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1 INTRODUCTION TO RETAILING
Retailing involves all activities incidental to selling to ultimate consumer for their personnel family and household use. It does this by organizing their availability on a relatively large scale and supplying them to a customers on are latterly small scale. Retailer is any person/organization instrumental in reaching the goods or merchandise over services to the end users. Retailer is a must and cannot be eliminated. The Indian retailing industry is becoming intensely competitive, as more and more payers are Vying for the same set of customers. The major retail players are Pantaloon Retail, Shoppers Stop, Reliance, etc.., Retailing is one of the biggest sectors and it is witnessing revolution in India. The new entrant in retailing in India signifies the beginning of retail revolution. India's retail market is expected to grow tremendously in next few years. Retail means selling goods and services in small quantities directly selling to customers. Retailing consists of all activities involved in marketing of goods and services directly to consumer for their personnel family and household use. The Indian retailing industry is becoming intensely competitive, as more and more payers are Vying for the same set of customers. The major retail players are Pantaloon Retail, Shoppers Stop, Reliance, etc. Retailing is one of the biggest sectors and it is witnessing revolution in India. The new entrant in retailing in India signifies the beginning of retail revolution. India's retail market is expected to grow tremendously in next few years. According to AT Kearney, The Windows of Opportunity shows that Retailing in India was at opening stage in 1995 and now it is in peaking stage in 2006. India's retail market is expected to grow tremendously in next few years. India shows US$330 billion retail market that is expected to grow 10% a year, with modern retailing just beginning. India ranks first in 2005. In fact, in 2005 and 2006, India is the most compelling opportunity for retailers, because now India is in peaking stage. This window of opportunity is useful for executives who plan their market-specific strategies; the four stages or the lifecycle of this industry is as follows:

Initial Stage It is the opening phase of a market and is one that is just entering the GRDI, Global Retail Development Index This index is based on more than 25 macro-economic and retail specific variables. For instance, the country risk includes parameters like political risk, economic performance, debt indicators, credit ratings, access bank finance and business risk. The market attractiveness covers retail sales per capita, urban population, laws and regulations and business efficiency. In this stage all, which are outside the top 30 markets, falls in this stage. At this stage, retailers should monitor and performing high-level assessments, they should plan for their entry strategies. India in the late 1990's is a good example in the opening stage, while in 2006, Kazakhstan is the country in introduction stage. Strategy suggested: A rapid penetration strategy is suggested at this stage i.e. low price and high promotion. Growth:

In growth stage, the market is developing quickly and also ready for modern retailing. Countries, which are in Peaking stage, are India, Ukraine and Vietnam. Retailers entering this stage have the best chance for long-term success. Retailers at this stage should enter through local representations, sourcing offices and new stores. Wal-Mart success in china in the late 1990's and early 2000's gives us the importance of committing to a promising high-growth market at right time. Strategy suggested: The strategy of adopting quality and styled products with new models and shift of advertising from product awareness to product preference E.g. the big bazaar advertisement says surf excel is cheaper than the market price. The idea behind adopting Maturity: In this stage the market is still big and growing, but the space for new entrants will become tighter and retailers should act quickly at this stage because retailers at this stage have limited time to explore, and also their margin for error is thin. In general , they should act according to the established rules and should be open to face the competition from international retailers. This stage generally lasts longer than the 3 strategy is to strengthen against competitors.

previous two stages. Strategy suggested: Enter new market segments that is either enter new geographic areas eg vishal megha mart has opened stores in smaller cities. Decline: The window of opportunity is closing fast and modern retail share is reaching 40 to 60 percent. Though the opportunity is closing the existing retailers can enter with new formats such as discount models or non-food formats such as consumer electronics and apparel. Window of opportunity ends for about 5 to 10 years before a market enters the closing phase and reaches saturation level. India for example, was in the opening stage in 1995 and entered peaking stage in the year 2003 and reached number 1 rank in 2005. Strategy suggested: Identifying weak segments, maintaining investment level selectively.

1.1.1 Retail Industry

India retail industry is the largest industry in India, with an employment of around 8% and contributing to over 10% of the country's GDP. Retail industry in India is expected to rise 25% yearly being driven by strong income growth, changing lifestyles, and favorable demographic patterns. It is expected that by 2016 modern retail industry in India will be worth US$ 175- 200 billion. India retail industry is one of the fastest growing industries with revenue expected in 2007 to amount US$ 320 billion and is increasing at a rate of 5% yearly. A further increase of 7-8% is expected in the industry of retail in India by growth in consumerism in urban areas, rising incomes, and a steep rise in rural consumption. It has further been predicted that the retailing industry in India will amount to US$ 21.5 billion by 2010 from the current size of US$ 7.5 billion. Shopping in India have witnessed a revolution with the change in the consumer buying behavior and the whole format of shopping also altering. Industry of retail in India which have become modern can be seen from the fact that there are multi- stored malls, huge shopping centers, and sprawling complexes which offer food, shopping, and entertainment all under the same roof. India retail industry is expanding itself most aggressively, as a result a great demand for real estate is being created. Indian retailers preferred means of expansion is to expand to other regions and to increase the number of their outlets in a city.

