Retail Industry in India

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Presentation for the Mid-Semester Exam in Strategic Management (MB 402):
Presentation for the Mid-Semester Exam in Strategic Management (MB 402) MBA 2 nd Year

A Case Study on ..:

A Case Study on .. WHAT LIES IN FUTURE FOR THE RETAILING INDUSTRY IN INDIA ?

CURRENT SCENARIO..:
CURRENT SCENARIO.. India currently having about 5-12 million retail outlets all over the country. Organized retailing constitutes barely 2% of the total retail sector whereas unorganized retailing constitutes the rest 98%. Indian retailing industry is expected to grow from the current US$350M to US$427M by 2010 and to US$635M by 2015.

The common characteristics of the retail outlets in India..:

The common characteristics of the retail outlets in India.. Offer mainly food items & groceries Occupy an average of 500 sq.ft. of area Often managed by family members & running through generations Little investment of land & assets Little or no taxes paid

Standard quality of items sold Moderate pricing Personal and one-to-one customer contact Few items sold on credit and payment is collected at the end of the month

ENVIRONMENTAL FACTORS CONTRIBUTING TOWARDS THE GROWTH OF THE RETAIL SECTOR IN INDIA:
ENVIRONMENTAL FACTORS CONTRIBUTING TOWARDS THE GROWTH OF THE RETAIL SECTOR IN INDIA The Economic environment The International environment The Market environment The Political environment The Regulatory environment The SocioCultural environment The Supplier environment The Technological environment

ECONOMIC ENVIRONMENT:
ECONOMIC ENVIRONMENT Indias impressive economic growth rate of 9% Increase in population leading to growing size of the consuming class. Increase in per capita income leading to increase in purchasing power.

INTERNATIONAL ENVIRONMENT:
INTERNATIONAL ENVIRONMENT Increased exposure to television and internet resulted in openness and awareness of international developments among Indians. Ease of traveling abroad made people enable to experience the foreign markets.

MARKET ENVIRONMENT:
MARKET ENVIRONMENT Reach of organized retailing has been growing to larger geographic area. In addition to the metropolitan cities like Delhi, Mumbai or Kolkata, cities such as Bangalore, Pune etc are also coming under the reach of the organized retail sector. Retailers are now trying to reach the smaller cities like Nagpur, Lucknow or Cochin. In addition to the traditional systems like street carts, pavement shops, weekly markets etc, organized retail sectors are now using the concepts of supermarkets, departmental stores, specialty stores etc. to attract and reach the maximum number of customers.

POLITICAL ENVIRONMENT:
POLITICAL ENVIRONMENT Since the unorganized retail sector constitutes about 98% of the total retail sector, political parties are often quite offensive towards the growth of the organized retail business in order to protect the unorganized vendors.

REGULATORY ENVIRONMENT:

REGULATORY ENVIRONMENT Foreign investment up to 100% is still not permitted. Real estate laws at the state level not yet clear on the issue of allowing large commercial stores. Tax structure for the retailing industry still needs to be restructured.

SOCIO-CULTURAL ENVIRONMENT:
SOCIO-CULTURAL ENVIRONMENT The changing age-profile of the buyers are impressively acting on the growth of organized retail sector. About 70% of the Indians are below 36 years of age, among which almost 50% are below 18 years of age. About 7 million people in their mid-twenties are now earning over US$ 5000 per year. This new-age group of buyers are contributing most to the growth of organized retail sector. Besides, malls are presented in a way to the buyers that is not just a place for shopping, but also a place to hang out and have some entertainment.

SUPPLIER ENVIRONMENT:
SUPPLIER ENVIRONMENT The biggest constraint to the growth of retail industry in India. Due to the vast geographical size of the country, presence of traditional, fragmented distribution & retailing networks and erratic logistics system and poor SCM system, reaching the customers cost-effectively is a big problem in India.

TECHNOLOGICAL ENVIRONMENT:
TECHNOLOGICAL ENVIRONMENT The progression of IT is now aiding the growth of retail sector also. IT is now providing support to quick information processing, decision making, reduction in processing cost, real time monitoring, security of transactions etc. Implementation of SCM system & CRM are also helping in ordering & tracking inventory items, warehousing, transportation etc.

