Indian Retail Scene

Retail Scenario In India: An Unlimited Opportunity
CHAPTER 1
THE RETAIL SCENARIO – GLOBAL & INDIAN
1.1 Global Retail Scenario

Retail stores constitute 20% of US GDP & are the 3 rd largest employer segment
in USA. China on the other hand has attracted several global retailers in recent times.
Retail sector employs 7% of the population in China. Major retailers like Wal-Mart &
Carrefour have already entered the Chinese market. In the year 2003, Wal-Mart &
Carrefour had sales of US $ 70.4 Crore & US $ 160 Crore respectively.
The global retail industry has traveled a long way from a small beginning to an
industry where the world wide retail sales is valued at $ 7 x 10 5 Crore. The top 200
retailers alone accounts for 30 % of the worldwide demand. Retail turnover in the EU is
approximately Euros 2,00,000 Crore and the sector average growth is showing an upward
pattern. The Asian economies (excluding Japan) are expected to grow at 6% consistently
till 2010.
On the global Retail stage, little has remained same over the last decade. One of
the few similarities with today is that Wal-Mart was ranked the top retailer in the world
then & it still holds that distinction. Other than Wal-Mart's dominance, there's a little
about today's environment that looks like the mid-1990s. The global economy has
changed, consumer demand has shifted & retailers' operating systems today are infused
with far more technology than was the case six years ago.
1
Given Below a List of World's Top 15 Retailers:
DT Rank 04 Country of Company Formats 2003 retail

Origin name sales
(US $ Crore)
1 US Wal-Mart Discount, 25,632.9
Hypermarket,
Supermarket,
Superstore,
Warehouse
2 France Carrefour Discount, 7,979.6
Hypermarket,
Supermarket,
Specialty,
Convenience,
Cash & Carry
3 US Home Depot DIY 6,481.6
4 Germany Metro Hypermarket, 6,050.3
Superstore,
Specialty,
Convenience,
Cash & Carry,
Departmental,
DIY, Food
Service
5 US Kroger Discount, 5,379.1
Convenience,
Supermarket,
Super center,
Warehouse,
Specialty
6 US Kroger Discount, 5,379.1
Convenience,
Supermarket,
Super center,
Warehouse,
Specialty
7 UK Tesco Department, 5,153.5
Hypermarket,
Supermarket,
Superstore,
Convenience
8 US Target Department, 4,678.1
Discount, Super
center
9 Netherlands Ahold Discount, 4,458.4
2
Hypermarket,
Supermarket,
Specialty,
Convenience,
Cash & Carry,
Drug
10 US Costco Warehouse 4,169.3
11 Germany Aldi Einkauf Discount, 4,006.0 e
Supermarket
12 Germany Rewe Hypermarket, 3,893.1e
Superstore,
Super market,
Specialty,
Convenience,
Cash & Carry,
Departmental,
DIY, Food
Service,
Discount, Drug
13 France Intermarche Superstore, 3,747.2e
Super market,
Specialty,
Convenience,
Cash & Carry,
DIY, Food
Service,
Discount
14 US Sears Department, 3,637.2
mail order,
Specialty
15 US Safeway, Inc. Supermarket 3,555.3
16 US Albertsons Convenience, 3,543.6
Drug,
Supermarket
e= estimate.
3
1.2 Indian Retail Scenario

Retailing in India is the largest employer after agriculture. It employs almost 7%
of the total work force in India and has a contribution of 14% to the national GDP. In the
year 2004, the size of Indian organized retail industry was Rs 28000 Crore, which was
only 3% of the total retailing market. Organized retailing is projected to grow at the rate
of 25%-30% p.a. and is estimated to reach an astounding Rs 1,00,000 Crore by 2010. The
contribution of organized retail is expected to rise from 3% to 9% by the end of the
decade.
Though with a population of a billion and a middle class of 300 million (upper
middle class= 40, Middle class =150 & lower middle class = 110), organized retailing is
still at its infancy in India. The great Indian middle class is estimated to grow to over 60
Crore by 2010 making India one of the largest consumer markets of the world. It is
projected that by the year 2010, 65% of the Indian population will be in the age group of
10-49 years, which makes the scenario even more attractive. India has the largest retail
network with 1.2 Crore outlets but only 4% of them are larger than 500 sq. feet in size.
USA on the other hand has 9 Lakh outlets catering to more than 13 times the total retail
market size of India. Thus India has the highest number of outlets per capita in the world
with a widely spread retail network but with the lowest per capita retail space (@ 2 sq.ft.
per person). AT Kearney has ranked India as the 2nd most attractive retail market after
Russia, in its Global Retail Development Index 2004 report.
4
Retailing, one of the largest sectors in the global economy, is going through a
transition phase in India. For a long time, the corner grocery store was the only choice
available to the consumer, especially in the urban areas. This is slowly giving way to
international formats of retailing.
A Look at the Evolution Process:
Detailing reasons why Indian organized retail is at the brink of revolution, the
IMAGES-KSA report says that the last few years have seen rapid transformation in many
areas and the setting of scalable and profitable retail models across categories. Indian
consumers are rapidly evolving and accepting modern formats overwhelmingly. Retail
Space is no more a constraint for growth. India is on the radar of Global Retailers and
suppliers / brands worldwide are willing to partner with retailers here. Further, large
Indian corporate groups like Tata, Reliance, Raheja, ITC, Bombay Dyeing, Murugappa &
Piramal Groups etc and also foreign investors and private equity players are firming up
plans to identify investment opportunities in the Indian retail sector. The quantum of
investments is likely to skyrocket as the inherent attractiveness of the segment lures more
and more investors to earn large profits. Investments into the sector are estimate at INR
2000 - 2500 Crore in the next 2-3 years, and over INR 20,000 Crore by end of 2010.
5
CHAPTER 2
TRADITIONAL RETAIL v/s ORGANISED RETAIL
In India, traditional formats have dominated the retail scene. These formats include:
1. The food and non-food neighborhood counter stores called the kiranas, the Indian
version of the Western mom-and-pop stores;
2. The paan shops, that is, kiosk-like small shops selling tobacco, betel leaf and
other products;
3. Mandis;
4. Village haats;
5. Push cart vendors; and
6. Other shops like the tailoring shops, which catered to garment needs before
readymade stores came in vogue and
7. The Sonars who crafted jewellery as per customer requirements, etc.
2.1 Key Characteristics of Traditional Retail

India has sometimes been referred to as a nation of shopkeepers. A high density
of population and the need for convenience has facilitated the operation of over 12
million stores in India. Of these, nearly 78 per cent are small family-run operations,
which use only household labour. The key characteristics of these stores are:
1. Small size: Such stores are small in size. They range in area from 200 square
feet or less to 1,500 square feet, depending on the area of operation.
2. Low operating costs and overheads: These stores are run by family members
and thus, there are no labour costs involved. Little money is spent on lighting,
power, fuel and ambience.
3. Proximity to consumers: These shops are located within residential areas and
can be accessed by customers on foot. This makes it convenient for households
to buy items on a daily basis.
4. Strong customer bond: These shop owners know their customers
personally and have strong relationships with them. This helps them gauge
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likes and dislikes, and accordingly meet the individual needs of each
household.
5. Additional services: These small stores provide services like a month's credit,
which many customers find very useful. Such stores have also been
concentrating on offering customers the additional convenience of home
delivery and obtaining a product on order.
6. Non-payment of taxes: Since such small stores do not normally generate bills,
they manage to evade taxes. This saves them money, which they can re-invest
and also makes it possible for them to offer lower prices to select customers.
2.2 S.W.O.T Analysis of Traditional Stores
Strength Weakness
• Low capital requirement (due to • Storekeepers often do not provide
uncontrolled low rents and minimal quality assurance, especially of goods
operating overheads) helps them turn sold loose. However, with FMCG
faster and increase in number with companies themselves branding
easy entry and exit. various goods like flour, pickles,
• Proximity to consumers and strong sugar, etc, this might check the
relationships help them gauge problem.
customer needs and stock accordingly, • Small storekeepers are increasingly
thus gaining more business. becoming conscious of hygiene
• These stores are located in prime issues.
residential areas. The rentals in these
areas and other logistics are mostly
unviable for large stores.
• They enjoy a near monopoly in areas
that are backward or do not have a
population with sustainable
purchasing power (like rural areas),
since organised retailers are unlikely
to enter such regions.
7
Opportunity Threat
• Traditional stores have low or no • Long operating hours might be
bargaining power due to their small threatened with organised players and
scale of operations. Thus, the biggest associations demanding 24 X 7
threat they face from organised operating permissions.
players is the latter's ability to provide • The additional services that were
quality products at a discount. unique to them are now being
• Due to their small size, traditional replicated by all players. The
stores are unable to stock a variety of increasing use of credit cards provides
goods, which is what consumers are easy credit even otherwise.
now demanding owing to increasing • With huge stores coming up in
awareness. catchments areas of 5-7 kilometers of
• Traditional stores rarely invest in approachable distance and large
ambience. They also do not provide chains planning to set up hub- and-
the customer the chance to look at spoke smaller stores, the very
various brands and varieties before existence of traditional stores is in
making a choice. danger.
The boundaries that once existed between food chains and one-shop vendors are
gradually disappearing. Single- shop owners are becoming increasingly aware of
customer needs, hygiene and variety requirements. At the same time, chains are opening
stores in residential areas and focusing on customer-relationship management.
Chains have also drafted plans for entering residential areas with a hub-and-spoke
model, where one large store will support various smaller stores in nearby residential
areas. With efficient supply chain management and the availability of space and
technology, this will not take much time.
Kirana stores are becoming aware of the disadvantages inherent in their

lower bargaining power and their inability to offer discounts. Thus, they are coming
8
together to form cooperatives, which allow for bulk purchases, thus providing them a
competitive edge.
The opening up of the retail sector to FDI will create huge opportunities
in areas like processing, but will simultaneously lead to the displacement of at least
some such single-shop establishments.
However, both organised retail and traditional retailing have their own advantages.
Sr. No. Traditional Organized

1 Low operating costs and overheads Greater bargaining power
2 Proximity to consumers Range and variety of goods
3 Long operating hours Quality and variety of goods
4 Additional services (like home delivery, Attractive ambience
credit convenience and customised products)
5 Strong relationship with customers Convenience and hygiene
Source: CRIS INFAC
Thus, in the long term, even after a consolidation in the period following the
spread of organised retail, traditional retailers are unlikely to vanish from the retail scene.
Instead, both types will probably co-exist, providing consumers with the best quality,
greater variety and more affordable prices along with increased convenience.
CHAPTER 3
9
ORGANIZED RETAIL TO GET BIGGER
Indian organized retail market is growing at a fast pace due to the boom in the
Indian retail industry. In 2005, the retail industry in India amounted to Rs 10,000 billion
accounting for about 10% to the country's GDP. The organized retail market in India out
of this total market accounted for Rs 350 billion which is about 3.5% of the total
revenues.
Retail market in the Indian organized sector is expected to cross Rs 1000 billion
by 2010. Traditionally the retail industry in India was largely unorganized, comprising of
drug stores, medium, and small grocery stores. Most of the organized retailing in India
have started recently and is concentrating mainly in metropolitan cities.
The growth in the Indian organized retail market is mainly due to the change in
the consumer’s behavior. This change has come in the consumer due to increased
income, changing lifestyles, and patterns of demography which are favorable. Now the
consumer wants to shop at a place where he can get food, entertainment, and shopping all
under one roof. This has given Indian organized retail market a major boost.
Retail market in the organized sector in India is growing can be seen from the fact
that 1500 supermarkets, 325 departmental stores, and 300 new malls are being built.
Many Indian companies are entering the Indian retail market which is giving Indian
organized retail market a boost. One such company is the Reliance Industries Limited. It
plans to invest US$ 6 billion in the Indian retail market by opening 1000 hypermarkets
and 1500 supermarkets.
Pantaloon is another Indian company which plans to increase its retail space to 30
million square feet with an investment of US$ 1 billion. Bharti Telecoms an Indian
company is in talks with Tesco a global giant for a £ 750 million joint venture. A number
of global retail giants such as Wal-mart, Carrefour, and Metro AG are also planning to set
up shops in India. Indian organized retail market will definitely grow as a result of all this
10
investments. Indian organized retail market is increasing and for this growth to continue
the Indian retailers as well as government must make a combined effort.
3.1 What Is Organized Retail?

