The Indian Retail Sector

LAKSHMI NARAYANA SWAMY

Industry Evolution of retail sales

 Traditionally retailing in India can be traced to the emergency of the neighborhood ‘KIRANA’ stores
catering to the convenience of the consumers.

 era of Government support for rural retail: Indigenous franchise model of

store chains run by KHADI & Village Industries commission.

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

Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw the
emergence of retail chains Later Titan successfully created an organized retailing concept and
established a series of showrooms for its premium watches.

 The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure
Retailers. For e.g. Food World, SUBHIKSHA and NILGIRI in food and FMCG; Planet M and Music
World Crossword and Fountainhead in books.

 Post 1995 onwards saw an emergence of shopping CENTERS mainly in urban areas, with
facilities like car parking targeted to provide a complete destination experience for all
segments of society.

 Emergence of hyper and super markets trying to provide customer with 3 V’s -Value, Variety and
Volume Expanding target consumer segment: The Sachet revolution - example of reaching to the
bottom of the pyramid At year end of 2000 the size of the Indian organized retail industry is
estimated at Rs. 13,000 Crore.
 Retailing formats in India
 Malls:
The largest form of organized retailing today. Located mainly in metro cities, in
proximity to urban outskirts. Ranges from 60,000sq ft to 7,00,000 sq ft and
they lend an ideal shopping experience with an amalgamation of product,
service and entertainment, all under a common roof example include
Shoppers Stop, PIRAMYD, PANTALOON etc.
 Specialty Stores:
Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword,
RPG's Music World and the Times Group's music chain Planet M, are focusing on
specific market segments and have established themselves strongly in their sectors.
 Discount Stores:
As the name suggests, discount stores or factory outlets, offer discounts
on the MRP through selling in bulk reaching economies of scale or
excess stock left over at the season. The product category can range
from a variety of perishable/ non perishable goods
 Department Stores:
Large stores ranging from 20000-50000 sq. ft, catering to a variety of
consumer needs. Further classified into localized departments such
as clothing, toys, home, groceries, etc.
 Department Stores:
Departmental Stores are expected to take over the apparel business
from exclusive brand showrooms Among these, the biggest success
is K.RAHEJA‘S Shoppers Stop, which started in Mumbai and now
has more than seven large stores (over 30,000 sq. ft) across India
and even has its own in store brand for clothes called Stop..
 Hyper marts & Supermarkets:
Large self service outlets, catering to varied shopper needs are termed as Supermarkets. These
are located in or near residential high streets. These stores today contribute to 30% of all food &
grocery organized retail sales. Super Markets can further be classified in to mini supermarkets
typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft.
having a strong focus on food & grocery and personal sales.
 Convenience Stores:
These are relatively small stores 400-2,000 sq. feet located near
residential areas. They stock a limited range of high-turnover
convenience products and are usually open for extended periods during
the day, seven days a week. Prices are slightly higher due to the
convenience premium.
 M.B.O’
Multi Brand outlets, also known as Category Killers, offer several
brands across a single product
category. These usually do well in busy market places and Metros.
Retailing formats in India
India’s number of Domestic grocery chains and Early Foreign Entrants
 Recent Trends
Retail Sales in India
 Retailing in India is witnessing a huge
revamping exercise as can be seen in
the graph
 India is rated the fifth most attractive
emerging retail market: a potential
goldmine.
 Estimated to be US$ 200 billion, of
which organized retailing (i.e. modern
trade) makes up 3 percent or US$ 6.4
billion
 As per a report by KPMG the annual
growth of department stores is
estimated at 24%
 Ranked second in a Global Retail
Development Index of 30 developing
countries drawn up by AT Kearney.
 Recent Trends contd.

Traditionally three factors have plagued Recent changes:

the retail industry:

Experimentation with formats::

