sm-ii report_section-c_group-10.pdf

7/29/2019 SM-II Report_Section-C_Group-10.pdf

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STRATEGIC MANAGEMENT- II

PROJECT REPORT

Retail in India has lot of opportunities but also challenges.

Please discuss the challenges and advice how can a retail

company overcome them .Do you have any advice forgovernment policy makers?

Submitted to:

Prof. Prashant Salwan

Submitted by:

Group 10, Section C

Ashish Thakur Munda (2011PGP579)

Manish Manohar (2011PGP710)

Naveen Verma (2011PGP741)

Puppala Mounika (2011PGP802)

SasiSekaran Cl (2011PGP852)

Sneha Pravin Runwal (2011PGP889)

Sumanth K V (2011PGP903)


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CONTENTS

Indian Retail Scenario................................................................................................................3

Traditional and Modern Retailing: the India Story....................................................................3

Share of Major Retail Segments.................................................................................................3

Porters Analysis of the Retail Industry.....................................................................................4

Growth Drivers...4

Opportunities .............................................................................................................................6

Challenges..................................................................................................................................9

FDI in India..10

Recommendations to Government ..11

Recommendations to Retailers.12

List ofExhibits.14

References20


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Indian Retail Scenario

Indias GDP growth of7.6 per cent as per Economic Survey is a reflection of the booming

economy of the country. Growing in tandem with the economy is the Indian retail sector. Thesector is on a high growth trajectory and is expected to grow by more than 30 per cent over

thenext 5 to 6 years. The retail sector in India is the third most attractive world-wide with a

present worth of $396.96 billion. It is one of Indias largest industries, contributing to about

22 per cent of the GDP and providing employment to around 30 million of the nations

workforce, second only to agriculture. Indian retail business promises to be one of the core

sectors of the Indian economy, with organised retail sector estimated to have an annual

growth rate of 12.2 per cent and an estimated net worth of $785.12 billion.The retail industry

in India gathered a new momentum with the establishment of different international brand

outlets, hyper or super markets, shopping malls and departmental stores.The retail sector is

experiencing exponential growth, with retail development taking place not just in major

cities, but also in Tier-II and Tier-III cities. India's growing population and urbanisation

provides a huge market for organised retail. Growing economic prosperity and transformation

in consumption pattern drives retail demand.The country's franchise market is growing at a

healthy pace of over 30 per cent per annum with Tier-2 and Tier-3 cities gradually getting

attracted to the network of retailers and franchisers.

Traditional and Modern Retailing: the India Story

Traditional retailing continues to be the backbone of the Indian retail industry, with

traditional/unorganised retailing contributing to over 90 per cent of total retail revenues. Over

12 million small and medium retail outletsexist in India. More than 80 per cent of these are

run as small family businesses. Prevalence of traditional retailing is highly pronounced in

small towns and cities with primary presence of neighbourhood kirana stores, push-cart

vendors, melas and mandis. Leading retail players in the industry are beginning to

explore these markets and the rural consumers are slowly beginning to embrace the newer

organised retail formats.Modern/Organised retailing is growing at an aggressive pace in

urban India, fuelled by bourgeoning economic activity. The organised retail segment is

expected to grow from 5 per cent to about 7 to 8 per cent by 201213, as per Crisil report. Alarge number of domestic and international players are setting up base and expanding their

business with newer organised retail formats and intense competition driving innovation in

formats.

Share of Major Retail Segments

Retail sector in India is primarily categorised by the type of products retailed, as opposed to

the different retail formats in operation. The Food and Beverages vertical accounts for the

largest share of revenues at 62 per cent of the total retail market (See Exhibit 1for share ofmajor retail segments, Exhibit 2 for Key Retail Formats and Exhibit 3 for Major


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Players). This category has the highest consumer demand across all income levels and

various retail formats. Apparels and consumer durables are the fastest growing verticals in the

retail sector with a share of 10 per cent. Mobile phone as a product category has witnessed

the highest growth in consumerdemand amongst all retail product offerings, with increasing

penetration of telecommunications in towns and villages. The Telecommunications sector hasbeen adding on an average 5 million new users every month.The other product categories are

gaining traction predominantly in the urban areas and emerging cities, with increasing

average income and spending power of young urban India.

