A

PROJECT REPORT
ON
FDI IN RETAIL SECTOR, INDIA

In Partial Fulfillment of
Master of Business Administration [Financial Services] Sem-1
Submitted To
Pro. MITTAL DATTANI

Submitted by
NITISH PATEL
KUNAL KUMAR
DHARMENDRA SINGH
 Preface
Words are words

Explanations are explanations

Promises are promises
Only Performance is reality

Practical knowledge provides an excellent platform for management student to learn the
application of management theories in the world of business aiming to build a high profile career
for themselves in the corporate world.

Time and opportunity once lost are lost forever. So the students should make the best use of this
golden opportunity by working hard, learning the best skills and molding themselves to the
requirement of the business world which they would be facing in near future.

We have taken up a FDI in “Retail sector, India” survey to find out the FDI is better opportunity
for India & how FDI invest in Indian Retail sector to get profit.

The present report is a sincere attempt on our behalf to present the information collected through
secondary sources to the best of our abilities.
 Acknowledgment
A task or project cannot be completed alone. It requires the effort of many individuals. I take this
opportunity to thank all those who helped me complete this project.

I also thank CMS for an opportunity to undertake Soft skills project at the start of our MBA
course which helped us to understand deeply for those topics which are untouched.

I express my sincere gratitude to Ms. MITTAL DATTANI for giving us the Opportunity to
undergo this project. I further thank her for lending a helping hand when it came to solving my
problems related to the project. This project would not have been possible without her valuable
time and support.
 Sr. TABLE OF CONTENT Pg.
No. No.

1 Preface I
2 Acknowledgment II
Chapter 1 Introduction of FDI 1
1.1 History of FDI 3
1.2 Classification of FDI 3
1.3 Sector attracting FDI 5
1.4 FDI Incentive 5
1.5 Advantages of FDI 6
1.6 Disadvantages of FDI 7
Chapter 2 Introduction of Retail sector 8
2.1 What is Retail? 8
2.2 History of Retail sector. 8
Chapter 3 Retail sector in INDIA 12
3.1 History of Indian Retail sector 14
3.2 Growth of Retail market in India
3.3 India Retail on fast track
3.4 Retailing formats in India
3.5 Specialty stores in India
3.6 Major industry player
Chapter 4 FDI in Retail sector in India
4.1 Policy of FDI in India
4.2 FDI in India fact & figures
4.3 Benefits of FDI in India
4.4 Problems of FDI in India
4.5 SWOT analysis
Conclusion
Bibliography
 Sr. CHART Pg.
No. No.

1 Classification of FDI 3

2 Modern format, Indian retail 10

3 Growth of Retail 16

4 Sector Projected Retail growth 17

5 Growth across segments 17

6 Comparative penetration of organized retail 19

7 Future outlook 20

8 Segmental size of Indian retail market 21

9 Retail format available in India 26

10 FDI in Retail sector, India 44

11 strategies of the existing big retailers for entering the Indian market 51

TABLE
1 Revenue of Verticals 18

2 Increasing penetration of organized retail 19

3 Retailing formats in India 23

4 Estimated Growth in Organized Retail 31

5 Income Classification 47

6 Grouping of the Cities 48

1. Introduction to FDI
It is defined as a company from one country making a physical investment into building a factory
in another country. It is the establishment of an enterprise by a foreigner.
Its definition can be extended to include investments made to acquire lasting interest in
enterprises operating outside of the economy of the investor. The FDI relationship consists of a
parent enterprise and a foreign affiliate which together form an international business or a
multinational corporation (MNC)

Foreign direct investment (FDI) refers to cross-border investment made by a resident in one
economy (the direct investor) with the objective of establishing a lasting interest in an enterprise
(the direct investment enterprise) that is resident in a country other than that of the direct investor
(OECD 2008). The motivation of the direct investor is strategic “lasting interest” in the
management of the direct investment enterprise with at least 10 per cent voting power in decision
making.

The host country aspires to receive FDI inflows because of the potential benefits, the most
established benefit being that FDI supplements the domestic savings of a nation. Other payoffs
include access to superior international technologies, exposure to better management and
accounting practices, and improved corporate governance. FDI is likely to expand and/or
diversify the production capacity of the recipient country which, in turn, is expected to enhance
trade.

On the other hand, foreign investors are motivated by profits and access to natural resources.
Therefore, large and growing domestic markets are likely to receive more FDI. Countries with
abundant natural resources such as mines, oil reserves and manpower appear prominently on the
investment maps of foreign investors.

Foreign direct investment (FDI) plays a multidimensional role in the overall development of the
host economies. It may generate benefits through bringing in non-debt-creating foreign capital
resources, technological upgrading, skill enhancement, new employment, spill-overs and
allocative efficiency effects. While FDI is expected to create positive outcomes, it may also
generate negative effects on the host economy. The costs to the host economy can arise from the
market power of large firms and their associated ability to generate high profits. Much of the
existing empirical evidence suggests that the positive effects offset negatives, thus providing net
economic benefits for the host economies.

While empirical and econometric work on testing various theoretical hypotheses is embedded in
the extant literature on FDI, there is lack of information on the plant-level spatial and sectoral
spread of FDI-enabled production facilities in India and their linkages with rural and suburban
areas. The majority of the population, both urban and rural, is expected to gain, indirectly and
differentially, from FDI. While FDI may benefit the economy at both macroeconomic and
microeconomic levels, it is equally important to probe whether people in the rural and suburban
areas get affected through such benefits. FDI in relatively labour-intensive sectors including food
processing, textiles and readymade garments, leather and leather products, and light machine
tools, with plants set up in small cities close to rural and suburban areas, would tend to have
relatively high employment-generating potential.

FDI-enabled plants in India are spread across various states with relatively high concentration in
Maharashtra, Gujarat, Tamil Nadu, Karnataka and West Bengal. A significant proportion of
manufacturing plants are located in small cities (population less than 5,00,000). More than two-
fifth of the market capitalisation originates in small cities.

FDI-enabled service facilities have a relatively high concentration in Andhra Pradesh, Karnataka,
Maharashtra and Tamil Nadu. The proportion of service facilities located in small cities is
relatively less significant vis-a-vis manufacturing plants.

About half the total output, valued-added (output minus inputs) and wages paid in the FDI-
enabled manufacturing firms originate in small cities in sectors including non-metallic mineral
products; building and construction parts; mining of iron ores; textiles; and growing and
processing of crops. The share of value-added in output is relatively high in sectors including
software and publishing; mining of iron ore; growing and processing of crops; non-metallic
mineral products; special purpose machinery; tobacco products; and footwear.

FDI-enabled firms in manufacturing sectors provide employment to about 15.6 lakh persons
accounting for about 4 to 5 per cent of the total employment in the organised sector. Small cities
provide employment to about 7.9 lakh workers. Sectors providing a relatively high share of
employment in small cities include transport equipment; growing and processing of crops;
construction parts; textiles; and non-metallic mineral products.

FDI in manufacturing sectors has significant reach in small cities, thus generating linkages with
suburban and rural regions of India. The major FDI-receiving sectors have strong backward and
or forward linkages with the economy. The sectors with strong backward and forward linkages
include construction; fuels; chemicals; and metallurgical industries. The sectors with strong
backward linkages include electrical equipment; drugs and pharmaceuticals; food processing;
and textiles, among others. Service sectors, telecommunications, and consultancy services have
strong forward linkages.

1.1 History of FDI

Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as
factories, mines and land. Increasing foreign investment can be used as one measure of growing
economic globalization. Maps below show net inflows of foreign direct investment as a
percentage of gross domestic products (GDP). The largest flows of foreign investment occur
between the industrialized countries (North America, North West Europe and Japan). But flows
to non- industrialized countries are increasing.

1.2 Classification of FDI

OUTWARD

Outward FDI

Foreign direct investment by a domestic firm establishing a facility abroad. Contrast with inward
FDI.

Inward FDI

Capital provided by FDI residing in foreign country to the economy of domestic country.

Vertical Foreign Direct Investment

Foreign direct investment by a firm to establish manufacturing facilities in multiple countries,

each producing a different input to, or stage of, the firm's production process.

Horizontal foreign direct investments

Foreign direct investment by a firm to establish manufacturing facilities in multiple countries, all
producing essentially the same thing but for their respective domestic or nearby markets

Greenfield FDI

A form of foreign direct investment where a parent company starts a new venture in a foreign
country by constructing new operational facilities from the ground up. In addition to building
new facilities, most parent companies also create new long-term jobs in the foreign country by
hiring new employees. Market-seeking FDI’s

Resource-seeking FDI’s
Aimed at factors of production which have more operational efficiency than those available in
the home country of the investor.

A foreign direct investor may be classified in any sector of the economy and could be any
one of the following:
1) An individual
2) A group of related individuals
3) An incorporated or unincorporated entity
4) A public company or private company
5) A group of related enterprises
6) A government body
7) An estate (law)
8) Trust or other societal organization
9) Any combination of the above

1.3 Foreign direct investment incentives may take the following forms:
1) Low corporate tax and income tax rates
2) Tax holidays
3) Other types of tax concessions
4) Preferential tariffs
5) Special economic zones
6) Investment financial subsidies
7) Soft loan or loan guarantee
8) Free land or land subsidies
9) Relocation & expatriation subsidies
10) Job training & employment subsidies
11) Infrastructure subsidies
12) R&D support
13) Derogation from regulations (usually for very large projects)

1.4 Sector Attracting FDI

Though the services sector in India constitutes the largest share in the Gross Domestic Product,
still it has failed to some extent in attracting more funds in the forms of investments. Important
sectors of the Indian Economy attracting more investments into the country are as follows:

• Electrical Equipments (Including Computer Software & Electronic)

• Telecommunications (radio paging, cellular mobile, basic telephone service)
• Transportation Industry
• Services Sector (financial & non-financial)
• Fuels (Power + Oil Refinery)
• Chemical (other than fertilizers)
• Food Processing Industries
• Drugs & Pharmaceuticals
• Cement and Gypsum Products
• Metallurgical Industries

1.5 Advantages of FDI

Attracting foreign direct investment has become an integral part of the economic development
strategies for India. FDI ensures a huge amount of domestic capital, production level, and
employment opportunities in the developing countries, which is a major step towards the
economic growth of the country. FDI has been a booming factor that has bolstered the economic
life of India, but on the other hand it is also being blamed for ousting domestic inflows. FDI is
also claimed to have lowered few regulatory standards in terms of investment patterns. The
effects of FDI are by and large transformative. The incorporation of a range of well- composed
and relevant policies will boost up the profit ratio from Foreign Direct Investment higher. Some
of the biggest advantages of FDI enjoyed by India have been listed as under:

Economic growth-

This is one of the major sectors, which is enormously benefited from foreign direct investment.
A remarkable inflow of FDI in various industrial units in India has boosted the economic life of
country.

