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Retail Trends India and Emerging Trends

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Market Overview

1

Indian Retail on the Fast-track Indias GDP growth of 9.4% for 2006-07, was the highest ever in 18 years, reflecting the booming economy of the country. Indias retail sector, in tandem with the economy, is on a high growth trajectory; expected to grow by over 27% in the next 5 -6 years. Retail contributes to 10% of Indias Gross Domestic Product and provides employment to 8% of Indias working population. Higher disposable incomes, easy availability of credit and high exposure to media and brands has increased average propensity to consume considerably over the years.

India ranked first for the third consecutive year, on the Global Retail Development Index 2007, conducted by AT Kearney across 30 emerging economies. India is ranked as the most preferred retail destination for international investors. India ranked first for the fifth time, on the Global Consumer Confidence Index June 2007, conducted by The Nielsen Company. Indians were judged the worlds most optimistic consumers, with high financial confidence about their income for the next 12 months.

2

Indian Retail Revolution Indias retail market has more than doubled in size to USD 311.7 billion in 2005-06.USD billion 350 300 250 200 150 100 50 0 2001-02 2002-03 2003-04 2004-05 2005-06186.3 205.4 230.3

Total Retail Sales311.7 261.8

Sector revenues increased by about 93.5% between 2000 and 2006, translating to an average annual growth rate of 13.3%. Market witnessing a migration from traditional retailing to modern/organized retailing formats, with an explosive proliferation of malls and branded outlets. Organized retail segment contributes to over USD 12.9 billion of retail revenues, with penetration growing from 3% in 2004-05 to 4.15% in 2005-06. Share of organized retail is projected to grow to USD 43.8 billion out of the total retail sector revenues projected at USD 460.6 billion in 2010-11. Modern retailing outlets are increasingly matching up to global standards and witnessing intense competition.

Source: Datamonitor

500 450 400 350 300 250 200 150 100 50 0 USD billion

Projected Retail GrowthTotal Retail Organized Retail311.7 337.3

460.6

12.9

16.5

43.8

2005-06E

2006-07P

2010-11P

Source: Crisil Research

Exchange Rate: USD 1 = INR 41Valid through the report

3

Transition from Traditional to Modern Retailing With a share of over 95% of total retail revenues, traditional retailing continues to be the backbone of the Indian retail industry. Over 12 million small and medium retail outlets exist in India, the highest in any country. Traditional retail is highly pronounced in small towns and cities with primary presence of neighbourhood kirana stores, push-cart vendors, melas and mandis.

Modern/Organized retailing is growing at an aggressive pace in urban India, fuelled by bourgeoning economic activity. Organized retail sector is estimated to grow by 400%, in value terms, by 2007-08. Increasing number of domestic and

international players are setting up base and expanding their business to tap the burgeoning market.

4

Growth Across Segments Food and Beverages segment accounts for the largest share, over 74%, of the total retail pie. Traditional retail dominates food, grocery and allied products sector, with grocery and staples largely sourced from the Kiranas and push cart vendors. Apparel and Consumer Durables verticals are the fastest growing verticals. Mobile phones, one of the highest growth product categories, with deep telecom penetration into towns and villages and the sector adding 5 million new users every month. With the reducing average age of Indians buying homes, the Home Dcor sector is growing rapidly. Beauty Care, Home Dcor, Books, Music and Gifts segments are gaining traction predominantly in the urban areas and emerging cities.

5

Increasing Penetration of Organized Retail Organized retail in India is largely restricted to the urban and semi-urban regions, with consumer exposure to modern retailing formats like malls and stand-alone stores etc. for specific product categories. Clothing and Textiles/Apparel segment dominates the organized retail sector with revenues worth USD 4.76 billion, contributing to over 36% of the organized retail pie.Penetration of Organized RetailBooks, Music and Gifts 13.08 86.92

Organized Retail: Revenue by Verticals (USD million)4,756

2,268 341 1,073Food and Beverages Consumer Durables Jewelry and Watches Footwear

2,585 829 244 829Clothing and Textile Home Dcor and Furnishing Beauty Care Books, Music and Gifts

Source: Crisil Research67.16

Footwear

32.84

Apparel is one of the fastest growingBeauty Care 3.56 96.44

verticals, with higher number of domestic and foreign brands, and increasing consumer willingness to pay for quality. Footwear has the highest organized retail penetration, primarily due to players like Bata India60 80 100

Jewelry and Watches Home Dcor and Furnishing Consumer Durables

6.19

93.81

8.76

91.24

17.04

82.96

Clothing and Textile

16.39

83.61

Food and Beverages 0

0.98 20 Organized Retail 40

99.02

Pvt.