Porters Analysis of the Retail Industry:

The threat of new entrants has a high impact on the retail sector which is fuelled by

increasing participation from domestic players to enter and supportive government policies

towards willing foreign players. All this coupled with good access to supply anddistribution

channels helps new entrants and increases the competitive landscape. Bargaining power of

buyers has a low impact due to a large number of buyers and low volume of buying with low

switching cost. Since there is no backward integration and high price sensitivity, buyers are in

a relatively low powerful state. Threat of substitutes is very high in the retail industry due to

the fact that consumers are price sensitive and there is low cost of switching due to presence

of a large unorganized market. In such a scenario, better service and deals incline buyers

towards substitution. The bargaining power of suppliers has a relatively medium impact due

to presence of large number of sellers and low switching cost, inspite of having a credible

threat of forward integration. The key is to procure standardized products with moderate

differentiation. The competitive rivalry is moderate because even though there are manyunorganized players, the organized players are limited. There are high industry fixed costs.

There is low level of differentiation and moderate exit barriers.

Growth Drivers:

The driving factors behind the growth of retail in India can be segmented into two

parts:Demand sidedrivers -which include factors like growing young population, increasing

number of working members and rising disposable incomes, low organised retail penetration,

growing urbanization etc. and Supply side drivers which include increasing and easyavailability of credit, growing retail space and mall boom, increasing investments etc.

Growing young population: India possesses the advantage of having a largely young

population. 35 per cent of Indias population is under 14 years of age and more than 60

per cent of the population is estimated to constitute the working age group (15-60) till

2050. Two-thirds of Indian population is under 35, with the median age of 23 years, and

India is home to 20 per cent of the global population under 25 years of age. The large

proportion of the working-age population translates to a lucrative consumer base vis--vis

other economies of the world, placing India on the radar as one of the most promising

retail destinations of the world.


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Low organised retail penetration: Low organised retail penetration corresponds to huge

scope for the retail market to grow in the future. Indian retail industry has been growing

steadily over the last few years with strong expansion of organised retailing formats like

malls and supermarkets. However, penetration of organized retail in India is still very low

as compared to other developed countries. Apparel and footwear retail are the onlysegments which have a strong organised presence, and even that is restricted to the urban

and semiurban regions. Low penetration level of organised retail reflects a huge

untapped market, which is a strong driver for the retail market in India. (See Exhibit 4)

Increasing number of working members and Rising income levels: India has a

working population of 45% between the age group of 1845 years, who are increasingly

dependent on organised retail stores for easy and convenient availability of necessities.

Rising income levels will also enable consumers to spend more, thereby boosting

consumerism. Increasing disposable income and higher consumption will act as a boon

for the retail market in India and help it grow strongly. Per capita income by net national

income of Indians has grown by 17.3% to INR 54,527 in 2010 11 as against INR 46,492

in 200910.India's consumption will continue to witness 14% growth over the next three

years with consumer durables, food and personal care products having the highest

potential. (See Exhibit 5)

Urbanization: The top 20 Indian cities, which though accounting for only 10% of the

countrys population, generate as much as 60% of its surplus income and 31% of its

disposable income. These 20 large cities are categorised in three groups; Megacities (8),

Boomtowns (7), and Niche Cities (5).These 20 cities, for the next eight years, will grow

at a healthy rate of 10.1% per annum, compared to other cities growing at 7.9% per

annum. In the past three years (2008-11), the top 20 have registered a growth of 11.2%per annum. In the next five years - by 2016, while, the share of middle-income

households ($6,000 to $30,000 per annum) in these twenty cities will increase from

current 39% to 55%, the share of high-income households (more than $30,000 per

annum) will increase three-fold to 13%.

More choice available to the consumers: The choice available to the customers has

increased manifold over the past few years on account of advances in technology,

increased competition and availability of number of Indian and global brands in the

market. The strong economic growth and huge untapped markets have resulted in global

brands making a beeline for India which has benefitted the organized retail sector.Segments like apparel, jewellery, watches, and eyewear have been aided by this

phenomenon. There is a shift in attitude towards certain products, from luxury to being

a necessity. The availability of retail ambience in the form of malls and hyper markets

provides customers with world class shopping experience.

