Retail Project

By: Abhishek Jethwa

• GDP growth for the year 2005-06 ended at 8.4%.

• Tops AT Kearney list of emerging markets for globalretailers to enter.

• 2nd Fastest growing economy in the World

• Fourth in terms of Purchasing Power Parity next only to

THE INDIAN ECONOMY

• Fourth in terms of Purchasing Power Parity next only toUSA, China and Japan.

• 50% of the total GDP led by services such as IT,telecommunications, healthcare and retailing.

• Reserves crossed the $150 bn mark, showcasing India asone of the top ten holders of Foreign exchange reserves.

• Over 3.9 mn tourists visited India this year, up from 3.0mn last year.

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 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 V’s -

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

Indian Retail Industry- A Brief Overview

• India is currently the ninth largest retail market in the world.• The Indian retail market is estimated at US$ 215 billion.• While organised retail in India is only two per cent of the total

US$ 215 billion retail industry, it is expected to grow 25 per cent annually, driven by changing lifestyles, strong income growth and favourable demographic patterns.and favourable demographic patterns.

• Organised retailing in small-town India is growing at a staggering 50-60 per cent a year compared to 35-40 per cent in the large cities.

• KSA-Technopak, a retail consulting and research agency, predicts that by 2010, organised retailing in India will cross the US$ 21.5-billion mark from the current size of US$ 7.5 billion.

• Food dominates the shopping basket in India. The US$ 6.1 billion Indian foods industry, which forms 44 per cent of the entire FMCG sales, is growing at 9 per cent and has set the growth agenda for modern trade formats.

43%Rs 7,18,136 cr

Food, Beverage,

Tobacco

11%Rs.1,78,998 cr

Miscellaneous3%

Rs 57,367 cr

Education, Recreation

15%Rs 2,58,696 cr

Category-wise Private Final Consumption Expenditure

Total Private Final Consumption Expenditure is Rs 16,90,000 cr

5%Rs 79,631 cr

Clothing, Footwear

12%Rs 2,03,391 cr

Rent, Fuel, Power

4%Rs 49,852 cr

Furniture, Furnishing,

Appliance

Rs 2,58,696 cr

Transport,

Communication

8%Rs 1,42,143 cr

Medical, Health Care

Rs 16,90,000 cr

55% is Retail Salesi.e. Rs 9,30,000 cr

SEGMENT Retail Sale

Rs cr

Organized Retail Sale

Rs cr

% Share in Org. Retail

Clothing, Textile & Fashion Accessories 80,000 10,900 39

Jewellery 43,500 850 3

Watches 2,800 1,110 4

Footwear 10,000 2,500 9

Health & Beauty Care Services 2,500 150 1

SEGMENTWISE RETAIL & ORGANIZED RETAIL SALE

Health & Beauty Products (Incl. Pharma) 30,000 550 2

Consumer Durables 32,000 2,500 9

Mobile Handsets & Accessories 13,000 840 3

Furniture & furnishings 33,000 2,200 8

Food & Grocery 6,15,000 2,950 11

Catering Services ( F & B ) 35,000 2,000 7

Books, Music & Gifts 8,200 800 3

Entertainment 25,000 650 2

Rs 9,30,000 Rs 28,000 100

ONLY 3 %

RETAIL INDUSTRY GROWTH

800000

1000000

1200000

1400000

0

200000

400000

600000

800000

2004 2005 2006 2007 2008 2009 2010

By 2010 Rs 14,00,000 cr Growth Rate is 8%

ORGANISED RETAIL GROWTH

60,000

70,000

80,000

90,000

100,000

0

10,000

20,000

30,000

40,000

50,000

60,000

2004 2005 2006 2007 2008 2009 2010

By 2010 Rs 1,00,000 cr 9% of Total Retail Industry Growth Rate is 30%

Discovering power of Indian RetailKey Growth Drivers

• Favorable Demographics

• Rising Consumer Income

• Mall Boom

Favorable Demographics & Mall Boom

• Real estate is key for a retail business during its investment phase• Drop in interest rates have made property buying and leasing viable