In the Indian retailing industry, food is the most dominating sector and is growing at a rate of 9% annually. The branded food industry is trying to enter the India retail industry and convert Indian consumers to branded food. Since at present 60% of the Indian grocery basket consists of non- branded items. India retail industry is progressing well and for this to continue retailers as well as the Indian government will have to make a combined effort. An increasing number of people in India are turning to the services sector for employment due to the relative low compensation offered by the traditional agriculture and manufacturing sectors. The organized retail market is growing at 35 percent annually while growth of unorganized retail sector is pegged at 6 percent. The Retail Business in India is currently at the point of inflection. Rapid change with investments to the tune of US $ 25 billion is being planned by several Indian and multinational companies in the next 5 years. It is a huge industry in terms of size and according to management consulting firm Technopak Advisors Pvt. Ltd., it is valued at about US $ 350 billion. Organised retail is expected to garner about 16-18 percent of the total retail market (US $ 65-75 billion) in the next 5 years. India has topped the A.T. Kearneys annual Global Retail Development Index (GRDI) for the third consecutive year, maintaining its position as the most attractive market for retail investment. The Indian economy has registered a growth of 8% for 2007. The predictions for 2008 is 7.9%.
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The enormous growth of the retail industry has

created a huge demand for real estate. Property developers are creating retail real estate at an aggressive pace and by 2010, 300 malls are estimated to be operational in the country. With over 1,000 hypermarkets and 3,000 supermarkets projected to come up by 2011, India will need additional retail space of 700,000,000 sq ft (65,000,000 m2) as compared to today. Current projections on construction point to a supply of just 200,000,000 sq ft (19,000,000 m2), leaving a gap of 500,000,000 sq ft (46,000,000 m2) that needs to be filled, at a cost of US$15-18 billion. According to the Icrier report, the retail business in India is estimated to grow at 13% from $322 billion in 2006-07 to $590 billion in 2011-12. The unorganized retail sector is expected to grow at about 10% per annum with sales expected to rise from $ 309 billion in 2006-07 to $ 496 billion in 2011-12.

Segments in the Indian Retail Industry The retailing sector of India can be split into two segments. They are the informal and the formal retailing sector. The informal retailing sector is comprised of small retailers. For this sector, it is very difficult to implement the tax laws. There is widespread tax evasion. It is also cumbersome to regulate the labour laws in this sector. As far as the formal retailing sector is concerned, it is comprised of large retailers. Stringent tax and labour laws are implemented in this sector. If the retail industry is divided on the basis of retail formats then it can be split into the modern format retailers and the traditional format retailers. The modern format retailers comprise of the supermarkets, Hypermarkets, Departmental Stores, Specialty Chains and company owned and operated retail stores. The traditional format retailers comprise of Kiranas, Kiosks, Street Markets and the multiple brand outlets. The retail industry can also be subdivided into the organized and the unorganized sector. The organized retail sector occupies about 3% of the aggregate retail industry in India. Size and contribution of the retail industry in India In terms of value, the Indian Retail industry is worth $300 billion. Its contribution to the Gross Domestic Product is about 10% , the highest compared to all other Indian Industries. The retail sector has also contributed to 8% of the employment of the country. The organised retail sector is expected to triple its size by 2010. The food and grocery retail sector is expected to multiply five times in the same time frame. The major reason behind the low participation in the Indian retail sector is the need for lumpy investments that cannot match up their break even points. The government policies are being revised from time to time to attract investments in this sector.

1.1.2 Scope of the Retail Sector

Retail is clearly the sector that is poised to show the highest growth in the next five years. The sector is set for a revolution, as both the present players and new entrants are gearing up to explore the market. This sector contributes 10% of India's GDP and the current growth rate is 8.5%. The present size

of the organized retailing sector is approximately 3% and is expected to grow to 25-30% by the year 2010. There are about 300 new malls, 1500 supermarkets and 325 departmental stores currently under construction. Many players are coming up with huge investments, due to which the present 12 million mom-and-pop shops and kirana stores fear losing their business. Most predictions say that the sector might reach to US$ 400-600 billion by the year 2010. Retail Landscape

Modern retail development in India is focused on the following cities: West Mumbai Pune North Delhi and the National Capital Region South Chennai Banglore Hyderabad East Kolkata Leading Indian Retailers Bata India Ltd, Big Bazaar, Crossword, Ebony Retail Holdings Ltd., Food Bazaar, Globus Stores Pvt. Ltd., Liberty shoes Ltd., Music World Entertainment Ltd., Pantaloon Retail India Ltd., Shoppers Stop, Subhiksha, Titan Industries, Trent and the

new entrants penetrating the market soon will include Reliance Retail Ltd, Wal-Mart Stores, Carrefour, Tesco, Boots Group, etc. Current Scenario A glimpse of the International Retail One of the world's largest industries exceeding US$ 9 trillion 47 global fortune companies & 25 of Asia's top 200 companies are retailers Dominated by developed countries US, EU & Japan constitute 80% of world retail sales. Biggest player in India is Pantaloon Retail India Limited. Percentage of Organized Retail USA - 85% Taiwan - 81% Malaysia - 55% Thailand - 40% Brazil - 36% Indonesia - 30% Poland - 20% China - 20% India - 3% Key Trends The existing players like Big Bazaar, Shoppers' Stop, Piramyd are expanding to smaller towns and cities. Many other business houses are planning to enter the retail sector either on their own or through partnerships. New entrants like Reliance Retail Ltd and Wal-Mart are going to enter the market soon. Estimates and Predictions The industry is estimated to be more than US$ 400 billion by a study of McKinsey.

