next 5-6 years. However, players in this industry face many regulatory and other

challenges, which could slow down the pace of the industry's growth.

9.1 Multiple TaxationThe retail industry attracts a variety of taxes from both the Central and the state

governments. These include the Central sales tax, sales tax (state), entry taxes for inter-

state sales and octroi depending on the area of operation and procurement and the type of

goods sold. Corporate tax at 30 per cent is also payable. This is higher for foreign players

operating through various formats. Taxes are levied on all goods procured including

essentials like milk.

9.2 Multiple LegislationMultiple licenses and clearances are required for setting up and operating a retail

store. These make the process of setting up an establishment more cumbersome, reducing

the flexibility of operations, slackening rapid expansion and increasing the overall cost of

the retail chain.

The stamp duties on property deals in India are significant. The lease cost alone

can be up to 6-10 per cent of sales in India, while it is only 3-5 per cent globally. Further,

the initial urban planning of cities was undertaken with smaller plots in mind. In

addition, rigid building and zoning laws make it difficult to procure space for

retailing. The urban land ceiling act and rent control acts have distorted property markets

in cities, leading to exceptionally high property prices. The presences of strong pro-

tenancy laws make it difficult to evict tenants and make people reluctant to give out real

estate on rent. The problem is compounded by the lack of clear titles to ownership.

53


Stringent labour laws are another worrying factor. Although instituted to protect

store workers, Indian labour laws constrain the operation of modern formats of retailing.

These laws restrict working hours, require shops to close for one day of the week in

certain areas and make the hiring of part-time employees difficult. However, to attract

investments, state governments have permitted a certain degree of flexibility in certain

cities (like Bangalore) for the use of labour, making user, however, that associated

benefits are not lost.

9.3 High Cost/Unavailability of Real-Estate Pro-tenant rent laws, non-availability of government land, zoning restrictions,

high stamp duty and lack of clear ownership titles increases the difficulty of finding good

real estate in terms of location and size. It also increases transaction costs and supply

constraints. Retail players look for real estate based on the catchment areas suitable to

their formats. The difficulty in procuring the same leads to problems in strategizing and

planning expansions. This problem is being increasingly solved by leasing space in malls.

Lease rentals are one of the most important factors determining the profitability of a

retailer, as most other costs are largely uncontrollable. On an average, lease rentals

account for 7-8 per cent of the revenues and 40-45 per cent of the non-material costs for a

retailer. As is evident from the tables below, even a small change in lease rentals can

significantly alter the profitability levels of stores.

Sensitivity Analysis of Lease Rentals on Net Profits

ApparelLease rentalsNet profit

4012.8

5011.1

609.3

776.4

904.1

1003.6

1100.9

Food Lease rentalsNet profit

501.9

601.5

750.8

880.4

100-0.4

110-1

120-1.7

HypermarketsLease rentals Net profit

3018.6

4019.3

578.9

701.4

80-8

90-17.4

DepartmentalLease rentalsNet profit

4018.6

5015.1

6011.6

778.6

901.7

100-3.7

110-9.1

Lease rentals are measured in Rs per sq.ft. ; Net profit is measured in Rs million

54


9.4 Supply Chain Bottlenecks The food and apparel segments are classified as small-scale industries in India. As

such they are governed by numerous regulations. For instance, most players have to buy

food grains and staples through the Agricultural Produce Marketing Committee. This

poses difficulties in terms of scaling up and reduces product range.

Distribution and logistics are major bottlenecks for the Indian industry,

especially for the food industry. Poor infrastructure, coupled with a lack of third

party logistics providers, makes operations difficult. There is an absence of cold

chains, proper storage and transportation methods (suitable vehicles and containers). This

leads to high wastage and increased transaction and product costs. At present, the major

part of the food chain does not have high value additions, which translates to lower

product price realizations and lost opportunities for the industry on the whole.

To cope with this, large retail chains are integrating backwards and using high

volume and scale, combined with centralized purchasing, to increase their bargaining

power. They are using information technology as an enabler to track orders and

preferences faster.