Trade–

Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods
and services in India both in terms of import and export production. Products of superior quality
are manufactured by various industries in India due to greater amount of FDI inflows in the
country.

Employment and skill levels–

FDI has also ensured a number of employment opportunities by aiding the setting up of
industrial units in various corners of India.

Technology diffusion and knowledge transfer-

FDI apparently helps in the outsourcing of knowledge from India especially in the Information
Technology sector. It helps in developing the know-how process in India in terms of enhancing
the technological advancement in India.

Linkages and spillover to domestic firms-

Various foreign firms are now occupying a position in the Indian market through Joint Ventures
and collaboration concerns. The maximum amount of the profits gained by the foreign firms
through these joint ventures is spent on the Indian market.

1.6 Disadvantages of FDI

- Render millions of unorganized retail sector jobless.

- will transfer lower technology or goods in India (Dumping of goods)
- Foregn goods will be sought, so flow of foreign exchange and also loss of domestic
industries
- Domestic Industries (Manufacturers) will also have to face competition in both pricing as
well as quality
- Will also start influencing government laws and regulations (As done in China,
Malasyia,etc.)
- Buyer's monopoly: increased buyer concentration if FDI allowed in retail.
Example: in Canada, one single retailer, Wal-Mart, controls 52 per cent of the retail
market.
- Infrastructure and Traffic problems: finding adequate space for stores, parking,etc.
- Labor: employment increase but lot of cost-cutting too... low wages.
2. Introduction of Retail Sector
Retailing is a distribution channel function where one organization buys products from supplying
firms or manufactures the product themselves, and then sells these directly to consumers. A
retailer is a reseller (i.e., obtains product from one party in order to sell to another) from which a
consumer purchases products.

They are the informal and the formal retailing sector. The informal retailing sector is comprised
of small retailers. For this sector, it very difficult to implement the tax laws. There is widespread
tax evasion. It is also cumbersome to regulate the labor laws in this sector. As far as the formal
retailing sector is concerned, it is comprised of large retailers. Stringent tax and labor laws are
implemented in this sector. If the retail industry is divided on the basis of retail formats then it
can be split into the modern format retailers and the traditional format retailers. The modern
format retailers comprise of the supermarkets, Hypermarkets, Departmental Stores, Specialty
Chains and company owned and operated retail stores The traditional format retailers comprise
of Kiranas, Kiosks, Street Markets and the multiple brand outlets. The retail industry can also be
subdivided into the organized and the unorganized sector. The organized retail sector occupies
about 3% of the aggregate retail industry in India.

2.1 What is Retail ?

The word 'retail' is derived from the French word 'retaillier' meaning 'to cut a piece off' or 'to
break bulk'. In simple terms it involves activities whereby product or services are sold to final
consumers in small quantities. Although retailing in its various formats has been around our
country for many decades, it has been confined for along time to family owned corner shops.
Englishmen are great soccer enthusiasts, and they strongly think that one should never give
Indians a corner. It stems from the belief that, if you give an Indian a corner he would end up
setting a shop. That is how great Indians retail management skill is considered.

2.2 History of Retail Sector

It is likely that, as markets became more permanent fixtures they evolved into shops. Although
advantageous in many respects, this removed the mobility that a peddler or traveling merchant
may still have enjoyed. For some shopkeepers, it made sense to obtain extra stock and open up
another shop, most probably operated by another family member. This would recover business
from peddlers and create new business and the greater volume would allow the shopkeeper to
strike a better deal with suppliers. Thus the retail chain would have started. Its thought that this
process would have started in china over 2200 years ago with a chain of shops owned by a trader
called Lo Kass.

 The First Self-Service Store:

This all changed in 1915 when Albert Gerrard opened the Groceteria in Los Angeles, the first
documented self-service store. This was soon followed a year later by the Piggly Wiggly® self-
service store, founded by Clarence Saunders in Tennessee in the U.S.

Growth:

This new type of shopping was more efficient and many customers preferred it. Although
personal service stores remain to this day, this new concept started a rapid growth of self-service
stores in the United States. Other countries were slow to take up the idea, but there has been a
steady rise in the global amount of self-service stores ever since.

Efficiency

These entrepreneurs noticed that their staff had to spend a great deal of time taking grocery
orders from customers. The groceries were stacked on shelves allowing customers to walk
around and browse, collecting their shopping in a basket that was supplied. The shopkeeper
would only need to tot up the final bill at the end of the process and transfer the goods from the
basket to the customer and receive payment.

From Family Business to Formal Structure:

Although retail chains would have been mostly run by families, as some chains grew, they would
have needed to employ people from outside of their family. This was a limiting factor as there
would have been a limit to the amount of trusted non family members available to help run the
chain. Another, even more definite limiting factor was the distance the furthest shop would have
been from the original shop. The greater the distance, the more time and effort would have been
needed to effectively manage outpost shops and to service them with goods. There was,
therefore, a natural barrier to expansion. That was the case until transport and communications
became faster and more reliable. When this happened towards the end of the 19th century, chains
became much bigger and more widespread. Many of these businesses became more structured
and formalized, leading to the retail chain that we see today.
3. Retail sector in India

Retail has been defined as business activities involved in selling goods and services to consumers
for their personal, family or household use. Although retailing has been around for millennia, the
20th century witnessed a lot of changes in the retail sector, especially in the developed countries.
Modern formats such as department stores, discount stores, Super markets, convenience stores,
fast food outlets, specialty stores, warehouse retails and hypermarkets have emerged. Retailing
has become more organized and chain stores have been growing at the expense of independent
shops. India retailing is undergoing a process of evaluation and is poised to undergo dramatic
transformation. The retail sector employs over 8% of the national workforce but is characterized
by a high degree of fragmentation with over 5 million outlets, 96% of whom are very small with
area of less then 50 m2. The retail universe more than doubled between 1978 and 1996 and the
number of outlets per 100 people at an all India level, increased from 3.7 in 1978 to 5.6 in 1996.
For the urban sector alone, the shop density increased from 4 per 100 people in 1978 to 7.6 per
100 people in 1996 because of their small size, Indian retailers have very little bargaining power

With manufacturers and perform only a few of the flow in marketing channels unlike in the case
of retailers in developing countries

The corner grocer or the ‘kirana’ store is a key element in the retail in India due to the
housewife’s unwillingness to go long distance for purchasing daily needs. Although convenience
and merchandise were the two important reasons for choosing a store, the choice criteria varied
across categories.

Convenience was indicated by consumer as the moat important reason in the choice of groceries
and fruit outlets, chemist and lifestyle items while merchandise was indicated as the most
important in durables, book and apparel. The traditional format like hawkers, grocers and paan
shop co exist with modern format like supermarket, and non store retailing channels such as
multi level marketing and teleshopping. Example of modern formats include department store
like Bigbazzar, supermarket like Food World, franchise store like Van Heusen and Lee, discount
store like Subiksha, Shop-in-shops, Factory outlets and service retailers. Modern stores tend to
be larger, carry more stock keeping units have a self service format and an experiential
ambience. Modern format also tend to have higher level of sales per unit of space, stock turnover
and gross margin but lower level of net margin as compared to traditional format. Modernization
in retail formats is like to happen quicker in categories like Dry groceries, electronics, Men’s
apparel, Books, Music, Some reshaping and adaptation may also happen in fresh groceries,
Women’s apparel, Fast food and personal care product

In recent years, there has been a slow spread of retail chain in some formats like supermarket,
department store, malls and discount stores. Factors facilitating the spread of chain are the
availability of quality product at a lower price, improved shopping standards, convenient
shopping and display, and blending of shopping with entertainment, and the entry of industrial
house like Goenkas, Rahejas, Piramals and Tatas into retailing.

However formats are mot easily scalable across the country. Several companies have found that
it is not easy to expand beyond some regions and cities as evident from the example of margin
free market and Food world, which are active only in a few states or cities. Affordable real estate
price and availability of sufficient number of economically well off household in the catchment
area are critical requirement that will determine new store viability and thus the possibility of
future expansion.

According to Rao (2001), foreign direct investment in the retail sector in India, although not yet
permitted by government, is desirable, ass it would improve productivity and increase
competitiveness. New stores will introduce efficiency. Customers also gain as prices in the mew
stores tend to be lower. The consequences of modernization in India may be somewhat different
due to lower purchasing power and the new store may cater to only to branded products aimed at
upper income segment. However it will be wise for old style stores to join together into
wholesale and retail groups to improve bargaining power as experience in developed markets
such as UK has that the modernization in retail has led to the decline of independent mom and
pop stores.
The need for fresh perspective while developing theories to explain the new development has
been stressed by Bennett et al (1998). The Indian retail environment is witnessing several
changes on the demand side due to increased per capita income. Changing lifestyle and increased
product availability. Experience of retailing in US show that existing theories of retail
development based on changing consumer need are inadequate to explain new development. In
developed markets, there has been a power shift with power moving from manufacturers towards
retailers. The strategies used by retailers to wrest power include the development of retailers own
brands, and the introduction of slotting allowances which necessitate payment by manufacturers
to retailers for providing shelf space for new product. Retailers have also used technology
effectively to obtain usable information about consumer buying pattern. The increased power of
retailers has led to the introduction of new tactics by manufacture such as everyday low price,
partnership with retailers and increased use of direct marketing methods because of these issues,
a supply side perspective need to be fused with the demand side in developing theories for
explaining modernization in retail.

3.1 History of Indian Retail Sector

Retail is India’s industry it account for over 10% of the India’s GDP and around 8% OF The
Employment. Retail sector is one of the India’s fastest growing sectors with a 5 % compounded
annual growth rate. India’s huge middle class and its untapped retail industry are key attraction
for global retail giants planning to enter newer market .driven by changing lifestyle, strong
income growth and favorable demographic patterns, Indi retail is expected to grow 25%
annually. It is accepted that retail in India could be worth US$ 175-200 Billion in 2016.

The organized retail industry in India had not evolved till the early 1990s. Until then, the
industry was dominated by the un-organized sector. It was a seller market, with a limited number
of trained manpower, tax laws and government regulation all discouraged the growth of
organized retailing in India during that period. Lack of consumer awareness and restriction over
entry of foreign player into the sector also contributed in delay in the growth of organized
retailing. Foundation for organized retail in India was laid by Mr. Kishore Biyani of Pantaloon
Retail India Limited (PRIL) following pantaloon’s success venture a host of Indian business
giants such as Reliance, Bharti, Birla and others are now entering into retail sector. A number of
factors are driving India’s retail market. These include increase in young working population,
hefty pay-packets, nuclear families in urban area, increasing working-women population,
increasing in disposable income and customer aspiration, increases in expenditure for luxury
items and low share of organized retailing, India’s retail boom is manifested in sprawling
shopping center multiplex-malls and huge complexes that offer shopping entertainment and food
all under one roof But there is a flip side to the boom in the retail sector. It is feared that the entry
of global business giants into organized retail would make redundant the neighborhood kirana
stores resulting in dislocation in traditional economic structure. Also, the growth path for
organized retail in India is not hurdle free. The taxation system still favors small retail business.
With the intrinsic complexities of retailing such as rapid price changes, constant threat of product
obsolescence and low margins there is always a threat that the venture may turn out to be a loss
making one. Retail in India is still at a very early stage. Most retail firms are companies from
other industries that are now entering the retail sector on account of its amazing potential. There
are only a handful of companies with a retail background. One such company is Nilgiri's from
Bangalore that started as a dairy and incorporated other areas in its business with great success.
Their achievement has led to the arrival of numerous other players, most with the backing of
large groups, but usually not with a retail background. Most new entrants to the India retail scene
are real estate groups who see their access to and knowledge of land, location and construction as
prime factors for entering the market.