Retail
"Retail' is defined as "the sale of goods and commodities in small quantities to the
ultimate consumer'. Thus, retailing is the last leg in the channel through which goods
travel from the producer to the consumer. Generally, a retailer does not effect any
significant change in the product. (However, there may be exceptions like soft-drink
vending machines that take in concentrate and give out a ready-to-drink beverage.)
Our discussion of retail throughout this report adheres to this definition.

Therefore, services (for example, beauty salons, multiplexes, restaurants, etc) have been
excluded from the purview of our analysis although they may be available at the same
location (such as a mall) where goods are retailed. This study also excludes tobacco
products and pharmaceuticals from its purview, as these products, by-and-large, use
specialized channels of delivery.
Value Proposition
The value proposition that a retailer offers to a consumer is the availability of the
desired product in the desired quantity at the desired time, thereby creating time, place
and form utility.
Organised Retail
Organised retail may be said to refer to a form of retailing, whereby
consumers can buy goods in a similar purchase environment across more than one
physical location. This report attempts to analyze the structure of and the outlook
for the "organised retail of goods' excluding tobacco products and pharmaceuticals.
Such retail may entail the use of different store formats like single-product stores,
department stores, malls, etc. The categories of goods retailed would include food,
11
grocery, apparel, consumer durables, jewellery, footwear, accessories, beauty products,

home décor, books, music, etc.
3.2 Retail Evolution

In spite of steep growth, the turnover of the top five retailers in India (Pantaloon
Retail, Shoppers' Stop, RPG, Trent and Lifestyle) was less than Rs 30 billion, which was
about 8 per cent of the total organised retail market in 2004-05. In a bid to garner larger
market shares, nearly all major players have announced huge expansion plans.
Retailing in India has witnessed tremendous growth in the last few years.
Textile manufacturers like Bombay Dyeing, Raymond, S Kumar's and Grasim were the
first to set up retail chains. Thereafter, Titan successfully implemented the organised
retailing concept in India by establishing a series of elegant showrooms.
Organised retailing first started picking up in South India, primarily due to the
availability of land at prime locations and cheaper real estate prices.
The early '90s saw the establishment of shops by Madura Garments and Zodiac,
which focused on "one brand'. By the latter half of the decade, players in various
segments were making their presence felt on the retail scene: Foodworld, Subhiksha and
Nilgiris in food and FMCG; Planet M and Music World in music; Crossword and
Fountainhead in books.
Since then organised retailing in India has witnessed a radical transformation.

Shoppers' Stop was the pioneer in department stores and the concept of malls evolved
with Spencers in Chennai, Ansals in Delhi and Crossroads in Mumbai. Initially, the
players making forays into the mall scene were those that had a construction background
like the Rahejas and the Piramals. Gradually, competition increased with more retail
chains entering the business and setting up stores.
At present, most players have announced ambitious expansion plans. In order to

differentiate and grow, players have adopted different strategies. Some have chosen to
12
operate in multiple formats, some are expanding to smaller cities and others are
focusing on supply chain management and operations. The strategies adopted by these
players will not only determine turnover growth but also their profitability.
3.3 Segments in Retail

Retail as a whole can be broken into categories, depending on the type of products
serviced. Food and groceries form the biggest category in the retail pie, accounting
for around 76 per cent. However, it has the lowest organised retail penetration. This is
indicative of the opportunity for organised retail growth in this segment. The footwear
and clothing segments boast the highest penetration of organised retail, as players in these
segments started setting up stores over a decade ago.
Organised Retail: Category Wise Share and Penetration

Category Total retail Organised retail
----------------------------- --------------------------------------------
Estimated market size Market size Market share Penetration
(2005) Rs billion Rs billion Per cent Per cent
Food, 7,738 75.8 65 19 1
beverage
and tobacco
Clothing & 716 7.0 141 40 20
textiles
Consumer 416 4.1 43 13 10
durables
Jewelleries 416 4.1 25 7 6
& watches
Home décor 300 2.9 25 7 8
& furnishing
Beauty care 214 2.1 7 2 3
(products)
Footwear 104 1.0 32 9 31
Books, 87 0.8 11 3 13
music &
gifts
Total 9,990 100.0 349 --- ---
Source: CRIS INFAC
Of the organised retail market, clothing and textiles have the largest share at 40
per cent. There are exclusive brand stores that stock and sell apparel; in addition,
13
clothing is available in speciality chains, hypermarkets and department stores.

Food and grocery has the maximum scope for growth; at present, it accounts for
only 19 per cent of the organised retail market.
Segment-Wise Growth of Organised Retail (2005)
Source: Company report
Organised retail is expected to grow at 25-30 per cent per annum, with
home décor, and food and grocery emerging as the fastest-growing segments. The
proliferation of hypermarkets and supermarkets has led to a growth in food and
grocery retail; thus, value retailing is seen to be gaining ground in India. The
other high growth verticals are apparel and durables. Impulse goods like books and music
are also gaining a larger share in the organised retail market, with players making stores
more accessible to consumers.
3.4 S.W.O.T Analysis of Indian Organized Retail Industry
Strength
14
• 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 interchange).
• On an average a super market stocks up to 5000 SKU's against a few hundreds
stocked with an average unorganized retailer.
Weakness
• 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 stand-alone store has a ROI
(return on investment) of 25-30%; in contrast the retail majors are experiencing a
ROI of 8-10%.
• 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
• 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
15
• 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 2010.1
• 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%.
• 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.
Threat
• 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.
• 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.
3.5 Levels of Retail

While organised retail is possible in many categories, the extent of its growth varies
according to the category. Organised retailers can operate as specialized chains catering
16
to a particular category of retail or can be present in more than 1 retail category through a
department store, a supermarket or a hypermarket.
Thus, we can conclude that organised retail can operate at three levels:
Level I: Specialty stores catering to a particular category.
Level II: A department store, a supermarket or a hypermarket catering to 2-3 categories
of retail.
Level III: A "mall', which is an agglomeration of department stores, hypermarkets and
specialty stores.
Speciality stores cater to a specific vertical, which is depicted as Level I in the

diagram below. Two or more segments from the Level I come together to form Level II
stores. Food and grocery and households goods from the Level I together form
Supermarkets (Level II). Some supermarkets also stock pharmaceuticals. Similarly, a
hypermarket stocks food and grocery, apparel, household items, durables, footwear,
accessories, electronics, furniture, etc. A department store stocks products with a
lifestyle proposition and branded clothes, footwear, home décor, durables, high-end
jewellery and watches.
Level III is made up of malls. These will have stores from both Level I and Level
II. In addition to these, malls also have beauty parlours, restaurants and food courts,
entertainment zones and multiplexes with a huge parking area.
Levels in Retail
17
LEVEL I LEVEL II LEVEL III
Food & Grocery
Household & other

Supermarket
FMCG
Apparel
Footwear Hypermarket Mall
Beauty Products
Fashion Accessories Department Store
Electronics &
Accessories
Consumer Durables
Furniture & Home

Decor
Jewellery
Players Operating At Different Levels
18
Level 1 Level 2 Level 3

Pantaloon Food Bazaar Big Bazaar Central
Pantaloon
Shopper’s Stop Shopper’s Stop
RPG Food World Spencer’s
Music World Hypermarket
Landmark Group Lifestyle
Tata- Trent West Side Star India Bazaar
Globus Globus
Piramal Group Pyramid Crossroads
Source: CRIS INFAC
Another popular medium for shopping in India is the high street. These are streets
with many shops that stock a variety of items catering to the customer’s needs. For
example, Linking Road in Mumbai is a high street for apparel, while Nai Sarah in
Delhi is the equivalent for books. Since these are considered to be prime shopping areas,
the rentals here are expensive.
CHAPTER 4
19
VERTICALS IN RETAIL
Retailing can be broken down into different categories, each of which has
different levels of organised retail penetration.
Total Retail (Segment-Wise Distribution)
Category Total retail Organised retail

---------------------------------- ----------------------------------------------------
Estimated market size Market size Market share Penetration
(2005) Rs billion Rs billion Per cent Per cent
Food, 7,738 75.8 65 19 1

beverage and
tobacco
Clothing & 716 7.0 141 40 20
textiles
Consumer 416 4.1 43 13 10
durables
Jewelleries & 416 4.1 25 7 6
watches
Home décor 300 2.9 25 7 8
& furnishing
Beauty care 214 2.1 7 2 3
(products)
Footwear 104 1.0 32 9 31
Books, music 87 0.8 11 3 13
& gifts
Total 9,990 100.0 349 --- ---
Source: CRIS INFAC
4.1 Food and Grocery

The largest vertical in the Indian retailing industry is food and grocery retail. This
segment includes the sale of fresh fruits and vegetables, milk and milk products, staples,
cereals, grains, pulses, processed food, ready-to-cook and ready-to-eat meals, spices and
other eatables.
On an average, the largest opportunity in organised retail is in the food

segment. According to the National Sample Survey Organization (NSSO), 58th
20
round, 55 per cent of total rural and 42 per cent of total urban expenditure was on
food.
However, food retail is the most unorganized. Its retail penetration is the lowest at
1 per cent. The Indian food market is characterized by small retailers and food service
operators.
Traditional Formats
In India, food is essentially bought through one of the following traditional formats:
• Kiranas: These are close-to-home stores where a household buys its daily use
goods. They stock a range of goods from staples to FMCG products and milk
products, etc. They range from the very small 200 sq ft stores to 1,500 sq ft
establishments. Often those running the stores know the households personally
and provide additional services like obtaining unstocked items on request,
delivering goods to the doorstep and granting a month's credit.
• Paan shops: These are unique to India. They are very small shops manned by a
single individual whose chief occupation is the making of paan (betel leaf with a
few additions). Such shops also stock tobacco, chocolates and some FMCG
articles.
• Cart vendor: Cart vendors sell fresh fruits and vegetables in residential areas and
housewives buy from them on a daily basis. They sell their produce off a cart,
which allows them the freedom to move around from place to place. They often
give credit of a few days.
• Mandis: These are markets with a fixed place, where various sellers of a
commodity gather. Buyers visit mandis to make weekly purchases at reasonable
prices. Sabzi mandis specifically stock vegetables.
21
• Haat: A haat is more of a village phenomenon. Once a week, a market is

organised in a particular location, where sellers from different areas gather to sell
their products. Buyers congregate to buy an assortment of goods, ranging from
fruits and vegetables to household goods, clothes and accessories like bangles,
etc.
• Mela: A mela is organised once every few months generally around the time of a
festival. In addition to the sale of a variety of goods not easily accessible to
villagers, the mela also provides entertainment.
Fresh Food Produce – A Clear Need Gap

