Industry Awareness Indian Retail Industry

Group members:

Debika Subhalagna, (PGP2011614) Dhruv Shandil, (PGP2011622) Landge Suhas Gangadhar, (PGP2011704) Prahlad Kushwaha, (PGP2011786) Priya Zutshi, (PGP2011797) Sayan Gupta, (PGP2011859) Sundeep Suthar, (PGP2011909)

PGP-1 IIM Indore Section D Group 7

Contents 1. Overview of the Indian retail industry 2. Growth of the Indian Retail Industry 3. Profile of major Domestic and International players in Retail Industry 4. Government regulation and policy in Retailing Industry 5. Impact of union budget 2011-12 for the sector 6. Key Trends in the Retail Industry 7. Product Life Cycle in Retail Industry 8. Exhibits and Reference

Page No 3-4 5-7 7-10 11

11-12 12-17
18-19 19-21

1. Overview of the Indian Retail Sector: Retailing is the process of selling a product or service to the end consumer and is the last leg in the product supply link. Retailing is a consumer driven market with developing cities and increasing income levels becoming potential platforms for retailers to establish their presence. Using the Porters Five Forces Model to determine the competitive intensity and the magnetism of the market, we get: High bargaining power of buyers Low barriers to entry Moderate, but increasing degree of competition Moderate threat of substitutes Moderate bargaining power of suppliers All these factors show retailing has great prospects in the future, with many firms trying to enter this sector and tapping the potential market. The Indian retail market is the fifth largest retail destination globally, and the most attractive emerging market for investment. The market is growing at 30% annually, with the organized segment registering above average growth of 30% and continues to be one of the most attractive countries for global retailers. The countrys retail sector is the second-largest employer after agriculture, with retail trade employing 35.06 million and wholesale trade generating additional employment for 5.48 million people. Indias retail market, valued at US$ 353 billion in 2010, is projected to grow at a rate of 12 per cent per annum. A rapid expansion is being experienced in the retail industry due to the entry of both the Indian corporations as well as the global players. Further, the hike in the purchasing power, evolving consumer needs, attitude, and lifestyle are making it a very promising field. The different segments of the Indian retail sector are shown in Exhibit 1. Out of the US$ 1 million retail industry, the bulk is held by the food industry. Second in line is the apparel and textile industry. Other sectors, such as fashion and accessories, leisure and entertainment and home-based products, are also gaining in prominence. In the field of organized retailing the time-segment and footwear segment are at the forefront. The retail sector can be divided into two parts: 1. Unorganised Retail: Unorganised retailing refers to the traditional formats of lowcost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

Most Indian shopping takes place in open markets and millions of independent grocery shops called kirana. It constitutes 95-96% of the total retail space. 2. Organised Retail: India is at an early stage of evolution in the organised retail space, with the current penetration pegged at 4-5 %, which indicates a huge growth potential. The share of organised retail in the total Indian retail trade pie is projected to grow at 40% per annum. Organised retail formats are fast replacing traditional retail formats such as kirana stores due to rising consumer expectations. 1.1 Organised retail formats in India: The organized retail formats in India in vary from large sized Hypermarkets to low-sized Convenience Stores as shown in Exhibit 2. These formats are either based on luxury retail or franchising models. Luxury retail market - With the rise in disposable incomes and increasing urbanisation, the number of luxury goods consumers in India is increasing rapidly. Currently valued at US$ 3.5 billion, the Indian luxury retail market is expected to grow to US$ 30 billion by 2015, an estimated growth rate of 25 per cent per annum, making India the twelfth-largest luxury retail market in the world. Franchising - The franchisee model has adapted well to Indian market conditions, providing opportunities for a large number of entrepreneurs to work with the support of big brands. Global players, such as Tommy Hilfiger, SPAR International, Costa Coffee, Hertz, Radisson, Kentucky Fried Chicken (KFC), Dominos Pizza, T.G.I. Fridays, Ruby Tuesday, Subway, Mothercare and McDonalds, have become forerunners in India through the franchisee route. The franchising revolution is, however, not limited to global brands. Many Indian brands, such as Park Avenue, Color Plus, Provogue, Nirulas, SagarRatna, Woodlands and Liberty, have also increased their market presence via this route. 1.2 Market analysis Robust consumption in the rural economy is one of the key factors that has contributed to Indias consistent growth, even during the 200809 global economic slowdown. This can be attributed to the fact that rural India accounts for more than 70 % of all Indian households and close to two-fifths of the countrys total consumption pie. According to industry estimates, Indias rural economy constitutes 45 % of its GDP. A large number of organisations derive a significant proportion of their overall sales from small cities, which reflects the growing economic importance of India's rural consumer. Retail and fast-moving consumer goods (FMCG) players have begun devising exclusive marketing strategies to tap the rural consumer base.
4