New retails stores have traditionally started operations in cities like Mumbai and Delhi where
there has been an existing base of metropolitan consumers with ready cash and global tastes. The
new perspective to this trend is that new entirely on the metros. Spending poer in India is not
concentrated any more in just the 4 metros (Delhi, Mumbai, Chennai, and Kolkata). Smaller but
upcoming cities like Chandigarh, Coimbatore, Pune. Ahmadabad, Baroda, Trivandrum, Cochin,
Ludhiana, Simla etc. will fast be catching up to the metros in their spending capacity.

Cities in south India have taken to the supermarket style of shopping very eagerly and so far the
maximum number of organized grocery and department stores are in Chennai, Bangalore and
Hyderabad. The north has a long way to go to come up to par. International stores now prefer to
gauge the reaction of the public in these cities before investing heavily in a nation-wide
expansion. Milou, the Swiss children's wear retailer, recently opened up its first store in Chennai,
bypassing Delhi and Mumbai. Besides the urban market, India's rural market has just started to
be seen as a viable option and companies who understand what the rural consumer wants will
grow to incredible heights. The bulk of India's population still live in rural areas and to be able to
cater specifically to them will mean generating tremendous amounts of business.

In the past decade, international companies entering India (Levi's, Pepe, Tommy Hilfiger, Marks
and Spencer, Mango) have generally offered moderately priced to expensive items. They have
aimed for the upper-middle and rich classes of Indian society. These are consumers who travel
abroad often and can buy these items overseas quite easily. Instead, international companies
should be focusing on the lower and lower-middle classes of India. This is where the real
potential is, the inspirational class of consumers who want to lead a better lives and believe in
education, hard work and absorb knowledge from every possible angle. The phenomenal success
of Big Bazaar. Pantaloons version of Wal-Mart, is proof that there is enormous potential in
providing products and services to this class of consumers. Companies entering India cannot
have just one game plan to apply to the entire country as the people, their tastes, the lifestyle, the
budgets etc. are all too divergent. International entrants must enter each market specifically
focusing only on that area to be successful. Business, specifically retail business must focus on
the most important factor in the Indian mind-set---Value for Money. Indian consumers are ready
to pay almost any amount of money for a product or service as long as they feel they are getting
good Value for Money. This is often misconstrued as being tight fisted or interested in lower
priced and/or lower quality products.

Retail growth in the coming five years is expected to be stronger than GDP growth, driven by
changing lifestyles and by strong income growth, which in turn will be supported by favorable
demographic patterns and the extent of which organized retailers success in reaching lower down
the income scale to reach potential consumers towards the bottom of the consumer pyramid.
Growing consumer credit will also help in boosting consumer demand. The structure of retailing
will also develop rapidly. Shopping malls are becoming increasingly common in large cities, and
announced development plans project at least 150 new shopping malls by 2008. The number of
department stores is growing much faster than overall retail at an annual 24%. Supermarkets
have been taking an increasing share of general food and grocery trade over the last two decades.

However, Distribution continues to improve but it still remains a major inefficiency. Poor quality
of infrastructure, coupled with poor quality of the distribution sector, results in logistics costs
that are very high as a proportion of GDP, and inventories, which have to be maintained at an
unusually high level. Distribution and marketing is a huge cost in Indian consumer markets. It's a
lot easier to cut manufacturing costs than it is to cut distribution and marketing costs.

3.2 Growth of Retail Sector

3.3 India Retail on fast track
 The Indian retail market is the fifth-largest retail destination globally. It is estimated to
grow from the US$ 330 billion in 2007 to US$ 427 billion by 2010 and US$ 637 billion by
2015.
 Retail contributes to 10 per cent of India’s gross Domestic Product and provides
employment to 8 per cent of India’s working population.
 Higher disposable incomes, easy availability of credit and high exposure to media and
brands has considerably increased the average propensity to consume over the years.

 Projected Retail growth

 2010-11P

2006-07P

2005-06E

0 50 100 150 200 250 300 350 400 450 500

Organised Retail Total Retail

Source: Crisis Research Exchange Rate: US$ 1 = INR 41

Growth across segments

 The food and beverages segment accounts for the largest share over 74 per cent of the
total retail pie.
 Traditional retail dominates food, grocery and allied products sector, with grocery and
staples largely sourced from the “kiranas” and push-cart vendors.
 Apparel and consumer durables verticals are the fastest growing verticals.

Food and Beverages clothing and textile consumer Durables

Jewellery and watches home Decor Beauty care
Footwear Books, Music and gifts

3% 2% 1% 1%
6%
5%
9%
73%

Source: Crisil Research

 Revenue of Verticals
Food and Beverages US$ 231,951 million
clothing and textile US$ 29,024 million
consumer Durables US$ 15,171 million
Jewelers and watches US$ 19,390 million
home Decor US$ 9,463 million
Beauty care US$ 6,854 million
Footwear US$ 3,268 million
Books, Music and gifts US$ 2,610 million
Source: Crisil Research

 With high telecom penetration in towns and villages and five million new users having
added every month, the mobile phone category is one of the highest growth product
categories.
 With the reducing average age of Indians buying homes, the home décor sector is
growing rapidly coming down.
 Beauty care, home décor, books; music and gifts segments are gaining traction
predominantly in the urban areas and emerging cities.

Increasing penetration of organized retail

 Organized retail in India is largely restricted to the urban and semi-urban regions, with
consumer exposure to modern retailing formats like malls and stand-alone stores, etc., for
specific product categories.
 Penetration of organized retail is projected to increase to 9.52 per cent in 2009-2010, with
revenues from organized retail touching US$ 43,829 million in 2009-2010.
 Clothing and textiles/apparel segment dominates the organized retail sector with revenues
worth US$ 4.76 billion, contributing to over 36 per cent of the organized retail pie.
 Segment Total Retail Organized Retail

Food and grocery 6,422 50

Textile and apparel 980 185

Jewelers and watches 554 30

Consumer durables 415 43

Parma 364 10

Home solutions 351 32

Books, music and gifts 115 15

Others 1,159 111

Total 10,360 475

Source: Crisil Research

 Apparel is one of the fastest growing verticals, with higher number of domestic and
foreign brands, and increasing consumer willingness to pay for quality.
 Footwear has the highest organized retail penetration, primarily due to players like Bata
 India Pvt. ltd. and liberty, with wide distribution network and customer confidence.

Comparative penetration of organized retail

India 3% 97%

China 20% 80%

Indonesia 30% 70%

Thailand 40% 60%

Malaysia 55% 45%

Taiwan 81% 19%

US 85% 15%

Source: Ernst & Young research

Future outlook
  Retail sector revenues pegged at US$ 460.6 billion by 2010-11
 organized retail projected to grow to US$ 43.8 billion
 Modern retail is expected to adapt and imbibe from the traditional formats
Unorganized formats converging from organized formats, in the form of mushrooming
village malls.

Changing Paradigm: The Confidence of Modern and Traditional Retail

1st Phase 2nd Phase 3rd Phase 4th Phase

Source: IBEF research

 Segmental size of Indian retail market

Source: IBEF research

 large Indian retail players have already begun formulating strategies for the rural retail
space
 The food and beverages (F&B) sector is expected to touch US$ 116 billion mark by the
end of 2008-2009.

3.4 Retailing formats in India

Malls:

The largest form of organized retailing today. Located mainly in metro cities, in proximity to
urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal
shopping experience with an amalgamation of product, service and entertainment, all under a
common roof. Examples include Shoppers Stop, Pyramid, Pantaloon.

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!.

Hypermarts/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.

MBO’s :

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.

Retailer Original formats Later Formats

 Supermarket Hypermarket (Spencer's)Specialty Store (Health and
RPG Retail
(Foodworld) Glow)

Department Store
Piramal's Discount Store (TruMart)
(Piramyd Megastore)

Small format outlets

(Shoppe) Supermarket(FoodBAZAR)
Pantaloon Retail
Department Store Hypermarket (Big Bazaar) Mall (Central)
(Pantaloon)

Department Store
(shopper's stop) Supermarket
K Raheja Group
Specialty Store Hypermarket (TBA)
(Crossword)

Department Store
Tata/ Trent Hypermarket (Star India Bazaar)
(Westside)

Landmark Department Store

Hypermarket (TBA)
Group (Lifestyle)

Discount Store (Subhiksha, Margin Free, Apna Bazaar), Supermarket

Others
(Nilgiri's), Specialty Electronics

3.5 SPECIALITY STORES

Food retail :

Food dominates the shopping basket in India. The US$ 6.1 billion Indian foods industry, which
forms 44 per cent of the entire FMCG sales, is growing at 9 per cent and has set the growth
agenda for modern trade formats. Since nearly 60 per cent of the average Indian grocery basket
comprises non-branded items, the branded food industry is homing in on converting Indian
consumers to branded food.

The mobile revolution:

The retail market for mobile phones -- handset, airtime and accessories -- is already a US$ 16.7
billion business, growing at over 20 per cent per year. In comparison, the consumer electronics
and appliance market is worth US$ 5.6 billion, with a growth rate that is half of the mobile
market.

Kids retail:

When it comes to Indian children, retailers are busy bonding--and branding:

 Monalisa, the Versace of kids is coming to India.

 Global lifestyle brand Nautica is bringing Nautica Kids.
 International brand Zapp tied up with Raymond to foray into kids' apparel.
 Disney launched exclusive chains which stock character-based stationery.
 Pantaloon's joint venture with Gini & Jony will set up a retail chain to market kids'
apparel.
 Swiss kidswear brand Milou is collaborating with Tirupur-based Sreeja Hosieries.
 Turner International India Pvt Ltd. will launch Cartoon Network Townsville and Planet
POGO--two theme parks designed around its channels--in the National Capital Region.
 Sahara One Television has also signed a Memorandum of Understanding to source
content from Spacetoon Media Group, Middle East's largest kids' entertainment brand for
animation and live action content.

Leading the kids' retail revolution is the apparel business, which accounts for almost 80 per cent
of the revenue, with kids' clothing in India following international fashion trends. According to
research firm KSA Technopak, the branded segment comprises US$ 701.7 million of the total
kids' apparel market-size of over US$ 3 billion.