Penetration of debit/ credit cards: Higher penetration and availability of credit facilities

and increasing credit card and debit card subscriptions have further fuelled the growth of

retail sector. Most of the banks and financial institutions have increased their range and

amount of retail credit and loans service offerings. Emergence of quick and easy loans,

easy monthly instalments (EMI), loan through credit cards and others has made it easy for

Indian consumers to afford expensive products. Number of credit cards in circulation


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dropped by 1.16% to 180 mn, while value of credit card transactions increased to INR

755.15 bn in FY 2011. With independent service providers becoming active in the card

space, retail outlets that accept payments by cards are expected to grow threefold by

2015. Easy availability of credit makes it convenient for consumers and encourages more

spending.(See Exhibit 6) Growing retail space and mall boom:Real estate development in India has grown

strongly, with rapid construction of shopping malls and other organised retail formats,

augmenting the growth of the retail market. Mumbai, National Capital Region and

Bangalore are leading in terms of retail space development, accounting for almost 70% of

the total area developed during 201112. Most retail sector giants have now started

expanding base in tier I and tier II cities, owing to the rapid transition of households from

lower income groups to higher income groups. Number of malls in India grew by 47%

over the last one year, supporting the prevailing mall boom culture in the country.

Increasing retail space and strong growth in the number of shopping malls will stimulate

the development of the retail market.

Increasing investment activity:International retail giants are increasingly choosing India

as the target market, with most of the global retail power-houses exploring entry options

into the countrys retail market. Wal-Mart has entered into a 50:50 Joint Venture and

Franchisee agreement with Bharti Retail Ltd. and has set up its first cash-n-carry outlet in

2007-08. It is anticipated that the Starbucks Pepsi Co. joint venture would provide

Indian market access to the worlds largest coffee chain. Carrefour, Frances retail major

is set to finalize its entry route to Indian retail sector.

Increasing Technology Adoption: With modern retail store formats growing players are

increasingly deploying advanced Information Technology tools for managing their supplychain, warehousing and logistics requirements. Apart from the industry giants, the small

scale retailers are also embracing IT solutions to optimise their operational efficiencies.

Big league IT firms like IBM India, Oracle and SAP are developing solutions for smaller

retailers requirements.

Opportunities

Emergence of innovative retail formats:

Specialty formats- Innovative formats like Wedding Malls with stores stocking thecomplete range of wedding needs from apparel to jewellery, are fast making their

presence in the Indian market. Khadi& Village Industries Commission (KVIC) is set

to roll out a string of swanky Khadi Plazas, which would showcase the handloom

textiles in a new form, along with upgrading over 7,000 existing outlets to cater to the

changing tastes of the young consumer. Village Malls with their fair price shops

being revamped to cater to larger needs of the local populations are the new addition

which the Gujarat Government has spearheaded with 512 malls launched and

another 508 on the anvil.

Luxury formats-Affluent households account for just about 4.5% of the nationalpopulation, but account for more than 22% of the total retail sales, spurring the


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growth of such luxury formats in India. Delhi and Mumbai are the prime contributors

to the luxury retail space, with the highest density of luxury brand outlets. These

outlets are typically located in fivestar hotels and highend mall spaces, with limited

footfalls and consumer exposure.

Transit formats -Fast paced infrastructure development including development ofnew international airports and metro rails is opening up new avenues for retail. Mass

Rapid Transit System, currently in operation in Delhi, and in the pipeline in other

metro cities like Bengaluru and Hyderabad is also expected to offer immense retailing

potential. The Airport Authority of India is embarking on the up gradation of 9 metro

airports and 15 nonmetro airports, with plans to spruce up the retail space in the

airports well.

Online Retailing:Online retailing has become a popular trend in India as large number of

people has started using the online medium for purchasing their goods and services.The

increase in the number of broadband and dial-up Internet connections, limited personaltime, increased use of plastic money and a large young population that spends a

considerable time online are facilitating the growth of online shopping. Recent players to

enter this niche market include Pantaloon Retail India Ltd through its Futurebazaar.com

venture.There is an increasing trend among retailers maintaining their own portals for

easy consumer access, facilitating online purchase of merchandise such as Tata Indicoms

i-choose.in and Godrej & Boyces godrejlifespace.com. Many smaller retail portals are

mushrooming on the World Wide Web, meeting niche Indian consumer requirements for

ethnic apparel, handicrafts and jewellery.With value-added services such as cash-on-

delivery to facilitate online transactions by consumers without credit/debit card andunique bidding schemes, e-commerce is fast gaining acceptance in India.Online retail

market in India is expected to grow at a CAGR of 35% over the next four years. (See

Exhibit 7)

Rural retailing: Rural hypermarkets are growing at an aggressive pace, providing

multiple services, from creating platforms to buy and sell farm produce, to forming banks

and restaurants. In the next phase of the retail revolution in India, retail companies are

expected to tap the rural segment as key driver of growth. FMCG players are focusing on

rural market as it constitutes over 33 per cent of FMCG consumer base in India.