In India, people like to cook meals with fresh produce twice a day.
Generally, this produce is bought approximately thrice a week from cart vendors who, in
turn, buy from wholesalers. This highlights an opportunity that organised retail could
exploit. Such retailing could work if located near residential areas. The fact that the
margin on fresh produce is higher than that on other groceries helps compensate the
retailer for wastages.
Growing awareness and an increasing trend of consumers shopping for themselves has
heightened the demand for a pleasant ambience and a range of goods to shop from.
Consumers are increasingly looking at quality assurance and a one-stop shop to fulfill
their needs. It is, therefore, possible to conclude that food retail can exploit the existing
growth potential by
• Offering private retail products, that is, providing a private label and
positioning it based on customer requirements;
• Offering fresh produce; and
• Providing end-to-end logistics support.
South India has witnessed frenetic activity in food retail, especially in the
organised grocery segment. Foodworld is the largest chain in this category followed by
Subhiksha, Sabka Bazaar, Margin Free Markets, Trinethra and Nilgiris. All of these
stores, except for Sabka Bazaar, have concentrated on South India since this region offers
lower real estate prices, and the people here show a greater inclination to buy from
22
supermarkets. Stores built on the format of Foodworld and Nilgiris in the South have now
started to expand their boundaries into other regions of the country.
Players like Subhiksha have combined the sale of food with the sale of
pharmaceuticals. Players like Pyramid are considering entering into the segment by
opening 117 Trumart stores.
Food and Grocery Retail: List of Players
Sr. No. Players

1 Fab Mall
2 Marginfree
3 MK Retail
4 Namdhan’s Fresh
5 Nature’s Basket
6 Nilgiris
7 Pantaloon (Big Bazaar, Food Bazaar)
8 RPG (Giant, Food World)
9 SPAR
10 Subhiksha
11 Trent (Star India Bazaar)
12 Trinethra
4.2 Apparel
Organised retail in India began with apparel. Although much smaller than the
food segment, this category is the next biggest. Initially, manufacturers like Raymond
and Bombay Dyeing started stores of their own. This created a change in consumer
preferences - people started buying readymade garments instead of getting clothes
stitched. (Initially, this trend was limited to men's wear).The opening of one-brand
(exclusive brand outlets) stores, which focused on their own apparel, followed these
manufacturer apparel stores. These included the Arvind Mills brand, Van Heusen, Arrow,
Lee, and Levis, etc.
Apparel can appeal to different customers for different reasons. A brand-

conscious customer might look at it as a source of prestige and style. Another customer
may identify clothing as a basic need. Apparel is sold through different kinds of stores,
23
each catering to a different segment of population, depending on whether the audience is

looking for lifestyle and fashion or value for money.
The margins in apparel are among the highest in various verticals. The concept of
private labels also originated from apparel. This is a system whereby a store chain out
sources the manufacture of a range of garments and sells it under its in-house label.
These labels provide quality assurance to the customer and are priced lower than
premium brands. At the same time, for store chains, they earn almost twice the margins
that branded garments do.
Private Labels of Retailers
Private Labels
Pantaloons Retail (India) John miller shirts Honey
Limited Pantaloon T-2000
Bare Bare Kids
Annabelle Popeye
Ajile Disney
Shopper’s Stop Life Kashish
Stop Karrot
Tata- Trent Westside
Globus Stores Pvt. Ltd. Globus F21
Ebony Retail Holdings Ebony ETC
Madura Garments Louis Phillip SF Jeans
Van Heusen Peter England
Allen Solly
Provogue (India) Ltd. Provogue
Source: Company reports & industry
Apparel retailing for men's wear has seen significant development in India.
Retailers are now looking for opportunities in the women's apparel (particularly
traditional wear for which women visit boutiques or sari stores) and children's wear
segments.
Apparel Retail: List of Players
Sr. Players Sr. Players

No. No.
1 Arvind Brands (Arrow, Lee, Wrangler) 11 Mango
24
2 Benzer 12 Milky Stone

3 Bombay Dyeing 13 Options
4 Ebony 14 Pantaloon (Big Bazaar,
Pantaloon)
5 Family Mart 15 Provogue
6 Globus 16 Pyramid
7 Indian Rayon ( Madura Garments- 17 Raymond
Louis Phillip)
8 Indus League 18 Reliance (Vimal)
9 ITC (Wills Lifestyle) 19 Trent (Westside)
10 Lifestyle 20 Zodiac
4.3 Footwear
The footwear segment in India boasts the highest organised retail
penetration. This has been primarily due to players like Bata who have set up a chain of
stores in various cities. As in the case of apparel, even the footwear segment attracts
different segments, with variations based on requirements, aspirations and
purchasing power. Bata and Liberty are seen as value-for-money chains, while
Metro is seen as a lifestyle chain. The brand conscious youth of today shop for
upper-end footwear from Nike, Adidas, Reebok, etc.
Footwear retail: List of players
Sr. Players Sr. Players Sr. Players

No. No. No.
1 Action 6 Loft 11 Habit
2 Adidas 7 Metro 12 Lakhani
3 Bata 8 Milky Stone 13 Lee Cooper
4 Big Foot 9 Nike 14 Lifestyle
5 Citywalk 10 Red Tape 15 Gaitonde
4.4 Jewellery, Fashion Accessories and Beauty Products

The launch of the Titan stores initiated organised retail in jewellery in
India. Today, chains like Oyzterbay, Tanishq, Swaroski, etc have stores in India (at
least in the major cities); however, people still prefer going to jewellers they know
since the nature of this purchase in one that demands considerable trust. To build
25
a relationship of trust, stores like Gold Bazaar, etc have announced offers like
buy-back schemes and purity assurances.
High-end beauty products are sold through department and other specialty
stores. Advertising and promotion have a significant impact on the sales of such
products. Other cosmetics and toiletries might be bought from the neighborhood store.
Fashion accessories are impulse purchase items. These have a high inventory
turnover of up to 18 turns. Fashion accessories include trinkets and small gifts. These
items have to be positioned in stores, such that customers pick them up while shopping
for other products. In nearly all these categories, the buyer is usually a woman and
all promotion strategies are thus targeted at women.
Jewellery and Beauty Products: List of Players
Sr. Players Sr. Players

No. No.
1 Amarsons 14 Milky Stone
2 Anmol 15 Nakshatra
3 Asmi 16 Nirvana
4 Bharat Sons 17 Orra
5 Chintamani 18 Oyzterbay
6 Crossroads 19 Pantaloon (Gold Bazaar)
7 D’damas 20 Patni
8 Dwarkadas 21 PK Jewellers
9 Gili 22 RK Jewellers
10 HLL (Lakme Salons) 23 RPG (Health & Glow)
11 Lifestyle 24 Shopper’s Stop
12 Mangalore Jewellers 25 Tanishq
13 Marico (Kaya) 26 TBZ
4.5 Electronics and Consumer Durables

The sale of electronics and consumer durables started from exclusive company
showrooms. Today, these products are sold in multi-brand stores, where the retailer
stocks different products (televisions, refrigerators, DVD players, music systems, etc) and
more than one brand.
26
Increasing number of models and brands catering to various requirements has

meant that service has become the chief differentiator in retailing in this segment.
Specialty stores like Viveks and Vijay Sales provide sales support services and easy
financing, which encourages a higher ticket size and repeat purchases. Low-end
models of consumer durables are sold at a discount through hypermarkets too.
Increased competition has resulted in a fall in the prices of consumer durables.

However, customers have chosen to keep the same share of wallet for these goods and
buy high-end durables. The sale of mobiles and mobile accessories has also seen
remarkable growth. These are sold through organised outlets, department stores and
through authorized company dealers.
Electronics and Consumer Durables: List of Players
Sr. Players Sr. No. Players

No.
1 Agrani Switch 9 Plugin
2 BPL 10 Samsung
3 Discount Circuit 11 Sony Mony Electronics
4 Girias 12 Videocon
5 LG India 13 Vijay Sales
6 Onida 14 Vivek’s
7 Pai International 15 Whirlpool
8 Philips
4.6 Furniture and Home Décor

In India, furniture was traditionally made in homes by carpenters, who
customized the product in keeping with the requirements of the household. However,
readymade furniture is increasingly gaining ground in India. Chains like Gautier, Godrej,
27
etc are making a foray into larger cities. For Indian retailers, home décor is a large
untapped segment. Pantaloon and Lifestyle are planning to enter this segment.
CHAPTER 5
MODERN STORE FORMATS
28
India's retail scene has derived inspiration from the West, but the various types of
stores gaining popularity in India are not mere replicas of international stores; instead,
they have evolved in response to the unique needs of the modern, developing Indian
society. The type of stores can be differentiated as value-based or lifestyle-based.
5.1 Value Retailing

Value retailing comprises stores offering lower prices, better variety and a
superior shopping experience. Value- based purchases are not dependent on income
levels; they are driven by the need for quality goods with greater variety.
5.2 Supermarkets
These are 3,000-10,000 square feet stores primarily catering to adjacent
residential areas. They are self-service retail outlets, one-stop shops catering to varied
consumer needs. In India, supermarkets primarily focus on the food and grocery segment.
Supermarkets like Subhiksha also offer discounts on products. Periodic promotional
offers are also common. Shelf space reflects the success of a product.
Supermarkets: Major Players
Pantaloon (Food Bazaar) RPG (Food World)

Cities No. of outlets Cities No. of outlets
Mumbai 7 Bangalore 28
Thane 1 Chennai 27
Ahmedabad 3 Coimbatore 3
Nagpur 1 Erode 1
Nasik 1 Hyderabad 15
Pune 1 Kodai 1
Kolkata 4 Pondicherry 1
Bhubaneshwar 1 Pune 7
Gurgaon 1 Secundrabad 4
Ghaziabad 2 Salem 1
Durgapur 1 Trivandrum 1
Bangalore 5 Velore 1
Hyderabad 2
Delhi 1
Total 31 90
Source: Company reports
29
5.3 Hypermarket
These are large stores with space ranging from 50,000 to 70, 000 square feet or
more. The hypermarkets that are now coming up lean towards the higher end of the
spectrum. These are generally located in suburban areas or in malls as anchor tenants in
order to obtain sustainable rentals. Hypermarkets offer lower prices or discounts and a
variety of goods. They usually stock low-end goods, which have a high inventory turn.
Hypermarkets cater to a spectrum of segments like food and grocery, FMCG

goods, apparel, consumer durables, electronics, household items, furniture, etc. Margins
depend on the product mix, volumes and supply chain management. A higher share of
food and grocery or consumer durables would mean lower margins. On the other hand, a
higher proportion of apparel and furniture could increase margins. Higher volumes,
coupled with efficient supply chain management, would help the retailer provide better
bargains. By offering products at prices that are 5-50 per cent lower than most other
stores, hypermarkets are rapidly gaining popularity.
Hypermarkets: Major Players
Pantaloon (Big Bazaar) Spencer’s Shoprite Trent- Star India

Hypermarket Bazaar
Cities No. of Cities No. of Cities No. of Cities No. of
outlet outlet outlet outlets
s s s
Kolkata 2 Hyderabad 1 Mumbai 1 Ahmedabad 1
Hyderabad 1 Mumbai 1
Bangalore 3 Vizag 1
Mumbai 2
Gurgaon 1
Nagpur 1
Ahmedabad 2
Bhubaneshwar 1
Nasik 1
Ghaziabad 1
Durgapur 1
Thane 1
Delhi 1
Total 18 3 1 1
30
5.4 Lifestyle Retailing

An increase in purchasing power, awareness and international travel, in
addition to higher aspirations, have engineered a change in consumption patterns,
with the customer willing to pay more for a brand or a better product which
keeps him/her in vogue. Higher lifestyle aspirations, increasing urbanisation and
changing customer mindsets are encouraging greater footfalls in lifestyle stores.
5.5 Department Stores

These are large stores that stock a wide variety of products, organised into
different departments, such as clothing, household items, furniture, appliances, toys,
accessories, cosmetics, etc. Department stores offer value as a one- stop shop with
different brands in various categories, thus catering to diverse consumer needs.
Department stores are gaining popularity as they offer novelty, variety, superior
ambience, entertainment and convenience all under one roof. These stores target
primarily the SEC A's where the ticket size is larger in spite of a lower footfall.
Department stores are expected to take over the apparel business from exclusive
brand showrooms. The gross margins of a department store will depend on the model in
place:
1. Outright: In this model, the store buys merchandise and sells it to customers.
There is inventory risk involved as in the case of private labels.
2. Consignment: Stores order and buy goods from a vendor but the vendor
shoulders the risk if the goods fail to sell. Many department stores have this
arrangement with brands in the apparel segment.
3. Concessionaire: Stores using this model rent out space to a vendor whose
employees handle sales. Usually such arrangements are made for the sale
of perfume and cosmetic brands that are high-end and attract footfalls.
Department Stores: Major Players
Shopper’s Stop Globus Lifestyle