Ltd.

and

Liberty,

with

wide

distribution network and customer confidence.

Source: Crisil Research

Traditional Retail

6

Future Outlook

Retail sector revenues pegged at USD 460.6 billion by 2010-11 Organized retail projected to grow to USD 43.8 billion

Changing Paradigm: The Confluence of Modern and Traditional RetailM&A, Consolidation, High Investments, Confluence of Indian Retail

Growth

Modern retail is expected to adapt and imbibe from the traditional formats Un-organized formats converging to organized formats, in the form of mushrooming village malls Large Indian retail players

Entry, Growth, Expansion, Top Line Focus for Organized Retail

Range, Portfolio, Format Options, Beginning of the Rural-Urban Retail Merge

Technology Adoption, Leveraging Traditional Formats for Modern Retail

i ta cap Per

a il Ret

Sp a

ce

2000

2008

2005

have already begun formulating strategies for the rural retail space

7

2011

Ist Phase

2nd Phase

3rd Phase

4th Phase

Advantage India

8

Advantage IndiaFastest Growing Economy1000

Gross Domestic Product10 Growth rate % 8 6 4 2 0 2002-03 2003-04 2004-05 2005-06 2006-07

GDP growth rate of 9.4% posted in 2006-07 is highest ever in last 18 years. With the first quarter growth rate for 2007-08 estimated at 9.3%, the economy is well poised to continue its growth story. The fast pace of GDP growth is the driving Indian consumerism; the Indian consumers today are more confident and willing to splurge

800 USD billion 600 400 200 0

Source: Reserve Bank of India

The Young India Two-thirds of Indias population is under 35 years of age and more than 60% of the population will be in the working age group (15-60) till year 2050. The median age of 23 years, opposed to the world median age of 33, sets the emerging young India apart India is home to about 20% of the global population under 25 years of age.

Source: India Census

9

Advantage IndiaPotential Untapped Market Organized retail penetration is on the rise and offers an attractive proposition for entry of new players as well as scope for expansion for existing playersChina20 80

Share of Organized and Traditional RetailIndia3 97

Diverse needs of the Indian consumer offers a spectrum of opportunities, spanning from rural retailing to luxury retailing India is home to the largest base of consumers, and a steadily rising rich and super rich population Impressive retail space availability and growing trend of consumerism in the emerging cities and small towns add to the market attractiveness Pantaloon Retail India Limited, Indias retailing giant captures a mere 0.3% of total market compared to Tesco Plc, Englands 14.3% and Walmart USAs 20%, giving an insight into the large untapped potential* 2004-05 figures. Source: EY ResearchIndonesia30 70

Thailand

40

60

Malaysia

55

45

Taiwan

81

19

US

85

15

0

20

40

60

80

100

Organized Retail

Traditional Retail

Source: EY Database

10

Advantage IndiaAbundant Availability of Skilled Labour Over 37,000,000 students were enrolled in about 150,000 pre-college institutes and over 11,700,000 in 14,000 higher education institutions in 2005-06. Retail Management is a sought after education stream amongst students, with over 15 premier institutes offering specialized courses in Retail Management. Indian Institute of Retail, New Delhi; RPG Institute of Retail Management, Mumbai; and The Retail Academy, Ahmedabad are some of the institutes focusing on the education needs of the retail sector.

Low Cost of Operations Existing players are increasingly turning to Tier II and Tier III cities for retail establishments and manpower sourcing These cities offer significant cost advantage in the form of low-cost skilled resources and attractive lease rentals/real estate prices. With well-educated small town graduates turning to the urban cities for employment, these graduates are ideal candidates roles for in sales and marketing retail executive formats. modern organized

Labor cost per worker across Asian countries25000 USD per annum 20000 15000 1000

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