ChoupalSaagar retails products and also acts as a procurement hub for ITCs echoupals,

where farmers are offered better rates for produce, compared with the prevalent mandi

rates. DSCLs HariyaliKisan Bazaar has over 302 outlets cross eight states Haryana,

Punjab, Uttar Pradesh, Rajasthan, Chhattisgarh, Madhya Pradesh, Maharashtra and

Andhra Pradesh. Indian Oil Corporations KisanSeva Kendra offer fuel, agri-produce,

FMCG and value-added services across a network of over 1,400 outlets. Reliance Retail

and Pantaloon Retail are likely to venture more aggressively into the rural retailing space.

Leisure and entertainment: Entertainment retail is redefining Indian lifestyles with as

many multiplexes, gaming zones, etc., mushrooming as malls. The huge entertainment

and leisure opportunity in India is reflected by fact that there exist 10 screens per million

population in India compared to 40 screens in the European market and 117 in the US.Organised retail in leisure and entertainment grew at an average rate of 28 per cent over


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the period 2008 to 2011, and is expected to maintain pace in the coming years with Indian

players investing heavily in this market. Reliance InfotechsAdlabs and Shoppers Stops

Timezone have aggressive expansion plans, with both retailers exploring the joint venture

option with international giants

Large number of retail outlets:India has one of the largest numbers of retail outlets inthe world. The sector is experiencing exponential growth, with retail development taking

place not just in major cities and metros, but also in Tier-II and Tier-III cities.Players who

have established their presence in the top metros are planning to set up establishments in

emerging towns and cities to gain the first-mover advantage over other entrants.

Emergence of India as the retail sourcing hub: Riding on the back of a strong

manufacturing industry, India is fast emerging as an important global sourcing hub for top

international brands. Indias price competitiveness attracts large retail players to use it as

a sourcing base. Global retailers are increasing their sourcing from India and are moving

from third-party buying offices to establishing their own wholly-owned/wholly-managed

sourcing and buying office. India has had a continued presence in the global scenario as

one of the leading exporters of apparels and textiles. Many international brands have

identified India as one of the important supply centres for procurement of textiles and

apparels. Unilever sources major portion of their fast moving consumer goods from its

wholly owned Indian subsidiary, Hindustan Unilever Limited. Adidas, Next and Calvin

Klein are expected to follow suit, with Adidas opening its first office in Bangalore.

Private label opportunities: The organised Indian retail industry has begun experiencing

an increased level of activity in the private label space. Private label strategy is likely to

play a dominant role as its share in the US and the UK markets is 19% and 39%,

respectively while its share in India is just around 6%. Private labels account for morethan 21 per cent of their retail revenues, with Shoppers Stop clocking impressive total

number of transactions to customer footfalls ratio (conversion ratio) of 27 per cent.

Tourism related opportunities: With tourists inflow increasing impressively with each

passing year, tourism holds the key to a large retailing opportunity. In 2010-11,

approximately 6.45 million foreign tourists arrived in India. Retailing of regional

handicrafts and artifacts holds an opportunity to capture the interest of foreign tourists,

given the rich and diverse cultural heritage of India. The Indian Tourism Boards

initiatives like DilliHaat (a crafts bazaar located in Delhi) retails the regional crafts of

various states, attracting a large number of tourist footfalls. The concept is fast gainingtraction in other destinations in India such as Jaipur, Mumbai and Hyderabad.

SEZ Synergies: Special Economic Zones are government driven initiatives attracting

higher investment into India, with about 584 Special Economic Zones notified as till Dec

2011, spread over states and union territories of India. SEZs offer ample retail

opportunities, with a percentage of the SEZ area earmarked for retailing in the non

processing zone. IT/ITeS based SEZs offer impressive retailing opportunities; the target

segment for such SEZs would be the urban population with high-disposable incomes.

Opportunities across various cities: Tier I cities are home to different income groups,

each contributing significantly to retail revenues through various retailing formats. Retail

activity in Tier II cities is growing exceptionally, with increasing mall space and rapid


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transition of households to the higher-income group. Many metro retailers are expected to

open outlets in these cities to benefit from the First-Mover advantage, and gain a

foothold in these cities. These cities provide ample opportunities, especially for the food

and grocery formats, with lower lease rentals and high availability of retail space, access

to farms and agricultural produce. Consuming class accounts for over 60 per cent of thetotal households, offering potential in the food and grocery, consumer goods and apparel

verticals.