A case in point is that of a large retail player in India, which has reportedly set up

a centralised consolidation centre. It buys fresh food and vegetables, staples, rice, chillies,

etc in huge quantities every month from farmers in the area that houses its consolidated

centre. This is then sent to its warehouse, from where it is dispatched to stores. An

efficient supply chain management along with centralised procurement enables the

company to have high volumes and thus gives it the ability to offer discounts.

9.5 Customer Preference India's cultural diversity translates into a wide variety of purchasing habits and

preferences. In order to ensure success, the retailer must be aware of local habits and

preferences and decide on an optimum product mix and range accordingly. This increases

55


the retailer's customization and stocking range. This, in turn, leads to higher inventories

and fewer best practices.

9.6 Stiff Competition from Small Traditional Format Organised retailing faces severe competition from the unorganized segment

on the cost and service front. Unorganized players are typically small-time

businessmen, who own small stores (average size of 500 square feet). The level of

overheads of these players is far lower. There are no labour costs as such stores are run

by family members, and no expenses are incurred on creating an attractive ambience.

These players can evade taxes, which organised players have to pay. This makes the

unorganized player more cost effective than the organised player.

9.7 Availability of trained manpower There is a shortage of manpower trained to suit the requirements of retail

organisations, both at the shop floor level (as working for a store is not considered

prestigious), and at the middle level (where managers are required to effectively

implement growth plans). With a growth in organised chains, companies are facing a

high employee turnover. With the advent of foreign players, existing manpower could

move to multinationals as in the IT/ITES sector. Sensing the lack of available manpower

various institutes have started courses in retail management.

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CHAPTER 10

KEY SUCCESS FACTORS

As in the case of any other business, success in the organised retail industry is

determined by a few select factors. Not all of these can be quantified but nearly all of

them are instrumental in determining the success of a retail establishment. The section

below enumerates the various factors that are believed to be instrumental in determining

the success of players in the retail industry.

10.1 Location Location is the most important factor determining the success of a retail store or a

chain. Lease costs are as high as 8-9 per cent of the total costs of a retail organization. A

store located in an area frequently accessed by local residents has the potential for high

footfalls but has higher rentals as well. Selecting a suitable location is a strategic

decision. Choosing a wrong location and then changing it can have considerable strategic

and financial implications. The exit costs are high not only because capital expenditure

will have to be incurred again but the image of the store might also suffer a setback.

There might be difficulties in changing location if the property has been acquired on a

contractual basis. Thus, organised retailers generally select a location after a detailed

study of target customers, local buying behaviour and catchment areas.

10.2 Knowing the Customer The success of a retail chain depends on its perception in the minds of target

customers. The tastes of customers in India differ from region to region. Hence, retailers

need to change product mix and offerings according to the tastes and preferences of local

customers. Although a good location can bring in footfalls, the conversion factor and

ticket size are driven by the range of merchandise that the store stocks. The selection of

the right merchandise requires a strong understanding of the preferences of the target

customers in the catchment area, their spending ability and their spending pattern.

Further, the store must be dynamic in churning its merchandise so that it reflects current

57


trends and customer tastes. This is the reason most stores have end-of-season sales and

discounts.

10.3 Service Quality Service quality is as essential as the merchandise mix and the location of the

store. The customer needs to be treated as the "king' at the store and should be provided

with a better shopping experience each time he/she walks into the store. The ambience of

the store defines its positioning. It should incite the customer to purchase. The store

should provide clear directions and make sure the customer is not confused. Store

employees should be friendly and helpful but not interfering. They must be able to

understand customer requirements and guide them accordingly. Service plays a very

important role in creating loyal customers, who play a significant role in store sales.

10.4 Scale of operations The ability to scale up a business model would define the growth rate of a retailer.

A larger scale helps distribute overheads and provides more space. Further, a higher scale

of operations would provide an added advantage in terms of loss-bearing capabilities. A

retailer with a higher number of stores would definitely be in a better position to

manage/resurrect slow sales in 1-2 stores without significantly affecting overall business

as compared to a retailer operating a small fleet of stores.