Cities No. of Cities No. of Cities No. of
31
outlet outlet outlets

s s
Delhi 1 Indore 1 Chennai 1
Gurgaon 1 Chennai 2 Hyderabad 1
Jaipur 1 Mumbai 1 Bangalore 1
Bangalore 2 New 1 Gurgaon 1
Delhi
Chennai 1 Bangalore 2 Mumbai 3
Hyderabad 1
Mumbai 6
Pune 1
Kolkata 2
Total 16 7 7
5.6 Other Formats

1. Speciality stores: Focusing on a specific consumer need, speciality stores carry most
brands or categories in that particular segment. Their value proposition is one of
greater choice and a comparison between brands. Speciality stores cater to value-
oriented customers, operating in segments like health and beauty care or lifestyle
products like books, music, etc (for example, Crossword). Chains selling flowers or
wines could also be termed speciality stores.
2. Online, telephone and catalogue buying: Quite popular in developed countries,

online, telephone and catalogue buying have not gained much ground in India. This is
largely because of the absence of the touch-and-feel concept and the fact that retailing is
still in its early stages in India.
3. Shopping malls: Malls are enclosures that offer different retail formats under one
roof. These are the sophisticated versions of the old shopping centres, with huge space,
an air-conditioned ambience, elevators and escalators. A variety of shops catering to the
needs of different members of the family, food courts, ample parking spaces and
entertainment (with multiplexes and gaming zones) spots together make malls a one-stop
destination. Usually, malls have anchor tenants who cover large areas in the mall and are
important for attracting footfalls. These tenants book space before the mall is constructed
and promotions for the mall then feature their names as incentives for customers and for
other tenants. The anchor tenants pay a lower rental than that charged for smaller shops.
32
Most malls lease out floor space to individual shops, which are, in turn, enticed by the
economies resulting from the sharing of costs.
Operational Malls in India (Large Cities)
Name Location Sq.ft.( built up

areas)
Mumbai Inorbit Malad 450,000
High Street Phoenix Lower Parel 700,000
Nirmal Lifestyle Mulund 100,0000
Infinity Andheri 200,000
Center One Vashi 130,000
R Mall Mulund 280,000
Fun Republic Andheri (W) 120,000
Citi Mall Andheri (W) 100,000
Delhi (NCR) Ansal Plaza Siri Fort Road 170,000
3C’s Lajpat Nagar 70,000
M2K Rohini 60,000
MGF Plaza MG Road 100,000
Ansal Plaza Faridabad 125,000
MGF Metropolitan MG Road 250,000
Sahara Mall MG Road 250,000
DLF City Centre MG Road 250,000
Centrestage Noida 150,000
Sab Mall Noida 70,000
Chennai Spencer Plaza Anna Salai 600,000
Bangalore Forum Korma gala 650,000
Bangalore Central Residency Road 125,000
Imperial Mall Residency Road 62,000
Hyderabad Hyderabad Central Panjagutta 225,000
Prasad Labs Necklace Road 100,000
MPM Mall Abids 150,000
Kolkata City Center Salt Lake 350,000
Metropolis EM Bypass 140,000
Forum Lee Road 250,000
Source: Images Retail
Mall management is becoming increasingly important in India, especially because

of the number of people involved in the construction and operation of a mall. Malls
organize promotional activities, which lead to revenue generation. They also conduct
events that increase footfalls by attracting people.
CHAPTER 6
33
EMERGING TRENDS IN THE INDIAN RETAIL

INDUSTRY
The emerging trends in the Indian organized retail sector would help the
economic growth in India. There is a fantastic rise in the Indian organized retail sector in
a very short period of time between 2001 and 2006. Eventually, out of the shadows of the
unorganized retail sector, India has a chance of tremendous economic growth, both in
India and abroad.
The emerging trends in the Indian organized retail sector are also adding up to the
development of the Indian organized retail sector. The relaxation by the government on
regulatory controls on foreign direct investments has added to the process of the growth
of the Indian organized retail sector. The infrastructure of the retail sector will evolve
radically in the recent future. The emergence of shopping malls is increasing at a steady
pace in the metros and there are further plans of expansion which would lead to 150 new
ones coming up in India by 2008. As the count of super markets is going up much faster
than rate of growth in retail sector, it is taking the lions share in food trade.
The growth of the Indian organized retail sector is anticipated to be heavier than
the growth of the gross domestic product. Alterations in people's lifestyle, growth in
income levels, and encouraging conventions of demography are proving favorable for the
new emerging trends in the Indian organized retail sector. The success of this retail sector
would also lie in the degree of penetration into the lower income strata to tap the possible
customers in the lowest levels of society. The demands of the buyers would also be
enhanced by more access to credit facilities.
6.1 Movement towards Smaller Cities
34
India has four metros - Mumbai, Delhi, Kolkata and Chennai - and the
same number of mini metros: Bangalore, Hyderabad, Ahmedabad and Pune. Initially,
most retail players launched their ventures in the metros and mini metros. However, of
late, the retail phenomenon is spreading to smaller cities. Players are entering these cities
early to gain a first mover advantage, that is, a larger customer base and a higher share of
loyal customers. Over the past few years, the share of these cities in the percentage of
organised retail has been growing steadily.
6.2 Large Players Ramping Up Rapidly

Many large players have announced plans to set up stores in smaller cities. In
addition to providing them with the first mover advantage, this will help increase the total
number of their stores, ensuring a larger scale and faster growth. However, the outlets
that have been announced for these cities are value-based and the sizes of the stores are
smaller, depending on the city, taste and preference of people and the capacity to
purchase. The growth in the number of stores is boosted by the growth in the malls in
these cities. Malls provide retailers with a built-to-requirement set up and convenient
access. They are one-stop shops for customers, offering a right mix of stores catering to
different needs. Thus, they attract more footfalls than standalone stores.
Upcoming Malls in Smaller Cities (about 75)
Cities No. of Cities No. of Cities No. of

Malls Malls Malls
Agra 3 Guahati 2 Muradabad 1
Ajmer 1 Gwalior 2 Mysor 1
Allahabad 1 Indore 1 Nagpur 4
Amritsar 2 Jaipur 7 Nashik 3
Asansol 1 Jalandhar 2 Surat 2
Bareilly 1 Jammu 1 Trivandrum 3
Bhopal 2 Kanpur 2 Udaipur 2
Bhubaneshwar 1 Kochi 1 Vadodra 1
Chandigarh 2 Lucknow 5 Varanasi 1
Coimbatore 2 Ludhiana 2 Vishakapatanam 1
Dehradun 1 Mangalore 1 Other Cities 10
(estimated)
6.3 Tier-2 Cities
35
Tier-2 cities are smaller than the metros and the mini metros in terms of
population and purchasing power. The cities in Tier-2 based on SEC classifications and
population are: Nagpur, Ludhiana, Chandigarh, Surat, Jaipur, Kanpur, Lucknow, Indore
and Bhopal.
Although these cities have sufficient purchasing power, their capacity in terms of
catchments is limited; therefore, their ability to accommodate a number of players is also
restricted. For example, Mumbai is spread over an approximate area of 440 sq kms, while
Chandigarh is spread over 114 sq kms and Nagpur over 217 kms. Thus, if the number of
players setting up stores in these cities is larger than can be sustained by the population,
players could make losses. Consequently, players are trying to gain the first mover
advantage in these cities, to earn customer loyalty.
Growing Aspirations
Trends in the metros are usually duplicated in Tier-2 cities with a lag effect.
Accordingly, a growth in the aspirations of people in Tier-2 cities has been observed.
Increasing travel, widespread media and growing awareness has only aided this growth.
Organised retailers are encouraging budding aspirations by letting people of all classes
enter their stores.
Existing Store Network (Player-Wise Classification)
Players Metros Mini metros Tier-2 & other Total

cities
Pantaloon 29 23 12 64
Shopper’s Stop 11 4 1 16
RPG 110 164 27 283
Globus 4 2 1 7
Provogue 22 10 12 42
Studio
Lifestyle 5 2 0 7
Tata- Trent 8 3 6 17
(Westside)
Total 189 193 56 438
6.4 Retail Opportunities in Top 8 Cities
36
Purchasing power is the highest in the top eight cities in India. All these cities,
except Bangalore, are listed among India's 10 richest cities for by NCAER. Organised
retail has witnessed significant growth in these cities. Based on income classes, the retail
opportunity in the country's top eight cities is depicted below.
D M K C B H P A T
Income E U O H A Y U H O
Class (‘000) L M L E N D N M T
H B K N G E E E A
I A A N A R D L
I T A L A A
T I O B B
A R A A
E D D
Below 90 4 16 20 10 7 4 3 6 70
90-135 19 30 25 10 10 14 10 7 125
135-200 39 83 76 29 31 24 18 28 328
200-250 35 22 11 11 7 12 5 4 107
250-300 27 17 8 8 5 8 4 3 80
300-500 69 46 19 18 11 19 10 7 201
500– 750 46 32 11 11 6 10 7 5 128
750– 1000 28 20 6 6 3 5 4 3 75
1000– 1500 35 26 7 7 3 6 6 3 93
1500- 2000 21 16 4 4 2 3 3 2 55
2000- 3000 27 20 5 4 2 3 4 2 67
3000- 5000 28 22 4 4 2 3 5 2 70
5000- 7500 18 14 2 2 1 1 3 1 42
7500- 10 9 1 1 0 1 2 1 25
10000
Above 27 23 3 2 1 1 5 2 64
10000
TOTAL 435 396 202 127 91 114 89 76 1528
Source: CSO, NCAER & CRIS INFAC
6.5 Private Labels
37
Private labels are those that the retailer sells under his own brand. In the case of
apparel and accessories, the retailer might outsource or own the manufacturing, while in
the case of food items the retailer might outsource manufacture and package it under
his/her own label. These labels provide customers with quality assurance.
Although they are priced lower than premium brands, the gross margin earned by
the retailer on private labels is almost twice that earned on other premium brands. This is
because the retailer saves at every step in the supply chain and can still sell at a price
lower than premium brands as there is no margin to be given to the brand owner. These
goods can be outsourced from small-scale industries and designed, packaged or labeled
in-house.
Some of the private labels of major retailers and their share in total sales are listed below:
Private Labels of Retailers
Major Retailers Share of private labels Private labels

(per cent)
Pantaloon Retail (India) 70 John Miller shirts Honey
Limited Pantaloon T-2000
Bare Ajile
Annabelle
Shopper’s Stop 17 Life Kashish
Stop Karrot
Tata – Trent Over 90 Westside
Globus Stores Pvt. Ltd. 50 Globus
Ebony Retail Holdings Ebony ETC
Companies are also acquiring private labels in food and grocery and other value-
based segments. Hypermarkets sell both apparel and food items like tea leaves, sugar,
spices, etc after outsourcing them and labeling them in- house. This enables them to
provide cheaper products and obtain higher stock turnover and margins.
Companies have to manage private labels with due care. An improper mix of
private labels with other brands or targeting the wrong customers can lead to a higher
inventory. A company in India could operate in multiple formats. It could have private
labels in apparel for both lifestyle and value segments. However, it will not stock
38
premium brands in hypermarkets nor discount them there. Similarly, apparel priced
below a certain level will be available only in hypermarkets and not in lifestyle stores.
This enables the chain to tap both segments through different stores, thus increasing
sales.
6.6 Large Store Sizes