Unorganized :: Vast
Vast majority
majority of
of the
the twelve
twelve million
million Retailing
Retailing in
in India
India is
is still
still evolving
evolving and
and the
the sector
sector is
is witnessing
witnessing aa
stores
stores are
are small
small "father
"father and
and son"
son" outlets
outlets series
series of
of experiments
experiments across
across the
the country
country with
with new
new formats
formats being
being
tested
tested out.
out. Ex.
Ex. Quasi-mall,
Quasi-mall, sub-urban
sub-urban discount
discount stores,
stores, Cash
Cash and
and
Fragmented :: Mostly
Mostly small
small individually
individually owned
owned carry
carry etc.
etc.
businesses,
businesses, average
has
has the
average size
the highest
highest number
size of
number of
of outlet
outlet equals
of retail
equals 50
retail outlets
outlets per
50 sq.
sq. ft.
per capita
ft. Though
capita in
Though India
in the
India
the world,
world, Store design:: Biggest
Biggest challenge
challenge for
for Organized
Organized
the
the retail
retail space
space per
per capita
capita at
at 22 sq.
sq. ftft per
per person
person is
is amongst
amongst the
the retailing
retailing to
to create
create aa “customer-pull”
“customer-pull” environment
environment that
that increases
increases
lowest.
lowest. the
the amount
amount of of impulse
impulse shopping.
shopping. Research
Research shows
shows that
that the
the
chances
chances of of senses
senses dictating
dictating sales
sales are
are upto
upto 10-15%.
10-15%. Retail
Retail
Rural bias:: Nearly
Nearly two
two thirds
thirds of
of the
the stores
stores are
are located
located in
in chains
chains like
like MusicWorld,
MusicWorld, Baristas,
Baristas, Piramyd
Piramyd and
and Globus
Globus are
are laying
laying
rural
rural areas.
areas. Rural
Rural retail
retail industry
industry has
has typically
typically two
two forms:
forms: "HAATS"
"HAATS" major
major emphasis
emphasis & & investing
investing heavily
heavily in
in store
store design.
design.
and
and MELAS".
MELAS". HAATS
HAATS are are the
the weekly
weekly markets
markets serve
serve groups
groups of
10-50
10-50 villages
villages and
and sell
sell day-to-day
day-to-day necessities.
necessities. MELAS
MELAS are
of
are larger
larger Emergence of discount stores:: They
They
in
in size
size and
and more
more sophisticated
sophisticated in in terms
terms of
of the
the goods
goods sold
sold like
like are
are expected
expected toto spearhead
spearhead the
the organized
organized retailing
retailing revolution.
revolution.
TVS.
TVS. Stores
Stores trying
trying to
to emulate
emulate the
the model
model of
of Wal-Mart.
Wal-Mart. Ex.
Ex. Big
Big Bazaar,
Bazaar,
Bombay
Bombay Bazaar,
Bazaar, Rags.
Rags.
Unorganized retailing is getting
organized::
To
To meet
meet the
the challenges
challenges of of organized
organized retailing
retailing such
such asas large
large
Cineplex's,
Cineplex's, and
and malls,
malls, which
which are
are backed
backed byby the
the corporate
corporate house
house
such
such as
as 'Nasals'
'Nasals' and
and 'PVR‘
'PVR‘ the
the unorganized
unorganized sector
sector is
is getting
getting
organized.
organized. 2525 stores
stores in
in Delhi
Delhi under
under the
the banner
banner of of Provision
Provision mart
mart
are
are joining
joining hands
hands toto combine
combine monthly
monthly buying.
buying. Bombay
Bombay Bazaar
Bazaar
and
and Footmark
Footmark formed
formed which
which are
are aggregations
aggregations of of Karana's.
Karana's.
 Recent Trends contd.
 Multiple drivers leading to a consumption boom:
– Favorable demographics
– Growth in income
– Increasing population of women
– Raising aspirations : Value added goods sales
 Food and apparel retailing key drivers of growth Organized retailing in India has been largely an urban phenomenon with
affluent classes and growing number of double-income households More successful in cities in the south and west of India.
Reasons range from differences in consumer buying behavior to cost of real estate and taxation laws.
 Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of
consumption
– ITC is experimenting with retailing through its e-Choupal and Chou pal Sager – rural hypermarkets.
– HLL is using its Project Shakhty initiative – leveraging women self-help groups – to explore the rural market.
– Mahatmas is leveraging technology and network marketing concepts to act as an aggregator and serve the rural markets. IT is
a tool that has been used by retailers ranging from Amazon.com to eBay to radically change buying behavior across the globe. ‘e-tailing’ slowly
making its presence felt.
 Companies using their own web portal or tie-sups with horizontal players like Rediff.com and Indiatimes.com to offer products on the
web.
 Major Retailers

 India’s top retailers are largely Leading Retailers

lifestyle, clothing and apparel
stores
 This is followed by grocery
stores
 Following the past trends and
business models in the west
retail giants such as
Pantaloon, Shoppers’ Stop
and Lifestyle are likely to
target metros and small cities
almost doubling their current
number of stores
 These Walmart wannabes
have the economy of scale to
be low –medium cost retailers
pocketing narrow margin
 India vs. World

 Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9 million outlets in USA, catering to
more than 13 times of the total retail market size as compared to India.

 India has the highest number of outlets per capita in the world - widely spread retail network but with the lowest per capita retail space (@ 2
sq. ft. per person).

 Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail industry. Almost 100 times more than
the turnover of HLL (India's largest FMCG company).

 Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store (Shoppers' Stop, Westside,
Lifestyle) can compare.

 The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-Mart are about 1.3
million where as the entire Indian retail industry employs about three million people.
 One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HL L’s annual turnover.

 Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing (against 7 percent employed in India
today).

 60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of the fastest-growing 50 retailers
have just one format

 Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average inventory turns ratio of about 18. Many Indian
retailers KPMG surveyed have inventory turns levels between 4 and 10.
 Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail shelves (translating into a stock-out level
of less than 5 %).The stock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.
 Future direction: Positives

 AT Kearney has estimated India’s total retail market at US$ 202.6 billion which is expected to
grow at a compounded 30 per cent over the next five years. With the Organised retail segment
growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to
triple from the current US$ 7.7 billion to US$ 24 billion by 2010.

 The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over
next decade
 Over next two years India will see several Indian retail businesses attaining a critical mass as
growth in the industry picks up momentum driven by two key factors availability of quality
real estate and mall management practices Consumer preference for shopping in
new environments.
 Wal-Mart : huge plans for India. Moving a senior official from its headquarters in Bentonville,
Arkansas, to head its market research and business development functions pertaining to its
retail plans in India.
 New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty major DLF
Properties to set up shop in a mall in New Delhi.
 Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, AHMEDABAD,
LUCKNOW and Bangalore in the next four months.
 Future direction: Concerns

 68 million square feet of mall space is expected to be available by end of 2007, which might lead to over-
capacity of malls
 Lack of differentiation among the malls that are coming up. One option may be to look at specialization.
 Poor inventory turns and stock availability measures - retailers clearly need to augment their operations.
 Operations of retailers and suppliers are not integrated. Efficient replenishment practices practiced in the
Indian auto and auto-component industry can be leveraged to implement efficient supply chain
management techniques.
 Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity ordered, is an
issue
 Sales tax laws - lead to retailers having state-level procurement and storage leads to Indian retailers having
higher inventories. VAT has helped alleviate this a bit.
 Increased adoption of IT and shrinkage management will be a critical area.
 Supply chain and customer relations followed by merchandising, facilities management and vendor
development are areas which have significant gaps and proactive training is a key imperative for
overcoming these.
Sources