qwertyuiopasdfghjklzxcvbnmqwer tyuiopasdfghjklzxcvbnmqwertyuio pasdfghjklzxcvbnmqwertyuiopasd Trends in Retail Sector in 2014 fghjklzxcvbnmqwertyuiopasdfghjk lzxcvbnmqwertyuiopasdfghjklzxcv bnmqwertyuiopasdfghjklzxcvbnm qwertyuiopasdfghjklzxcvbnmqwer tyuiopasdfghjklzxcvbnmqwertyuio pasdfghjklzxcvbnmqwertyuiopasd fghjklzxcvbnmqwertyuiopasdfghjk lzxcvbnmqwertyuiopasdfghjklzxcv

bnmqwertyuiopasdfghjklzxcvbnm qwertyuiopasdfghjklzxcvbnmqwer tyuiopasdfghjklzxcvbnmqwertyuio pasdfghjklzxcvbnmqwertyuiopasd fghjklzxcvbnmrtyuiopasdfghjklzxc

ByAyush Daniel Justus Winfred

Trends in Retail Sector in 2014

Indias exciting retail sector With India poised to become the fifth largest consumer market globally by 2020, the country has become integral to the gro th plans of all global retailers and brands! "trong macroeconomic fundamentals and India#s demographic ad$antages %e!g!, a &'0-million strong middle class, a large youth population here '0( are under 2', rising income and aspiration le$els, etc!) also support the structural gro th of India#s retail sector! Statistics *arket "i+e ,"D '00-'20 billion -rgani+ed .etail /enetration 0 - 1( ' year 2A3. %organi+ed 45-20( retail) 6he retail market is therefore e7pected to reach ,"D 4!& trillion to 4!' trillion by 2020! -rganised retail is e7pected to gro at a 2A3. of 4' to 20(, outperforming the o$erall retail sales gro th of 42 to 48( from 2005 to 2048! "elect key retailers in India include A9 Birla .etail, Bharti-Wal-*art, the :uture 3roup, the ; .ahe<a 3roup, the =andmark 3roup, =ouis 9uitton, *arks>"pencer, *etro, *ont Blanc, .eliance .etail, " aro$ski, 6ata-6esco! Growth across categories India#s retail sector offers gro th opportunities across most ma<or categories -rgani+ed .etail /enetration and ;ey 6rends Across 2ategories .etail 2ategory 2ategory "hare -./ %() as a ( of *arket :ood be$erage and 05-?0 6otal 2-& &-48 =arge market and lo -./ presents robust opportunities 2lothing 6e7tile > 44-4& 4?-20 &'-'0 @igh margins, increased preference for branded apparel 2onsumer Durables 8-' 4'-20 40-20 Wide range of price points and good-after sales are ser$ice key Appro7! 3ross *argin %() ;ey 6rends

differentiators @ome dAcor > & furnishing '-0 80-'0 @ousing boom and increasing aspiration le$els are dri$ing demand Beauty, 1-40 personal care > <e ellery 0-40 20-80 3ro th dri$en by ne product launches, consumers# aspirations and e7pansion plans organi+ed players :oot ear 2 40-4? 2'-&' of

=ifestyle brands are increasing their product offerings and formats

-thers

&-8

5-&0

40-4'

/harmacy details, "tationary retailers, etc

400

Changing regulatory scenario -n 20 "eptember 2042, the go$ernment has notified t o significant regulations that ould go a long ay in de$elopment of Indian retail sector! -ne, permitting :DI in mutli brand retailtrading and t o, simplifying the rules for single brand retail trading to make it more business friendly! 6he contours of these ne regulations are set out belo B Multi brand retail trading :DI as not permitted in multi-brand retail trading in India, so far! 6he ne policy ill allo up to '4( :DI ith prior go$ernment appro$al, sub<ect to the follo ing key conditionsB C *inimum in$estment by foreign in$estor of ,"D 400 million C At least '0( of total :DI to be in$ested in Dback-end infrastructure# ithin three years of first tranche C At least &0( of the $alue of procurement of manufactured and processed products to be sourced from Indian Dsmall industries# %those that ha$e a total in$estment in plant and machinery not e7ceeding ,"D 4 million)! :or con$enience of initial roll-outs, the sourcing

compliance reEuirement for first ' years has been a$eraged! After this period, it ill beannual compliance! "tores ill be set up only in cities ith a population of more than one million as per the last census! "tores can be set up only in those states that are notified by the go$ernment as ha$ing agreed or agreeing in future to allo :DI in multi-brand retail trading! "tates that ha$e been currently notified include Andhra /radesh, Assam, Delhi, @aryana, Jammu and ;ashmir, *aharashtra, *anipur, .a<asthan, ,ttarakhand, Daman and Diu and Dadra and Fagar @a$eli %union territories)! 3i$en this, *umbai, /une, Delhi, Fagpur, @yderabad and Jaipur are some of the cities here retail stores ill currently be ermissible! 6he policy further clarifies that companies ith :DI cannot undertake multi-brand retail trading through e-commerce! A high-le$el group, under the *inister of 2onsumer Affairs, may be constituted to e7amine the issues concerning internal trade! 6his group is e7pected to make recommendations for reforms accordingly!