2. Growth of the Indian Retail Industry: The Indian Retail Industry is at a very crucial stage of its growth. It has been a constant topper in the Global Retail Development Index, and has been pegged at the 3rd position in the year 2010. The Organized sector is growing at a rate of 13%, while the unorganized sector continues to show its upward trend at 10% per annum. However, these growth rates are only moderate, as reports suggest that the organized sector is expected to treble itself in the next 5 years. There are several factors contributing to this phenomenal growth of the retail industry in India. The following are some of the major ones: 1. Increase in Consumer Class: Indias consumer class is estimated to grow nearly twelve-fold (from 50 million at present)to 583 million by 2025, with more than 23 million people likely to be listed among the worlds wealthiest citizens. The increase in per capita income of the different sections of the society has infused an enormous purchasing power into the hands of the people. This has been one of the major contributors to the growth of the retail industry in India. 2. Easy Consumer Credit: With the emergence of concepts such as quick and easy loans, easy monthly instalments (EMI), loan through credit cards and loan over phone, it has become easy for Indian consumers to afford expensive products. Unlike a decade ago, credit cards and short-term loans have become easily accessible and have contributed to the emergence of a consumer culture in India. With loans for everything from a home to an automobile freely available, the Indian consumer has started spending on big-ticket items that were traditionally within his reach only after years of savings. 3. Change in patterns of consumption: The growth of the organized retail sector in India can be attributed to a shift in the demographics and preferences of the consumer base leading to a major upheaval in the retail sector. The mindset of the Indian consumer is changing dramatically, with their focus shifting from low price to convenience, high value and a superior shopping experience. 4. Improvements in infrastructure and enhanced availability of retail space: The last decade has seen a major investment in the infrastructure sector from major players like Reliance, GMR etc. which has fuelled the growth of the new shopping experience. For proper sourcing and distribution, a good road network is necessary. The fact that many big players have entered this market and invested heavily on retail infrastructure has proved beneficial to the growth of organized retail.

5. Technological Advancements and Innovation: Technology, especially IT has made a stupendous impact on the course of businesses in India. The following enumerates the several ways in which it has been able to transform retailing in India. a. Inventory Management: Retailing is a `technology-intensive' industry. Successful retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and thereby, save cost. b. Concept of e-retailing: The Internet has several advantages over a visit to a retail outlet. Because of the elimination of some layers of middlemen the cost of the product in an Internet transaction comes down as compared with a traditional retail transaction. Inventory holding costs reduce as they can be sourced as per orders received over the Internet with a base amount stocked initially to take advantage of the economies of scale. This also reduces the need for large storage areas, thus reducing the real estate costs. c. Innovations in Transportation Logistics: The logistics service providers have been innovating several interesting formats and models for the retail sector. As of now, organized retail chains in India do not, by far, outsource logistical requirements, they develop their own network. d. Convenience to Consumers: Technologies like RFID, Mobile Voice communications etc. have made it more convenient for both the customers and retail outlets to receive and provide better service respectively. 6. Low profitability of the unorganised sector: Retail in India is pre-dominantly unorganized. The following are a few causes of Low Productivity in Unorganized Retail, and contributors to the rapid growth of the organized retail sector: a. Labour intensity: Counter-stores in India have a very low output to labour consumption ratio. Low labour costs, failure to employ part-time labour and the absence of multitasking are the mainly responsible for the unusually high consumption of labour. This has driven down the productivity in the sector. b. Inventory and Supply Chain Management: Unorganized retailers in India rarely track consumer behavior and sales data to improve their inventory management practices. Counter stores and street vendors do not have the infrastructure, exposure or credibility to form lasting relationships with suppliers. As a result retailers usually use different suppliers every time they purchase inventory. This leaves them largely incapable of strategically managing their business.