Although store sizes differ according to the city and the catchment area, an overall
increase has been observed in the store sizes announced by large retailers. This is
indicative of the increasing demand for organised retail and the efforts made by retailers
to tap this opportunity. Players like Pantaloon, Shoppers' Stop, RPG, Lifestyle and
Pyramid have announced stores ranging between 60,000 and 100,000 square feet.
Stores Sizes: Existing & Planned

Player Existing store size Planned store size
----------------------------------------------------
Average sq. ft.
Pantaloon Apparel 19,667 22,725
Central 125,000 150,750
Big Bazaar 42,400 58,449
Food Bazaar 9,108 13,404
Shopper’s Stop 44,285 63,753
Tata- Trent 20,000 20,000
Pyramid 30,000 75,000
Nilgiris 2,500 5,000
Source: CRIS INFAC
However, these stores are small compared to their international counterparts. In

most developed countries, there are large stores on the outskirts of the city. There are
discount stores spread over 100,000 square feet catering to almost all household needs.
Some of these stores are almost as big as the malls in India.
6.7 Shrinking Catchments - Smaller Store Versions
39
With the growth in the size of large cities, retailers have found that consumers are not
willing to travel far for purchases. Thus, players have been opening smaller stores closer
to consumers.
6.8 Impulse Goods

Earlier, impulse goods like books or music were sold through standalone destination
stores. However, players have now opened smaller stores close to customers to get the
customer to buy when she/he is out shopping for other needs, thus increasing the spend
on unplanned impulse purchases.
For instance, Music World (RPG) now has 3 types of stores:

1. Destination stores, which have an area of over 4,000 sq ft. They store huge
varieties in different types of music.
2. Express stores are 300-600 sq ft stores. They stock chartbusters (Hindi, English,
regional and just released titles), essentials in each category according to area,
and also offer the facility to request and obtain an album.
3. Unplugged stores are small gondolas that operate as concessionaires in other
department/ large stores.
6.9 Hub-and-Spoke Model

This model is being increasingly used by retail organisations for setting up
smaller stores. Under this model, one large store becomes a hub with large stocks and
feeds a few smaller stores, which operate as spokes. This helps large stores obtain
supplies from warehouses and supply to smaller stores. Under this model, the smaller
stores can also get the goods demanded by the customers from the hub store.
Piramyd retail recently announced 117 Trumart stores (food and grocery) in
Mumbai and Pune based on the same model. The smaller stores encourage residents in
nearby areas to buy from the store and thus increase sales by increasing the target
population and the share of wallet of consumers. Such stores will increase the penetration
levels of organised retailing.
40
Areas that are dominated by kirana stores become less accessible for retail chains
due to unavailability of space or other logistic reasons. However, kiranas are becoming
franchisees for organised retail chains and changing their ambience to meet the
requirement of organised retailers; consequently, the Indian market could witness a spurt
in hub-and-spoke retailing.
CHAPTER 5
DRIVERS FOR GROWTH IN RETAILING
41
7.1 Higher Disposable Incomes

The disposable income of Indian consumers has increased steadily. The
proportion of the major consuming class (population that has an annual income that is
higher than Rs 90,000) has risen from 20 per cent in 1995-96 to 28 per cent in 2001-02 to
35 per cent in 2005-06 and to 48 per cent by 2009-10.
Classification Income 1995- 2001- 2005 - 2009 – Per
class 1996 2002 2006 2010 P cent
Deprived < 90 131,176 135,378 132,250 114,394 -2
Aspirers 90 – 200 28,901 41,262 53,276 75,304 8
Seekers 200- 500 3,881 9,034 13,813 22,268 12
Strivers 500- 1,000 651 1,712 3,212 6,173 17
Near rich 1,000-2,000 189 546 1,122 2,373 20
Clear rich 2,000-5,000 63 201 454 1,037 23
Sheer rich 5000-10,000 11 40 103 255 26
Super rich > 10,000 5 20 53 141 28
Total 164,876 188,192 204,283 221,945
P: Projected
Source: NCAER
Growing Indian Middle Class
7.2 Higher Level of Working Women
42
According to the 2001 census report, the population of working women has
increased from 22 per cent in 1991 to 26 per cent in 2001. The purchasing habit of a
working woman is different from that of a housewife, since the former has lesser time to
devote to the task. Working women would prefer a one-stop shop for purchasing their
regular products. Also, a working woman's propensity for spending is higher than that of
a housewife.
Average Spend By Working Women vs House Wives

Category Spend
Household goods 2.2
Eating out 2.0
Music 2.5
Gifts 2.9
Mobile phones 3.8
Computer peripherals 4.1
Source: KSA Consumer Outlook
This will translate into higher spending on retail goods and work in favour of the
organised retailing format.
7.3 Higher Growth in Urban Population

At present, organised retailing is focused in metros and is expected to expand to
Tier-2 cities. For the next 10 years, growth in organised retailing is expected to take place
in urban areas. Thus, the target market for organised retail players is the urban
population.
Urbanization has increased at a rate of 2.7 per cent over the last 10 years
(1990-2000). In 2000, the urban population was estimated to be 281 million (27.7 per
cent of the total population). This pace of urbanization is expected to be maintained, and
urbanization is expected to increase at 2.4 per cent from 2000 to 2015. In 2015, the
population in urban areas is expected to touch 401 million, accounting for about 32.2 per
cent of the total population.
Increasing Urbanisation
43
Source: Census 2001
Assuming a similar age profile in urban and rural India, the urban population in
the 15-60 age group is expected to grow from 164 million (18 per cent of total
population) in 2000 to 287 million (23 per cent of total population) in 2015. Since this is
the population that indulges in significant spending, the prospect for organised retail in
urban areas seems promising.
7.4 Higher Income Levels in Urban Population

Greater growth in the numbers of the urban middle class and strong growth in
income levels augurs well for the growth of organised retailing, as we believe that in the
medium term organised retailing will be restricted to the urban areas of India.
Rising Income of Urban Middle Class
Source: CRIS INFAC

The proportion in total population of the segment with an annual income higher
than Rs 90,000 (that is, the major consuming class) has increased from 20.4 per cent in
44
1995-96 to 28.1 per cent in 2001-02. However, the share of the major consuming class in
the urban region has increased at a higher rate, from 45 per cent in 1998-99 to 51 per cent
in 2001-02, and it is expected to touch 63 per cent by 2009-10. Further, the income levels
of the urban middle class are also expected to register a strong growth in the medium
term.
7.5 Change in Outlook on Branded Products

In the last 4-5 years, Indian markets have witnessed a strong shift towards
branded products. Indian consumers have begun to believe that branded goods signify
better quality and offer grater value for money. This increase in the awareness of branded
goods has been the highest in the case of apparel.
We believe that increased exposure to international consumerism trends and fast-

changing lifestyles can result in a 10-15 per cent growth in branded goods, which will, in
turn, provide a platform for the growth of organised retail.
7.6 Growth in the Number of Retail Malls

The last 2-3 years have witnessed a proliferation in malls in India, particularly in
the metros and mini metros. A mall provides an organised retailer a large space to
lease out (space has been a major bottleneck for many retailers, especially in high
street areas).
Players like Raheja's, the Piramal Group, the Sahara Group, the DLF Group and
other real estate developers have developed retail spaces. The growth in retail malls
provides more options for retailers, as it reduces the time required to set up a retail
outlet. It also provides retail space, which can be leased by retailers instead of investing
in building up their own store. This significantly reduces the capital intensity of the retail
industry.
Typically, a retail chain would prefer to lease store space in a mall instead of
setting up a standalone store, since this reduces capital investment, which can be
45
employed in their core business of retailing. To illustrate, for a store owned by a retailer,
rentals would average about Rs 100 per sq ft per month in Mumbai, while rentals in a
mall in the city would be Rs 60-80 per sq ft per month, which implies a saving of 30-40
per cent on the mall format.
7.7 Catalyst for Organised Retail

In 2003, when the number of malls in operation in India had barely touched
double digits, there were only 14 companies that ran department stores, 2 with
hypermarkets and 10 with supermarket chains. With the increase in the number of
malls, more players want to tap the retail opportunity. As a result, the number of
stores has increased significantly. Players with large stores are increasingly tying up with
mall owners/developers to obtain space as anchor tenants. At least 50 new malls of
100,000 sq ft and above have gone into business in 2004 and another 200 malls are
estimated to come up in the next 2-3 years.
Upcoming Malls in India
City No. of malls

Metros
National Capita Region 60
Mumbai 28
Kolkatta 9
Chennai 4
Sub-Total 101
Mini Metros
Bangalore 9
Hyderabad 15
Pune 9
Ahmedabad 5
Sub-Total 38
Tier-2 cities
Sub-Total 81
Total 220
Source: CRIS INFAC
7.7 Entry of International Players
46
At present, foreign direct investment (FDI) in retail chain stores is

restricted in India. However, many multinational companies (MNCs) have entered the
Indian retail scene through permitted routes.
• Franchise: In the franchise model, an international brand gives its technology and
brand name to a domestic partner and gets royalty in return. Nike, Pizza Hut,
Subway, Tommy Hilfiger, Marks & Spencer, etc have adopted this route.
• Joint venture: In this case, an international brand provides equity and support to
an Indian entity as in the case of McDonalds and Reebok. The MNC's share is
restricted to 49 per cent.
• Manufacturing: Here, an international company sets up an Indian company to

manufacture its products and obtains the right to retail these products in India, as
in the case of Bata and Benetton.
• Distribution: An international company sets up a distribution office in India and

supplies its products to local retailers. It can also set up franchised outlets for
brands as in the case of Swaroski and Hugo Boss.
• Wholesale trading: In this model, an international company is allowed to

sell various products to local retailers as in the case of Metro Cash & Carry,
where Metro sells products to retailers, who, in turn, retail it to the end
consumers.
MNC retailers have followed varied entry strategies and their target segment has
also undergone changes, from the higher income group to a larger target segment.
Lifestyle and Dominos have targeted the higher income group, while McDonalds has
focused on a wider target population with its "value-for-money' positioning. Metro aims
to enter into the distribution chain of retailers and is focusing on end retailers as its
customers.
47
MNCs have, to date, focused chiefly on food, apparel and lifestyle product
segments. This basket is expected to expand further in terms of products and addressable
markets. This will lead to more players in the market. However, we believe that the level
of competition in the initial phase will be lower since there is enough room for growth for
each player.
This phenomenon will bring in fresh capital and technology, which will aid
the development of the industry. International companies will also bring in better
business practices and management techniques, which will prove to be beneficial to
existing domestic players and the industry as a whole. The opening up of the retail
sector for FDI will improve the state of the industry and fuel growth.
However, a few large international players have postponed their plans to

enter India on account of the uncertainty over FDI and the many regulations
governing the Indian retail industry. Following the ongoing debate on allowing FDI in
retail, we expect organised retail to be granted industry status, which will make it easier
for players to procure funds.
CHAPTER 8
48
FOREIGN DIRECT INVESTMENT IN INDIAN RETAIL