 The Economist Intelligence Unit (EIU) estimates the retail market in India to increase to US$608.9 billion in 2009 from US$394 billion in2005. A KPMG report says that the organized retail would grow at a higher rate than GDP in the next five years. The retail sector would generate employment for more than 2.5 million people by the year 2010, says an analysis by Ma Foi Management Consultants Ltd. Benefits of FDI in Retail Sector Higher competition would lead to higher quality in products and services. Better lifestyle as better products would be introduced. Exports would increase due to greater sourcing of major players. Investment in whole supply chain would increase. Technology would be upgraded in terms of logistics, production, and distribution channels. The markets of the sector would flourish and develop. Employment would increase and skills & manpower will develop. A strong retailing sector would promote tourism. Economies of scale would help lower consumer prices and increase the purchasing power of the consumer.

1.1.3 The Indian Retail Market

Indian market has high complexities in terms of a wide geographic spread and distinct consumer preferences varying by each region necessitating a need for localization even within the geographic zones. India has highest number of outlets per person (7 per thousand) Indian retail space per capita at 2 sq ft (0.19 m2)/ person is lowest in the world Indian retail density of 6 percent is highest in the world. 1.8 million households in India have an annual income of over 45 lakh. Delving further into consumer buying habits, purchase decisions can be separated into two categories: status-oriented and indulgence-oriented. CTVs/LCDs, refrigerators, washing machines, dishwashers, microwave ovens and DVD players fall in the status category. Indulgence-oriented products include plasma TVs, state-of-the-art home theatre systems, iPods, high-end digital cameras, camcorders, and gaming consoles.

Consumers in the status category buy because they need to maintain a position in their social group. Indulgence-oriented buying happens with those who want to enjoy life better with products that meet their requirements. When it comes to the festival shopping season, it is primarily the status-oriented segment that contributes largely to the retailers cash register. While India presents a large market opportunity given the number and increasing purchasing power of consumers, there are significant challenges as well given that over 90% of trade is conducted through independent local stores. Challenges include: Geographically dispersed population, small ticket sizes, complex distribution network, little use of IT systems, limitations of mass media and existence of counterfeit goods.

1.1.4 Major Indian Retailers

Indian apparel retailers are increasing their brand presence overseas, particularly in developed markets. While most have identified a gap in countries in West Asia and Africa, some majors are also looking at the US and Europe. Arvind Brands, Madura Garments, Spykar Lifestyle and Royal Classic Polo are busy chalking out foreign expansion plans through the distribution route and standalone stores as well. Another denim wear brand, Spykar, which is now moving towards becoming a casualwear lifestyle brand, has launched its store in Melbourne recently. It plans to open three stores in London by 2008-end. The low-intensity entry of the diversified Mahindra Group into retail is unique because it plans to focus on lifestyle products. The Mahindra Group is the fourth large Indian business group to enter the business of retail after Reliance Industries Ltd, the Aditya Birla Group, and Bharti Enterprises Ltd. The other three groups are focusing either on perishables and groceries, or a range of products, or both.

Vivek Limited Retail Formats: Viveks, Jainsons, Viveks Service Centre, Viveks Safe Deposit Lockers REI AGRO LTD Retail-Formats:6TEN Hyper & 6TEN Super RPG Retail-Formats: Music World, Books & Beyond, Spencers Hyper, Spencers Super, Daily & Fresh Pantaloon Retail-Formats: Big Bazaar, Food Bazaar, Pantaloons, Central, Fashion Station, Brand Factory, Depot, aLL, E-Zone etc.

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The Tata Group-Formats: Westside, Star India Bazaar, Steeljunction, Landmark, Titan Industries with World of Titans showrooms, Tanishq outlets, Chroma.

K Raheja Corp Group-Formats: Shoppers Stop, Crossword, Hyper City, Inorbit Lifestyle International-Lifestyle, Home Centre, Max, Fun City and International Franchise brand stores. Pyramid Retail-Formats: Pyramid Megastore, TruMart Nilgiris-Formats: Nilgiris supermarket chain Subhiksha-Formats: Subhiksha supermarket pharmacy and telecom discount chain. Trinethra- Formats: Fabmall supermarket chain and Fabcity hypermarket chain Vishal Retail Group-Formats: Vishal Mega Mart BPCL-Formats: In & Out Reliance Retail-Formats: Reliance Fresh Reliance ADAG Retail-Format: Reliance World Shoprite Holdings-Formats: Shoprite Hyper Paritala stores bazar: honey shine stores Aditya Birla Group - more Outlets

1.1.5 Different types of Retailing in India

Unorganized retailing in India In India, the most of the retail sector is unorganized. In India, the retail business contributes around 11 percent of GDP. Of this, the organized retail sector accounts only for about 3 percent share, and the remaining share is contributed by the unorganized sector. The main challenge facing the organized sector is the competition from unorganized sector. Unorganized retailing has been there in India for centuries, theses are named as mom-pop stores. The main advantage in unorganized retailing is consumer familiarity that runs from generation to generation. It is a low cost structure, they are mostly operated by owners, has very low real estate and labor costs and has

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low

taxes

to

pay.