c. Low entry barriers: With 700 million agricultural labourers looking to move into retail, low barriers to entry and the absence of regulation in this sector have made it a largely over-supplied sector. The excess supply of counter-stores and street vendors represents a tremendous decrease in the productivity of this sector. d. Absence of competition: Almost all retailers find a way to make ends meet or change their merchandise till they make ends meet-is also responsible for a form of status quo in the sector where little to no improvements in efficiency, management and by extension productivity are seen. In fact, this sector is so stagnant with respect to operational changes that no improvement in productivity is expected in the near future. 3. Profile of major Domestic and International players in retail:

3.1 Domestic: 1. K. Raheja group: Brief profile: Shoppers Stop is an Indian department store chain promoted by the K.Raheja Corp. Group (Chandru L Raheja Group), started in the year 1991 with its first store in Andheri, Mumbai. With the launch of the Navi Mumbai departmental store, Shoppers Stop has 34 stores in 15 cities in India. Key persons: Developer K. Raheja, Management, B.S. Nagesh (Customer Care Associate & Vice Chairman), Govind Shrikhande (Customer Care Associate, President & CEO) Main associated brands: Shoppers Stop (clothing, accessories, fragrances, cosmetics, footwear and home furnishing store), Crossword (book store), InorbitMall (fashion, lifestyle, food and entertainment) and Hyper City (hypermarket) Financial position: 2009-10 Net profit stood at Rs. 50.2cr and Operating Income at 1568.4cr 2. Tata group: Brief Profile: Trent, a part of TATA group commenced its retail operations by acquiring the UK based littlewoods department store in Bangalore in 1998. The company operates department stores under the name Westside. It is also present in the food and grocery vertical and the speciality verticals (apparel, books and music) Key persons: Ratan Tata - Chairman Tata sons, Himanshu Chakrawarti GM , Trents
7

Main associated brands: Landmark (books and music), Croma (multi-brand electronics), World of Titan (watches), Tanishq (jewellery), Titan Eye+ (eye wear), Westside (lifestyle retail store), Star Bazaar (hypermarket chain), Fashion Yatra(family fashion store) Financial position: Net profit was Rs. 40.2cr and Operating Income was Rs. 579.3crored in 2009-10 fiscal 3. Future Group: Brief Profile: Future Group, incorporated in 1987 as Menz wear pvt ltd. Its Pantaloon retail India ltd (PRIL) has evolved from being a mens apparel retailer to a full-fledged retail co. catering to the lifestyle and value segments through its various format stores. The co transferred formats under the value retail business to a wholly owned subsidiary, future vale retail limited (FVRL) in Jan 2010. PRIL also operates subsidiaries such as future media, future logistics, future brands etc. which provide back end support to its retail venture. Key persons: Founder, MD and CEO- Mr Kishore Biyani Main associated brands: Central (shopping mall), Big Bazaar (hypermarket), Pantaloons (fashion outlet), Blue Sky (sunglasses), Brand Factory (multi-brand readymade garments), KB's Fair Price (essential products), Navaras(jewellery), Planet Store (multi-brand sports and lifestyle speciality retail), aLL(fashion garments), Ethnicity (Indian ethnic wear), Home Town (home needs), eZone(electronics), Furniture Bazaar (home furniture), Electronics Bazaar (under Big Bazaar, electronics stores), Home Bazaar (satellite version of Home Town), Collection I (lifestyle furniture), Gen M & One Mobile (mobile phones), M-Port (electronics), Shoe Factory (footwear) and Depot (books and music) Financial position: Net profit stood at Rs. 60.9cr and operating income at Rs. 9821.1cr in 2009-2010 4. Reliance retail: Brief profile: Reliance retail ltd. (RRL) the wholly owned subsidiary of reliance industries entered retailing with the acquisition of Mumbai based sahakaribhandar in mid-2006 and currently operates stores across verticals such as apparels, consumer durables, footwear and jewellery. Key persons: Gwyn Sundhagul is the chief executive of the value-format division. Main associated brands: Reliance Fresh (neighbourhood store), Reliance Mart (supermarket), Reliance Super (mini-mart), Reliance Digital (consumer durables
8

