Project report on organized Retail in India
ARYA COLLEGE OF Engineering & IT 2008-2010
Submitted ByAMIT KAUSHIK MBA 2 nd SEM (ROLL NO- 03 )
Submitted To R.P.Sharma
CONTENTSINDIA RETAILING INDUSTRY AN INTRODUCTION INDIA RETAILING INDUSTRY THE BIRTH OF INDIAN RETAILING ORGANISED RETAILING IN INDIA - AN OVERVIEW RETAILING IN 1990S CURRENT SIZE OF ORGANIZED RETAIL EMERGENCE OF DISCOUNT FORMATS ENTRY OF INTERNATIONAL PLAYERS MALL DEVELOPMENT: IMPROVEMENT IN RETAIL OPERATING EFFICIENCIES IMPROVING PROFITABILITY AND RETAIL REVENUES INDUSTRY IN INVESTMENT PHASE RETAILING IN INDIA INDIAN RETAIL WHERE IT STANDS FIVE REASONS WHY INDIAN ORGANIZED RETAIL IS AT THE BRINK OF REVOLUTION INDIA RETAILING INDUSTRY OBJECTIVES OF THE STUDY SCOPE OF THE STUDY REVIEW OF LITERATURE
INDIA RETAILING INDUSTRY
The Next big story
Changing Face of Retail and Its Implication on Consumer Behaviour An In Depth Study of Jaipur City.
INTRODUCTIONBy the turn of the 20th century, the face of the Indian retailing industry had changed significantly. The retailing industry, which, until the early 1990s, was dominated by the unorganized sector, witnessed a rapid growth in the organized sector with the entry of corporate groups such as Tata , RPG, ITC and Bennett Coleman & Company into the retailing market. With the liberalization and growth of the Indian economy since the early 1990s, the Indian customer witnessed an increasing exposure to new domestic and foreign products through different media, such as television and the Internet. Apart from this, social changes such as increase in the
number of nuclear families and the growing number of working couples resulting in increased spending power also contributed to the increase in theIndian consumers' personal consumption.
The Birth of Indian RetailingOrganised Retailing in India - An Overview ORGANISED retailing in India is gaining wider acceptance. The development of the organised retail sector, during the last decade, has begun to change the face of retailing, especially, in the major metros of the country. Experiences in the developed and developing countries prove that performance of organised retail is strongly linked to the performance of the economy as a whole. This is mainly on account of the reach and penetration of this business and its scientific approach in dealing with customers and their needs. In spite of the positive prospects of this industry, Indian retailing faces some major hurdles which have stymied its growth. Early signs of organised retail were visible even in the 1970s when Nilgiris (food), Viveks (consumer durables) and Nallis (sarees) started their operations. However, as a result of the roadblocks, the industry remained in a rudimentary stage. While these retailers gave the necessary ambience to customers, little effort was made to introduce world-class customer care practices and improve operating efficiencies. Moreover, most of these modern developments were restricted to south India, which is still regarded as a Mecca of Indian Retail.