Challenges

Underdeveloped supply chain: India is the 7th largest country in the world and catering

to people across such a vast region is difficult, leading to complexities in merchandise

and inventory management. Long intermediation chains would increase the costs by 15

per cent. Inadequate and insufficient supply chain existing in Indias retail sector is a

major deterrent to the growth of this market. There is a strong need for retail to

concentrate on developing a backend solid chain support especially for perishable

products to help reduce wastages which is estimated to be at 40% of national produce.

Lack of cold chain infrastructure in India poses storage threat and acts as a major

challenge for the retail sector. Due to Indias complex tax structure and large geographic

spread, companies have developed regional distribution and redistribution networks.

Retailers need to work closely with the suppliers and try to shorten the supply chain

network to save both time and money.

Real estate hurdles: Location of retail outlets are indispensable for their success and

issues pertaining to procurement of suitable real estate is another major challenge this

sector faces. Finding suitable properties in central locations is difficult due to fragmented

private holdings, infrequent auctioning of large government owned lands and litigation

disputes between owners. Rent also plays a very significant role as it forms around 6 10%

of the total expenditure and can easily convert a profitable store into a loss making one if

not decided upon carefully. Available spaces in most big cities are easily interchangeablebetween commercial and retail use, which makes their availability even scarce. Difficulty

Traditional Retail Supply

Chain

Company/Manufacturer

Distributors/Buying Agents

Franchisees/Multi-brandoutlets

Consumers

Modern Retail Supply

Chain

Company/Manufacturer

Retailers

Consumers


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in retail planning, especially relating real estate issues, is a major impediment for this

market in India.

Inadequate general and specific infrastructure:Information technology

implementation and digitization of services will make transfer of goods easy and an

improvement in supply chain management will definitely play a significant role inattracting more consumers and less consumer grievances and it will generate easier

payments option for customer and easier money movement. Lack of adequate

infrastructure with respect to roads, electricity, cold chains and ports has further led to the

impediment of a pan-India network of suppliers. Due to these constraints, retail chains

have to resort to multiple vendors for their requirements, thereby, raising costs and prices.

Laxity in implementation of policies:At present, indirect tax structure in India with

varying tax rates is complex with multiplicity of taxes and multiple tax enforcement

authorities. This has an impact on the supply chain model and cost structure of

distributive trade followed by consumer packaged goods companies. Multiplicity of taxes

and requisite licences leads to delay in the entire supply chain process, hampering the

productivity of the retail sector. Government restrictions and delays on the FDI are

leading to an absence of foreign players resulting into limited exposure to best practices.

Shortage of skilled manpower:Store operations account for 7580% of the total

manpower employed in the organized retail sector, and frontend and retail assistant

profiles also occupy a significant proportion. In India retail training opportunities are

there only for areas like merchandising and supply chain and there are very few good

educational institutes in India offering specific courses relating to the retail sector. In the

unorganized sector, the manpower is not even equipped with the basic retail specific or

customer service skills. The available talent pool does not back retail sector as the sectorhas only recently emerged from its nascent phase.

Limited consumer insights: Retail differentiation and merchandising mix are improperly

planned due to limited consumer insights. As we are moving to the next phase of retail

development, the focus is shifting towards offering experiential shopping. For customers

it is very difficult to find the uniqueness of retail stores. Merchandising planning involves

getting the right mix of product, which is store specific across organization, and is a

combination of customer insight, allocation and assortment techniques.

Insufficient Government incentives: The retail sector does not have industry status yet

making it difficult for retailers to raise finance from banks to fund their expansion plans.Multiple clearances are required by the same company for opening new outlets adding to

the costs incurred and time taken to expand presence in the country. Zonal restrictions

make it difficult to find a good real estate in terms of location and size. Lack of clear

ownership titles and high stamp duty has resulted in disorganized nature of transactions.