and information technology), Reliance Trends (apparel and accessories), Reliance Wellness (health, wellness and beauty),iStore(Apple products), Reliance Footprint (footwear), Reliance Jewels (jewellery), Reliance Time Out(books, music and entertainment), Reliance AutoZone (automotive products and services) and Reliance Living (home ware, furniture, modular kitchens and furnishings) Financial position: RRL posted a net loss of Rs 20.24 crore in FY09. 3.2 International: 1. Wal-Mart: Brief profile: Wal-Mart Stores, Inc, branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000 list, and the largest public corporation when ranked by revenue. It is also the biggest private employer in the world with over 2 million employees. The company was founded by Sam Walton in 1962, incorporated on October 31, 1969. Walmart has 8,500 stores in 15 countries. Key persons: Mike Duke (CEO),H. Lee Scott (Chairman of the Executive Committee of the Board),S. Robson Walton (Chairman) Main associated brands: Sam's Choice, Great Value, Equate, Mainstays, Ol' Roy, Parent's Choice, White Stag, Georges Financial position: Its profit margin was 3.6% and revenue stood at US$ 421.849 billion (2011). Net Income was US$ 15.355 billion (2011) 2. Carrefour S.A. Brief profile: Carrefour S.A. is an international hypermarket chain headquartered in Levallois-Perret, France. It is one of the largest hypermarket chains in the world (1395 hypermarkets at the end of 2009), Carrefour operates mainly in Europe, Argentina, Brazil, China, Taiwan, Colombia, Dominican Republic, and in Saudi Arabia, but also has shops in North Africa and other parts of Asia, with most stores being of smaller size than hypermarket or even supermarket. Carrefour means "crossroads" in French. Key persons: Lars Olofsson (Chairman and CEO) Main associated brands: Hypermarkets, Carrefour, Atacado, Hyperstar., Supermarkets, Carrefour Bairro, Carrefour Express, Carrefour Market (Formerly Champion as of 2008), Champion Mapinomovaoe, Globi, GB, GS, Carrefour
9

mini, Gima., Hard discount stores, Dia, Ed, Minipreo., Convenience stores, Carrefour City, 5 minutes, 8 Huit, Marche Plus, Proxi (supermarket), Sherpa, Dperd, Smile Market, Ok!, Express, Shopi(supermarket). Cash & Carry Carre, four Contact, Promocash, Docks Market, Gross IPer. Financial position: It had a margin of 0.5%. revenue stood at $119,887 million (2009) 3. Metro AG Brief profile: Metro AG is a diversified retail and wholesale/cash and carry group based in Dsseldorf, Germany. It has the largest market share in its home market, and is one of the most globalised retail and wholesale corporations. It is the fourth-largest retailer in the world measured by revenues (after Wal-Mart, Carrefour and Tesco). In English it often refers to itself as Metro Group. It was established in 1964 by Otto Beisheim. Key persons: EckhardCordes (CEO and Chairman of the executive board), Jrgen Kluge (Chairman of the supervisory board), Olaf Koch (CFO) Main associated brands: Metro/Makro Cash & Carry , Real , Media Markt , Saturn, Galeria Kaufhof Financial position: Profit margin was at 0.8%, its revenue stood at $90,850m in 2009. Entry of foreign players Due to restrictions from government policies foreign players are debarred from entering into the multi-brand retailing industry in India. In last two years there has been a lot of development regarding Free Trade Agreements (FTAs) with European Union for retail industry, but it is yet to be finalized. The investment opportunities are numerous in the food, interiors, apparels, fast food, and consumer durables industries. In fact, many foreign companies are making ties with Indian firms to market their products here. Some examples of these collaborations are the Bharati group tying up with Wal-Mart. Or the many franchisees of fast food joints, such as McDonald's, Domino's, or Pizza Hut in the food section. In the apparel and sports section, Adidas, Reebok, Nike, Sony, and Levis are making their presence felt. The government as of now allows 51% FDI for single-brand companies. Other than that, franchisees are available for foreign outlets to tap the Indian retail Industry.

