Retail in India

Towards growth and profitability

THE GREAT INDIAN RETAIL
STORY
Timeline of Retailing in India

Source: Citigroup Research

 India – a nation on the move
 Current GDP ~ $1 trillion
 4th largest in terms of GDP (PPP)
terms
 Target customer base 405 mn.
 Growth rate likely to be sustained
above 8%
 Changing consumer behavior -
consumerism
 Growth in availability of
infrastructure and mall space
GDP growth and Retail

Retail, GDP growth Organized Retail in 2010

The organized players
 Indian companies  Foreign Players
 Future Group  Nike (Single brand)
 Reliance Retail  Levis (Single brand)
 Bharti  Wal-mart (JV)
 Shoppers'Stop  Metro (Cash&Carry)
 Pyramid
 Aditya Birla Group
 Subhiksha
 Spencer Group
 Tata – Westside,
 Tata – Chroma
Organized retail, revenue and
volume growth

Total size of retail $300bln

Size of organized retail $8bln
% share of Organized retail 3%

Source: Economics times retail knowledge series

FORMATS
Market Profile of Various
Formats
 Department Stores: Shopper Stop, Lifestyle, Pantaloons
 Hypermarkets: Big Bazaar, Spencer
 Supermarkets and Conv. Stores: Subhiksha, Trinethra

Source: India Retail Report, 2007, Merrill Lynch

 Major Retail Formats
Department Stores
Well established, limited
competition
Entrenched in Indian
Mindset
Score on shopping
experience
Stress on branding
Price not critical as they
cater to upper income
class
Hypermarkets
Relatively new concept,
but already as big as
department stores
Growing fast, but
competition to intensify
Price Discount and Wide
Varieties act as key
attractions
Key to success will be
efficient Supply Chains and
Store locations
Supermarkets and
Conv. Stores
Main challenge to mom
and pop stores
How to compensate for
facilities that mom and pop
stores provide namely
Home Delivery and
Monthly Credit ?
Immense Competitions,
building scale to achieve
cost efficiencies will be
critical
OPPORTUNITY
&
CHALLENGES
Which categories will grow ?
Food and Groceries
 Sector that the largest amount of consumer spends is concentrated.
 Maximum opportunity for investments

Consumer durables
 With increasing purchasing power, consumers tend to spend the
most on this category.
 There is nothing to prevent a company from putting up shops
outside the city limits, because consumer durables are a
premeditated purchase.
 Availability of finance options has increased spending in this sector.

Home products
 With increasing private ownership of homes by relatively young
couples, across most major cities in India, national retail chains
offering home furniture (and accessories) have great potential.
Growth Potential In India

Source: AT Kearney , Citigroup Research Report

POLICIES
Government Policies

 51% FDI allowed in single-brand formats

 100% FDI in cash-and-carry format
 NO FDI in multi-brand stores ( like Wal-Mart)
 Trends indicate that the FDI would open up in
retail sector, however political consensus has
to be reached before that happens
 Pros and Cons of allowing
FDI in retail
Benefits of FDI in retail
 Inflow of investment and funds.
 Improvement in the quality of
employment.
 Generating more employment.
 Increased local sourcing.
 Provide better value to end
consumers.
 Investments and improvement in the
supply chains and warehousing.
 Franchising opportunities for local
entrepreneurs.
 Growth of infrastructure.
 Increased efficiency.
 Cost reduction.
 Implementation of IT in retail.
 Stimulate infant industries and other
supporting industries.
Drawbacks of FDI in retail
 Would give rise to cut-throat
competition rather than promoting
incremental business.
 Promoting cartels and creating
monopoly.
 Increase in the real estate prices.
 Marginalize domestic entrepreneurs.
 The financial strength of foreign
players would displace the
unorganized players.
 Absence of proper regulatory
guidelines would induce unfair trade
practices like Predatory
OPINIONS
Growth Drivers & Barriers

Growth Drivers Barriers to Entry

Consumption Boom, Higher  Regulatory barriers
Incomes  Fragmented Suppliers
Favorable Demographics  Lack of infrastructure
Changing Lifestyles and  Supply Chain Complexities
Preferences  Lack of skilled Human
Real estate boom
Resource
Manufacturing Reforms  Differential Taxation System
Reduction in import duties-  Labor Legislation
offering  Clustering of Malls
Opinions on Formats and
Growth Potential
 Consumer financing will be an important tool
to drive consumption Income growth alone
may not be sufficient
 Margins to be driven by non-core businesses
 Retailing will remain concentrated in the top
10 towns
 Multi-format retailing to thrive
 Large scope for rural retailing

Views of Mr Kishore Biyani, Pantaloon Retail – India Retail Forum

Views of Foreign Players
 Environment not conducive enough
 Only 51% FDI in single brand retailing
 Many retailers (e.g.. IKEA) unwilling to enter
without 100% FDI)
 Insufficient data on consumer behavior
 Focus in India only on growth and not
profitability
 Scope for private labels (only 4% in Asia
compared to 17% in western markets)

Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum
Outlook and challenges
 Strong long-term growth potential
 Severe cost pressure largely related to property rentals
 Profitability likely to remain low - patient capital should
survive but weak players likely to exit in the near term
 Consolidation is on the cards
 Driven more by traffic growth than ticket growth
 Convenience stores to remain integral part of retail
 Need for catering to local flavors
 Internet retailing still to pick up in India

Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum
Heard from the street..
 India's Mahindra Group to enter retail sector (Reuters
10/10/2007)
 Reliance Retail Venture Falls Short of Opening Target
(Bloomberg 12/10/2007)
 India's Populists Resist Big Retail (WSJ 9/10/2007)
 Spencer's to reduce retail formats (ET 14/10/2007)
 Small retailers embrace IT to boost operations (ET
12/10/2007)
THANK YOU