Indian Mall Scene in 2006City Area (mn sq ft)

Indore 0.06Jaipur 0.67Chandigarh 0.12Ludhiana 0.2Lucknow 1.07

• 100% FDI in Construction & Real Estate now permitted

• Over 600 malls expected by 2010

• Total investments of USD 5 bn would be required from organized retailers by 2010

• Real Estate development in India –poised for Dramatic growth

Lucknow 1.07Ahmedabad 1.95Pune 2.03Chennai 1.22Calcutta 1.15Hyderabad 1.26Bangalore 2.12Mumbai 4.8NCR (Delhi) 10.62

Retailing formats in India

�� Supermarkets (Foodworld,Spencer’s)�� Hypermarkets (Big Bazaar,Trent )�� Department Stores (Shoppers Stop,LifeStyle)�� Specialty Chains (Spar)�� Discount Chains (Subhiksha)�� Discount Chains (Subhiksha)�� Cash ‘N’ Carry (Metro)�� Petro Convenience (In & Out, Shell)�� Traditional Format Retailers�� Kiranas: Traditional Mom and Pop Stores�� Kiosks�� Street Markets�� Exclusive /Multiple Brand Outlets

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,

Retail Sales in India

• 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.

Recent Trends

• Multiple drivers leading to a consumption boom:

Favorable demographics Raising aspirations : Value added goods sales

Growth in income Increasing population of women

• 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.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.

Counter

Service

CHANGE IN RETAILING

Service

Self

Service

Less Than

200 SKU

CHANGE IN RETAILING

8000 to

10,000 SKU

Few Hundred

sq. ft. Shop

CHANGE IN RETAILING

sq. ft. Shop

50,000 plus

sq. ft.Now Lakhs of sq.ft in pipeline

No gadgets

CHANGE IN RETAILING

Advanced

gadgets

No IT

CHANGE IN RETAILING

Advanced

IT

No

Bar coding

CHANGE IN RETAILING

Bar coding

Advanced

RFID

CHANGE IN RETAILING

Dull Shopping

Experience

Shopentertainment

or Shoppertainment

Experience

TOP 15 RETAILERS OF THE WORLDSr NAME COUNTRY SALE

$ BILLION1 WAL MART STORES USA 256. 329

2 CARREFOUR FRANCE 87. 342

3 ROYAL AHOLD NITHERLAND 68. 224

4 METRO GERMANY 65. 147

5 KROGER USA 53. 791

6 TESCO UK 50. 326

7 TARGET USA 48. 1637 TARGET USA 48. 163

8 RWE GERMANY 44. 241

9 COSTCO USA 41. 693

10 ALDI GERMANY 41. 011

11 INTERMATCH (ITM) FRANCE 36. 723

12 SAFEWAY USA 35. 552

13 ALBERTSON USA 35. 436

14 SWAZ GROUP GERMANY 33. 357

15 WALLGREENS USA 32. 505

Sr Name Sr Name Sr Name Sr Name Company Sale (Cr)Company Sale (Cr)Company Sale (Cr)Company Sale (Cr)

1 Big Bazaar Pantaloon 650.00

2 Food World RPG 545.00

3 Shopper Stop K.Raheja 404.00

4 Margin Free 300.00

TOP RETAILERS OF INDIA

4 Margin Free 300.00

5 Nilgiris Nilgiris 250.00

6 Life Style Land Mark 230.00

7 Subhiksha Vishwapriya Group 200.00

8 West Side Tata (Trent) 130.00

9 Adani Adani 100.00

10 Piramyd Piramals 79.00

11 D’Mart Avenue SuperMkt 78.00

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 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• AT Kearney has estimated India’s 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 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

• 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 • 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.