10

Also, this field provides many employment opportunities that help raise the economy and in turn the standard of living. This thereby increases the customer base for the products themselves. Thus, by all means and ways, the Indian retail industry is paving a way for itself. 4. Government regulation and policy in Retailing Industry Current FDI policy in retail Indias current policy doesnt allow FDI in retail trade except for single branded retail Products sold should be of a 'Single Brand' only Products should be sold under the same brand internationally 'Single Brand' product would cover only products, which are branded during manufacturing FDI up to 51% is allowed in Single Branded retail with prior government approval 100% FDI is allowed in whole sale cash and carry format Franchise arrangements are allowed in retail format

Current Retail entry options Strategic License agreements - Foreign Company can enter into a licensing agreement with a domestic retailer or partnering with Indian promoter owned companies. Cash and Carry Wholesale Retailing - 100 % FDI allowed in wholesale trading which involves building a large distribution network. Example Wal-Mart, Metro, Shoprite Distribution - An international company can set up a distribution office in India and supply products to the local retailers. Franchise outlets can also be set up in this route. Example Mango, Boss Franchisee Route - The entry route which includes the master franchisee route is widely used, with a number of international brands to set up presence in India. Example Nike, Mark and Spencer, Dominos Pizza, Pizza Hut, Subway Manufacturing - A company can setup manufacturing units in India along with standalone retailing outlets. Example Bata, United Colors of Benetton Joint Venture - International firms can enter into agreements with domestic players and set-up base in India. Share of MNCs is restricted to 49% in this route.

5. Impact of union budget 2011-12 for the sector Goods and Service Tax (GST) -GST, which is expected to be introduced in India with effect from April 1, 2011, aims to establish an economically efficient tax system that is

11

neutral in its application, attractive in terms of distribution and removes the tax cascading that is prevalent in the existing system. Among other things, the implementation of GST is expected to simplify the supply chain for consumer goods, make cash flow improvements by removing the excise duty on goods manufacturing, lower business input costs and enable enhanced profitability due to the elimination of tax cascading GST Production and distribution structure- The abolition of Central Sales Tax (CST) is likely to warrant a re-evaluation of procurement and distribution arrangements. Removal of excise duty on products may result in cash flow improvements, since GST will be paid on sale/supply rather than on the product. Pricing and profitability - The elimination of tax cascading is expected to lower business input costs and improve profitability. The application of tax at all points of the supply chain is likely to require adjustments to profit margins, especially for distributors and retailers. Cash flow - Tax refunds on goods purchased for resale implies a significant reduction in the inventory cost of distribution. Distributors are also expected to enjoy cash flow from collection of GST in their sales, before remitting it to the government at the end of the tax-filing period. System changes and transition management - Changes need to be made to accounting and IT systems to record transactions in line with GST requirements. Appropriate measures need to be taken to ensure smooth transition to the GST regime, for example, through employee training, compliance under GST, customer education and inventory credit tracking.

6. Key Trends in the Retail Industry

Emergence of multiple franchisee models This model is largely adopted by companies offering products in the value and semi-premium branded segments in order to enable greater scale, limit dependence on a few players and leverage local hands-on knowledge of the market. Jumbo King, the Mumbai-based snack major, and PepsiCo India are following this model.

Rural retailing Rural India accounts for more than 70 per cent of all Indian households and close to two-fifths of the total retail consumption pie. Retail companies
12