However, the scaling up of operations needs to be backed by consistent

service across various stores and the ability to select merchandise tailored to target

customers in each location. It also requires suitable technological and operational back up

and management dedication.

10.5 Supply chain management An efficient supply chain management is the backbone of an organised retail

chain. Adequate storage and stock facility for all outlets is critical for the success of

any store. Information technology helps monitor aggregate volume and supply chain

58


efficiencies. Proper management of stock could help a retailer transfer stocks from one

store to another and thus provide a judicious mix in each outlet. Good supply chain

management supports scale and also leads to lower wastage, thus lowering shrinkage

cost.

10.6 Management quality The ability to select the right formats in keeping with the intended value

proposition and the ability to effectively manage the scaling up of operations are

essential characteristics of good management in a retail outfit. Experienced,

dynamic and dedicated management is required not only at the top level for

strategizing, but is equally important at the middle level for implementation and store

operation.

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CHAPTER 11

GROWTH STRATEGIES

With numerous opportunities for growth, organised retail chains in India have

been scaling up their models by adopting new formats and increasing the number of

stores of the same kind in new areas. To scale up a retail operation, a retailer can follow a

growth path by using one or a combination of the following dimensions:

11.1 Product Line A retailer can increase the depth and breadth of a product mix and enter into new

verticals like food, apparel, consumer durables, jewellery, footwear, electronics and

entertainment. An example is the extension of Trent, primarily an apparel player, into the

food vertical by way of Star India Bazaar.

11.2 Target Customers A retailer generally caters to a specific class of customers. High-end jewellery

showrooms and department stores like Shoppers' Stop primarily cater to the SEC A

class. However, a retailer can expand reach by setting up different kinds of stores that

cater to various economic groups - the SEC A, B, C and D segments. A case in point is

Pantaloon. Within the apparel vertical, it caters to various sections of the society

through different stores. While Pantaloon Stores, which stock expensive brands, cater to

SEC A and B, Big Bazaar with its range of low-end clothes caters to SEC C and D.

However, success is largely determined by selecting a mix and demarcating the kind of

goods to be made available in different stores. Thus, the clothes found in Pantaloon

Stores will not be on offer in Big Bazaar.

11.3 Formats A player can also grow by adopting different formats. A player in a specialty

chain can also set up hypermarkets and department stores. Players with department stores

like Piramyd are planning to set up specialty Trumart stores for food. The different

60


formats that a player can adopt can be hypermarkets, supermarkets, department stores and

specialty chains. An example is RPG, which operates in multiple formats like specialty

food stores, music stores and hypermarkets.

11.4 Markets Retail does not create demand per se, and markets develop at their own pace,

independent of the channel. Once different growth paths are adopted, the needs of the

customers in a given area get saturated. Players can then grow by expanding their

markets. The different markets (local, regional, national and international) in which a

player operates will determine its scale. A local player would be one like Akbarallys,

established in a particular area. Viveks or Vijay Sales cater to a region. Chains like

Pantaloon, Trent, Shoppers' Stop, RPG, Lifestyle, Globus, etc have established their

presence across the country. Once the national markets are saturated, players look at

international set-ups. International players like Wal-Mart and Carrefour have expanded

operations beyond their saturated domestic markets, going on to establish their presence

world-wide.

61


CASE STUDY

PANTALOON RETAIL (INDIA) LIMITED

12.1 Profile Pantaloon Retail (India) Ltd (PRIL) was incorporated on October 12, 1987, as

Men's Wear Private Limited under the stewardship of Kishore Biyani. It was converted

into a public limited company in September 1991. The company sold branded

garments under the Pantaloon, Bare and John Miller brands and set up its first men's wear

Pantaloon Shoppe outlet in 1993. Its name was changed to Pantaloon Retail (India) Ltd in

1999, when it made a full-fledged entry into the retail segment through the Pantaloons

Family Store.