Industry experts say kids' retailing will touch annual growth of 30-35 per cent. Toys, stationary,
sportswear, outerwear, tailored clothing, eyewear, watches, fragrance, footwear, theme parks, TV
channels… the segment is growing rapidly at 10 per cent per annum. Margins are in the range of
20-25 per cent (for dealers and distributors), while companies enjoy an average gross margin of
about 10 per cent.

Agricultural retail:

Agriculture across India is heralding the country's second Green Revolution. 14 states, including
Maharashtra, Punjab, Andhra Pradesh and Rajasthan amended the Agricultural Produce
Marketing Committee (APMC) act this year, along the lines of the Model APMC Act, '02, which
allows farmers to sell their produce directly to buyers offering them the best price.
Agricultural sectors such as horticulture, floriculture, development of seeds, animal husbandry,
pisciculture, aqua culture, cultivation of vegetables, mushroom under cultivated conditions and
services related to agro and allied sectors are open to 100 per cent FDI through the automatic
route.

For its e-Choupal scheme, ITC built internet kiosks in rural villages so farmers can access latest
information on weather, current market prices, foods-in-demand, etc.

With a US$ 5.6 billion, multi-year investment in agriculture and retail, Reliance Retail will
establish links with farms on several thousand acres in Punjab, West Bengal and Maharashtra.
FieldFresh, planning to become India's first large-scale exporter of produce, will annually pay
farmers over US$ 30,000 to lease land for vegetables, to hire tractors and to pay their workers.

Besides a five-year program with the Punjab government to provide several hundred farmers
with four million sweet-orange trees for its Tropicana juices by 2008, PepsiCo--with agriculture
exports worth US$ 40 million--also introduced farmers to high-yielding basmati rice, mangoes,
potatoes, chilies, peanuts, and barley for its Frito-Lay snacks.

Export potential and a rapidly growing domestic demand for reliable produce from new
supermarket chains is driving change. With 77 per cent of India's population relying on
agriculture for a living, improved efficiency and new markets can benefit a large number of
people.

International retailers :

The Australian government's National Food Industry Strategy and Austrade initiated a test
marketing food retail in India wherein 12 major Australian food producers have tied up with
India-based distributor AB Mauri to sell their products directly at retail outlets.

The largest-ever 150-member British business delegation in India committed investments in the
areas of food processing, agri retail and manufacturing. It is also likely to press for the
liberalisation of sectors like financial & legal services and retail.

US-based home delivery and logistics company, Specialised Transportation Inc, will enter the
Indian market through a strategic alliance with Patel Retail, a subsidiary of Patel Integrated
Logistics.

Among other big international players, Wal-Mart has announced its plans for India in partnership
with Bharti, Tesco is sure to try again, and Carrefour too might finally find the right partner.
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.

Supermarkets are relatively new entrants in the market. They are so called pioneers in organized
food retailing and go by the western model in look and feel and format. This is what everybody
means when they say organized food retailing.

Franchise outlets:

Like Tommy Hilfiger and Wal Mart, other US retailers are firming up their India entry strategies
and if they are already in, they are undergoing rapid expansion. Fashion brands DKNY is also al
set to foray into the Indian fashion Industry through a franchisee agreement with Indian
company, S. Kumar Starbucks recently expressed their interest in entering Indian company

Like Tommy Hilfiger and Wal-Mart, other US retailers are firming up their India entry strategies
and if they are already in, they are undergoing rapid expansion. Fashion brand DKNY is also all
set to foray into the Indian fashion Industry through a franchisee agreement with Indian
company, S Kumar’s.Starbucks recently expressed their interest in entering India through the
franchise route, like their AmericanF&B counterpart
Pizza Hut, Subway, and the very successful McDonald’s. McDonald’s has major expansion
plans lined up; in the next 3 years, it plans to open another 100 outlets in cities across India.

Hypermarket:

A very large commercial establishment that is a combination of departmental store and a

supermarket. The specific features of a hypermarket are the wide range of goods offered, quality
service, quality display of goods on the shelves and complex systems providing for customers
loyalty.

Hypermarket is known for a wide range of goods offered. It consist of dozens of thousands of
items, while similar goods can be offered in several forms. In order to work with such an
assortment it is necessary to group it into categories and sub categories that would unite goods
according to this or that criteria.

Shopping Malls:

The new shopping malls that have been expanding their footprint across Indian cities are well
designed, built on international formats of retailing and integrated with entertainment and
restaurants to provide a complete family experience. Over 300 malls are expected to be built
over the next two years and most Indian cities with over a million populations will be exposed
to this modern method of retailing.

Shopping malls have existed in India since several decades but were designed and built to house
several shops in a single facility. These malls also known as Shopping Arcades offered only
rows of shops, most of which were small stores that promised bargains for their various wares.
These Shopping Arcades tried to maximize on their store space and did not offer any areas for
recreation and entertainment.

The present day malls are a creation of the past few years post 2000. They are designed
professionally using a lot of international experience and combine shopping with a lot of brand
building, recreation, food and entertainment. Malls also have a large format store that serves as
their anchor for shopping and a prominent restaurant that anchors the food needs of visitors.
Most malls also feature a multiplex cinema that offers entertainment to the visitors of the mall.
Finally the mall has large atria and open spaces to allow visitors and families to hang-out.
 The nature of retail Marketing:

 The key aspects of retail marketing is an attitude of mind.

 Retail marketing decisions are driven by what the shoppers need and want.
 Retail marketing is therefore a philosophy and is all about satisfying the customers
 What the customers regard as value and what they buy is decisive.
 What the customers buy determines the nature of the retailer's business.
 Retailers must take the customers' needs into consideration in retail operation.
 Retail marketing is stimulating, quick-paced, and influential.
 The retail marketing concept is the acceptance by the retailer that it is the "customer"
and not "demand" that lie at the core of the retail organization.

Five pillars of Retailing:

Heoxard Berry describes five important actions for Retailers. These actions, demand pillars,
sound simple but are often difficult to implement.
1. Solve customer’s problems.
2. Treat customers with respect.
3. Connect with customer emotions.
4. Set the fairest (not the lowest) price.
5. Save customer’s time.

Retailers should always keep these pillars in mind when conducting business. As the work force
becomes more diverse and the retail environment continues to changes, consumer’s needs are
rapidly changing.

Emerging Trends:

The single most important evolution that took place along with the Retailing evolution was the
rise and fall of the dotcom companies, more importantly, the very nature of the customer
segment being addressed was almost the same. The computer – Sawy individual was also a
scale- sector of the store.

Internationally, the concept of net shopping is yet to be proven. Now ever, the size of the direct
market industry is too limited to deter the Retailers, for all comenience that it offers, electronic
retailing does not suit products where “look” and “see” attributes are of importance.

Retail Strategy:

 According to the wheel of retailing theory, retail innovators often appear as low – price
operators with a low-most structure and low-profit margin requirements. Over time, these
innovators upgrade the products and become high price orators. This meant enlarging the sales
force, improving locations, upgrading fixtures, carrying lower thrower merchandise and granting
credit etc… These improvements lead to higher cost which tern lead to higher prices.

Retail image:

Image refers to how a retailer is perceived by customers and others succeed, a firm must
communicate a distinctive, clear and consistent image. Once its image is established in consumer
mind, a retailer is placed in a riche relative to competitors.

 Future of Retail in India :

Customers are also looking for convenience in shopping. This would continue more strongly in
the next couple of years. In future the more dual income families, the consumer’s ability to spend
will increase, but at the same time it is predicted that the time available for shopping will go
down, in such scenario, the retailers will have to take steps to develop shopping as an experience,
though the more successful retailers will be those that will provide faster service.

Thereby to succeed in retailing, current and future retailers must be able to adopt a constantly
changing environment, successfully retailers are able to anticipate and adapt to change.

Thus retail marketing strategy would not only yield benefits for consumers. Manufacturers and
wholesalers but also creates economic utility

Global retailing:

The world has entered the digital information age. Retailers in a variety of industries are now
using advanced computer systems to enhance their ability to understand, communicate with and
evaluate their market place and to anticipate and respond to their customer’s needs, Retail shops
are using bar code scanners at their check out point to gauge the types of product their customers
are buying.

E-tailing:

Retailing on the net is known as E- tailing. Internet has changed the way we do shopping. It has
brought the commerce will play a crucial role in shaping the future of Indian retailing. The real
challenge for retailing would be laurching and managing a highly irnovative click business that
works along with a more stable bricks business. For shoppers and retainers it is increasingly a
hybrid world.

Merchants that reach consumers through different sales channels, stores, websites catalogues,
find that they enjoy key advantages over competitors that operate in just one world. E-tailing is
still a nascent business model all over the world and it is to be seen how it emerges in the future.
E-tailing will also work best as an adjunct and supplement to brick and mortar set up.
On the flip side, retail stores can make consumers more comfortable with internet shopping since
most traditional merchants allows customers to return on-line purchase to their offline stores.

E-commerce in Retail marketing:  

“With Electronic – commerce, we have reached the flash point” – says Ferguson. The internet
throws many exiting trends under an are light and accelerates the transformation to web years.
There is an occupational hazard in the world of electronic commerce. There is an existing and
confusing time. In some ways electronic commerce has already had profound impact – just the
Wall Street brokers who have been watching their private clients flock to online discount
brokers.

Retailing in India – Trends and Opportunities:

Retailing – no marks for guessing this is the most active and attractive sector of the last decade in
India. While the Retailing industry itself has been present through history in our country, it is
only the recent past that has witnessed hordes of players leaping onto it.

The Emergence of Retailing in India has more to do with the increasing purchasing power
buyers, esplically post- liberalization increases in product variety and the increasing economies
of scale with the aid of modern supply and distribution management solutions
Estimated Growth in Organized Retail

2004 2009 CAGR (%)

Large Segments 1,924 5,024 21%

Other Segments 1,315 2,645 15%

Non-store 239 422 12%

Retailing

Total Organized 3,478 8,091 18%

retail

The Four Large Segments:

Food 391 1,624 33%

-Chain Stores 326 1,462 35%

-Single Large 65 162 20%

Stores

Clothing 1,075 2,266 16%

-Manufacturer 293 590 15%

retailers
315 852 22%
-Chain stores
467 824 12%
-Single Large
Stores

Consumer 359 822 18%

durables
141 284 15%
-Manufacturer
retailers 98 298 25%

-Chain stores 120 240 15%

-Single Large
Stores

Book and Music 97 310 26%

-Chain Stores 54 202 30%

-Single Large 43 108 20%

Stores
Retail is amongst the fastest growing sectors in the country. Indiaranks First, ahead of Russia, in
terms of emerging markets potential in retail and is deemed a ‘Priority’ market for International
retail.