have realised the importance of tapping the rural consumer base. Examples include DCM Shriram's Hariyali Kisaan Bazaarand ITC's Chaupal Sagar. Collaborative model for international products Joint ventures (JVs) are emerging as the preferred model for new entrants, wherein foreign players leverage the knowledge of the local player and focus on key issues such as quality, pricing, promotions and brand management. Key examples include the Bharti Groups JV with Wal-Mart for retail and wholesale retail and StaplesJV with Pantaloon Retail Ltd to launch Staples products in the Indian market. Vertical integration Retail companies are looking at integrating their business models vertically to explore additional sources of revenues. For example, Dabur India Ltds retail foray into the health and beauty retail business through a retail chain known as NewU, and Nokias launch of concept stores. Collaboration for back-end resource sharing Another interesting trend in the Indian retail market is the collaboration of back-end resources, where retailers align their sourcing operations and share private label, logistics, warehouses and hiring details on a transactional payment model. For example, the Future Group, the Aditya Birla Group, the RPG Group and the Reliance Group have come together to reduce their operational costs and improve margins. Increasing market reach Retail companies are looking to increase their footprint in Tier II, III and IV cities and towns to capture domestic demand. For example, the Raymond Group plans to open more than 200 stores across India by mid-2011, and the Tata Group's retail venture, Westside, is planning to expand its franchisee base in Tier II and Tier III cities. Innovation in new retail formats Retailers are not only investing in their operations, but are also exploring the possibility of adopting new business models or formats. For instance, Reliance Retail has devised a new business model under which it will open small employee-friendly retail outlets at the premises of large corporate organisations. The Network18 group has ventured into online and on-air retail marketing and distribution through HomeShop18. Direct sourcing arrangements Retailers are directly procuring produce from farmers in order to offer quality products at prices that are lower than the market price and also to secure a larger number of clients. Wal-Mart sources around 35 to 40 per cent of its produce directly from approximately 130 small and marginal farmers. It is also educating
13

farmers about transplanting, nutrient management and the use of low cost innovations to obtain better and higher yields. Focus on private labels Retailers are increasing their focus on high-margin verticals, Retailers high margin such as private labels, and are looking to increase private labels contribution to total revenue. On average, in India, private label contributes between 10 and 20 per cent of total retail industry revenue. Spencers Retail Ltd plans to increase its private label contribution from 15 per cent currently to 30 per cent over a period of 18 months Investment The organised retail industry is at a nascent stage of development and is witnessing considerable activity in terms of investments and expansions. e Model 1-Investment/Expansion plans Investment/Expansion Model 2-Mergers and Acquisitions (M&A) Mergers Model 3-Strategic alliances/JVs for market entry Strategic

Model 1 - Investment/Expansion plans Company

Reliance Retail Gitanjali Gems Ltd

Plans
Plans to invest US$ 125 million (INR 6 billion) to open 200 Reliance Footprint stores in tier II Plans and tier III cities in India by 2013; Reliance Lifestyle plans to open 3,000 new stores by 2015 Plans to open around 500 stores by the end of March 2011 in India; also aims to increase its Plans presence in China and the Middle East

Currently operates more than 99 stores in 14 Indian cities, with 2.24 million sq ft. of trading space Currently across 10 store formats; plans to aggressively expand retail outlets across formats in new cities Shoppers and achieve 3.89 million sq ft. of trading space by 201314 2013 Stop Ltd Pantaloo Plans to invest nearly US$ 437.5 million (INR 21 billion) during 201114 to expand its various Plans 2011 14 n Retail retail formats India Ltd Spencer' s Retail Ltd Bharti Retail

Plans to launch 100 Beverly Hills Polo Clubs (BHPC) stores by 2011 and is targeting to have a presence in all major cities; BHPC currently has 14 stores Plans to invest up to US$ 2.5 billion (INR 120 billion) and add about 10 million sq ft. of retail space in five years.

14

Marks and Spencer Planet M Retail Ltd Lifestyle Internatio nal Pvt Ltd

Targeting 50 new stores during 2011 14 to double its presence in the Indian Targeting 201114 market.

Opened three new outlets in superstore format in 2010 Opened Plans to open 50 more stores across India by 201213, which will include 35 lifestyle retail Plans 2012 13, stores selling apparel, cosmetics and footwear, as well as about 15 Home Centres stores that will sell home furnishing goods, among others

Timex Plans to nearly double its retail stores by mid-2011 to around 120 from its existing 68 Plans mid 2011 group, US outlets, at an estimated investment of US$ 1.25 million (INR 60 million) A Raymond Ltd Opened 100 stores between October 2009 and January 2010, and plans to open another Opened 200 or more stores by June 2011

Gucci Acquired Group Acquired a 51 per cent stake in its Indian franchisee, Luxury Goods Retail Private Ltd, at an investment of US$ 217,000 (INR 10.42 million) in order to open single-brand stores single brand NV, Neth erlands

Model 2-Mergers and Acquisitions (M&A) Mergers Acquirer Name Shoppers Stop Target Name Year Format Acquisition

Ltd HyperCity Retail India Pvt Jun-10 Ltd (hypermarket) Lilliput Kidswear Ltd Apr-10