Over the last 5 years, PRIL has evolved from an apparel retailer focusing on

men's garments to a retail company servicing lifestyle-conscious and value-conscious

customers. It targets lifestyle-conscious customers through the Pantaloon department

stores and the Central Malls and value-conscious customers through the Big Bazaar and

Food Bazaar store chains. PRIL is one of India's leading manufacturer-retailers, with 12

Pantaloon stores and 18 Big Bazaars, 31 Food Bazaars and 3 Central Malls across the

country.

Pantaloon Retail India Limited

Year of incorporation

1987

Ownership Public Limited CompanyRetail sector activity Department stores, Hypermarket, Supermarkets, Malls.Principal fascia Pantaloon, Big Bazaar, Central, Food Bazaar.

62


12.2 Pantaloon Retail (India) Limited: Corporate Structure

Source: Annual Report

PRIL has evolved from a manufacturing company to a completely integrated

player, controlling the entire value chain.

12.3 Areas of Operation

1) Leisure / Entertainment: Bowling Co., F123

2) General Merchandise: Big Bazaar, Blue Sky, Brand Factory, Navaras,

Central, Pantaloons, Shoe Factory, Top 10.

3) Wellness / Beauty: Health Village, Star Sitara, Tulsi, Turmeric.

4) Home Electronics: Collection i, Electronics Bazaar, e-zone, Furniture

Bazaar, Home Town, Got It.

5) Telecom / IT: Gen-M, M-Bazaar, M-Port

6) Fashion: aLL, Big Bazaar, Blue Sky, Brand Factory, Central, Fashion Station,

Gini & Jony, Lee Cooper, Navaras, Pantaloons, Top 10.

7) Books / Music: Depot

63

Pantaloon Group

Pantaloon Industries Limited (PIL)

Pantaloon Retail India Limited (PRIL)

Pantaloon Retail Technologies Limited (PRTL)

PFH Entertainment Limited


8) Food: Brew Bar, Café Bollywood, Chamosa, Food Bazaar, Sports Bar.

9) E-tailing: futurebazaar.com

12.4 Strategy and Growth

1) Type of Stores To gain a higher share in the customer's shopping basket, PRIL has adopted

blending strategies. By entering into multiple-format department stores and

hypermarkets, PRIL has effectively blended multiple strategies and thereby,

successfully addressed a high share of the customer's basket.

Lifestyle segment

Pantaloon: They are vertically integrated private label apparel stores

addressing the needs of the entire family. These department stores were

initially positioned as "India's family store', primarily offering men's apparel.

Over time, they have been repositioned as "lifestyle stores', targeting SEC A and

B in urban India. The product line is also being expanded to offer a wide range of

garments, accessories and lifestyle products for men, women, kids and infants.

Central: Positioned as "lifestyle' malls, these are large format malls located in the

heart of a city. They are located in high footfall areas with a store space in the

range of 125,000 square feet to 250,000 square feet. The malls house various

categories of products and various brands in each category, including some PRIL

brands.

Value segment

Big Bazaar: This is a large hypermarket with store sizes ranging from 30,000 to

over 100,000 sq ft, selling food, household items, utensils, luggage, white

goods, electronics, cosmetics, jewellery, pharmaceuticals, grocery items, etc,

at a discount. These stores are targeted at the spectrum of population with

a high propensity to switch stores on the basis of price, based on the

64


"value-for-money' principle. PRIL's hypermarkets store a larger share of

apparel and less of food as compared to the others. Due to higher margins

in apparel, they break even sooner.

Food Bazaar: The Food Bazaar replicates a local market to provide the much

important "touch and feel' factor that Indian housewives are used to in the local

bazaar. It represents the company's entry into food retail and is targeted across all

classes of population. These stores have over 50,000 stock-keeping units,

which cover grocery, FMCG products, milk products, juices, tea, sugar, pulses,

masalas, rice, wheat, etc, besides fruits and vegetables. All products are sold

below MRP, with discounts ranging between 2 per cent and 20 per cent. Fruits

and vegetables are sold at prices comparable with wholesale prices.