3.6 Major Industry Players

Nanz in North India, Nilgiris in the South, Pantaloon in the East and Crossroad in the West were
the pioneers of the retail revolution in India. Nanz faced several obstacles in their business and
had to finally down their shutters. Nilgiris, due to some strange reason, did not see any logic to
expand beyond the southern frontiers. Pantaloon went to scale up and become bigger and bigger
to form the Future Group, that is now omnipresent in almost all formats right from small
groceries to e-tailing. Crossroads in Mumbai imparted some valuable lessons to their parent, the
Piramyd Group, who has since then gone on an expansion drive with other formats of retailing in
different cities.

The big players in Indian retail landscape now are the Future Group, Shoppers Stop, Westside,
Subiksha and RPG Spencer. The newcomers who are knocking at the gates are Reliance Retail,
Bharti Walmart and Aditya Birla Trinethra. Here, we intend to do a brief profiling of the major
players in order to understand the retail business in a better manner.

1 The Future Group

The Future Group, which was earlier known as PRIL (Pantaloon Retail India Limited) began as a
trouser manufacturer in the mid 1980s. The Future Group is divided into six verticals – Future
Retail, Future Capital, Future Brands, Future Space, Future Media and Future Logistics. The
Future Group started operations in the mid 1987s by incorporating the company as Manz Wear
Private Limited. The company went on to manufacture ready made trousers under the
“Pantaloons” brand name. It came out with a public issue in 1991 and later changed their name
to Pantaloon Fashions (India) Limited (PFIL).

The first exclusive men’s store called Pantaloon Shoppe was inaugurated in 1992. Pantaloons
went for a franchisee route to expand the number of retail outlets and by 1995, it had reached to a
crucial number of 70. The first departmental store called Pantaloons was opened in Kolkata in
1997 with an investment of Rs 0.7 million. The store was a success and recorded revenues of Rs
100 million within the first year of operations. In 1999, the company’s name was changed to
Pantaloon Retail (India) Limited (PRIL).

The success of Pantaloons departmental stores encouraged PRIL to come up with other retailing
formats such as “Big Bazaar” to retail low cost general merchandising, and “Food Bazaar” to
retail food products. As of 2005, the Future Group has 3.5 million sq ft of retail space and over
100 stores across 25 cities in India. It employs more than 12,000 people and has a customer base
of more than 120 million.
Kishore Biyani, the promoter of the group who likes to address himself as “Chief Knowledge
Officer” has plans to launch 18 formats and over 3,340 stores, thereby turning the Future Group
into a US$7 billion company with over US$1 billion in profits by the year 2010.

2 Shoppers Stop
Shoppers’ Stop, promoted by the real estate group K Raheja, was one of the first movers to have
set up a large retail outlet in New Delhi with international ambience. Shopper’s Stop Ltd now
has a considerable presence all over the country with overr 7 lakh square feet of retail space and
stocks over 200 brands of garments and accessories. The stores are spread all over India with
presence in Mumbai, Delhi, Bangalore, Hyderabad, Jaipur, Pune , Kolkata, Gurgaon, Chennai &
Ghaziabad.

Shoppers’ Stop is also very well known for having pioneered several quality retailing concepts in
India like CROSSWORD, HyperCITY and Mothercare. They are the only retailer from India to
become a member of the prestigious Intercontinental Group of Departmental Stores (IGDS).

Shoppers’ Stop is positioned as a family store delivering a complete shopping experience. With
its wide range of merchandise, exclusive shop-in-shop counters of international brands and
world-class customer service, Shoppers’ Stop brought international standards of shopping to the
Indian consumer providing them with a world class shopping experience. Shoppers’ Stop’s core
customers represent a strong SEC A skew. They fall between the age group of 16 years to 35
years, the majority of them being families and young couples with a monthly household income
above Rs. 20,000/- and an annual spend of Rs.1,50,000/-. A large number of Non - Resident
Indians visit the shop for ethnic clothes in the international environment they are accustomed to.
The stores offer a complete range of apparel and lifestyle accessories for the entire family. From
apparel brands like Provogue, Color Plus, Arrow, Levi’s, Scullers, Zodiac to cosmetic brands
like Lakme, Chambor, Le Teint Ricci etc., Shoppers’ Stop caters to almost every lifestyle need.

Shoppers' Stop also retails its own line of clothing namely Stop, Life , Kashish, Vettorio Fratini
and DIY. The merchandise at Shoppers’ Stop is sold at a quality and price assurance backed by
its guarantee stamp on every bill.

Shoppers’ Stop’s customer loyalty program is called “The First Citizen”. The program offers its
members an opportunity to collect points and avail of innumerable special benefits. Currently,
Shoppers’ Stop has a database of over 2.5 lakh members who contribute to nearly 50% of the
total sales of Shoppers’ Stop.

The Organisation, in 2000, along with ICICI ventures also acquired the reputed bookstore,
“Crossword”, which offers the widest range of books along with CD-ROM, music, stationery
and toys. Services like Dial-a-book, Fax-a-book and Email-a-book enable customers to shop
from their homes. Crossword currently has 18 Stores.

Realising the role of IT way back in 1991, Shoppers’ Stop was among the first few retailers to
use scanners and barcodes and completely computerise its operations. Today it is one of the few
stores in India to have retail ERP in place, which is now being integrated with Oracle Financials
and the Arthur Planning System, the best retail planning system in the world. With the help of
the ERP, they are able to replicate stores, open new stores faster and get information about
merchandise and customers online, which reduces the turnaround time in taking quick decision.

Shoppers Stop has been very keen to understand the importance of distribution and logistics in
ensuring that merchandise is available on the shop floors. This has led the retail chain o
streamline its supply chain. The company has developed process manuals for each part of the
logistics chain. These modules include vendor management, purchase order management, stock
receiving systems, purchase verification and inventory build up, generation and fixing of price
and store tags, dispatch of stocks to the retail floor and forwarding of bills for payment.
Shoppers’ Stop has a grand ambition to position itself as a global retailer. The company intends
to bring the world’s best retail technology, retail practices and sales to India. Currently, they are
adding 4 to 5 new stores every year.

3 Trent – Westside
Established in 1998, Trent operates some of the nation's largest and fastest growing retail store
chains. A beginning was made in 1998 with Westside, a lifestyle retail chain, which was
followed up in 2004 with Star India Bazaar, a hypermarket with a large assortment of products at
the lowest prices. In 2005, it acquired Landmark, India's largest book and music retailer.

In a recently signed deal, Trent has agreed to anchor 12 malls set up by DLF Universal Ltd
across the country, at its Westside, Landmark and Star India Bazaar outlets. This amounts to
about 27 locations, totaling to about a million square feet of space.

Trent retails garments and household accessories for men, women and children, cosmetics and
perfumes at Westside, food, beverages, health and beauty products, vegetables, fruits, dairy
products, consumer electronics and household items at Star India Bazaar and books, music and
stationery at Landmark.

Westside has 25 outlets across 17 cities in India offering a variety of designs and styles in
garments, footwear and accessories, as table linens, artifacts, home accessories and furnishings.
Well-designed interiors, sprawling space, prime locations and coffee shops enhance the
customers' shopping experience.

Trent also runs another chain of retail stores called Star India Bazaar. Launched in 2004, Star
India Bazaar provides a large assortment of high quality products made available at the lowest
prices coupled with a unique shopping experience. Star India Bazaar is located in Ahmedabad
and offers a wide choice of staple food, beverages, health and beauty products, vegetables, fruits,
dairy products, consumer electronics and household items at the most affordable prices.

Trent has also recently acquired a 76 per cent stake in Landmark, one of the largest books and
music retail chains in India. Landmark commenced its operations in 1987 with its first store in
Chennai, and now has nine stores in the major metros of the country. Earlier Landmark was
focused on books, stationery and greeting cards. In 1996 it added music to its product portfolio
and also started the trend of stocking curios, toys, music, CDs and other gift items.
5 Piramyd

Piramyd Retail is part of the Piramal Group, which has presence in diverse sectors spanning
Pharmaceuticals, Textiles, Real Estate, Engineering, Family Entertainment and Retail with
manufacturing operations in 19 locations across five states and employing over 18,000 people.  

The promoters launched the apparel business in 1999 under Piramyd Retail and Merchandising
Pvt. Ltd. (PRMPL) while its food; home & personal care businesses (FHPC) were housed under
Crossroads Shoppertainment Pvt. Ltd. (CSPL). As the apparel and food businesses individually
reached a critical mass the management merged the two companies into Piramyd Retail Ltd. due
to distant synergies in two businesses in March 2005. Pyramid also has a smaller format of stores
called TruMart that caters to Food and Personal Care products.  

Piramyd Retail currently has 5 Mega stores and 8 TruMart stores mainly in Maharashtra . The
company plans to increase these numbers to 17 Mega stores and 69 TruMarts by 2008. The floor
space is expected to be 5 times on successful expansion.

The FHPC (Food & Personal Care) business is volume driven while the Lifestyle store is a
margin driven business. Piramyd Retail plans to increase the contribution of private labels from
existing 7% to 18-20% of the revenues by 2010. Gross margins from private labels are over 40%
and hence the company is planning to increase this business. Most of the stores are on the lease
format and the company is prone to higher lease rentals due to the overall increase in real estate
prices. This may bring the profit levels down substantially.  

Piramyd Retail did have a first mover advantage in many locations but it has actually failed to
capitalise over this advantage. Its competitors like Pantaloon, Shoppers Stop and Trent gained
larger benefits of their far more aggressive business & marketing strategy in the retail space.
5 Subiksha
The Chennai based Subiksha grocery chain runs around 200 outlets all over the country and it’s
current turnover stands at Rs 224 crores. Their target customer is the middle income value
conscious buyers. The main aim of Subiksha is to offer a functional and transactional shopping
experience. This retail chain has no qualms and spends almost no money on creating a pleasant
shopping experience, and all stores are non-air conditioned. There is no false roofing or sparkling
vitrified tiles on the floor.

A few years ago, Subiksha did not even offer shoppers self service. The customer had to place an
order at a computerized teller and the goods were billed and delivered after cash is collected.
Customers had to bring their own carrybags or pay to buy them from the store. Subiksha even
attempted to charge the customers for home delivery.

However, now Subiksha has slightly tweaked their business model in order to create a better
appeal to customers who were defecting to the competitors. The store formats are still small and
non-airconditioned. But customers have the option to pick from shelf spaces. They also get
shopping bags and free home delivery. But the selling USP(unique selling proposition) remains
the same --- Subiksha tries to be as close to the customer as possible and offers the lowest price
and huge savings in comparison to competitors. It’s slogan happens to be --- bachat mera
adhikar hain (saving is my fundamental right).
6. RPG Spencer
RPG’s Spencer presently has 125 stores across 25 cities covering a retail trading area of half a
million square feet and with a clientele of 3 million customers a month. Spencer's has a national
footprint with seven hypermarkets, three supermarkets and 70 daily use outlets, called Dailies.

