retail sector india

8/14/2019 Retail Sector India

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The Indian Consumer Sector


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Industry Evolution Contd

Traditionally retailing in India can be traced to

The emergence of the neighborhood Kirana stores catering tothe convenience of the consumers

Era of government support for rural retail: Indigenous franchisemodel of store chains run by Khadi & Village IndustriesCommission

1980s experienced slow change as India began to open up economy.

Textiles sector with companies like Bombay Dyeing, Raymond's, SKumar's and Grasim first saw the emergence of retail chains

Later Titan successfully created an organized retailing concept andestablished a series of showrooms for its premium watches

The latter half of the 1990s saw a fresh wave of entrants with a shiftfrom 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.


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Industry Evolution

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 allsegments of society

Emergence of hyper and super markets trying to provide customerwith 3 Vs - Value, Variety and Volume

Expanding target consumer segment: The Sachet revolution -

example of reaching to the bottom of the pyramid. At year end of 2000 the size of the Indian organized retail industry is

estimated at Rs. 13,000 crore


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Consumer formats in India

Malls:

The largest form of organized retailing today.Located mainly in metro cities, in proximity tourban outskirts. Ranges from 60,000 sq ft to7,00,000 sq ft and above. They lend an idealshopping experience with an amalgamation ofproduct, service and entertainment, all under acommon roof. Examples include Shoppers Stop.

Specialty Stores:

Chains such as the Bangalore based Kids Kemp,

the Mumbai books retailer Crossword, RPG's Music

World and the Times Group's music chain Planet M,

are focusing on specific market segments and have

established themselves strongly in their sectors.

Discount Stores:

As the name suggests, discount stores or factory

outlets, offer discounts on the MRP through sellingin bulk reaching economies of scale or excess

stock left over at the season. The product category

can range from a variety of perishable/ non

perishable goods

Department Stores:

Large stores ranging from 20000-50000 sq. ft,catering to a variety of consumer needs. Furtherclassified into localized departments such asclothing, toys, home, groceries, etc.

Department Stores:

Departmental Stores are expected to take over theapparel business from exclusive brand showrooms.Among these, the biggest success is K Raheja'sShoppers Stop, which started in Mumbai and nowhas more than seven large stores (over 30,000 sq.ft) across India and even has its own in store brandfor clothes called Stop!.

Hyper marts/Supermarkets:

Large self service outlets, catering to variedshopper needs are termed as Supermarkets. Theseare located in or near residential high streets. Thesestores today contribute to 30% of all food & groceryorganized retail sales.

Convenience Stores:

These are relatively small stores 400-2,000 sq. feet

located near residential areas. They stock a limitedrange of high-turnover convenience products andare usually open for extended periods during theday, seven days a week. Prices are slightly higherdue to the convenience premium.

MBOs :

Multi Brand outlets, also known as Category Killers,offer several brands across a single product

category. These usually do well in busy marketplaces and Metros.


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Consumer formats in India

Indias number of Domestic grocery chains and Early Foreign Entrants


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Recent Trends Contd

Retailing in India is witnessing ahuge revamping exercise as canbe seen in the graph

India is rated the fifth most

attractive emerging retail market:a potential goldmine.

Estimated to be US$ 200 billion,of which organized retailing (i.e.modern trade) makes up 3 percentor US$ 6.4 billion

As per a report by KPMG the

annual growth of departmentstores is estimated at 24%

Ranked second in a Global RetailDevelopment Index of 30developing countries drawn up byAT Kearney.

Retail Sales in India


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Unorganized: Vast majority of the twelve million stores are small

"father and son" outlets

Fragmented: Mostly small individually owned businesses, averagesize of outlet equals 50 s.q. ft. Though India has the highest number ofretail outlets per capita in the world, the retail space per capita at 2 s.q.ft per person is amongst the lowest.

Rural bias: Nearly two thirds of the stores are located in rural areas.Rural retail industry has typically two forms: "Haats" and Melas".Haats are the weekly markets : serve groups of 10-50 villages and sellday-to-day necessities. Melas are larger in size and more sophisticatedin terms of the goods sold (like TVs)

Traditionally three factors have plagued the retail industry:

Recent Trends Contd


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Recent Trends Contd

Experimentation with formats: Retailing in India is still evolving and the sector

is witnessing a series of experiments across the country with new formats beingtested out. Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc.

Store design : Biggest challenge for organised retailing to create a customer-pullenvironment that increases the amount of impulse shopping. Research shows thatthe chances of senses dictating sales are upto 10-15%. Retail chains likeMusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investingheavily in store design.