Pantaloon Retail (India) Limited: Retail Presence

Food Bazaar Central Mall Malls Big BazaarCities No. of




outletsMumbai 7 Bangalore 1 Gariahat 1 Kolkata 2Thane 1 Hyderabad 1 Hyderabad 1 Hyderabad 1Ahmedabad 3 Pune 1 Secuderabad 1 Bangalore 1Nagpur 1 Chennai 1 Mumbai 2Nasik 1 Ahmedabad 1 Gurgaon 1Pune 1 Kolkata 1 Nagpur 1Kolkata 4 Kanpur 1 Ahmedabad 2Bhubaneshwar 1 Pune 1 Nasik 1Gurgaon 1 Mumbai 1 Ghaziabad 1Ghaziabad 2 Gurgaon 1 Durgapur 1Durgapur 1 Baroda 1 Thane 1Bangalore 5 Bangalore 2Hyderabad 2 Delhi 1Delhi 1Total 31 11 17Source: Company reports

2) Private Labels The company is likely to have higher margins due to the contribution of private

label products, which typically have higher margins. At present, nearly 70 per cent of

65


the sales in PRIL's retail business, mainly its apparel business comes from the sale

of private label products. A similar strategy has been adopted for Big Bazaar and Food

Bazaar, with the company planning to launch around 120 private label products in Big

Bazaar by the end of 2005-06.

3) Tie-Ups with Over 75 Mall Developers PRIL has tied up with various mall developers to obtain space as anchor tenants.

This will enable it to grow faster and acquire space at cheaper rates.

4) Increasing Store Size The company is progressively increasing the average store size of each of its retail

formats. The average size of a PRIL store has increased from 15,000 sq ft in 1998-99 to

20,000-25,000 sq ft. The average size of a Big Bazaar store has increased four times to

more than 50,000 sq ft, while the Food Bazaar store has doubled to around 6,500 sq ft.

5) New Areas PRIL believes that the Indian market is different from those of other countries, as

the shopping behaviour here is significantly different. Thus, it plans to get into new areas

by capitalizing on this Indianness. Some of its likely forays are:

1. Small Tea and Samosa (an Indian snack) stores, called CHAMOSA, where each

item will be available for Rs 5; this will cater to the value-oriented segment.

2. The home furniture segment, both standard and customized. In addition, various

facilities will be provided to make home decoration and maintenance easier.

3. The leisure and entertainment segment through its subsidiary.

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CHAPTER 13

FUTURE OF INDIAN RETAIL INDUSTRY

Retail industry in India is greatly fragmented comparing to the developed and

other developing countries. This presents enormous prospective for the structured retail

industry to flourish throughout the country, as the market for the final product is huge.

Retail industry is largely led by private companies. The distribution for fast-moving

consumer products includes many layers like carrying and forwarding agencies,

distributors, wholesalers, stockiest and retailers.

The Indian retail environment has attained $ 210bn quiche, witnessing a strong

development pace of five percent per year (according to a latest survey by Price

Waterhouse Coopers). As per the estimation 200 malls, presenting additional 50mn sq ft

of retail space will be ready in next two years. Existing retail space in 160 malls is nearly

32mn sq ft.

Organized retailing now accounts for three percent out of the total retailing,

however is predicted to extend to 10 percent by the year 2010. In other means, organized

Indian retail sector would triple its share of the total market within the coming four years,

generating new 8mn jobs, in addition to the 21mn jobs that are already created by retail

sector. As per the estimate, the current retail business witnesses more than 12mn retail

outlets, which include all shapes and formats.

The analysts foresee bright future of the retail sector. A huge number of shopping

malls, nearly 100, have come up in the recent past, generating 20mn sq ft. retail space,

extending more space of about 12mn sq ft to it. Nearly 60 malls are on the verge of

completion and may be operational by the end of current financial year. A forecasted

number of nearly 200 malls, in a move to make additional 50mn sq ft of retail space, will

be completed within the next two years.