All the newly opened Spencer's stores stock every conceivable product that is required by a
household on a daily basis. At Spencer's Daily shoppers can get fresh fruits, vegetables, fast-
moving consumer goods, household items, groceries, with regular offers and discounts.

Spencer's outlets are divided in to three retail formats. These are, Spencer's Hyper, the over
25,000-sq ft hypermarkets stocking over 25,000 items. The 8,000sq ft to 15,000-sq ft mini hyper
stores, branded as Spencer's Super and the daily purchase 4,000-sq ft to 7,000-sq ft Spencer's
Daily for groceries, fresh food, chilled and frozen products, bakery and weekly top up shopping.

7. Reliance Retail

On June 26, 2006, Mukesh Ambani, Chairman and Managing Director, Reliance Industries
Limited, announced a Rs 25,000-crore investment in the retail sector.

Reliance Retail started it’s retail operation with “Reliance Fresh”, a grocery store that sells
vegetables, fruits, personal care items and other food products. Soon, these retail outlets will also
be selling apparel and footwear, lifestyle and home improvement products, electronic goods and
farm implements and inputs. They will also offer products and services in energy, travel, health
and entertainment. In addition to this, partnerships would be developed to bring the best of
global luxury brands to India as well.

Reliance Retail plans to extend it’s footprint to cover 1,500 Indian cities and towns with outlets
of a varied format, a mix of neighborhood convenience stores, supermarkets, specialty stores and
hypermarkets. Reliance also plans to open restaurant outlets, financial services marts and tourism
counters within it’s stores.

Mukesh Ambani’s ultimate ambition seems to be to create the Indian equivalent of Wal-Mart by
scaling up the business to unprecedented heights to reach every nook and corner of the country.
With it’s retailing venture, Reliance expected a revenue target of US $20 billion through it’s
retail operations by 2010. Over a span of five years, RRL expects a 20% return-on-investment.

The first store christened “Reliance Fresh” opened in November 2006 at Hyderabad. Within a
few months they have now opened stores in Mumbai, Pune and Ahmedabad and plans foray into
other cities on a rapid scale.

8. Bharti Wal-Mart

Bharti Retail (Pvt.) Ltd. unveiled the roadmap for its retail venture on 19th February, 2007
envisaging an investment of $2.5 billion with expectation of revenue of $4.5 billion (about Rs.
20,000 crore) from this business by 2015. The first retail outlet is expected to open somewhere in
the month of August .
Bharti’s plan is to invest $2.5 billion by 2015 and open stores across all major cities. This
investment would be only for setting up front-end stores. The modalities for its back-end linkage,
including its joint venture with the world's largest retailer Wal-Mart, are in the process of being
worked out.

A high-level team from Wal-Mart was visited India in the later part of February to work out the
details of the back-end chain. While Bharti would manage front-end of the retail venture, Wal-
Mart would be involved in the back-end, including logistics, supply chain and cash-and-carry, he
added.

The JV was presently scouting for 10 million sq. ft. of retail space, which would include
hypermarkets, supermarkets and convenience stores and would provide employment to about
60,000 people. The company would open multi-format retail outlets in all cities with a
population of about one million. Bharti is now conducting a massive consumer survey to take a
final decision on branding and promotional campaign.

However, Bharti and Wal-Mart have been facing stiff opposition from the left parties and other
political outfits who fear that the entry of the Bentonville giant will make life difficult for the
small grocers and create massive unemployment. They also expect Wal-Mart to take a tough
stance on lowering prices and force farmers to sell their produce at lower rates. A lurking fear of
monopolistic regime in the retail sector is also enhancing their fears. Both Bharti and Walmart
are presently having a tough time in convincing the ministers, politicians, agriculturists, the
NGOs and other pressure groups that their business model would serve to work in the best
interests of all the stakeholders.

9.Aditya Birla – MORE

The Aditya Birla Group is India's first truly multinational corporation. Global in vision, rooted in
values, the Group is driven by a performance ethic pegged on value creation for its multiple
stakeholders. A US$ 24 billion conglomerate, with a market capitalization of US$ 23 billion and
in the League of Fortune 500, it is anchored by an extraordinary force of 100,000 employees
belonging to over 25 different nationalities. Over 50 per cent of its revenues flow from its
operations across the world.” Our mission is to change the way people shop. We will give them
more.” says Mr. Kumar Mangalam Birla, Chairman, Aditya Birla Group. The more. for you
advantage: more. promises a world-class pleasurable shopping experience to Indian consumers in
their very own neighborhood. more. Quality, more. variety, more. convenience and more. value
are the four delivery cornerstones of the more. chain of supermarket stores. more.

MORE. Value MORE. promises best in market pricing. Linking up directly with farmers to
source fresh fruits, vegetables and staples ensure great quality as well as great price. Add to this,
the membership program Club more. which provides convenience, customized shopping
solutions and savings, and the more. value promise becomes all the more evident.

More. Is an inspirational brand for an inspirational country. We have a bright and committed,
enthusiastic team that represents the best experience from India and globally. MORE. also has a
range of products from its own stable available across value, premium and select ranges. The
products have been quality-checked and are available in attractive packaging at competitive
prices. To avail additional benefits, at no extra charge, customers can also enroll for the
membership program Club more.

10.VISHAL RETAIL :

Vishal is one of fastest growing retailing groups in India. Its outlets cater to almost all price
ranges. The showrooms have over 70,00 products range which fulfills all your household needs,
and can be catered to under one roof. It is covering about 1282000 sq. ft. in 18 state across India.
Each store gives you international

quality goods and prices hard to match. The cost benefits that is derived from the large central
purchase of goods and services is passed on to the consumer. What started as a humble one store
enterprise in 1986 in Kolkata(erstwhile, Calcutta) is today a conglomerate encompassing 51
showrooms in 39 cities. India’s first hyper-market has also been opened for the Indian consumer
by Vishal. Situated in the national capital Delhi this store boasts of the singe largest collection of
goods and commodities sold under one roof in India. The group’s prime focus is on retailing.
 The Vishal stores offer affordable family fashion at prices to suit every pocket. The group’s
philosophy is integration and towards this end has initiated backward integration in the field of
high fashion by setting up a state of the art manufacturing facility to support its retail endeavors.
Company has already tied up for 5-lakh sq ft space and is looking for more. Company will come
up with 32 new stores this year. Company is doing research on more formats. Company is
looking for opportunities of expansion in the South. Contribution of apparels business at 53%
may slightly come down to 50%. India is a big country and there is huge space for four-five big
retail players. Vishal can always sustain growth in this big market. Company can sustain margins
as it is going for backward integration. Currently manufacturing contributes 10% of the business,
which in the next two to three years, will go up to 25%. Company is increasing its focus on the
non-apparel and FMCG segment. The current share of FMCG at 15% could go up to 20-25%.
Apparel sales currently at 63% in the next 2-3 years should come down to 50% as the company
is now also focusing on different segments. With growth in volumes, the cost of sourcing will
come down in the near future. Company will venture wherever it gets real estate space.
Currently, it has very little space in the south India. Eventually, it will have a pan-India set up.

11.METRO – CASH & CARRY INDIA

METRO Group today, is the third largest trading and retailing group in the world. The company
employs over 2,50,000 staff in 30 countries. In the year 2005 METRO Group had generated sales
of over €55.7 billion; 53% of total sales came from outside Germany. METRO Cash & Carry
started operations in India in 2003 with two Distribution Centres in Bangalore. With this
METRO introduced the concept of Cash & Carry to India. These Centres offer the benefit of
quality products at the best wholesale price to over 150,000 businesses in Bangalore. METRO
offers assortment of over 18000 articles across food and non food at the best wholesale prices to
business customers such as Hotels, Restaurants, Caterers, Food and Non-food Traders,
Institutional buyers and professionals. METRO's Cash & Carry business model is based on a
Business to Business (B2B) concept and focuses on meeting all the needs and requirements of
business customers. It is a modern format of wholesale trading, catering only to business
customers.
12.Viveks- The Unlimited Shop

Vivek Limited is a professionally managed public limited company carrying three retail brands -
Viveks, Jainsons, Premier and continuously adding to the formidable strength of 1000
employees. Vivek Ltd is the largest consumer electronics & home appliances retail chain in
India. Viveks popularized several brands by creating visibility and have the distinction of being
market leaders and trendsetters with continuous support from the principal companies. Viveks
evolved its strategies to suit the larger scene where there was a stigma attached to borrowing.
Very few hire purchase options were available and hence Viveks started Vivek Hire Purchase
and Leasing Ltd to finance consumer durables, which enhanced the core retailing business
also.Viveks grew from 3 stores to more than 52 stores and turnover increased to over Rs. 350
crores (USD 80 million) and also become a public limited company from a family run enterprise.
In this process, 14 store Jainsons was bought over in 1999, 2 store Premier in 2001 and Spencers
in 2002 and have recently absorbed Spencers into the Premier brand. With the liberalization of
economy and other changes in the global scene, Viveks streamlined the marketing and
advertising activities and shopping ambience was improved.
4. FDI in Retail sector, India

Foreign direct investment (FDI) is defined as "investment made to acquire lasting interest in
enterprises operating outside of the economy of the investor." The FDI relationship consists of a
parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC).

India has been ranked as the 5th most desired retail destination. The total size of Indian retail
sector, including organized and unorganized sector, is $300 billion, where currently the
organized sector accounts for 4% only. It is expected to grow to anywhere from 12-20% by
2010. It contributes of 14% to the national GDP and employing 8% of the total workforce
(second to agriculture.) in the country. An estimated 40 million Indians work in retail outlets.
India is the second most attractive destination for retail among thirty emerging nations. The IT
industry has projected that organized retail will have a 25-30% market share of total retail by
2011.
 North India:30-35%
of total market South India: 15-20%
retail of total market size
organized retail

East India: 10-15% of

West India: 25-30% of
total market size
total market organized
organized retail
retail
INCOME WISE CLASSIFICATION

The initial expansion undertaken by most players was limited to the metros. However; gradually
they are spreading to other large cities to gain from the first-moveradvantageand customer
loyalty. Value formats; super markets and fresh food stores in particular are fast becoming
popular in these cities. It is thus important to determine the potential of key cities or markets in
India and how it will change over time. Cities with a largepopulationwill see the proliferation of
value formats; however, some cities will form a larger pie of the total retail opportunity in spite
of lesser number of households due to a large share of affluent population. There will be more
wealth generated, and the disposable incomewillincrease. Roughly speaking, the Indian
customers can be classified into thefollowingcategories based on the household income:

Currently, the upper middle and the rich classes drive the retail boom. Although income shifts
will happen, the middle class will remain at the same level. However, with rising income, their
contribution to retail will increase significantly. With a large population belonging to the middle
class, there will be maximum growth in the value segment. By 2011 as the underprivileged
households move to the lower middle-income category, the households in the underprivileged
category will decrease and those in the lower middle class will remain at almost the same level.
GROUPING OF THE CITIES

BASED ON THE MARKET SIZE

Based on their market sizes, the various cities can be divided into certain buckets. Mumbai,
Delhi and Kolkata are not grouped, because of their sheer size. Based on the2009data (CRISIL
research), we can arrive at the following classification:

The CRISIL report predicts that with GDP growth continuing as currently, the total retail
opportunity in the top 25 cities will grow from Rs 2.2 trillion in 2009 to Rs.3.4trillion in2011. As
the income distribution changes, cities with high-income growth will move to upper buckets
based on the retail opportunity size. As the number of cities in the lower buckets change, their
percentage share in the total will also change.