Organized retailing in India In late 1990's the retail sector has witnessed a level of transformation. Retailing is being perceived as a beginner and as an attractive commercial business for organized business i.e. the pure retailer is starting to emerge now. Organized retail business in India is very small but has tremendous scope. The total in 2005 stood at $225 billion, accounting for about 11% of GDP. In this total market, the organized retail accounts for only $8 billion of total revenue. According to A T Kearney, the organized retailing is expected to be more than $23 billion revenue by 2010. In organized retailing will grow faster than unorganized sector and the growth speed will be responsible for its high market share, which is expected to be $ 17 billion by 2010-11. Retailing will show good prospects in cities like Mumbai, Delhi, Chennai, kolkata, Banglore and Kanpur. After Dubai, Singapore and Hong Kong, In India Delhi will be the next big retail destination, According to Confederation of Indian Industries whose findings have shown that Delhi has the good resources and good conditions for the retail sector. Out of the total earnings of the Government of Delhi Rs 11,000 crore, Rs 6,500 crore is achieved from the retails ector.

The organized sector is expected to grow faster than GDP growth in next few years driven by favorable demographic patterns, changing lifestyles, and strong income growth. This organized retail sector mix includes supermarkets, hypermarkets discounted stores and specialty stores, departmental stores. For example, Spencer network has 69 stores, which includes seven Spencer hypermarkets, three Spencer super markets and 49 Spencer Dailys. Now the company is planning to open 20 stores in 10 cities in six months. The top 10 retailers account only for 2% of total market, today modern retailing is expected to enter a boom phase, which has major players and these players might capture 10% of total market, within next five years. The retail sales in India for future are shown below (data from 2005-2008 is based on 12

estimates):

PRESENT INDIAN SCENARIO Unorganized market: Rs. 583,000 crores Organized market: Rs.5, 000 crores 5X growth in organized retailing between 2000-2005 Over 4,000 new modern Outlets in the last 3 years Over 5,000,000 sq. ft. of mall space under development The top 3 modern retailers control over 750,000 sq. ft. of retail space Over 400,000 shoppers walk through their doors every week

As India surges high with its growth story, the retail sector in the country is bound to come across opportunities like never before. Till a few years back, the retail sector in India was more of an unorganized one with petty vendors dominating the chunk of the industry but now the scenario has fast been changing. Finally, the sector is converting into what we call as organized retailing. Not only Indian corporate majors like Reliance, ITC and Pantaloon have entered into the segment but more and more foreign players are also showing interest in USD 350 billion Indian retail markets. Today, we turn around and find huge shopping malls and multiplexes all the way. Perhaps thats why the retail revolution is said to be spearheading the real estate boom in India. The retail sector boom While the Indian real estate markets boom with organized retailing, the segment ensures a fluffy growth pad for itself. According to the estimations of KSATechnopark, a retail consulting and research firm, organized retailing in India will grow three-fold in the next 3-years, achieving the size of USD 21.5 billion from the current one of USD 7.5 billion. Given the favourable growth patterns, expanding middle class and easing economic policies, India is ranked as the most attractive emerging markets for retail investment, even above Russia and China. Growth drivers in India for retail sector

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Rising incomes and improvements in infrastructure are enlarging consumer markets and accelerating the convergence of consumer tastes. Liberalization of the Indian economy Increase in spending Per capita Income. Advent of dual income families also helps in the growth of retail sector. Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc. The Internet revolution is making the Indian consumer more accessible to the growing influences of domestic and foreign retail chains. Reach of satellite T.V. channels is helping in creating awareness about global products for local markets.

Policy reforms The Indian government allows 51 per cent Foreign Direct Investment (FDI) in single brand retailing owing to which foreign multinationals like Reebok and Louis Vuitton can now operate directly in the Indian markets instead of going through franchise route of earlier. The Road Ahead While Indian telecom major Bharti is all set to foray in the retail segment, a number of companies from the US, England and Australia have laid plans to sell their products directly at the retail outlets. As many as 12 Australian food producers have tied up with India-based distributor AB Mauri for the same. World

1.1.6 Challenges of Retailing in India

In India the Retailing industry has a long way to go, and to become a truly flourishing industry, retailing needs to cross the following hurdles: The first challenge facing the organized retail sector is the competition from unorganized sector. In retail sector, Automatic approval is not allowed for foreign investment. Taxation, which favors small retail businesses.

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Developed supply chain and integrated IT management is absent in retail sector. Lack of trained work force. Low skill level for retailing management. Intrinsic complexity of retailing- rapid price changes, threat of product obsolescence and low margins. Organized retail sector has to pay huge taxes, which is negligible for small retail business. Cost of business operations is very high in India.

Entry of MNCs The world's largest retailer by sales, Wal-Mart Stores Inc and Sunil Mittal's Bharti Enterprises have entered into a joint venture agreement and they are planning to open 10 to 15 cash-and-carry facilities over seven years. The first of the stores, which will sell groceries, consumer appliances and fruits and vegetables to retailers and small businesses, is slated to open in north India by the end of 2008. Carrefour, the worlds second largest retailer by sales, is planning to setup two business entities in the country one for its cash-and-carry business and the other a master franchisee which will lend its banner, technical services and know how to an Indian company for direct-to-consumer retail. The worlds fifth largest retailer by sales, Costco Wholesale Corp (Costco) known for its warehouse club model is also interested in coming to India and waiting for the right opportunity. Opposition to the retailers' plans have argued that livelihoods of small scale and rural vendors would be threatened. However, studies have found that only a limited number of small vendors will be affected and that the benefits of market expansion far outweigh the impact of the new stores. Tesco Plc., plans to set up shop in India with a wholesale cash-and-carry business and will help Indian conglomerate Tata group to grow its hypermarket business.