FDI in India

Government of India has gradually opened up the retail sector to FDI amidst reservations

concerning fear of job losses, procurement from international market, competition and

loss of entrepreneurial opportunities. Extensive liberalization of the FDI policy over the


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last decade has been one of the key factors for transforming India from a closed economy

into one of the favoured destinations for foreign investments. (Exhibit 8 for Available

routes for Foreign Players)

Current Regulations for FDI

a) Products should be sold under the same brand internationally, in countries other than

India.

b) Single Brand product retail trading would cover only products which are branded

during manufacturing.

c) Foreign investor should be the owner of the brand

d) Proposals involving FDI beyond 51% would need to ensure mandatory sourcing of at

least 30% of the value of products sold, to be done from Indian small industries or

village and cottage industries, artisans and craftsmen

e) Government has defined small industries as industries with a total investment in

plant and machinery of not more than ~INR 50 mn

Benefits of FDI

Opening up of FDI in multi-brand retail in India is expected to reap benefits in the

medium to long-term as it will help improve the balance sheet and liquidity profile of

cash-starved retailers with aggressive expansion plans, supply chain and back-end

infrastructure while reducing margins for middlemen through direct sourcing from

farmers and arrest inflationary pressures through increased supplies facilitated by

improved productivity of farmers and reduction of agri-waste. Once 100% FDI is allowed

in retail that is when the landscape will become extremely competitive. Policy reforms

will require investment from retailers in areas of supply chain, especially for perishable

products, thus helping farmers to generate higher incomes leading to inclusive growth in

India. Small and Medium Enterprises (SME) sector will also stand to gain due to

preference given by retailers to private labels and it will also encourage smaller suppliers

to take their products to a national platform. This policy will also open up avenues for

attracting, developing and retaining talent, and even contract manufacturers would benefit

from these policy changes. Retailers entering this market will need to bank on the local

knowledge to effectively reduce the lead time required by them to setup operations and

make a foothold in the Indian market

Recommendations to Government

Government needs to accord it an Industry status first. Inspite of contributing

extensively to GDP at almost 22% and providing employment to over 30 million, it does

not have the benefits of an industry. The Government should strive for the speedier

implementation of the long pending goods and services tax (GST) as it would balance

differential taxation. Steps should be taken to avoid elongated procedures of permission

from respective State governments to open new stores. In order to supplement the

working of FDI in India, the Government should identify states for FDI investment andaddress any additional State conditions for allowing or approving FDIs in a phased


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manner. Areas of backend should be prioritized for investment and the return on

investment made in backend infrastructure should be targeted. Margins and quality of

products sourced from SMEs and demand of consumers for products from SMEs should

be warranted for. There should be simplification of taxes and investment in infrastructure

development should be encouraged. Reduction/ abolition of Central Sales Tax (CST)would favourably impact the expansion of the organised retail, so the necessary steps

should be undertaken by the Government.

Recommendations to Retailers

Acting throughout the value chain, an approach of Walmartization would work in

favor of Indian retailers and contribute to improving the efficiency of operations.

Working across the value chain, we propose the following activities at each level:

Firm Infrastructure

Focus on cost utilization and close unviable stores

Take advantage and increase involvement in rural areas, where there is a huge

untapped market

Consider entering into foreign alliances as it would help with capital and

expertise

Human Resource Management

Implement IT in manpower training

Collaborate with institutes for providing retail specific courses

Implement marketing training modules for employees

Technological Development

Implement IT in supply chain management, store operations and logistics

management

Invest in technologies like satellite system integration, centralized computing,

EDI

Introduce e-commerce based formats to increase reach

Procurement

Invest in areas of procurement, especially for perishable products, thus helping

farmers to generate higher incomes leading to inclusive growth in India

Diversify supplier base to improve bargaining power


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Maintain central and automated repository for procurement related

information

Inbound Logistics

Manage costs by optimizing resources, managing inventory

Enable vendors and suppliers to handle inbound shipments

Introduction of channelization for speedier delivery

Operations

Develop a competent supply chain management system

Establish warehouses, cold chains and distribution centres

Implement backward integration and avoid internal overlapping of functions

Outbound Logistics

Develop a hub and scope distribution network

Invest in (CRM) and consumer research analytics to better relationships with

consumers

Marketing and Sales

Devise a strategy for a wide consumer base across different geographicalregions

Use customer engagement practices to increase footfalls and conversion ratio

Improve store visibility through tie-ups

Services

Innovate products and business models to provide differentiated consumer

solutions

Look at increasing their private label offerings

Try mix such as offering discounts, providing value added services to attract

and retain consumers


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EXHIBIT 1

Share of Major Retail Segments

EXHIBIT 2

Key retail formats:

Convenience Stores These stores are of an average size of ~800 sq ft and are mostly present asrelatively small retail stores located near residential areas, open for longerhours and carry a limited line of convenience products. Ex. In & Out, Safal,