(department store) TPG Capital, Bain Capital

Private Equity

(branded kidswear retail) Gitanjali Gems Ltd (retail Morellato India Private Ltd Jan-10 jewellery) TVS Shriram Growth Fund (watch and jewellery retail) Landmark store) India Hospitality Corp, Treasure Food and Nov-09 Acquisition (department Nov-09 Divestiture Divestiture

USA (hospitality)

Beverage (retail restaurants)

15

Gitanjali Gems Ltd (retail Spectrum Jewellery Pvt Ltd, Oct-09 jewellery) Thailand (diamonds and

Acquisition

other precious stones) Gitanjali Gems Ltd (retail Alliance jewellery) Jewelleries Pvt Oct-09 Acquisition

Ltd, Lebanon (designer of gold and diamond studded jewellery)

Gitanjali USA Inc, a wholly Diamlink owned subsidiary

Inc,

USA Jul-09

Acquisition

of (diamonds and diamond-

Gitanjali Gems Ltd (retail studded jewellery) jewellery) Gruppo Coin, Italy (fashion Brandhouse retail) Inditex, Spain (fashion retail) Trent Ltd (retail) Feb-09 JV Retails Ltd Feb-09 JV

Model 3 - Strategic alliances/JVs for market entry

Company Reliance Group (Reliance Industries Ltd) Partnership arrangements

Marks & Spencer to open 50 stores to sell women's, men's and children's clothing and homewareduring 201114 Pearle Europe to launch a chain of optical stores VornadoRealty Trust to collectively invest US$ 500 million (INR 24 billion) to acquire, develop and operate retail shopping centres in key cities Office Depot Inc to launch 250 standalone stationery stores by 2010 Hamleys, UK exclusive pan-India franchise arrangement to open 20 Hamleystoy outlets by 2015, at an investment of US$ 26 million (INR 1,248 million) Future Group The Future Group owns a retail licence from Staples Inc USA to sell more than 700 products and carry the latters entire range of technology and stationery products Axiom Telecom LLC, UAE to distribute and service telecom products CelioSA to open Celio'sretail garment branded stores in India Clarks International, UK to sell its premium international footwear label Fashion Box Group, Italy to sell its luxury denim brand Replay Carrefour SA to open Carrefour-branded franchise stores in the country 16

RPG Group Cellucom Group, Dubai to offer mobility solutions and offer a better shopping experience by sharing its knowledge of mobile technology in a consumer-friendly atmosphere Au Bon Pain, USA to set up 100 standalone dining and bakery caf outlets Chad Valley, UK (owned by Woolworths plc.) to offer its range of toys through standalone exclusive stores and shop-in-shop formats within the same layout K Raheja Group Mothercareplc, UK to sell its brand of maternity and baby/childrens clothes Argos, UK to open its unique format of catalogue stores DLF Group Mothercareplc, UK entered a new joint venture in India with DLF Brands Ltd to complement its India business footprint in segments such as maternity clothing, baby clothes and nursery items Tata Group Tesco entered a deal with the retail arm of the Tata Group, to supply products, services and expertise to the latters hypermarket business, Star Bazaar

Foreign investment in India is governed by the FDI policy of the Indian Government and the Foreign Exchange Management Act of 1999.

FDI policy in retail trade India will announce new rules for foreign investment in retail by April 2012, paving the way for companies such as Wal-Mart Stores and Carrefour to open stores, according to Junior Trade Minister Jyotiraditya Scindia. A government panel has issued a report that recommends easing a law that prohibits non-Indian companies from operating multi-brand outlets. Allowing foreign investment in multi-brand retail may help moderate food prices, said Kaushik Basu, chief economic adviser in the finance ministry, who sits on the panel. In a landmark decision, the government has eased norms for investments by foreign companies that are present in India through a joint venture (JV) or a technical collaboration. Now, the foreign company will not have to seek a no-objection certificate (NOC) from the Indian partner for investing in the sector where the joint venture operates. The government has also relaxed norms for downstream investments and convertible instruments, giving foreign companies more powers. The changes are part of the third revision of the Consolidated FDI Policy.