1.1.7 Employment Opportunities in Retail Sector in India

India's retail industry is the second largest sector, after agriculture, which provides employment. According to Associated Chambers of Commerce and Industry of India 15

(ASSOCHAM), the retail sector will create 50,000 jobs in next few years. Retail companies are starting retail management courses in partnership with management institutes, roping in talent from other sectors and developing comprehensive career growth and loyalty plans for existing employees.Top players like Pantaloon Retail India Limited, Trent, Shopper's Stop, RPG Group and ebony are virtually on their toes. Consider the plans of largest player, The Pantaloon Retail India Ltd, the company has developed a comprehensive strategy, where in it expects that in 2years, it will not recruit any new managers from outside. "The estimated need is 1 lakh of employees till 2011", said Mr. Sanjoy Jog, HR Head at Pantaloon Retail India Ltd. Pantaloon has the concept of partnership with educational Institute to run retail courses across the entire chain. The company has tied up with 11-B schools including K J Somaiya , Welinkars, Narsee Monjre and IISWBM. "The students joins the course and they are given an appointment letter by Pantaloon to become employees" said Mr. Jog, Pantaloon. Pantaloon is also planning to tie up with Ahmedabad-based National Institute of Design to start a course in visual merchandising. "The apex body of Indian organized retailers, ReThe globalization of the Indian Economy has brought forward a change in the Indian consumerism psyche with the consumer becoming more aware of his/her value of money strength and their economic purchasing power becoming more evident than in the previous generations. The concept of product quality and service delivery which were earlier not very engraved in the consumer psyche are now very much demanded and delivered for in the new age format of organized product retailing in the Indian consumer goods market. These changes have led to the overall increase of professionalism in the service delivery as well as the consumer purchase patterns shifting from need only based to extended storage-based bulk purchase characteristics.

These have led to the entry and expression of interest by many global retail majors in the Indian organized retail market wherein many products and services are offered to the same consumer at the same location which present multiple attractions to their monthly disposable incomes. The middle class has been a leading adaptor of this change process by its changing lifestyles, strong income growth and changing demographic patterns which are placing the growth projections for this industry comfortably at 25% annually. Today, synergies based on huge consumer bases

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developed in unrelated industries like telecom to retail are being seen in the Indian market as the combined purchase affinity of the middle class far outstrips the specialist purchase patterns of the higher income strata in the Indian sub continent; with the industry projected to become a US$175-200 billion business by 2016 and the economy playing a comfortable upswing role, the competition in the marketplace is expected to be fierce. The present scenario of the industry is focused on forward buying of retail real estate in order to reap balance sheet advantages later in the business cycle and also rapid ramping of operations in presently operating outlets in order that the loyalty purchase habits of consumers are built over a period of time before the world majors enter the market with deeper pockets and buying power. The Asian retailers are not willing to give in an easy competitive fight on their home turf as well as the smart small time mom & pop store retailer known as the kirana store in India is also wizening up to the challenge and building personal relationships apart from increasing the service spectrum like never before. The market in all seems to be ready for a big explosion of intense competitive activity over ridden by social and economic considerations which will make it one of a kind business study in the corporate universe as an economy which did not open up till the early 1990s where in the industry was dominated by unorganized retailer till then and any kind of central purchase or retail formats where only propagated by the government for which the awareness as well as effort were low. An in-depth explanation of the industry retail formats segregation is also provided in this report which also comprises of the study of the important regional retail contributors in this sector which are known for either their long standing in the market or any kind of specialty product retail developed over the years, which has differentiated them for the overall market. The report also compares this with the early development of organized retail by the Indian players and the coupled emergence of the multi-format retail in India. The recent trends of jumbo sized retailers establishing themselves as super saver locations in the consumer psyche and consumer acceptance of these stores as discount destinations are also explained in this report. The role of e-commerce-based retail though small in volumes but important in terms of growth is also elaborated in this report along with a profiling of the major

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players in this market. Rural Retailing is elaborated in this report in detail wherein the doubled up sourcing to selling cycles are explained in this report wherein the report also takes up the example of some of the successful rural retail ventures of the Indian market most financed by traditional business houses in India and some of the ventures which also did not succeed in the Indian rural market. A contrasting view of the growth of luxury brands in the Indian market is also explained in this research report wherein the increased consumerism is apparent in the stupendous increase in sales of apparels, lifestyle products etc which have started to carve a profit making niche for themselves as also the trends apparent in these products are elaborated in this report. The factors powering growth and the contesting issues are explained in this report in a macroeconomic scenario wherein the growth opportunities are compared with the issues which are process either legal or union or even logistics oriented. The report also examines the potential development areas in the retail market in India. The process or entry options for FDI into Indian retail industry are examined in comparison to the challenges faced by the entrants in the sector to drive investment into the India market. The report presents some case studies on this crucial issue as well as the further options which are available and the possible role that can be played by private equity contributors. Further, the report draws a profile of the Global Retail Industry and some of the major global players across the world. Indias position in the global retail scenario is also explained in this report. Retail not being limited to only consumer goods is further explored in this report in the books music and gift retail industry which have picked up pace in transforming from being isolated businesses to being integrated retail locations for all these products which have received good consumer response as explained in this report by way of analysis of the leading participants in this Industry. Food being a major driver of retail consumption globally has also seen growth and entry of various global fast food chains into India backed by slowly building weekend spending patterns in the metros as well as acceptance of these food habits in the Indian palette. The major industry contributors in this sector are analyzed by this report.