hat it !eans "or us C If you are a foreign retailer entering or e7panding in the Indian market, you ill need an Indian <oint $enture partner, to e$ol$e strategy around store location, back-end infrastructure and procurement contracts and to obtain necessary regulatory appro$als both at the centre and state le$els! 6he process of set-up %i!e! market analysis through to store opening) can take a minimum of 41 months for any ne entrant! C If you are an Indian retailer, e7isting operations ill need to be restructured to meet policy conditions for a potential :DI partnership! C 6ypically, players in the multi-brand space ha$e been operating through the follo ing structure! Challenges C Inability to participate in front-end retail C "upply chain inefficiencies C :inancing the roll out of retail stores etc 3i$en the policy announcement, the abo$e structure needs to be re- orked for better operational efficiency and $alue consolidation! 6he ne structure ill need to be gro th-oriented, ta7-efficient and regulatory complaint! Single brand retail trading 6he earlier :DI policy on this segment of the retail trading indo allo ed 400( :DI, ith go$ernment appro$al, sub<ect to the follo ing key conditionsB C /roducts should be only of a single brand! C /roducts should be of international brand! C /roducts should be branded during manufacture! C 6he in$estor should be the brand o ner! C 6hirty per cent should be mandatorily sourced from small enterprises of the $alue of goods sold!

6he last condition as not applicable in case the :DI as capped to '4(!.ealising the difficulty in complying ith the sourcing condition, considering single-brand retail players typically deal ith speciality and hi-tech products, the go$ernment has no enabled &0( sourcing to be undertaken from any here in India! -nly a preference has been stipulated to use small and medium enterprises for sourcing! :or con$enience of initial roll-outs, the sourcing compliance reEuirement for first ' years has been a$eraged! After this period, it ill be annual compliance! Additionally, the sourcing commitment ill no be counted on the basis of the $alue of goods #purchased# as against the earlier $alue of goods #sold#! 6he policy no also permits a person other than a brand o ner %e!g! licenseeG franchisee) to in$est into a single-brand retail company on a territorial e7clusi$ity basis! It further clarifies that companies ith :DI cannot undertake single-brand retail trading through e-commerce! 6he :DI policy on single-brand retail trading, stands accordingly modified! hat it !eans "or us C If you are an international brand entering India and do not ish to ha$e an Indian <oint $enture partner, then you need to e$ol$e a sourcing strategy along ith your Indian market retail strategy and obtain necessary go$ernment appro$als! C Hou may also be looking at acEuiring your e7isting licensee or franchisee in India! 6herefore you ill need to additionally undertake due diligence, $aluation and e$ol$e a transaction structure! C If you already ha$e an e7isting <oint $enture in India, you may be looking at e7iting the Indian <oint $enture partner and hold your Indian retail operations in entirety! Hou ill need to address issues relating to sourcing strategy, e7it $aluation, ta7 structuring and obtain necessary go$ernment appro$als! C Hou may be a homegro n international brand looking at realising $alue in your e7isting retail business or raising ne funds to dri$e your future gro th! #ow we can hel$ / 2 in India has a specialised .etail and 2onsumer sector team ith e7pertise ranging from strategy, corporate finance, mergers and acEuisitions, ta7 and go$ernment regulations, and is ell geared to support clients! C *arket opportunity assessment, strategy de$elopment, preparing and $alidating India business plan C Identification of acEuisition targets, J9 partners, buyers, due diligence and $aluation C "tructuring and restructuring the model for the retail business in compliance ith :DI regulations %including sourcing strategy, store split strategy I :DI and non :DI compliant, etc), ta7 regulations and transfer pricing policy C "tructuring of in$estments into India for ta7 efficiency and regulatory compliance including funding options, repatriation strategies, etc C -btaining necessary go$ernment appro$als and clarifications and other implementation assistance C /ro$ision of post deal ser$ices %related to business strategy, finance function, operations, @., I6, process, reporting and *I" rationalisation)