17

7. Industry product life cycle analysis One of the most influential growth factors for retailers is product cycles. In many cases, newly innovated products (such as new flat-panel TVs or an updated line of iPods are released with high prices to maximize profits early on. Competition between consumer retailers and increased supply from manufacturers drive down prices over time until each retailer makes little profit by the end of a product's life cycle. How quickly product cycles mature drives the profit a retailer makes. There are many product cycles co-occurring at any given point in time, and these product cycles vary between retail industry sub-sectors; for example, an important product cycle in consumer electronics retail currently is flat panel HDTVs). There are usually five stages in the industry lifecycle. These are defined as: 1. Early Stage Phase: The inception of the retail industry dates back to times where retail stores were found in the village fairs, Melas or in the weekly markets. These stores were highly unorganized. Specialty stores were developed only in those areas that had a population of above 5,000. 2. Innovation Phase: In this phase product innovation starts declining and process innovation starts beginning and also a dominant design arrives in the industry. Supermarkets flourished in the India with the growth of suburbs after liberalization. 3. Cost or Shakeout Phase: In this phase barriers to entry are very high and large-scale consolidation occurs. The retail industry in India gathered a new dimension with the setting up of the different International Brand Outlets, Hyper or Super markets, shopping malls and departmental stores. 4. Maturity: With the government intervention the retail industry in India took a new shape. Outlets for Public Distribution System, Cooperative stores and Khadi stores were set up. These retail Stores demanded low investments for its establishment. The untapped scope of retailing has attracted superstores like Wal-Mart into India, leaving behind the kiranas that served us for years. Such companies are basically IT based. The other important participants in the Indian Retail sector are Bata, Big Bazaar, Pantaloons, Archies, Cafe Coffee Day, landmark, Khadims, Crossword, to name a few. 5. Decline: In this phase revenues start declining and the industry as a whole may be supplanted by a new one. To compete in this sector one needs to have up-to-date market information for planning and decision making. The second most important requirement is to manage costs widely in order to earn at least normal profits in face of stiff competition.

18

Source: The 2010 AT Kearney Global Retail Development Index Exhibits: Exhibit 1 Sales proportions of various retail segments in India in 2010.

Sales
2% 4% 4% 6% 8% 10% 62% 3% 1% Food Fashion Leisure & entertainment Fashion & Accessories Consumer Durables Health, beauty & Pharma Furniture Telecom Books & Music

19

Exhibit 2 Organized retail formats in India

Format Hypermarkets

Cash and Carry

Department Stores

Supermarkets

Shop-in-shop

Speciality Stores

Category Killers

Discount Stores

Convenience Stores

Description Offers a large basket of products, ranging from grocery, fresh and processed food, beauty and household products, to clothing and appliances. Offers several thousand stock-keeping units (SKUs) and generally has bulk buying requirements. Offers a large layout with a wide merchandise mix, usually in cohesive categories, including fashion accessories, gifts and products for the home. Offers not only household products but also food as an integral part of their services. Shops located within the premises of large shopping malls in major cities. Focus on individuals and group clusters of the same class, with high product loyalty. Large specialty retailers focusing on a particular segment. These retailers are able to provide a wide range of choice to consumers, usually at affordable prices, due to scale economies. Offers a wide range of products, mostly branded, at discounted prices. Relatively small retail stores located near residential areas.

Example Big Bazaar, Spencers, Spar, Star bazaar, Pantaloons, Hyper City

Bharti-Wal-Mart, Metro

Shoppers Stop, Lifestyle

Apna Bazaar, food Bazaar

Infinity ( Magna Group)

Brand Bazaar, Food Bazaar

The Loft, Central Mall

Subhiksha, Factorys Outlets like Levis, Lee, Brand Factory Safal

20

References: 1. Retail, Nov.2010, IBEF, Published by Ernst and Young 2. The 2010 AT Kearney Global Retail Development Index, AT Kearney 3. Retailing Industry Analysis 2010, CRISIL Research Reports 4. Quarterly Performance Analysis of Companies (July - September 2010) Indian Retail Industry, October 2010, Cygnus Business Consulting and Research Pvt. Ltd. 5. ICRA Sector Research on Indian Retail Industry, October 2001 6. Indian Food Retail Sector In The Global Scenario-Vijay Anand & Vikram Nambiar 7. Indian Brand Equity Foundation

21