The Indian Retail IndustrySky is the limit

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In terms of the retail development index India ranks fifth. In Asia it occupies the second position , next to China. Among all the global markets, the Indian retail market is the most expanding. This is owing to absence in restriction at the entry level. So the large foreign companies can reap the benefits of economies scale by entering the green retail fields of India. There are many reasons why the retail industry in India can reach the zenith. Firstly the organised retail sector in India has a very low contribution to the entire retail sector in the country. Hence there is ample scope for the new players to achieve success in the backdrop of soaring disposable income of the upcoming generation. Secondly, not only have the incomes increased but there has been a sea change in the preferences of the consumers . These factors have acted as a stimulus for the ushering of foreign players retailing in apparels, accessories, electronic appliances etc. Large shopping malls have already mushroomed in the metropolitan cities. There still lies untapped potential in the Indian Retail Market.

1.1.8 Problems faced by Organized Retail Industry in India

India has 12 million retail outlets. The retail sector is the second largest source of employment and the job market is hugely receptive to retailing expertise as more and more B-schools are now focusing on the sector and large retailers are setting up retail academies. It is estimated to create 50,000 jobs a year in the next five years. MARKET SIZE: The retail market in India is estimated at Rs.5,88,000 crore. Of this the unorganized market is worth Rs.5,83,000 crore and the organized market is Rs.5,000 crore. OPPORTUNITY:

Over 8% of India's population is engaged in retailing. According to ASSOCHAM, the total retail market is expected to grow by 20% annually and is one of the fastest growing sectors in India.

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PROBLEMS:

The organized retail industry in India is faced with stiff competition from the unorganized sector.

There is a shortage of quality real estate and infrastructure requirements in our country.

Opposition to Foreign Direct Investment from small traders affects retail industry.

Very high stamp duties on transfer of property affects the industry. Shortage of retail space in central and downtown locations also hinders the growth of retail industry.

Presence of strong Pro-tenancy laws makes it difficult to evict tenants and this is posing problems.

Land-use conversion is time consuming and becoming complex. For settling property disputes, it consumes lot of time. Rigid building laws makes procurement of retail space difficult. Non residents are not allowed to own property except they are of Indian origin.

Prohibition of Foreign investment in real estate business. Customs duties are levied on import of goods in India.

1.1.9 Emerging trends in Indian organized retail sector

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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 are 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. With the arrival of the Transnational Companies (TNC), the Indian retail sector will undergo a transformation. At present the Foreign Direct Investments(FDI) is not encouraged in the Indian organized retail sector but once the TNC'S get in they inevitably try to oust their Indian counterparts. This would be challenging to the retail sector in India. The trends to follow in the future: The Indian Organized retail sector will grow up to 10% of total retailing by 2010. No one single format can be assumed as there is a huge difference in cultures regionally. The most encouraging format now would be the hypermarts.

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The hypermart format would be further encouraged with the entry of the TNCs.

FDI 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 was fearing 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. 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

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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 centres 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, 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. Bottlenecks to FDI in Retail Industry According to the Land and Property laws only the Indians have the right to land and property in India and this law has in a a way inhibited the entry of the foreign players in India. Again the labour laws are so designed that the store workers can be protected , quite contrary to the requirements of the modern formats. The tax structure of India is also unfavourable for the foreign players. The corporate tax rate for the domestic companies is 36.59% whereas it is 41.82% for the foreign companies. The changing sales tax as well as the Value Added Tax is also not favourable in the case of international companies. Government Intervention in Indian Retail India's government seems to be on a gradual but definite path toward allowing foreign retailers into the country.... suggests the A.T. Kearney's Retail Development Index 2006. It is a common knowledge that the Union government has to face a number of hurdles both from it's opponents as well as it's allies before it could announce the final verdict. There have been demands from all corners regarding framing of rules to safeguard interests of the so-called small traders. Simultaneously

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economists have the consensus that industrialization is imperative for the growth of the economy and foreign investment has to play an inevitable role in it. With Lok Sabha elections to come in 2009, the Union government too seems a bit confused regarding decision in who's favor can provide it a political edge. So in this study let us compare the views for and against liberalization as is held by Indian Bureaucrats. Entry of large players: stiff opposition from Left Parties The recent outburst of fury among the Kerala's LDF(Left Democratic Front) Government has been noticeable. They have exacted for a three-pronged approach to prevent the retail giants from serving the Keralians. At the first stage, not only MNCs but also the local retail giants like Reliance will be shown the red signal. In fact a magnified CPI protest has compelled a Reliance Fresh outlet in Kochi to take police protection. The draft of a bill has been finalized to amend the Kerala Essential Commodities Act so that the state government can intervene in the retail market. As a second step, local councils (70% of which is controlled by the Left) will deny licenses, that are mandatory to start a retail chain in the state. Kochi and Tiruvananthapuram corporations will be in fact commanded to reconsider the licenses of outlets that are already operating in the regions. This strategy grants more power to the state. However a ban on shopping in these outlets is still not clear. The third and the most revolutionary judgment is actually an outcome of the whole game. Government-controlled supermarkets and hypermarkets will be established in some of the key cities in the state. This rigid legal wall not only in Kerala but across the country has been born out of a traditional mindset. Kerala claims to have a literacy rate of 90.92% and a sex ratio of 1058 females per 1000 males. The data speaks for the government's prudent commitment in the case of Kerala. So it is high time that the government opens up avenues for its people to let them grow and become self dependent. But the government is still holding good, the conventional 'infant industry' outlook. The main worry is the negative impact on the already gloomy condition of employment. Let's make an attempt to understand the vicious circle of unorganized retailing and present employment scenario. Unorganized retailing has a share of about 96% in the Indian retail sector. But why should people work in such miserable 24