Emergence of discount stores: They are expected to spearhead the organisedretailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. BigBazaar, Bombay Bazaar, RPGs.

Recent changes:


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Recent Trends Contd

Unorganized retailing is getting organized: To meet the challenges of organizedretailing such as large cineplexes, and malls, which are backed by the corporatehouse such as 'Ansals' and 'PVR the unorganized sector is getting organized. 25stores in Delhi under the banner of Provision mart are joining hands to combinemonthly buying. Bombay Bazaar and Efoodmart formed which are aggregations ofKiranas.

Recent changes:


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Recent Trends contd.

Multiple drivers leading to a consumption boom:

Favorable demographics

Growth in income

Increasing population of women

Raising aspirations : Value added goods sales Food and apparel retailing key drivers of growth

Organized retailing in India has been largely an urban phenomenon withaffluent classes and growing number of double-income households.

More successful in cities in the south and west of India. Reasons range fromdifferences in consumer buying behavior to cost of real estate and taxationlaws.


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Recent Trends

Rural markets emerging as a huge opportunity for retailers reflected in theshare of the rural market across most categories of consumption

ITC is experimenting with retailing through its e-Choupal and ChoupalSagarrural hypermarkets.

HLL is using its Project Shakti initiativeleveraging women self-helpgroupsto explore the rural market.

Mahamaza is leveraging technology and network marketing concepts toact as an aggregator and serve the rural markets.

IT is a tool that has been used by retailers ranging from Amazon.com to eBayto 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 likeRediff.com and Indiatimes.com to offer products on the web.


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Major Retailers

Indias top retailers arelargely lifestyle, clothingand apparel stores

This is followed bygrocery stores

Following the past trendsand business models inthe west retail giants suchas Pantaloon, ShoppersStop and Lifestyle arelikely to target metros andsmall cities almost

doubling their currentnumber of stores

These Walmart wannabeshave the economy of scaleto be lowmedium costretailers pocketing narrowmargin

Leading Retailers


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India vs. World Contd

Indian retail is fragmented with over 12 million outlets operating in thecountry. This is in comparison to 0.9 million outlets in USA, catering to morethan 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 spreadretail network but with the lowest per capita retail space (@ 2 sq. ft. perperson)

Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher thanthe size of Indian retail industry. Almost 100 times more than the turnover ofHLL (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) cancompare.

The sales per hour of $22 million are incomparable to any retailer in theworld. Number of employees in Wal-Mart are about 1.3 million where as theentire Indian retail industry employs about three million people.


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India vs. World

One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly twothird 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 justone format

Inventory turns ratio: measures efficiency of operations. The U.S. retail sectorhas an average inventory turns ratio of about 18. Many Indian retailersKPMG surveyed have inventory turns levels between 4 and 10.

Global best-practice retailers can achieve more than 95 percent availability ofall 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 15percent.


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Future direction: Positives Contd

AT Kearney has estimated Indias total retail market at US$ 202.6 billionwhich 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 currentUS$ 7.7 billion to US$ 24 billion by 2010.

The share of modern retail is likely to grow from its current 2 per cent to15-20 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 twokey factors:

Availability of quality real estate and mall management practices

Consumer preference for shopping in new environments


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Future direction: Positives

Wal-Mart : huge plans for India. Moving a senior official from itsheadquarters in Bentonville, Arkansas, to head its market research andbusiness development functions pertaining to its retail plans in India.

New York-based high-end fashion retailer Saks Fifth Avenue has tied upwith 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 inDelhi, Ahmedabad, Lucknow and Bangalore in the next four months.


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Future direction: Concerns Contd

68 million square feet of mall space is expected to be available by end of2007, which might lead to over-capacity of malls

Lack of differentiation among the malls that are coming up. One option maybe to look at specialization.

Poor inventory turns and stock availability measures - retailers clearly need toaugment their operations.

Operations of retailers and suppliers are not integrated. Efficientreplenishment practices practiced in the Indian auto and auto-component

industry can be leveraged to implement efficient supply chain managementtechniques.


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Future direction: Concerns

Supplier maturity, in terms of adherence to delivery schedules and deliveringthe quantity ordered, is an issue

Sales tax laws - lead to retailers having state-level procurement and storageleads to Indian retailers having higher inventories. VAT has helped alleviatethis 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 gapsand proactive training is a key imperative for overcoming these.


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Sources

AT Kearny

Forrester Research 2006

KPMG-FICCI Report http://www.indiainbusiness.nic.in/


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