Easy Day, Twenty Four Seven

Discount Stores These Stores are of an average size of ~1,000 sq ft and offer a wide range ofproducts, mostly branded, at discounted prices. Ex. Levis Factory Outlet,Reebok Factory Outlet

Shop inshop These are shops located within the premises of large shoppingmalls,airports, public places and others and this format requires less retail spaceand entails lesser costs than other retail formats. Ex. Infinity, Cafe CoffeeDay, MAC

Category Killers These stores are of an average size of ~8,000 sq ft and are mostly large

specialty retailers carrying a deepassortment of products in a particularcategory. They provide consumers a wide range of choice to consumers,usually at affordable prices, due to economies of scale. Ex. The Loft,Central, Croma, Home Town

Specialty Stores These are singlecategory stores which focus on individuals and groupclusters of the same class with high product loyalty. They carry a narrowproduct line with a deep assortment of products such as bookstores. Ex.Brand Factory, Food Bazaar, Music World, Crossword

62%

10% 8% 6% 4% 4% 3% 2% 1%

0%

10%

20%

30%

40%50%

60%

70%


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Supermarkets They are large in size and typical in layout, offering not only food productsbut also household products. They have low cost, low margin, high volume,and selfservice operations. Ex. More, D Mart, Apna Bazaar

Department Stores The average size of these stores varies between 10,000 sq ft and 60,000 sqft and they offer a large layout with a wide merchandise mix, usually acrossvarious categories, including apparel, fashion accessories, gifts and homeproducts. Ex. Shoppers Stop, Westside, Pantaloons, Lifestyle

Cash and Carry Stores These stores are of an average size of ~75,000 sq ft. They offer severalthousand stockkeeping units (SKUs) and generally have bulk buyingrequirements. They follow a business model which is based on a Businessto Business (B2B) concept, focused on meeting the needs and requirementsof business customers. Ex. Carrefour, Best Price Modern Wholesale

Hypermarkets Average size of these stores varies between 50 000 sq ft and 100,000 sq ft.These stores offer a large variety of products, ranging from grocery, freshand processed food, beauty and household products, to clothing andappliances. Ex. Spencers Hypermarket, SPAR Hypermarket, more,MEGASTORE.

EXHIBIT 3

Major Players

Player Brief Description

Archies Ltd. It is Indias market leader in the social expression industry with over 60%

market share in the organized sector and presently has 203 owned outlets

along with 280 franchised outlets

It has entered into a license agreement in Jan 2011 with Hallmark Cards, Inc

the global market leader in Social Expressions, to open up exclusive

Hallmark retail outlets across India

It also has exclusive tieups with many other global majors such as Russ

Berrie, Inc. of USA, Keel Toys, Carte Blanche, Paper Island, History and

Heraldry of UK

Koutons Retail

India Ltd.

It is one of the leading retailers of readymade and fashion wear brands with

more than 1,400 outlets across India

Value for money and high on fashion is the companys USP and it has

given the brand an extension by delving into specific consumer segments

It is also looking to change its business model from franchise to

cashandcarry or wholesale format

Pantaloon It is Indias leading retailer, serving customers in 85 cities and 60 rural


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Retail India

Ltd.

locations across the country through over 15 mn square feet of retail space

Pantaloons has 46 stores across India while Central has 12 locations, offering

over 500 foreign and Indian brands across merchandise categories

It operates 148 Big Bazaar stores and 169 Food Bazaar stores across 70 cities

in India

Provogue India

Ltd.

It operates 145 own stores and 140 shopinshops in 74 markets pan India

and plans to open over 30 stores in 201213

It has recently introduced a range of fashion watches, footwear, innerwear

and sunglasses to compliment its existing apparel collections

It has recently exited the discount retail business, selling its troubled Promart

brand to Vemb Lifestyle Pvt. Ltd. for INR 9 mn

Shoppers Stop

Ltd.

It operates more than 146 retail outlets across 22 cities pan India covering

more than 4 mnsqft of retail space

It has acquired the remaining 49% stake in Gateway Multichannel Retail

(India) Ltd. from Hypercity Retail (India) Ltd. in Nov 2011

Its operations have expanded to 49 stores in 22 cities in 2011

It plans to invest INR 3.5 bn and open 120 Shoppers Stop and 10 Hyper City

over the next 3 years

BhartiWalmart

Ltd.