Retailing in 1990s On account of the liberalization drive in the 1990s, several structural and demographic changes that are taking place are helping the industry to grow. The GDP has grown by 6.6 per cent in the last decade resulting in increased income levels and higher purchasing power for the population. Increasing literacy levels, increasing number of working women, increasing urbanization, higher international travel by Indian population and Increasing media penetration has raised aspiration levels of the population, resulting in demand for better shopping experience and larger variety of goods. India has close to 54 per cent of population below the age of 25, which translates into higher prospects for increased consumption levels in the future. Finally, interest rates have also declined in the past few years further propelling the consumption demand. These factors were the key drivers for the retail wave in the country. Notable among the early entrants were players like Shoppers Stop, Pantaloon, Ebony, Foodworld, Subhiksha,
etc. Initially, the growth in organized retail was very slow and concentrated mainly in metros, with south India holding its ground as the pioneer in organized retail growth, on account of the low cost of real estate. Due to the high investments required in the early stages and the fact that real estate was the key deciding factor for success of stores, real estate developers have been the major players in the industry. In the early 1990s, as the players were lower down on the learning curve many faltered in their models, and growth of the industry remained slow. The second half of 1990s saw several players making losses and exiting from the business. The worst for the industry were 2000 and 2001, as the stock market downturn, which reduced customer confidence and spending, had a direct impact on the performance of the industry. The industry recovered starting 2002. It now appears the efforts and learnings of the players in the last decade are beginning to pay off; the organized retail industry has established firm roots and is beginning to grow. Current size of organized retail The total private final consumption expenditure of India stood at Rs 15 lakh crore in 2001-02. Of this, close to 65 per cent is spent on goods and services bought off the shelf. Currently, the Indian retail industry is estimated to be close to Rs 9 lakh crore and the market estimates the size of the organised retail industry at close to Rs 17,500 crore accounting for close to 2 per cent of the overall retail industry. Emergence of discount formats: Larger discount formats, popularly known as hypermarkets, are now emerging as major competitors to both unorganized and organized retailers. Penetration of organised retail into the lower strata of income groups and consumer demand for increased value-formoney has improved the prospects of these formats. These formats span across the entire range of merchandise categories. Big Bazaar, promoted by Pantaloon and Giant, promoted by the RPG Group, are examples of this format. Entry of international players: A large number of international retailers have evinced interest in India, despite the absence of favorable government policy for foreign players. A number of the major brands have entered the country through licensing agreements with Indian players to capitalize on the opportunities available in the sector.
Mall development: Modern malls made their entry into India in the late 1990s, with the establishment of Crossroads in Mumbai and Ansals Plaza, DLF in gurgaon & Delhi. By early 2001, several mall projects were announced. According to market estimates, close to 10 million sq. ft. of mall space is being developed across several cities in the country, of which 8 million sq. ft. is expected to be operational by end of 2005. With this, rentals for retail properties have shown a marked decline, which has brought down the break-even levels of the retail projects. Moreover, retailers would now have access to retail-specific properties, which will increase their efficiencies. Improvement in retail operating efficiencies: Besides the macro factors, which have aided in retail growth, the existing players have also taken steps to improve the internal operations of their businesses. Most players have implemented ERP and planning support systems. Awareness of consumer behaviour patterns has also increased on account of regular market studies done by these players. Existing players have started implementing worldclass retail practices in merchandise planning, customer service and store layouts. The impact of these positive steps is already visible in the performance of the companies. However, Fitch believes that players still lag behind in adopting efficient supply chain practices. While a part of this has been on account of the lack of proper infrastructure, a large part is also due to the basic inertia and haphazard initiatives taken by the companies. Fitch believes that there is tremendous scope for cost savings and improvements on the operational front, where retailers can reap huge benefits in the future.
Improving profitability and retail revenues: The improvement in operational efficiencies, in spite of its existing drawbacks, has resulted in turnaround and growth of most of the existing players. For example, after losses of close to Rs 22 crore losses in FY01, Shoppers Stop made a profit of Rs 14 lakh