situations if the manufacturing and services sector are booming is the overwhelming question. There has been a trend to migrate to cities in search of alluring bright city lights. But the consequences has been been even worse- earning lower than expected wages(Harris Todaro model of migration). The illiterate and unskilled people ultimately set up a grocery shop to earn a living. This gives birth to another unorganized retail shop in India and thus enlarges its share. So the unorganized retail market in India has born out of fate rather than selection. The Actual Scene Those opposing the expansion of organized retail in India must understand that the share of primary sector shrinks and that of the secondary and then the tertiary sector expands as an economy grows. This is the basic structural adjustment in case of any transforming economy. India is at a take off stage. A retardation in the agricultural sector is not permissible but inhibiting the growth of services on grounds of protection to agriculture is more irrational. A proof of this has been seen in a small town of North Bengal. The opening of a Big Bazaar (brand name for stores under Pantaloon) departmental store has seen a human deluge of about 7,000 people in the 35,000 sqft shopping mall by 3pm. This clearly indicates that people (even in remote places) have become fed up of monotonous marketing practices and demand nowadays is purely governed by choice. Indian Retail Industry: Current Scenario Indian retail industry is going through a transition phase. Most of the retailing in our country is still in the unorganized sector. The spread out of the retails in US and India shows a wide gap between the two countries. Though retailing in India is undergoing an exponential growth, the road ahead is full of challenges. Retailing The word "Retail" originates from a French-Italian word. Retailer-someone who cuts off or sheds a small piece from something. Retailing is the set of activities that markets products or services to final consumers for their own personal or household use. It does this by organizing their availability on a relatively large scale and supplying them to customers on a relatively small scale. Retailer is a Person or Agent

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or Agency or Company or Organization who is instrumental in reaching the Goods or Merchandise or Services to the End User or Ultimate Consumer. Retailing is the most active and attractive sector of last decade. While the retailing industry itself has been present since ages in our country, it is only the recent past that it has witnessed so much dynamism. The emergence of retailing in India has more to do with the increased purchasing power of buyers, especially post-liberalization, increase in product variety, and increase in economies of scale, with the aid of modern supply and distributions solution. Indian retailing today is at an interesting crossroads. The retail sales are at the highest point in history and new technologies are improving retail productivity. though there are many opportunities to start a new retail business, retailers are facing numerous challenges. KEY CHALLENGES: 1) LOCATION: "Right Place, Right choice" Location is the most important ingredient for any business that relies on customers, and is typically the prime consideration in a customers store choice. Locations decisions are harder to change because retailers have to either make sustainable investments to buy and develop real estate or commit to long term lease with developers. When formulating decision about where to locate, the retailer must refer to the strategic plan: * Investigate alternative trading areas. * Determine the type of desirable store location * Evaluate alternative specific store sites 2) MERCHANDISE: The primary goal of the most retailers is to sell the right kind of merchandise and nothing is more central to the strategic thrust of the retailing firm. Merchandising

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consists of activities involved in acquiring particular goods and services and making them available at a place, time and quantity that enable the retailer to reach its goals. Merchandising is perhaps, the most important function for any retail organization, as it decides what finally goes on shelf of the store. 3) PRICING: Pricing is a crucial strategic variable due to its direct relationship with a firm's goal and its interaction with other retailing elements. The importance of pricing decisions is growing because today's customers are looking for good value when they buy merchandise and services. Price is the easiest and quickest variable to change. 4) TARGET AUDIENCE: "Consumer the prime mover" "Consumer Pull", however, seems to be the most important driving factor behind the sustenance of the industry. The purchasing power of the customers has increased to a great extent, with the influencing the retail industry to a great extent, a variety of other factors also seem to fuel the retailing boom. 5) SCALE OF OPERATIONS: Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of business operations is very high in India. PRESENT INDIAN SCENARIO * Unorganized market: Rs. 583,000 crores * Organized market: Rs.5, 000 crores * 5X growth in organized retailing between 2000-2005 * Over 4,000 new modern Outlets in the last 3 years * Over 5,000,000 sq. ft. of mall space under development

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* The top 3 modern retailers control over 750,000 sq. ft. of retail space * Over 400,000 shoppers walk through their doors every week * Growth in organized retailing on par with expectations and projections of the last 5 Years: on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2005-06