Hence the above table might change to the following table in the year 2011:
The mini-metros will attract more retailers and offer more customers. Pune and Hyderabad may
grow up to the size of Kolkata. Mumbai and Delhi will still remain the biggest markets.
According to the CII research, Delhi alone will offer a retail potential ofRs 800 billion, with the
largest number of households in the 10 million plus earning category. Hyderabad will be the
fastest growing city and will have a retail opportunity of around Rs 310 billion. This number will
be close to that of Kolkata, in spite of the number of households in Hyderabad being less than
half of those in Kolkata. Chandigarh andCoimbatore will move to the group of Tier I cities with
a retail opportunity of Rs 56billion and Rs 54 billion, respectively, similar to Ludhiana (Rs 54
billion) in spite of a low population. Vadodara and Vizag will move from the Tier III bucket to
Tier II with an opportunity of Rs 36 billion and Rs 35 billion, respectively, slightly higher than
that of Jaipur.
The chart shows the current strategies of the existing big retailers for entering the Indian market

(The size of the bubble is proportional to the size of the market)

a) Delhi is very large. Of the total retail opportunity, 37 per cent comes from the households
earning more than Rs 1 million per year. The lower middle and middle class in Delhi form 50 per
cent of the total number of households and contribute to 38 per cent of the total market. There
are more than 7,000 households earning more than Rs 10 million annually. However, these
households account for only 5 per cent of the total households in Delhi. Unlike most cities,
underprivileged households constitute only 7 per cent of the total number of households.

According to the CRISIL research, in 2011, Delhi alone will offer a retail potential of Rs 800
billion, with the largest number of households in the Rs 10 million plus earning category. This is
larger than the total opportunity of Bangalore, Hyderabad and Chennai. Thus, players with
lifestyle formats are likely to succeed in Delhi. The number of malls in Delhi is already high.
Moreover, Delhi is the fashion capital of India, with boutiques of most fashion designers.
b) Mumbai – Mumbai, with a population of 3.8 million households, currently spends Rs 418
billion on retail. It has the largest number of underprivileged households, constituting 42 per cent
of the population and contributing 12 per cent to the retail market. The retail spent of the lower
middle class is 31 per cent and that of the middle class is 16 per cent. The rich class accounts for
30 per cent of total retail. Both lifestyle and value formats are likely to work in Mumbai, as the
population in each category has a significant share in total retail. The linear structure of the city
makes it important for retailers to cater to various catchments through multiple stores. Further,
Mumbai has several affluent belts, which are likely to be dotted with lifestyle stores. It is
projected that by 2011, the retail potential in Mumbai will increase to Rs 612 billion, with the
upper middle and rich classes forming 50 per cent of the retail opportunity.

c) Kolkata – glaring disparities in income In spite of being home to around 3 million

households, Kolkata contributes only Rs 200 billion to the total retail. 51 per cent of the
households in Kolkata belong to the underprivileged category and contribute to 23 per cent of the
total retail. The lower middle and middle classes constitute 47 per cent of total households and
account for 58 per cent of the retail market. Value formats are expected to do well in the city as
98 per cent of the households belong to the middle class and lower income categories. Lifestyle
formats will be limited only to certain catchments and are unlikely to come up in a big way. The
total retail opportunity in Kolkata is expected to increase to Rs 330 billion by 2011. Even then,
the underprivileged and lower middle class will comprise 81 per cent of the total population.
Upper middle and rich classes will account for around 6 per cent of the total households but their
spent will increase to 40 per cent further highlighting the disparity in income.

d) Bangalore, Hyderabad and Chennai – the mini-metros Bangalore, Hyderabad and Chennai
have been grouped together as Mini MetrosI due to similarity in the type of households, income
distribution patterns and growth history.

These cities together have a current retail market of Rs 430 billion accounted for by 4.3 million
households. Of these three cities, Hyderabad has the lowest share of underprivileged households.
The importance of lower middle and middle classes is highlighted in these cities, as they
contribute to more than 60 per cent of households and around 50 per cent of retail opportunity.
With growth in the IT/ITES sectors, these cities will witness the largest transition from middle to
upper middle and rich categories. The retail opportunity in Mini MetrosI will increase to Rs 720
billion in 2011, still lower than Delhi. Hyderabad will witness rapid growth among these cities
and will have retail opportunity of around Rs 310 billion. This will be similar to the retail
opportunity of Kolkata in spite of the number of households being less than half of those in
Kolkata.
e) Ahmedabad and Pune

With about 2 million households, these cities currently have a retail market of Rs 158 billion.
The retail market of these cities together is similar to that of Chennai. As compared to Mini
Metros I, they have a larger share of the underprivileged category, with 39 per cent of the total
households belonging to this category. However, Pune has a smaller share of underprivileged
population as compared to Ahmedabad. The lower middle and middle classes contribute to 53
per cent of the number of households as well as retail sales. By 2011, the retail potential of these
two cities will go up to Rs 245 billion. The underprivileged population in these cities will come
down to 30 per cent. The middle class categories will contribute to 70 per cent of both
opportunity and households. Both these cities are witnessing frenetic activity in retail and real
estate. The number of malls expected to come up in Pune will be larger than that in any city in
Mini Metros I. Post-expansion in the top 8 cities, retailers are now exploring Tier I, II and III
cities of India. Most of these cities have witnessed proliferation of value segments through super
and hypermarkets but lifestyle stores have not gained much ground. These cities account for a
large aspirant population and have lower lease rentals. However, in the prime locations and
market areas, lease rentals have significantly risen as these cities have a few prime locations
unlike the metros. Ludhiana, Kanpur, Surat and Nagpur together have a Rs 190 billion-retail
market (close to Rs 200 billion market of Kolkata) with 2 million households. These cities are
among the fastest growing smaller cities in India. The lower middle class forms 59 per cent of
the number of households and accounts for 51 per cent of the retail opportunity. The middle class
contributes to 18 per cent of the retail market. Among these cities, Surat has the largest
population; however, its market size is similar to other cities with a large section earning below
Rs 100,000. Ludhiana has a significant population belonging to the affluent class. These four
cities have already witnessed the penetration of both lifestyle and value formats.

Tier II cities comprise Lucknow, Jaipur, Chandigarh, Coimbatore and Kochi, accounting for
around Rs 154 billion of the total retail market. The retail opportunity and number of households
of these cities together is similar to that of Chennai. These cities widely differ in terms of
population and income distribution but have been clubbed together because of similar retail
market size. Jaipur and Lucknow have a larger number of households; however, a major part of
their population belongs to lower income categories. Chandigarh, Coimbatore and Kochi have a
larger share of affluent households. The two lowest income categories account for 55 per cent of
retail opportunity and 88 per cent of number of households.

The Tier III group comprises Vadodara, Vizag, Indore, Vijaywada, Tiruvananthpuram, Bhopal,
Nasik and Madurai. Cities like Indore and Bhopal are larger than some Tier II cities but have a
lower share in total retail due to low-income growth. Some smaller cities in this category like
Vizag are considerably growing with rapid economic growth. A total of 2.3 million households
reside in these cities but they contribute to only Rs 132 billion of total retail due to their small
size and high proportion of low-income households. It is predicted that in 2011, Vadodara and
Vizag will move out of this group and join Tier II cities. The retail opportunity from the
remaining six cities will be around Rs 136 billion.

These cities will mostly account for underprivileged and lower middle income households. Thus,
value retailing will be popular in these cities.

4.1 Policy of FDI in India

The retail sector in India is expecting that in this Budget 2010 it is seeking industry status, which
can reduce the cost of capital and to allow FDI in retail that can increase investments and global
competitiveness

Indian organized retail industry is one of the sunrise sectors with huge growth potential. Total
retail market in India currently stands at USD 350 billion in 2007-08 and estimated to
attain USD 573 billion by 2012-13. Organised retail industry accounts for only 5.5% of
total retail industry and expected to reach 10% by 2012.
The key factors that drive growth in retail industry are young demographic profile, increasing
consumer aspirations, growing middle class incomes and improving demand from rural markets.
After downturn of 18 months, retail industry is witnessing improving signs.

With key parameters like customers entry, same stores sales, average transaction per bill
improving at faster pace, the industry expects the recovery to be fast going forward. Most of the
front line players who have freezed their expansion plans have renewed it in the last couple of
months.

Proposals made by Retail Association of India:

1. Retail industry can be recognized as an industry

Providing industry status is the first basic step needed for reforming the Indian retail sector. This
will enable better financial processes due to benchmarking and enable prudent practices in retail.
Retail industry will also eligible for support and incentives as applicable to other industries.

2. Policy Clarifications to allow investments by financial investors

Current FDI policy allows 100% FDI in Cash–and-carry wholesale formats and 51% FDI is
allowed in single brand retailing. However, the regulations have been interpreted as guiding to a
blanket ban on foreign investments in the sector. Thus, even investments by financial investors
like FIIs and PE funds are prohibited, limiting the flow of capital required for the growth of the
sector.
A clarification if issues will enable investments by financial investors in the retail sector. This
can be done by allowing investments by investors such as FIIs, Venture Capital Funds and other
financial investors in the sector.

3. Permission to operate 24*7 and Revision of labour laws

To strengthen the retail industry, it is important for a serious revision of the labour laws to bring
them at par with the western world. The laws should be suitably changed to factor hourly
employment and reasonably modified to bring all retail business on par with restaurants etc.
expects 365 days working permission for stores.

4. Open FDI in Retail

FDI in Retail trading should be opened up to substantially improve productivity and distribution
system through modern format retailing. The government should come out with a policy
statement laying down the roadmap for modern retail and allowing foreign investment in retail.

5. Create a Single Window clearance

To strengthen retail industry in India, the government can provide a single window clearance
system. The single window clearance will further streamline license processes associated with
the establishment and management of retail stores.

6. Consumer Affairs- Weights & Measures Act can be changed

The current weights & Measure Act formulated in 1976 had relevance at the time when it was
formed. However, there are some provisions which are not in tune with the times. The blurred
accountability for the contravention of the guidelines between the manufacturer and the retailer
allows for further propagation of fear psychosis. This creates chances for unscrupulous
interpretation of law and encourages corruption.