INDUSTRY
The Government of India was initially very apprehensive of the introduction of

the Foreign Direct Investment in the Retail Sector in India. The unorganized retail sector
as has been mentioned earlier occupies 98% of the retail sector and the rest 2% is
contributed by the organised sector. Hence one reason why the government feared the
surge of the Foreign Direct Investments in India was the displacement of labour.
The unorganized retail sector contributes about 14% to the GDP and absorbs about 7% of
our labour force. Hence the issue of displacement of labour consequent to FDI is of
primal importance.
There are different viewpoints on the impact of FDI in the retail sector in India.
According to one viewpoint, the US evidence is empirical proof to the fact that FDI in the
retail sector does not lead to any collapse in the existing employment opportunities. There
are divergent views as well. According to the UK Competition Commission, there was
mass scale job loss with the entry of the hypermarkets brought about by FDI in the UK
retail market.
According to another school of thought, there is undoubtedly labour displacement

associated with FDI, but employment generation will occur in different dimensions.
Varied skills would be specialised.
Taking into consideration the pros and cons of introducing FDI in India, ICRIER
has recommended 49% of FDI. The opening up of FDI in India is also expected to be
gradual so that the domestic industries can tailor themselves according to the changes. At
the formative stage, the idea was to start with 26% of FDI in this sector. But soon the idea
changed as China's FDI moved up from 49% to 100% in the retail sector.
49
While the government is continuing its plans to liberalise FDI in the retail sector
in India, foreign companies like Wal-Mart are waiting on the threshold. They basically
wish to enter into partnership with various multinational chains. FDI would bring about
modern infrastructure that would help to boost the productivity of the organised retail
sector in India. Malls have mushroomed in various locations. They are the centers of
entertainment for the new generation.
FDI is not allowed in the retail sector and this is the reason why many prominent
global players like Dominos, Levis, Lee, Nike, Adidas, TGIF, Benetton, Swarovski,
Sony, Sharp, and Kodak etc are entering the retail market via licensee or franchisee. The
opening up of the economy to FDI in the retail sector is also expected to generate
employment. FDI can be a blessing instead of curse only if it produces backward linkages
relating to production and manufacturing. It may also, in the process help to push up
domestic production as well as exports.
In the present scenario, 51% Foreign Direct Investment is permitted in India only
through single brand retailing. The international retailers are entering the matket through
licensees just as Wal-Mart has entered through the franchisee, Bharti Enterprises.
International Players Likely To Enter the Indian Market
Players Country of Origin Retail Sector Activity

JC Penney USA Retail Major Department
Store
Target Corporation USA Retail Discount
Sara Lee Corporation USA Retail Apparel
Tesco UK Food Retail
H&M Sweden Retail Apparel
Karstadt- Quelle Germany Retail Major Department
Store
Carrefour France Food Retail
Source: CRIS INFAC
50
Players Who Have a Presence in India and Are Likely To Expand Operations
Players Country of Origin Retail Sector Activity

GAP USA Retail Apparel
Wal-Mart USA RetailDiscount
Metro AG Germany Food Retail
Benetton France Retail Apparel
Marks & Spencer UK Retail Major Department
Store
McDonalds USA Food Retail
Source: CRIS INFAC
Trends in international markets have shown that organised retail has grown faster
in countries where FDI was allowed in the retail industry. FDI was also responsible for
improvements in product quality, increased choice, better services and a superior
shopping experience.
In Latin America, the entry of foreign retailers had a positive impact on

the productivity and efficiency of domestic firms, who were compelled to consolidate
their operations, invest in supply chains and improvise their pricing structures. The
opening of the Indonesian retail sector provided unprecedented opportunities to foreign
retailers. Indonesia saw the growth of various formats like hypermarkets, department
stores, malls, plazas and convenience stores.
The introduction of FDI in retail in the Thai market resulted in stiff foreign
competition. Within a short span of time, foreign players affected a considerable
expansion of operations and marginalized local players, leading to the closure of a large
number of local businesses. However, the entry of foreign players also marked the
implementation of best practices and superior technology, and Thailand gradually
emerged as an important shopping destination.
China opened its doors to foreign retail players in a phased manner. According to
the data provided by the China General Chambers of Commerce, although foreign
players have entered the Chinese market, the increase in the number of stores of foreign
players has been slower (at 21 per cent) than the year-on-year growth (32.35 per cent)
51
recorded by domestic players, primarily because of the latter's knowledge of the local
market.
Retailing: Comparing Various Asian Economies (2002-03)
Country Total market ($ billion) Share of organized sector (Per cent)

Taiwan 40 81
Malaysia 20 45
Thailand 32 40
Indonesia 75 30
China 325 15
India 180 02
Source: CRIS INFAC
According to CRIS INFAC, if FDI is allowed in the Indian retail industry, it could
increase the growth rate of organised retail and thus benefit other allied sectors like food
processing, textile manufacturing, IT and tourism. Organised retailing can lead to an
improvement in the quality of employment, as players will have to invest in training,
which would result in higher salaries and better working conditions. Although some job
displacement cannot be ruled out due to the reduction in the existing distribution chain of
intermediaries and middlemen, we believe that in a growing economy this loss can be
offset by new jobs created in the allied sectors mentioned above as well as in organised
retail itself.
A survey commissioned by the government and conducted by the Indian Council
for Research on International Economic Relations (ICREIR) reveals that about 65 per
cent of the unorganized retailers in India feel that growth in organised retailing has no
major impact on their business. Further, 48 per cent of this section believes that the entry
of international retail companies would leave them similarly unaffected. Therefore, the
systemic efficiency improvements brought in by FDI would be greater than the
cost of displacement.
ICRIER has recommended that FDI of up to 49 per cent be allowed in the initial
stages; this can then be raised to 100 per cent in 3-5 years depending on the growth of the
sector. The study suggests a 3-5 year time frame for 100 per cent FDI in order to give
domestic retailers sufficient time to adjust to the changes and the reforms.
52
CHAPTER 9
CHALLENGES FOR INDIAN ORGANISED RETAIL
Organised retail in India is expected to grow at 25-30 per cent per annum in the
next 5-6 years. However, players in this industry face many regulatory and other
challenges, which could slow down the pace of the industry's growth.
9.1 Multiple Taxation

The retail industry attracts a variety of taxes from both the Central and the state
governments. These include the Central sales tax, sales tax (state), entry taxes for inter-
state sales and octroi depending on the area of operation and procurement and the type of
goods sold. Corporate tax at 30 per cent is also payable. This is higher for foreign players
operating through various formats. Taxes are levied on all goods procured including
essentials like milk.
9.2 Multiple Legislation

Multiple licenses and clearances are required for setting up and operating a retail
store. These make the process of setting up an establishment more cumbersome, reducing
the flexibility of operations, slackening rapid expansion and increasing the overall cost of
the retail chain.
The stamp duties on property deals in India are significant. The lease cost alone
can be up to 6-10 per cent of sales in India, while it is only 3-5 per cent globally. Further,
the initial urban planning of cities was undertaken with smaller plots in mind. In
addition, rigid building and zoning laws make it difficult to procure space for
retailing. The urban land ceiling act and rent control acts have distorted property markets
in cities, leading to exceptionally high property prices. The presences of strong pro-
tenancy laws make it difficult to evict tenants and make people reluctant to give out real
estate on rent. The problem is compounded by the lack of clear titles to ownership.
53
Stringent labour laws are another worrying factor. Although instituted to protect
store workers, Indian labour laws constrain the operation of modern formats of retailing.
These laws restrict working hours, require shops to close for one day of the week in
certain areas and make the hiring of part-time employees difficult. However, to attract
investments, state governments have permitted a certain degree of flexibility in certain
cities (like Bangalore) for the use of labour, making user, however, that associated
benefits are not lost.
9.3 High Cost/Unavailability of Real-Estate

Pro-tenant rent laws, non-availability of government land, zoning restrictions,
high stamp duty and lack of clear ownership titles increases the difficulty of finding good
real estate in terms of location and size. It also increases transaction costs and supply
constraints. Retail players look for real estate based on the catchment areas suitable to
their formats. The difficulty in procuring the same leads to problems in strategizing and
planning expansions. This problem is being increasingly solved by leasing space in malls.
Lease rentals are one of the most important factors determining the profitability of a
retailer, as most other costs are largely uncontrollable. On an average, lease rentals
account for 7-8 per cent of the revenues and 40-45 per cent of the non-material costs for a
retailer. As is evident from the tables below, even a small change in lease rentals can
significantly alter the profitability levels of stores.
Sensitivity Analysis of Lease Rentals on Net Profits
Apparel
Lease rentals 40 50 60 77 90 100 110
Net profit 12.8 11.1 9.3 6.4 4.1 3.6 0.9
Food
Lease rentals 50 60 75 88 100 110 120
Net profit 1.9 1.5 0.8 0.4 -0.4 -1 -1.7
Hypermarkets
Lease rentals 30 40 57 70 80 90
Net profit 18.6 19.3 8.9 1.4 -8 -17.4
Departmental
Lease rentals 40 50 60 77 90 100 110
Net profit 18.6 15.1 11.6 8.6 1.7 -3.7 -9.1
Lease rentals are measured in Rs per sq.ft. ; Net profit is measured in Rs million
54
9.4 Supply Chain Bottlenecks

The food and apparel segments are classified as small-scale industries in India. As
such they are governed by numerous regulations. For instance, most players have to buy
food grains and staples through the Agricultural Produce Marketing Committee. This
poses difficulties in terms of scaling up and reduces product range.
Distribution and logistics are major bottlenecks for the Indian industry,
especially for the food industry. Poor infrastructure, coupled with a lack of third
party logistics providers, makes operations difficult. There is an absence of cold
chains, proper storage and transportation methods (suitable vehicles and containers). This
leads to high wastage and increased transaction and product costs. At present, the major
part of the food chain does not have high value additions, which translates to lower
product price realizations and lost opportunities for the industry on the whole.
To cope with this, large retail chains are integrating backwards and using high
volume and scale, combined with centralized purchasing, to increase their bargaining
power. They are using information technology as an enabler to track orders and
preferences faster.
A case in point is that of a large retail player in India, which has reportedly set up
a centralised consolidation centre. It buys fresh food and vegetables, staples, rice, chillies,
etc in huge quantities every month from farmers in the area that houses its consolidated
centre. This is then sent to its warehouse, from where it is dispatched to stores. An
efficient supply chain management along with centralised procurement enables the
company to have high volumes and thus gives it the ability to offer discounts.
9.5 Customer Preference

India's cultural diversity translates into a wide variety of purchasing habits and
preferences. In order to ensure success, the retailer must be aware of local habits and
preferences and decide on an optimum product mix and range accordingly. This increases
55
the retailer's customization and stocking range. This, in turn, leads to higher inventories
and fewer best practices.
9.6 Stiff Competition from Small Traditional Format

Organised retailing faces severe competition from the unorganized segment
on the cost and service front. Unorganized players are typically small-time
businessmen, who own small stores (average size of 500 square feet). The level of
overheads of these players is far lower. There are no labour costs as such stores are run
by family members, and no expenses are incurred on creating an attractive ambience.
These players can evade taxes, which organised players have to pay. This makes the
unorganized player more cost effective than the organised player.
9.7 Availability of trained manpower

There is a shortage of manpower trained to suit the requirements of retail
organisations, both at the shop floor level (as working for a store is not considered
prestigious), and at the middle level (where managers are required to effectively
implement growth plans). With a growth in organised chains, companies are facing a
high employee turnover. With the advent of foreign players, existing manpower could
move to multinationals as in the IT/ITES sector. Sensing the lack of available manpower
various institutes have started courses in retail management.
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CHAPTER 10
KEY SUCCESS FACTORS
As in the case of any other business, success in the organised retail industry is
determined by a few select factors. Not all of these can be quantified but nearly all of
them are instrumental in determining the success of a retail establishment. The section
below enumerates the various factors that are believed to be instrumental in determining
the success of players in the retail industry.
10.1 Location
Location is the most important factor determining the success of a retail store or a
chain. Lease costs are as high as 8-9 per cent of the total costs of a retail organization. A
store located in an area frequently accessed by local residents has the potential for high
footfalls but has higher rentals as well. Selecting a suitable location is a strategic
decision. Choosing a wrong location and then changing it can have considerable strategic
and financial implications. The exit costs are high not only because capital expenditure
will have to be incurred again but the image of the store might also suffer a setback.
There might be difficulties in changing location if the property has been acquired on a
contractual basis. Thus, organised retailers generally select a location after a detailed
study of target customers, local buying behaviour and catchment areas.
10.2 Knowing the Customer