QUESTIONS..:
QUESTIONS.. 1. Identify the opportunities & threats that the retailing industry in India offers to local and foreign companies.

OPPORTUNITIES:
OPPORTUNITIES ECONOMIC GROWTH # POSITIVE GROWTH RATE # GROWING SIZE OF CONSUMING CLASS INTERNATIONAL MARKET AWARENESS # MORE EXPOSURE TO INTERNATIONAL MARKETS THROUGH TV & INTERNET GROWING MARKET # CONSUMERS FROM LARGER AREA ARE GETTING REACHED SOCIO-CULTURAL CHANGE # INCREASING NUMBER OF YOUTHS & INCREMENT IN INCOME LEVEL ADVANCING TECHNOLOGY # SOFTWARE SUPPORT TO OPERATIONS # BETTER SUPPLY CHAIN MANAGEMENT

THREATS:
THREATS POLITICAL AMBIGUITY # ORGANIZED RETAILERS ARE OFTEN RESISTED IN ORDER TO MAINTAIN SUPPORT FROM UNORGANIZED VENDORS REGULATORY ISSUES # DIRECT FOREIGN INVESTMENT NOT PERMITTED # REAL ESTATE LAWS FOR SETTING UP INFRASTRUCTURE #RESTRUCTURING OF TAX WEAK SUPPLY SYSTEM # DIFFICULTY IN COVERING SUCH A LARGE AREA # TRADITIONAL, FRAGMENTED DISTRIBUTION & RETAIL NETWORKS # ERRATIC LOGISTICS BUYERS PSYCHOLOGY #MISCONCEPTION AMONG MIDDLE-CLASS CONSUMERS THAT THE MODERN RETAIL FORMATS ARE MORE EXPENSIVE AND NOT AFFORDABLE FOR THEM.

The Indian Retail Sector:

The Indian Retail Sector Lakshmi Narayanaswamy (203/43) Mudit Sharma (222/43)

Industry Evolution:
Industry Evolution Traditionally retailing in India can be traced to The emergence of the neighborhood Kirana stores catering to the convenience of the consumers Era of government support for rural retail: Indigenous franchise model of store chains run by Khadi & Village Industries Commission 1980s experienced slow change as India began to open up economy. Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw the emergence of retail chains Later Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Retailers. For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books. Post 1995 onwards saw an emergence of shopping centers, mainly in urban areas, with facilities like car parking targeted to provide a complete destination experience for all segments of society Emergence of hyper and super markets trying to provide customer with 3 Vs - Value, Variety and Volume Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid. At year end of 2000 the size of the Indian organized retail industry is estimated at Rs. 13,000 crore

Retailing formats in India:

Retailing formats in India Malls: The largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof.Examples include Shoppers Stop, Piramyd, Pantaloon. Specialty Stores: Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword, RPG's Music World and the Times Group's music chain

Planet M, are focusing on specific market segments and have established themselves strongly in their sectors. Discount Stores: As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in bulk reaching economies of scale or excess stock left over at the season. The product category can range from a variety of perishable/ non perishable goods Department Stores: Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs. Further classified into localized departments such as clothing, toys, home, groceries, etc. Department Stores: Departmental Stores are expected to take over the apparel business from exclusive brand showrooms. Among these, the biggest success is K Raheja's Shoppers Stop, which started in Mumbai and now has more than seven large stores (over 30,000 sq. ft) across India and even has its own in store brand for clothes called Stop!. Hypermarts/Supermarkets: Large self service outlets, catering to varied shopper needs are termed as Supermarkets. These are located in or near residential high streets. These stores today contribute to 30% of all food & grocery organized retail sales. Super Markets can further be classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales. Convenience Stores: These are relatively small stores 400-2,000 sq. feet located near residential areas. They stock a limited range of high-turnover convenience products and are usually open for extended periods during the day, seven days a week. Prices are slightly higher due to the convenience premium. MBOs : Multi Brand outlets, also known as Category Killers, offer several brands across a single product category. These usually do well in busy market places and Metros.