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According to analysis by KSA Technopak, India has lowest per capita retail space

accessible around the globe. The study depicts that India require generating at least

110mn sq ft of additional retail space a year for many years, only to meet the demand

generated on account of a continued GDP growth rate of nearly 6 percent. Hitherto, the

Central Government as well as State Governments and local municipals have failed to

match steps with drag on the economy of an incompetent retail sector. This space crisis is

leading to a condition, in which prime locations demand extremely high rates.

To make India's emerging retail market open to foreign direct investment (FDI)

has been on the Government agenda since long time. A number of transformations and

practices were being done, but the sources disclosed that the policy, which is under

finalization is such that FDI in the retail market would lead towards the rear connections

of manufacturing and production and not only set aside to open of retail stores of global

and imported brands.

The global retail giants like Wal-Mart, Gap, Tesco, Versace, K-Mart/SEARS,

Carrefour, ZARA, FCUK, Fendi, NEXT, Mother Care, lKEA, Trussardi, DKNY and

Debenhams have made plans to march in the Indian market. ESPRIT, GUESS, Chanel,

Mango and many other global marked their presence in India by implementing licensing

and franchisee agreements. The global retailers on the line of control, awaiting the green

signal from Govt. to enter Indian retail market. However, the current scenario has

encouraged Indian players to speed up retail expansion and fresh retail ventures.

Companies like Shoppers Stop, Trent, Reliance, Lifestyle, Tanishq, Crossroads,

Akbarallys' and Tanishq already have planned to invest over Rs 5,000cr. Trent is on the

edge to take both its brands 'Star India Bazaar' and 'Westside' to new cities, meanwhile

Shoppers' Stop has recently geared up for expansion of present ones and to add 11 new

stores including two hypermarkets. Also, Pantaloon has planned to add eight 'Big Bazaar'

malls within the next 6 to 8 months.

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After the merger, Reliance Industries Ltd (RIL) is substantially getting ready to

enter in field of retailing. RIL is poised to emerge as the single largest player in this

sector. On the other hand, Tescos, Wal-Marts or Safeways ultimately enter in the country.

So finally, Shoppers' Stops, Pantaloons and Westsides in coming years have will face

stiff competition. More than the Tescos and Wal-Marts, Reliance, Godreg and Tata are

likely to attain reach to the country's interiors.

At the same time, several apparel exporters are keen to get opportunities in retail

sector. Gokaldas Images, OC, TCNS, Gokaldas Exports and Celebrity Fashions are some

of the exporters who already have expanded into retail sector with triumph.

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CONCLUSION

To conclude, it can be said that though the global retail industry has reached its

maturity, the Indian retail industry is still at its infancy. But with the huge potentiality

existing in the Indian market, it is expected to grow in leaps and bounds in the near

future.

Instead of comparing the total global retail industry with the Indian retail industry,

let’s compare Wal-Mart alone with the Indian retail industry & put forward few

interesting facts:

1. Retail Sales of Wal-Mart for the year 2003 was US $ 25,632.9 Crore; higher

than the size of Indian retail industry.

2. The size of any Wal-Mart store is much higher than the size of any existing

shopping mall in India.

3. Wal-Mart has over 4,800 stores, which is unparallel to any of the India's large

format store.

4. New stores opened annually by Wal-Mart are about 420, much higher than all

organized Indian retailers put together.

5. The sales per hour of $2.2 Crore are incomparable to any retailer in the world.

6. Wal-Mart has around 30,000 suppliers throughout the world and more than

600,000 SKU's on its web site, a number that cannot be compared.

7. Daily customers are about 1.57 Crore (almost equivalent to Mumbai's entire

population).

8. Time between each Barbie Sale at Wal-Mart is just two seconds (same rate at

which babies are produced in India!)

Overall, it can be said that “Retail Industry" in India will emerge as one of the best 5

Business sectors in this decade.

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RECOMMENDATION & SUGGESTIONS

To make Indian retailing world class many challenges are to be overcome by the

industry. Some suggestions to improve the situation are offered below.