1.1.10 The Future of Organised Retailing in India

The word 'retail' is extracted from the French word 'retaillier' meaning 'to cut a piece off' or 'to break bulk'. In simple terms it involves activities whereby products or services are sold to final consumers in smaller quantities. Although retailing in its various formats has been around in India for many years, it has been confined for a long time to family owned corner shops or mom and pop shops popularly known as kirana shop. The Fact File Retailing in more developed countries is big business and better organised than what it is in India. Report published by McKinsey & Co. in partnership with Confederation of Indian Industry (CII) states that the global retail business is worth a staggering US $ 7 trillion. The ratio of organised retailing to unorganized in US is around 80 to 20, in Europe it is 70 to 30, while in Asia it comes to around 20 to 80. Hence there lies a great scope in India. In India the scenario is quiet unique, organised retailing accounts for a mere 5% of the total retail sector. Although there are around 5 million retail stores in India, 90% of these have a floor space area of 500 sq.ft. or less. The emergence of organised retailing in India is a recent phenomenon and is concentrated in the top 100 urban towns and cities. The Reason This emergence of organised retailing has been due to the demographic and psychographic changes taking place in the life of urban consumers. Growing number of nuclear families, working women, greater work pressure, changing values and Lifestyles, increased commuting time, influence of western way of life etc. have 28

meant that the needs and wants of consumers have shifted from just being Cost and Relationship driven to Brand and Experience driven, while the Value element still dominating the buying decisions. Also, with the liberalization of Indian Economy in the early 1990's the employment and income from the service sector has lead to the burgeoning of the so called 'Middle Class Consumers'. The lifestyle and purchasing power of this segment has fueled the growth of organised retailing. The BIG Boys The level of interest shown by major corporate sector has increased manifold over the last few years. Large conglomerates like the TATA's, ITC, the RPG group, the Piramals and the Rahejas have invested heavily into large format retail stores. Organised retailing for some of these business groups is a logical extension of their businesses. For example Real Estate Major Rahejas have successfully exploited their expertise in selection and execution of retail establishment in prominent places around metros in the country. While the ownership remains with them, the day-today running is left to the hands of experts. Also textile and garments companies like Raymond, Madura Garments and Arvind Denims have successfully employed forward integration by opening up exclusive outlets for their branded garments. This reduces their dependence on intermediaries, increases the profit margin and allows them to remain close to their customers. Apart from apparel brands, Consumer durables, FMCG products and Sports brands have also spurred the growth of retails outlets. In fact, so much is the promise of this sector that old Economy major like Reliance, BPCL and others want to join the band wagon to cash in on their reach and retail space availability. Organised retailing in India initially began in south The availability of land at prime locations coupled with lower real estate prices enabled the construction of multistoreyed shopping complexes. The growth of retailing in an expensive real estate places like Mumbai and Delhi was due to the recession in the real estate sector during

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the mid-nineties. It was during these times that big business houses like Piramals and Rahejas took notice of the potential in organised retailing. The Design Another interesting aspect of Indian Organised retailing market is the evolution of various formats over a period of time. The traditional grocers by introducing selfservice formats and value added services like Home Delivery and Monthly Credit have tried to differentiate them. In the late nineties the departmental stores dominated the retail scene; today it's the large formats of hyper markets and Mega Malls which have conquered the largest retail space in the country. Although some formats have been successful and others busted, still there is no consensus among experts as to what would work where. Each formats has its won merits and demerits, and careful location and assortment planning, accurate consumer insight with efficient supply chain management will remain the corner stones of any format. Building the Store Brand The two major areas where the Retail Store managers face a marketing challenge is one to create footfalls, and secondly to convert footfalls into sales. Promotional efforts like Advertising and Sales promotions would help in creating footfalls, but in the longer term it's the positioning and consumer proposition which would build the stores brand. Once the brand is build, loyalty can be sustained through Direct Marketing or CRM programs. The store brand would convey the value proposition in terms of what it offers and what it stands for. For example: Shopper's stop offers "All lifestyle products under one roof" and it stands for "Feel the Experience While you shop" attribute. Similarly Pantaloons Big Bazaar offers "All household products at one place" and it stands for "The best bargain in town" attribute.

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Also RPG's specialty store called Health & Glow offers "Health and Beauty treatment products" and it stands for "Quality products with expert advice". The Technology Increased competition has lead to tighter margins and greater pressure on profits for retail store owners. Operating expenses like rentals, salaries, maintenance, electricity etc. have steadily risen as gross margins have declined. Because of the low-margin nature of most retail businesses retailers will have to focus on operational efficiency in order to create competitive differentiation. "India is a big country where preferences change with every 25kms and customer loyalty with every 5 rupees. Hence retails outfits needs technology and systems which can manage and interpret these dynamics, and thereby help the management to take real time decisions" said one of the pioneers of Organised Retailing in India, Mr. Kishore Biyani of Pantaloons. One of the major technological innovations in organised retailing have been the introduction of Bar Codes, it provides real time information of products sold, which in turn helps online inventory management and also allows the manufacturer to organise production planning and distribution management. Organisations like A C Neilson have come up with Decision Support Services Systems which help in sophisticated multi-dimensional reporting, data navigation, analytical modeling, graphical presentations and expert system tools. Also issues like shoplifting have been address to with introduction of sensors and tags. Human Resource The HR function in all service sector organizations like Retailing is one of the pillars of success. Proper Man power planning, Recruitment, Motivation and Retention would be essential to maintain operational smoothness and consistent service to the customers. Realizing the need gap existing in this area, major educational institutions are today designing and offering specialized courses in retail management. Also a lot of management Institutes have retailing as a full credit course. The Macro Benefit 31

The contribution of a well developed retail industry, to its economy, could be manifold; firstly it will help in releasing for productive usage large area of lands lying ideal in prime location with governmental and non-governmental agencies. Secondly, if we look at any major tourists' city in the world it has a well-developed shopping environment; hence it is obvious that organised retailing would help significantly in promoting our cities as tourist destinations.

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