It is a joint venture between Bharti Enterprises one of India's leading groups

and Walmart, the worlds leading retailer

The joint venture aims at establishing wholesale cashandcarry stores and

backend supply chain management operations under the brand name Best

Price Modern Wholesale in line with Government of India guidelines

It has recently received INR 1.20bn in funding from Bharti Enterprises and

WalMart Stores Inc.

EXHIBIT 4

Percentage of Organized retail penetration

85%80%

66%

55%

36% 33%

20%

5%

0%

20%

40%

60%

80%

100%

USA France Japan Malaysia Brazil Russia China India


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EXHIBIT 5

Aggregate Consumption (INR tr)

Aggregate Disposable Income (INR tr)

EXHIBIT 6

Growth in Credit Card Transactions

0%

50%

100%

2005 2015e 2025e

Globals >1000

Strivers 500-1000

Seekers 200-500

Aspirers 90-200

Deprived 1000

Strivers 500-1000

Seekers 200-500

Aspirers 90-200

Deprived


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EXHIBIT 7

Online Retail Market

EXHIBIT 8

20

70

0

10

20

30

40

5060

70

80

2011 2015E

Available routes for foreign players to enter the retail sector

Strategic licenseagreements

This routeinvolves a

foreign companyentering into a

licensingagreement with

a domesticretailer or

partnering withIndian

promoterownedcompanies.

Franchisee route

This entry routeis widely used by

manyinternational

brands, who optfor the masterfranchise routeand the regionalfranchise routefor an entry into

India.

Cash and carrywholesaleretailing

100 per cent FDIis allowed inwholesale

trading,whichinvolves building

a largedistributionnetwork.

Manufacturing

A company canestablish its

manufacturingunit in Indiaalong withstandalone

retailing outlets.

Distribution

An internationalcompany can setup a distribution

office in Indiaand supply

products to localretailers.

Franchiseeoutlets can alsobe set up by this

route.

Joint ventures

Internationalfirms can enterinto agreementswith domestic

players and setup base in India.

The share ofMNCs is

restricted to 49per cent in this

route.


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EXHIBIT 9

Evolving FDI in India

EXHIBIT 10

Future Outlook

1991:

Indian economyopened FDI up to 51%allowed under theautomatic route inselect priority sectors

1997:

FDI up to 100%allowed

under the automaticroute in cash & carrywholesale

2006:

FDI up to 51%allowed in singlebrand retail withprior Government

approval

2008: Governmentmulled over theidea of allowing100% FDI insinglebrand retailand 50% in multi-brand retail

2010:Governmentproposed to allowFDI in multi-brandretailing

Entry, growth,

expansion, top

line focus for

organised retail

Range, portfolio,

format options,

beginning of the

rural-urban retail

merge

Leveraging

technology in

traditional formats

for modern retail

Consolidation, highinvestments, confluence

of Indian retail

Growth


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References

http://www.ibef.org

http://www.fibre2fashion.com

http://business.mapsofindia.com

http://www.dnb.co.in/IndianRetailIndustry/overview.asp http://www.icra.in/

http://www.capitalmarket.com

http://www.marketlineinfo.com/

http://www.crisil.com/

Annual Reports of various companies in Retail Industry
http://www.ibef.org/http://www.ibef.org/http://www.fibre2fashion.com/industry-article/free-retail-industry-article/indian-retail-industry-its-growth-challenges-and-opportunities/indian-retail-industry-its-growth-challenges-and-opportunities4.asphttp://www.fibre2fashion.com/industry-article/free-retail-industry-article/indian-retail-industry-its-growth-challenges-and-opportunities/indian-retail-industry-its-growth-challenges-and-opportunities4.asphttp://business.mapsofindia.com/http://business.mapsofindia.com/http://www.dnb.co.in/IndianRetailIndustry/overview.asphttp://www.dnb.co.in/IndianRetailIndustry/overview.asphttp://www.icra.in/http://www.icra.in/http://www.capitalmarket.com/http://www.capitalmarket.com/http://www.marketlineinfo.com/http://www.marketlineinfo.com/http://www.crisil.com/http://www.crisil.com/http://www.crisil.com/http://www.marketlineinfo.com/http://www.capitalmarket.com/http://www.icra.in/http://www.dnb.co.in/IndianRetailIndustry/overview.asphttp://business.mapsofindia.com/http://www.fibre2fashion.com/industry-article/free-retail-industry-article/indian-retail-industry-its-growth-challenges-and-opportunities/indian-retail-industry-its-growth-challenges-and-opportunities4.asphttp://www.ibef.org/

sm-ii report_section-c_group-10.pdf

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