Retailing formats in India:

Retailing formats in India Indias number of Domestic grocery chains and Early Foreign Entrants

Recent Trends :
Recent Trends Retailing in India is witnessing a huge revamping exercise as can be seen in the graph India is rated the fifth most attractive emerging retail market: a potential goldmine. Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 percent or US$ 6.4 billion As per a report by KPMG the annual growth of department stores is estimated at 24% Ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney. Retail Sales in India

Recent Trends contd. :

Recent Trends contd.

Recent Trends contd. :

Recent Trends contd. Multiple drivers leading to a consumption boom: Favorable demographics Growth in income Increasing population of women Raising aspirations : Value added goods sales Food and apparel retailing key drivers of growth Organized retailing in

India has been largely an urban phenomenon with affluent classes and growing number of double-income households. More successful in cities in the south and west of India. Reasons range from differences in consumer buying behavior to cost of real estate and taxation laws. Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption ITC is experimenting with retailing through its e-Choupal and Choupal Sagar rural hypermarkets. HLL is using its Project Shakti initiative leveraging women self-help groups to explore the rural market. Mahamaza is leveraging technology and network marketing concepts to act as an aggregator and serve the rural markets. IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change buying behavior across the globe. e-tailing slowly making its presence felt. Companies using their own web portal or tie-sups with horizontal players like Rediff.com and Indiatimes.com to offer products on the web.

Major Retailers:
Major Retailers Indias top retailers are largely lifestyle, clothing and apparel stores This is followed by grocery stores Following the past trends and business models in the west retail giants such as Pantaloon, Shoppers Stop and Lifestyle are likely to target metros and small cities almost doubling their current number of stores These Walmart wannabes have the economy of scale to be low medium cost retailers pocketing narrow margin Leading Retailers

India vs. World:

India vs. World Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9 million outlets in USA, catering to more than 13 times of the total retail market size as compared to India India has the highest number of outlets per capita in the world - widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per person) Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail industry. Almost 100 times more than the turnover of HLL (India's largest FMCG company). Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) can compare. The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail industry employs about three million people. One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HLL's annual turnover. Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing (against 7 percent employed in India today). 60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of the fastest-growing 50 retailers have just one format Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average inventory turns ratio of about 18. Many Indian retailers KPMG surveyed have inventory turns levels between 4 and 10. Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail shelves (translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.

Future direction: Positives:

Future direction: Positives AT Kearney has estimated Indias total retail market at US$ 202.6 billion which is expected to grow at a compounded 30 per cent over the next five years. With the organised retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010. The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the next decade Over next two years India will see several Indian retail businesses attaining a critical mass as growth in the industry picks up momentum driven by two key factors: Availability of quality real estate and mall management practices Consumer preference for shopping in new environments Wal-Mart : huge plans for India. Moving a senior official from its headquarters in Bentonville, Arkansas, to head its market research and business development functions pertaining to its retail plans in India. New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty major DLF Properties to set up shop in a mall in New Delhi. Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, Ahmedabad, Lucknow and Bangalore in the next four months.

Future direction: Concerns:

Future direction: Concerns 68 million square feet of mall space is expected to be available by end of 2007, which might lead to over-capacity of malls Lack of differentiation among the malls that are coming up. One option may be to look at specialization. Poor inventory turns and stock availability measures - retailers clearly need to augment their operations. Operations of retailers and suppliers are not integrated. Efficient replenishment practices practiced in the Indian auto and auto-component industry can be leveraged to implement efficient supply chain management techniques. Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity ordered, is an issue Sales tax laws - lead to retailers having state-level procurement and storage leads to Indian retailers having higher inventories. VAT has helped alleviate this a bit. Increased adoption of IT and shrinkage management will be a critical area. Supply chain and customer relations followed by merchandising, facilities management and vendor development are areas which have significant gaps and proactive training is a key imperative for overcoming these.

Sources:
Sources AT Kearny Forrester Research 2006 KPMG-FICCI Report http://www.indiainbusiness.nic.in/