The success of a retail chain depends on its perception in the minds of target
customers. The tastes of customers in India differ from region to region. Hence, retailers
need to change product mix and offerings according to the tastes and preferences of local
customers. Although a good location can bring in footfalls, the conversion factor and
ticket size are driven by the range of merchandise that the store stocks. The selection of
the right merchandise requires a strong understanding of the preferences of the target
customers in the catchment area, their spending ability and their spending pattern.
Further, the store must be dynamic in churning its merchandise so that it reflects current
57
trends and customer tastes. This is the reason most stores have end-of-season sales and
discounts.
10.3 Service Quality

Service quality is as essential as the merchandise mix and the location of the
store. The customer needs to be treated as the "king' at the store and should be provided
with a better shopping experience each time he/she walks into the store. The ambience of
the store defines its positioning. It should incite the customer to purchase. The store
should provide clear directions and make sure the customer is not confused. Store
employees should be friendly and helpful but not interfering. They must be able to
understand customer requirements and guide them accordingly. Service plays a very
important role in creating loyal customers, who play a significant role in store sales.
10.4 Scale of operations

The ability to scale up a business model would define the growth rate of a retailer.
A larger scale helps distribute overheads and provides more space. Further, a higher scale
of operations would provide an added advantage in terms of loss-bearing capabilities. A
retailer with a higher number of stores would definitely be in a better position to
manage/resurrect slow sales in 1-2 stores without significantly affecting overall business
as compared to a retailer operating a small fleet of stores.
However, the scaling up of operations needs to be backed by consistent

service across various stores and the ability to select merchandise tailored to target
customers in each location. It also requires suitable technological and operational back up
and management dedication.
10.5 Supply chain management

An efficient supply chain management is the backbone of an organised retail
chain. Adequate storage and stock facility for all outlets is critical for the success of
any store. Information technology helps monitor aggregate volume and supply chain
58
efficiencies. Proper management of stock could help a retailer transfer stocks from one
store to another and thus provide a judicious mix in each outlet. Good supply chain
management supports scale and also leads to lower wastage, thus lowering shrinkage
cost.
10.6 Management quality

The ability to select the right formats in keeping with the intended value
proposition and the ability to effectively manage the scaling up of operations are
essential characteristics of good management in a retail outfit. Experienced,
dynamic and dedicated management is required not only at the top level for
strategizing, but is equally important at the middle level for implementation and store
operation.
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CHAPTER 11
GROWTH STRATEGIES
With numerous opportunities for growth, organised retail chains in India have
been scaling up their models by adopting new formats and increasing the number of
stores of the same kind in new areas. To scale up a retail operation, a retailer can follow a
growth path by using one or a combination of the following dimensions:
11.1 Product Line

A retailer can increase the depth and breadth of a product mix and enter into new
verticals like food, apparel, consumer durables, jewellery, footwear, electronics and
entertainment. An example is the extension of Trent, primarily an apparel player, into the
food vertical by way of Star India Bazaar.
11.2 Target Customers

A retailer generally caters to a specific class of customers. High-end jewellery
showrooms and department stores like Shoppers' Stop primarily cater to the SEC A
class. However, a retailer can expand reach by setting up different kinds of stores that
cater to various economic groups - the SEC A, B, C and D segments. A case in point is
Pantaloon. Within the apparel vertical, it caters to various sections of the society
through different stores. While Pantaloon Stores, which stock expensive brands, cater to
SEC A and B, Big Bazaar with its range of low-end clothes caters to SEC C and D.
However, success is largely determined by selecting a mix and demarcating the kind of
goods to be made available in different stores. Thus, the clothes found in Pantaloon
Stores will not be on offer in Big Bazaar.
11.3 Formats
A player can also grow by adopting different formats. A player in a specialty
chain can also set up hypermarkets and department stores. Players with department stores
like Piramyd are planning to set up specialty Trumart stores for food. The different
60
formats that a player can adopt can be hypermarkets, supermarkets, department stores and
specialty chains. An example is RPG, which operates in multiple formats like specialty
food stores, music stores and hypermarkets.
11.4 Markets
Retail does not create demand per se, and markets develop at their own pace,
independent of the channel. Once different growth paths are adopted, the needs of the
customers in a given area get saturated. Players can then grow by expanding their
markets. The different markets (local, regional, national and international) in which a
player operates will determine its scale. A local player would be one like Akbarallys,
established in a particular area. Viveks or Vijay Sales cater to a region. Chains like
Pantaloon, Trent, Shoppers' Stop, RPG, Lifestyle, Globus, etc have established their
presence across the country. Once the national markets are saturated, players look at
international set-ups. International players like Wal-Mart and Carrefour have expanded
operations beyond their saturated domestic markets, going on to establish their presence
world-wide.
61
CASE STUDY
PANTALOON RETAIL (INDIA) LIMITED
12.1 Profile
Pantaloon Retail (India) Ltd (PRIL) was incorporated on October 12, 1987, as
Men's Wear Private Limited under the stewardship of Kishore Biyani. It was converted
into a public limited company in September 1991. The company sold branded
garments under the Pantaloon, Bare and John Miller brands and set up its first men's wear
Pantaloon Shoppe outlet in 1993. Its name was changed to Pantaloon Retail (India) Ltd in
1999, when it made a full-fledged entry into the retail segment through the Pantaloons
Family Store.
Over the last 5 years, PRIL has evolved from an apparel retailer focusing on
men's garments to a retail company servicing lifestyle-conscious and value-conscious
customers. It targets lifestyle-conscious customers through the Pantaloon department
stores and the Central Malls and value-conscious customers through the Big Bazaar and
Food Bazaar store chains. PRIL is one of India's leading manufacturer-retailers, with 12
Pantaloon stores and 18 Big Bazaars, 31 Food Bazaars and 3 Central Malls across the
country.
Pantaloon Retail India Limited
Year of 1987
incorporation
Ownership Public Limited Company
Retail sector activity Department stores, Hypermarket, Supermarkets, Malls.
Principal fascia Pantaloon, Big Bazaar, Central, Food Bazaar.
62
12.2 Pantaloon Retail (India) Limited: Corporate Structure
Pantaloon Group
Pantaloon Industries Limited

(PIL)
Pantaloon Retail India Limited

(PRIL)
Pantaloon Retail Technologies

Limited (PRTL)
PFH Entertainment Limited
Source: Annual Report
PRIL has evolved from a manufacturing company to a completely integrated

player, controlling the entire value chain.
12.3 Areas of Operation
1) Leisure / Entertainment: Bowling Co., F123

2) General Merchandise: Big Bazaar, Blue Sky, Brand Factory, Navaras,
Central, Pantaloons, Shoe Factory, Top 10.
3) Wellness / Beauty: Health Village, Star Sitara, Tulsi, Turmeric.
4) Home Electronics: Collection i, Electronics Bazaar, e-zone, Furniture
Bazaar, Home Town, Got It.
5) Telecom / IT: Gen-M, M-Bazaar, M-Port
6) Fashion: aLL, Big Bazaar, Blue Sky, Brand Factory, Central, Fashion Station,
Gini & Jony, Lee Cooper, Navaras, Pantaloons, Top 10.
7) Books / Music: Depot
63
8) Food: Brew Bar, Café Bollywood, Chamosa, Food Bazaar, Sports Bar.
9) E-tailing: futurebazaar.com
12.4 Strategy and Growth
1) Type of Stores
To gain a higher share in the customer's shopping basket, PRIL has adopted
blending strategies. By entering into multiple-format department stores and
hypermarkets, PRIL has effectively blended multiple strategies and thereby,
successfully addressed a high share of the customer's basket.
Lifestyle segment
• Pantaloon: They are vertically integrated private label apparel stores
addressing the needs of the entire family. These department stores were
initially positioned as "India's family store', primarily offering men's apparel.
Over time, they have been repositioned as "lifestyle stores', targeting SEC A and
B in urban India. The product line is also being expanded to offer a wide range of
garments, accessories and lifestyle products for men, women, kids and infants.
• Central: Positioned as "lifestyle' malls, these are large format malls located in the
heart of a city. They are located in high footfall areas with a store space in the
range of 125,000 square feet to 250,000 square feet. The malls house various
categories of products and various brands in each category, including some PRIL
brands.
Value segment
• Big Bazaar: This is a large hypermarket with store sizes ranging from 30,000 to
over 100,000 sq ft, selling food, household items, utensils, luggage, white
goods, electronics, cosmetics, jewellery, pharmaceuticals, grocery items, etc,
at a discount. These stores are targeted at the spectrum of population with
a high propensity to switch stores on the basis of price, based on the
64
"value-for-money' principle. PRIL's hypermarkets store a larger share of

apparel and less of food as compared to the others. Due to higher margins
in apparel, they break even sooner.
• Food Bazaar: The Food Bazaar replicates a local market to provide the much
important "touch and feel' factor that Indian housewives are used to in the local
bazaar. It represents the company's entry into food retail and is targeted across all
classes of population. These stores have over 50,000 stock-keeping units,
which cover grocery, FMCG products, milk products, juices, tea, sugar, pulses,
masalas, rice, wheat, etc, besides fruits and vegetables. All products are sold
below MRP, with discounts ranging between 2 per cent and 20 per cent. Fruits
and vegetables are sold at prices comparable with wholesale prices.
Pantaloon Retail (India) Limited: Retail Presence
Food Bazaar Central Mall Malls Big Bazaar

Cities No. of Cities No. of Cities No. of Cities No. of
outlets outlets outlets outlets
Mumbai 7 Bangalore 1 Gariahat 1 Kolkata 2
Thane 1 Hyderabad 1 Hyderabad 1 Hyderabad 1
Ahmedabad 3 Pune 1 Secuderabad 1 Bangalore 1
Nagpur 1 Chennai 1 Mumbai 2
Nasik 1 Ahmedabad 1 Gurgaon 1
Pune 1 Kolkata 1 Nagpur 1
Kolkata 4 Kanpur 1 Ahmedabad 2
Bhubaneshwar 1 Pune 1 Nasik 1
Gurgaon 1 Mumbai 1 Ghaziabad 1
Ghaziabad 2 Gurgaon 1 Durgapur 1
Durgapur 1 Baroda 1 Thane 1
Bangalore 5 Bangalore 2
Hyderabad 2 Delhi 1
Delhi 1
Total 31 11 17
2) Private Labels
The company is likely to have higher margins due to the contribution of private
label products, which typically have higher margins. At present, nearly 70 per cent of
65
the sales in PRIL's retail business, mainly its apparel business comes from the sale
of private label products. A similar strategy has been adopted for Big Bazaar and Food
Bazaar, with the company planning to launch around 120 private label products in Big
Bazaar by the end of 2005-06.
3) Tie-Ups with Over 75 Mall Developers

PRIL has tied up with various mall developers to obtain space as anchor tenants.
This will enable it to grow faster and acquire space at cheaper rates.
4) Increasing Store Size