Establishment of Retailer co-operatives, which will maintain warehouses etc. to

work as a distribution centre for the member retailers can help Indian retailer attain a

respectable position in the relationship matrix mentioned above. The whole

organisation will run at a no-profit, no-loss basis. This would enable the retailers to

buy the products they want directly from the original manufacturers in huge quantity

This would make the application of the concepts of QR (Quick Response) and ECR

(Efficient Consumer Response) possible to a certain extent.. However, many inherent

difficulties may make the functioning or even establishment of such a co-operative

difficult. Nevertheless, these problems are inevitable and must be dealt with firmly.

Merger and buy-out of weak retailers by a stronger one, especially in metros and big

cities may be another step towards this direction. This would give the new retailer the

desired leverage to be world class.

Use of technology to the greatest extent possible may also help strengthening the

retailer’s position in the marketing channel. First step may be taken with setting up of

a network of independent firms believing in use of technology for business

excellence. Then a collection of strong retail organisations may pressurize the

suppliers and other channel members to use compatible technology. This may open

the door for implementation of QR or ECR or other relevant concepts for the retailers.

An overall change is to bring about in the mindset of the retailers. They will have to

think differently. They must find out and satisfy service outputs of the target

customers Unless there is a drastic change in the mindset of at least large and medium

retailers and as well as that of the manufacturers, the required change is not going to

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come by easily. The retailers must learn and understand to lead the chain from the

front.

Setting up of more and more non-store retailing centers would also ensure a

strong retailing organisation. Non-store retailing makes implementation of modern

principles easier and less costly.

Setting up of franchisee organisation may also help in strengthening the position of

the retailers. The franchiser can exert a tremendous control over the way retailing is

done. Transnational service organisation like McDonald and KFC are being able to

offer a centralized control over purchase and operation. Large and medium sized

retailers may take up the concept of franchising to reach the market in a more

meaningful way. Though the management of franchisee network is difficult than

managing a retail chain in view of high level of investment and other obligations,

Indian retailers should spread out its wings its in this profitable and efficient way.

Financial Performance: Balance sheet for June 2006

Balance sheet as at June -06SOURCES OF FUNDS:Equity Share capitalReserves & surplusWarrant Application Money Shareholder’s FundDeferred Tax LiabilitySecured loansUnsecured loansTotal loans

26.88500.02-526.9027.92428.10173.29601.39

Total liabilities 1156.20APPLICATION OF FUNDSGross blockDepreciationNet blockCapital WIPNB + CWIPInvestmentCurrent AssetsInventories

366.0156.58309.4386.06395.49140.62

507.02

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DebtorsCash & bank balanceLoans & advancesOther current assetsTotal current assetsCurrent LiabilitiesCreditorsOther current liabilitiesProvisionsTotal current liabilitiesNet Current AssetsMisc. Expenditure

17.0321.77338.561.09

885.47126.45106.4332.50265.38620.09

Total Assets 1156.20

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BIBLIOGRAPRHY

WEBSITES

1. www.economywatch.com2. www.ibef.org3. www.ficci.com4. www.thehindubusinessline.com5. www.business.mapsofindia.com6. www.business.mapsofindia.com7. www.hindubusinessline.com

BOOKS

1. Senthil Ganesan, Retailing Sector, ICFAI, February 2006.2. Ronald W. Hasty & James Reardon, Retail Management, McGraw-Hill, 19963. Nitin Mehrotra, Indian Retail Sector – A Primer, ICFAI, 20034. Malcolm Sullivan & Denni Adcock, Retail Marketing, Thomson, 2002

NEWSPAPERS

1. The Economic Times2. The Times Of India3. Daily News Analysis [DNA]4. Hindustan Times

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http://www.hindubusinessline.com/

http://www.business.mapsofindia.com/

http://www.business.mapsofindia.com/

http://www.thehindubusinessline.com/

http://www.ficci.com/

http://www.ibef.org/

http://www.economywatch.com/

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Indian Retail Scene

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