7. Retail and Entertainment Zones can be created

In order to augment the living standards of people in the city, the government could look at
creating Retail and Entertainment Zones (REZ) similar to SEZ and IT parks. Retailers in REZ to
get benefits like exemption from stamp duty, octroi and cheaper power.

8. Customs Duty and other entry taxes

A reduction in the customs duties relating to consumer items would greatly channelise funds to
boost the economy.

9. Served from India Scheme

"Served from India Scheme" should be made available for Retailers. Any sales using foreign
currency/international credit cards must be counted against this and duty credit entitlements must
be credited for retailers. This can be used for import of items. Income tax depreciation rate on
Furniture, Fixture and Building improvement etc should be increased to 25%.  

10. GST Regime

Government need to give enough notice about the proposed GST model for industry to study and
also plan for compliances. GST is a consumption based tax also because of the lower tax rates,
uniformity in taxation and virtually no harassment in the movement of goods across the country,
there would be an increase in consumption, and individual states would stand to gain revenue by
this increased consumption.

11. Consumption incentive

Provide a consumption incentive in the form of personal income tax relief to consumers, who can
spend upto 25% of their income on consumer goods to services. This will bring a substantial
amount of consumer spend into the indirect tax net, while incentivizing consumers. Such scheme
also supports the government current initiatives.

12. Direct tax incentives

In order to promote employment in the sector, tax incentives in the form of 100% deduction on
expenditure incurred on employment of new workmen could be considered (Similar to deduction
available under Section 80JJAA of the income tax act 1691 to an industrial undertaking engaged
in manufacture of articles or thing.

A weighted deduction could be allowed for payment made by retailers towards training and
development of their personnel in order to improve their skill sets for example contribution made
to technical universities, institutes etc.
FDI POLICIES IN INDIA:

FDI up to 100 per cent allowed under the automatic route for cash and carry wholesale trading
and export trading and FDI up to 51 per cent is allowed, with prior government approval for
retail trade in ‘Single Brand’ products. FDI in retailing of goods under multiple

Brands, even if the goods are produced by the same manufacturer, are not allowed under the
current guidelines.

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.

• Swarovski
• Hugo Boss
• Mango

Source IBEF research

4.2 FDI in India Fact & figures
A number of studies in the recent past have highlighted the growing attractiveness of India as an
investment destination. According to Goldman Sachs (2003), the Indian economy is expected to
continue growing at the rate of 5 per cent or more until 2050. According to the A.T. Kearney
(2007), India continues to rank as the second most attractive FDI destination, between China at
number one and the United States at number three. India displaced the United States in 2005 to
gain the second position, which it has held since then. FDI inflows in 2006 touched $19.6 billion
and in 2007, total FDI inflows in India stood at $23 billion, showing a growth rate of 43.2 per
cent over 2006. In 2008, total FDI inflows into India stood at $33 billion.One of the method of
assessing the investment potential of an economy is its rank on global competitiveness. The
Global Competitiveness Index (GCI) is a comprehensive index developed by the World
Economic Forum (WEF) to measure national competitiveness and is published in the Global
Competitiveness Report (GCR). It takes into account the micro- and macro-economic
foundations of national competitiveness.Within the information available for 131 countries, the
United States is ranked the highest, with an overall index of 5.67. The overall index is 107 for
Bangladesh, 92 for Pakistan and 70 for Sri Lanka. The overall rank of India at 48 is still below
that of China at 35.Cumulative amount of FDI inflows was Rs. 5,03,051 Cr Amount of FDI
inflows during 2009-10 was Rs 1,09,925 Cr.

4.3 Benefit of FDI in India

Capital formation is an important determinant of economic growth. While domestic investments
add to the capital stock in an economy, foreign direct investment (FDI) plays a complementary
role in overall capital formation by filling the gap between domestic savings and investment.

FDI has played an important role in the process of globalisation during the past two decades. The
rapid expansion of FDI by multinational enterprises (MNEs1) since the mid-eighties may be
attributed to significant changes in technologies, liberalisation of trade and investment regimes,
and deregulation and privatisation of markets in many countries including developing countries
like India. Fresh investments, as well as mergers and acquisitions, (M&A) play an important role
in the cross-country movement of FDI. However, various qualitative differences have been
identified between fresh FDI (greenfield FDI) and M&A.

While the quantity of FDI is important, equally important is the quality of FDI. The major factors
that might provide growth impetus to the host economy include the extent of localisation of the
output of the foreign firm’s plant, its export orientation, the vintage of technology used, the
research and development (R&D) best suited for the host economy, employment generation,
inclusion of the poor and rural population in the resulting benefits, and productivity
enhancement.

 Foreign direct investment permits the transfer of technologies. FDI plays an important role in
the transmission of capital and technology across home and host countries. Benefits from
FDI inflows are expected to be positive, although not automatic.
 It assists in the promotion of the competition within the local input market of a country. 
 The countries that get foreign direct investment from another country can also develop the
human capital resources by getting their employees to receive training on the operations of a
particular business.
 Helps in the creation of new jobs in a particular country.As a result of receiving foreign
direct investment from other countries, it has been possible for the recipient countries to keep
their rates of interest at a lower level.
 Foreign direct investment can help Indian companies penetrate foreign markets and increase
the exports.
 Increases tax revenues
 Boost manufacturing sector
 FDI encourages the transfer of management skills, intellectual property, and technology.

4.4 Problems with FDI

While FDI is expected to create positive outcomes, it may also generate negative effects on the
host economy. The costs to the host economy can arise from the market power of large firms and
their associated ability to generate very high profits or by domestic political interference by
multinational corporations. But the empirical evidence shows that the negative effects from FDI
are inconclusive, while the evidence of positive effects is overwhelming, i.e., its net positive
effect on economic welfare.

FDI in manufacturing is generally believed to have a positive and significant effect on a

country’s economic growth (Alfaro, 2003). However, based on empirical analysis of data from
cross-country FDI flows for 1981-1999, Alfaro (2003) points out that the impact of FDI on
growth is ambiguous. FDI in the primary sector tends to have a negative impact on growth, while
investment in manufacturing has a positive effect, and the impact of FDI in services is
ambiguous.

Though it is expected that growth tends to benefit the poor, this has not happened in many
countries. There is no clear picture whether growth reduces poverty (World Bank, 2000). It is
believed that increased flow of capital raises capital intensity in production, resulting in lower
employment generation. However, a higher level of investment accelerates economic growth,
showing wider positive effects across the economy.

 Foreign direct investment may entail high travel and communications expenses.
 There is a chance that a company may lose out on its ownership to an overseas company.
 Government has less control over the functioning of the company that is functioning as the
wholly owned subsidiary of an overseas company.
 They are unreliable.
 Foreign-owned projects are capital-intensive and labor-efficient. They invest in machinery
and intellectual property, not in wages. Skilled workers get paid well above the local norm,
all others languish.

4.5 SWOT ANALYSIS:

A SWOT analysis of the Indian organized retail industry is presented below:

Strength:

1. Retailing is a "Technology-intensive" industry. It is technology that will help the organized

retailers to score over the unorganized retailers. Successful organized retailers today
work closely with their vendors to predict consumer demand, shorten lead times, reduce
inventory holding and ultimately save cost. Example: Wal-Mart pioneered the
concept of building competitive advantage through distribution & information systems in the
retailing industry. They introduced two innovative logistics techniques – cross-docking and EDI
(electronic data ennterchange)

2. On an average a super market stocks up to 5000 SKU's against a few hundred stocked with an
average unorganized retailer. This will provide variety in products (required breadth & depth for
consumers)

3. As a consequence of high volumes, procurement will be direct from the Manufacturer. Hence,
merchandise can be offered at lower costs.

Weakness:

1. Less Conversion level: Despite high footfalls, the conversion ratio has been very low in the
retail outlets in a mall as compared to the standalone counter parts. It is seen
that actual conversions of footfall into sales for a mall outlet is approximately 20-25%. On the
other hand, a high street store of retail chain has an average conversion of about 50-60%. As a
result, a standalone store has a ROI (return on investment) of 25-30%; in contrast
the retail majors are experiencing a ROI of 8-10%

2. Customer Loyalty: Retail chains are yet to settle down with the proper merchandise mix for
the mall outlets. Since the stand-alone outlets were established long time back, so they have
stabilized in terms of footfalls & merchandise mix and thus have a higher customer loyalty base.

Opportunity:

1. The Indian middle class is already 30 Crore & is projected to grow to over 60 Crore by 2010
making India one of the largest consumer markets of the world. The IMAGES-KSA projections
indicate that by 2015, India will have over 55 Crore people under the age of 20 - reflecting the
enormous opportunities possible in the kids and teens retailing segment.

2. Organized retail is only 3% of the total retailing market in India. It is estimated to grow at the
rate of 25-30% p.a. and reach INR 1,00,000 Crore by 2010.

3. Percolating down : In India it has been found out that the top 6 cities contribute for 66% of
total organized retailing. While the metros have already been exploited, the focus has now been
shifted towards the tier-II cities. The 'retail boom', 85% of which has so far been concentrated in
the metros is beginning to percolate down to these smaller cities and towns. The contribution of
these tier-II cities to total organized retailing sales is expected to grow to 20-25%.

4. Rural Retailing: India's huge rural population has caught the eye of the retailers looking for
new areas of growth. ITC launched India's first rural mall "Chaupal Saga" offering a diverse
range of products from FMCG to electronic goods to automobiles, attempting to provide farmers
a one-stop destination for all their needs." Hariyali Bazar" is started by DCM Sriram group
which provides farm related inputs & services. The Godrej group has launched the concept of
'agri-stores' named "Adhaar" which offers agricultural products such as fertilizers & animal feed
along with the required knowledge for effective use of the same to the farmers. Pepsi on the
other hand is experimenting with the farmers of Punjab for growing the right quality of tomato
for its tomato purees & pastes.

Threats:

1. If the unorganized retailers are put together, they are parallel to a large supermarket with no or
little overheads, high degree of flexibility in merchandise, display, prices and
turnover.2. Shopping Culture: Shopping culture has not developed in India as yet. Even now
malls are just a place to hang around with family and friends and largely confined to window-
shopping.

3. Cultural Variation leads to variation in merchandise in India at different geographical

locations.
 Conclusion

So at the end of this project of the FDI in Retail sector, India prepared gives us a higher
knowledge which could be useful to me in some or the other context. The FDI in Retail
sector has also showed up a higher growth rate in the recent years which states that the India
Retail sector is one of the fast developing countries and would keep on growing in the near
future.

Lastly I complete up this project by putting up my perception that although the FDI in
Retail sector was previously a slower developing country but taking in to consideration of its
lesser requirement but as there is great development in the economy and increase in its
demand the Retail sector growth rate is increasing in leaps and bound and would continue
doing the same. Thus such a growth rate is advantageous to the Indian Retail sector
development and they would develop faster.
 Bibliography

Website
www.google.com
www.oifc.in
www.encyclopedia.com
www.fdi.com