The company is progressively increasing the average store size of each of its retail
formats. The average size of a PRIL store has increased from 15,000 sq ft in 1998-99 to
20,000-25,000 sq ft. The average size of a Big Bazaar store has increased four times to
more than 50,000 sq ft, while the Food Bazaar store has doubled to around 6,500 sq ft.
5) New Areas
PRIL believes that the Indian market is different from those of other countries, as
the shopping behaviour here is significantly different. Thus, it plans to get into new areas
by capitalizing on this Indianness. Some of its likely forays are:
1. Small Tea and Samosa (an Indian snack) stores, called CHAMOSA, where each
item will be available for Rs 5; this will cater to the value-oriented segment.
2. The home furniture segment, both standard and customized. In addition, various
facilities will be provided to make home decoration and maintenance easier.
3. The leisure and entertainment segment through its subsidiary.
66
CHAPTER 13
FUTURE OF INDIAN RETAIL INDUSTRY
Retail industry in India is greatly fragmented comparing to the developed and

other developing countries. This presents enormous prospective for the structured retail
industry to flourish throughout the country, as the market for the final product is huge.
Retail industry is largely led by private companies. The distribution for fast-moving
consumer products includes many layers like carrying and forwarding agencies,
distributors, wholesalers, stockiest and retailers.
The Indian retail environment has attained $ 210bn quiche, witnessing a strong
development pace of five percent per year (according to a latest survey by Price
Waterhouse Coopers). As per the estimation 200 malls, presenting additional 50mn sq ft
of retail space will be ready in next two years. Existing retail space in 160 malls is nearly
32mn sq ft.
Organized retailing now accounts for three percent out of the total retailing,
however is predicted to extend to 10 percent by the year 2010. In other means, organized
Indian retail sector would triple its share of the total market within the coming four years,
generating new 8mn jobs, in addition to the 21mn jobs that are already created by retail
sector. As per the estimate, the current retail business witnesses more than 12mn retail
outlets, which include all shapes and formats.
The analysts foresee bright future of the retail sector. A huge number of shopping
malls, nearly 100, have come up in the recent past, generating 20mn sq ft. retail space,
extending more space of about 12mn sq ft to it. Nearly 60 malls are on the verge of
completion and may be operational by the end of current financial year. A forecasted
number of nearly 200 malls, in a move to make additional 50mn sq ft of retail space, will
be completed within the next two years.
67
According to analysis by KSA Technopak, India has lowest per capita retail space
accessible around the globe. The study depicts that India require generating at least
110mn sq ft of additional retail space a year for many years, only to meet the demand
generated on account of a continued GDP growth rate of nearly 6 percent. Hitherto, the
Central Government as well as State Governments and local municipals have failed to
match steps with drag on the economy of an incompetent retail sector. This space crisis is
leading to a condition, in which prime locations demand extremely high rates.
To make India's emerging retail market open to foreign direct investment (FDI)
has been on the Government agenda since long time. A number of transformations and
practices were being done, but the sources disclosed that the policy, which is under
finalization is such that FDI in the retail market would lead towards the rear connections
of manufacturing and production and not only set aside to open of retail stores of global
and imported brands.
The global retail giants like Wal-Mart, Gap, Tesco, Versace, K-Mart/SEARS,
Carrefour, ZARA, FCUK, Fendi, NEXT, Mother Care, lKEA, Trussardi, DKNY and
Debenhams have made plans to march in the Indian market. ESPRIT, GUESS, Chanel,
Mango and many other global marked their presence in India by implementing licensing
and franchisee agreements. The global retailers on the line of control, awaiting the green
signal from Govt. to enter Indian retail market. However, the current scenario has
encouraged Indian players to speed up retail expansion and fresh retail ventures.
Companies like Shoppers Stop, Trent, Reliance, Lifestyle, Tanishq, Crossroads,

Akbarallys' and Tanishq already have planned to invest over Rs 5,000cr. Trent is on the
edge to take both its brands 'Star India Bazaar' and 'Westside' to new cities, meanwhile
Shoppers' Stop has recently geared up for expansion of present ones and to add 11 new
stores including two hypermarkets. Also, Pantaloon has planned to add eight 'Big Bazaar'
malls within the next 6 to 8 months.
68
After the merger, Reliance Industries Ltd (RIL) is substantially getting ready to
enter in field of retailing. RIL is poised to emerge as the single largest player in this
sector. On the other hand, Tescos, Wal-Marts or Safeways ultimately enter in the country.
So finally, Shoppers' Stops, Pantaloons and Westsides in coming years have will face
stiff competition. More than the Tescos and Wal-Marts, Reliance, Godreg and Tata are
likely to attain reach to the country's interiors.
At the same time, several apparel exporters are keen to get opportunities in retail
sector. Gokaldas Images, OC, TCNS, Gokaldas Exports and Celebrity Fashions are some
of the exporters who already have expanded into retail sector with triumph.
69
CONCLUSION
To conclude, it can be said that though the global retail industry has reached its
maturity, the Indian retail industry is still at its infancy. But with the huge potentiality
existing in the Indian market, it is expected to grow in leaps and bounds in the near
future.
Instead of comparing the total global retail industry with the Indian retail industry,
let’s compare Wal-Mart alone with the Indian retail industry & put forward few
interesting facts:
1. Retail Sales of Wal-Mart for the year 2003 was US $ 25,632.9 Crore; higher
than the size of Indian retail industry.
2. The size of any Wal-Mart store is much higher than the size of any existing
shopping mall in India.
3. Wal-Mart has over 4,800 stores, which is unparallel to any of the India's large
format store.
4. New stores opened annually by Wal-Mart are about 420, much higher than all
organized Indian retailers put together.
5. The sales per hour of $2.2 Crore are incomparable to any retailer in the world.
6. Wal-Mart has around 30,000 suppliers throughout the world and more than
600,000 SKU's on its web site, a number that cannot be compared.
7. Daily customers are about 1.57 Crore (almost equivalent to Mumbai's entire
population).
8. Time between each Barbie Sale at Wal-Mart is just two seconds (same rate at
which babies are produced in India!)
Overall, it can be said that “Retail Industry" in India will emerge as one of the best 5
Business sectors in this decade.
70
RECOMMENDATION & SUGGESTIONS
To make Indian retailing world class many challenges are to be overcome by the
industry. Some suggestions to improve the situation are offered below.
 Establishment of Retailer co-operatives, which will maintain warehouses etc. to

work as a distribution centre for the member retailers can help Indian retailer attain a
respectable position in the relationship matrix mentioned above. The whole
organisation will run at a no-profit, no-loss basis. This would enable the retailers to
buy the products they want directly from the original manufacturers in huge quantity
This would make the application of the concepts of QR (Quick Response) and ECR
(Efficient Consumer Response) possible to a certain extent.. However, many inherent
difficulties may make the functioning or even establishment of such a co-operative
difficult. Nevertheless, these problems are inevitable and must be dealt with firmly.
 Merger and buy-out of weak retailers by a stronger one, especially in metros and big
cities may be another step towards this direction. This would give the new retailer the
desired leverage to be world class.
 Use of technology to the greatest extent possible may also help strengthening the
retailer’s position in the marketing channel. First step may be taken with setting up of
a network of independent firms believing in use of technology for business
excellence. Then a collection of strong retail organisations may pressurize the
suppliers and other channel members to use compatible technology. This may open
the door for implementation of QR or ECR or other relevant concepts for the retailers.
 An overall change is to bring about in the mindset of the retailers. They will have to
think differently. They must find out and satisfy service outputs of the target
customers Unless there is a drastic change in the mindset of at least large and medium
retailers and as well as that of the manufacturers, the required change is not going to
71
come by easily. The retailers must learn and understand to lead the chain from the
front.
 Setting up of more and more non-store retailing centers would also ensure a
strong retailing organisation. Non-store retailing makes implementation of modern
principles easier and less costly.
 Setting up of franchisee organisation may also help in strengthening the position of

the retailers. The franchiser can exert a tremendous control over the way retailing is
done. Transnational service organisation like McDonald and KFC are being able to
offer a centralized control over purchase and operation. Large and medium sized
retailers may take up the concept of franchising to reach the market in a more
meaningful way. Though the management of franchisee network is difficult than
managing a retail chain in view of high level of investment and other obligations,
Indian retailers should spread out its wings its in this profitable and efficient way.
Financial Performance: Balance sheet for June 2006

Balance sheet as at June -06
SOURCES OF FUNDS:
Equity Share capital 26.88
Reserves & surplus 500.02
Warrant Application Money -
Shareholder’s Fund 526.90
Deferred Tax Liability 27.92
Secured loans 428.10
Unsecured loans 173.29
Total loans 601.39
Total liabilities 1156.20
APPLICATION OF FUNDS
Gross block 366.01
Depreciation 56.58
Net block 309.43
Capital WIP 86.06
NB + CWIP 395.49
Investment 140.62
Current Assets
Inventories 507.02
72
Debtors 17.03
Cash & bank balance 21.77
Loans & advances 338.56
Other current assets 1.09
Total current assets
Current Liabilities
Creditors 885.47
Other current liabilities 126.45
Provisions 106.43
Total current liabilities 32.50
Net Current Assets 265.38
Misc. Expenditure 620.09
Total Assets 1156.20
73
BIBLIOGRAPRHY
WEBSITES
1. www.economywatch.com
2. www.ibef.org
3. www.ficci.com
4. www.thehindubusinessline.com
5. www.business.mapsofindia.com
6. www.business.mapsofindia.com
7. www.hindubusinessline.com
BOOKS
1. Senthil Ganesan, Retailing Sector, ICFAI, February 2006.

2. Ronald W. Hasty & James Reardon, Retail Management, McGraw-Hill, 1996
3. Nitin Mehrotra, Indian Retail Sector – A Primer, ICFAI, 2003
4. Malcolm Sullivan & Denni Adcock, Retail Marketing, Thomson, 2002
NEWSPAPERS
1. The Economic Times

2. The Times Of India
3. Daily News Analysis [DNA]
4. Hindustan Times
74

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Indian Retail Scene

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Retail Scenario In India: An Unlimited Opportunity

1.1 Global Retail Scenario

Given Below a List of World's Top 15 Retailers:

DT Rank 04 Country of Company Formats 2003 retail

1.2 Indian Retail Scenario

2.1 Key Characteristics of Traditional Retail

2.2 S.W.O.T Analysis of Traditional Stores

Kirana stores are becoming aware of the disadvantages inherent in their

Sr. No. Traditional Organized

ORGANIZED RETAIL TO GET BIGGER

3.1 What Is Organized Retail?

Our discussion of retail throughout this report adheres to this definition.

grocery, apparel, consumer durables, jewellery, footwear, accessories, beauty products,

3.2 Retail Evolution

Since then organised retailing in India has witnessed a radical transformation.

At present, most players have announced ambitious expansion plans. In order to

3.3 Segments in Retail

Organised Retail: Category Wise Share and Penetration

clothing is available in speciality chains, hypermarkets and department stores.

Segment-Wise Growth of Organised Retail (2005)

Source: Company report

3.4 S.W.O.T Analysis of Indian Organized Retail Industry

• Retailing is a “technology-intensive" industry. It is technology that will help the

• Organized retail is only 3% of the total retailing market in India. It is estimated to

3.5 Levels of Retail

Speciality stores cater to a specific vertical, which is depicted as Level I in the

LEVEL I LEVEL II LEVEL III

Food & Grocery

Household & other

Footwear Hypermarket Mall

Fashion Accessories Department Store

Furniture & Home

Players Operating At Different Levels

Level 1 Level 2 Level 3

Total Retail (Segment-Wise Distribution)

Category Total retail Organised retail

Food, 7,738 75.8 65 19 1

4.1 Food and Grocery

On an average, the largest opportunity in organised retail is in the food

• Haat: A haat is more of a village phenomenon. Once a week, a market is

Fresh Food Produce – A Clear Need Gap

Food and Grocery Retail: List of Players

Sr. No. Players

Apparel can appeal to different customers for different reasons. A brand-

each catering to a different segment of population, depending on whether the audience is

Private Labels of Retailers

Apparel Retail: List of Players

Sr. Players Sr. Players

2 Benzer 12 Milky Stone

Footwear retail: List of players

Sr. Players Sr. Players Sr. Players

4.4 Jewellery, Fashion Accessories and Beauty Products

Jewellery and Beauty Products: List of Players

Sr. Players Sr. Players

4.5 Electronics and Consumer Durables

Increasing number of models and brands catering to various requirements has

Increased competition has resulted in a fall in the prices of consumer durables.

Electronics and Consumer Durables: List of Players

Sr. Players Sr. No. Players

4.6 Furniture and Home Décor

5.1 Value Retailing

Supermarkets: Major Players

Pantaloon (Food Bazaar) RPG (Food World)