in FY02 on an aggregate turnover of close to Rs 250 crore. In FY03, profits further increased to Rs 10.5 crore, on aggregate turnover of Rs 300 crore. Similarly, Westside, owned by Tatas, has reported profits of Rs 16 crore on aggregate turnover of Rs 120 crore in FY03. Pantaloon, one of the oldest players in the industry, has reported profits of Rs 7.8 crore on aggregate turnover of Rs 290 crore in first nine months of FY03. The major players in the industry are now achieving turnover levels, which are more resistant to the cycles in the industry. Improvement in profitability is expected to improve the credit profile of the players in the industry. Industry in investment phase: Since most of the retail operations are gaining momentum and the hurdles to growth are increasingly being addressed, the industry has now entered the investment phase. Fitch estimates that the industry as a whole will add close to one mn sq. ft. every year. At an average investment of Rs 2,400 per sq. ft., this would mean an investment of Rs 240 crore investments per annum over the next few years. In addition, basic infrastructure like parking, real estate, etc., would require over Rs 100 crore investments per annum. However, given the nascent stage of the industry, most of these investments would be in the form of equity. A few cues can be taken from other emerging markets, where retail industry has taken shape in the last couple of decades. Fitchs study of other emerging markets shows that it takes 10-12 years for the organised industry to achieve 10 per cent to 12 per cent market share. Most of the emerging markets, like Thailand, Indonesia, China and Malaysia, which saw an emergence of organised retail in the 1980s, have now achieved between 20 per cent to 40 per cent market shares. However, for India to achieve a similar level of penetration, it would have to overcome key roadblocks like lack of FDI approval, complex taxation and infrastructure bottlenecks. While some of these hurdles are easy to remove, others are politically sensitive issues and might take several years to get addressed. As a result, Fitch believes that the growth in organised retailing in India might not be as rapid as it has been in other emerging markets. This would mean that the industry would continue to remain in an investment stage for longer time compared to other emerging markets. Key hurdles to be addressed: Fitch believes that some of the key hurdles to growth, like lack of FDI approval and multiplicity of taxes are expected to remain in the short to medium term. Other constraints, like lack of infrastructure facilities, retail manpower and supply chain
bottlenecks would be solved over the next few years. These would propel growth rates from the current levels. Key conclusions: The industry is in an investment phase. Some of the basic ingredients required for the industry to grow are now available, though certain hurdles still exist. Thus, the industry is poised for the next phase of rapid growth and improving profitability, which will improve company valuations and reduce overall operational risks. Conclusion Fitch believes that the retail industry is poised for growth over the next few decades. The industry is in an investment mode and would require substantial funds for expansion and growth. Lack of industry status and ban on FDI are major hurdles to growth. On the operations front, the players are now starting to employ global retail practices. However, it would take sometime before players are able to bring their supply chain infrastructure in line with the world class standards, to maximize benefit. Besides, the retailers would need to do substantial work on the front-end of their business models, which involves implementation of practices and processes for efficient customer management techniques and linking them to the merchandise and supply chain planning systems of the company. Lack of trained manpower and infrastructure constraints prevents them from taking advantage. On the financial front, 2002 saw players starting to turn profitable. However, past losses coupled with low profitability on account of the need to meet changing business challenges to arrive at the right retail models, lack of sufficient knowledge about the consumer behaviour and several external constraints, will continue to put pressure on these businesses.
Fitch believes that many of the players, who have survived the tumultuous period of the last two years, may be able to harness the benefits of scale and size in the years to come. As these players grow into national chains, they will be able to take advantage of the synergies in supply chain, which will help them reduce costs and offer higher value to the customers. This would help them achieve higher organic growth, with reduced reliance on external funds. These players will, thus, emerge as strong credits, thus mitigating, to a substantial
degree, the format and operations risks associated with them in the initial stage of their businesses. However, until these companies transform themselves from being small regional chains to large, geographically well-distributed national chains the inherent format and operations risks along with the financial risk would be key factors influencing their credit ratings. Retailing in India Total Consumer Spend in the Year 03-04 INR 9300 billion ( USD 375 billion) growing over 5% annually Retail sales 55% at INR 280 billion (USD 205 billion) Organised Retail Only 3% but growing at 30% Organised retail to cross INR 1000 billion mark by 2010 INR 200 billion investment in the pipeline Top 6 cities account for 66% of total organized retailing. Overwhelming acceptance of modern retail formats.
INDIAN RETAIL WHERE IT STANDSFive Reasons why Indian Organized Retail is at the brink of Revolution Scalable and Profitable Retail Models are well established for most of the
Categories. Rapid Evolution of New-age Young Indian Consumers. Retail Space is no more a constraint for growth. Partnering among Brands, retailers, franchisees, investors and malls. India is on the radar of Global Retailers Suppliers. Looking Ahead Many strong regional and national players emerging across formats and product categories Most of these players are now geared to expand far more rapidly than the initial years of starting up Most have regained / improved profitability after going through their respective learning curves Malls in India