The Indian Retail Sector

Manoj Kumar Singh

mkumarsingh@hotmail.com
 Industry Evolution
 Traditionally retailing in India can be traced to
– The emergence of the neighborhood ‘Kirana’ stores catering to the convenience of the
consumers
– Era of government support for rural retail: Indigenous franchise model of store
chains run by Khadi & Village Industries Commission
 1980s experienced slow change as India began to open up economy.
 Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and
Grasim first saw the emergence of retail chains
 Later Titan successfully created an organized retailing concept and established a
series of showrooms for its premium watches
 The latter half of the 1990s saw a fresh wave of entrants with a shift from
Manufactures to Pure Retailers.
 For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music
World in music; Crossword and Fountainhead in books.
 Post 1995 onwards saw an emergence of shopping centers,
– mainly in urban areas, with facilities like car parking
– targeted to provide a complete destination experience for all segments of
society
 Emergence of hyper and super markets trying to provide customer with 3 V’s - Value,
Variety and Volume
 Expanding target consumer segment: The Sachet revolution - example of reaching to
the bottom of the pyramid.
 At year end of 2000 the size of the Indian organized retail industry is estimated at Rs.
13,000 crore
 Retailing formats in India
 Malls:
The largest form of organized retailing today. Located mainly in
metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft
to 7,00,000 sq ft and above. They lend an ideal shopping experience
with an amalgamation of product, service and entertainment, all
under a common roof.Examples include Shoppers Stop, Piramyd,
Pantaloon.
 Specialty Stores:
Chains such as the Bangalore based Kids Kemp, the Mumbai books
retailer Crossword, RPG's Music World and the Times Group's music
chain Planet M, are focusing on specific market segments and have
established themselves strongly in their sectors.
 Discount Stores:
As the name suggests, discount stores or factory outlets, offer
discounts on the MRP through selling in bulk reaching economies of
scale or excess stock left over at the season. The product category
can range from a variety of perishable/ non perishable goods
 Department Stores:
Large stores ranging from 20000-50000 sq. ft, catering to a variety of
consumer needs. Further classified into localized departments such
as clothing, toys, home, groceries, etc.
 Department Stores:
Departmental Stores are expected to take over the apparel business
from exclusive brand showrooms. Among these, the biggest success
is K Raheja's Shoppers Stop, which started in Mumbai and now has
more than seven large stores (over 30,000 sq. ft) across India and
even has its own in store brand for clothes called Stop!.
 Hypermarts/Supermarkets:
Large self service outlets, catering to varied shopper needs are
termed as Supermarkets. These are located in or near residential
high streets. These stores today contribute to 30% of all food &
grocery organized retail sales. Super Markets can further be
classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft
and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft.
having a strong focus on food & grocery and personal sales.
 Convenience Stores:
These are relatively small stores 400-2,000 sq. feet located near
residential areas. They stock a limited range of high-turnover
convenience products and are usually open for extended periods
during the day, seven days a week. Prices are slightly higher due to
the convenience premium.
 MBO’s :
Multi Brand outlets, also known as Category Killers, offer several
brands across a single product
category. These usually do well in busy market places and Metros.
Retailing formats in India
India’s number of Domestic grocery chains and Early Foreign Entrants
 Recent Trends
Retail Sales in India
 Retailing in India is witnessing a huge
revamping exercise as can be seen in
the graph
 India is rated the fifth most attractive
emerging retail market: a potential
goldmine.
 Estimated to be US$ 200 billion, of
which organized retailing (i.e. modern
trade) makes up 3 percent or US$ 6.4
billion
 As per a report by KPMG the annual
growth of department stores is
estimated at 24%
 Ranked second in a Global Retail
Development Index of 30 developing
countries drawn up by AT Kearney.
 Recent Trends contd.
Traditionally three factors have plagued
the retail industry:
Unorganized : Vast majority of the twelve million stores are
small "father and son" outlets
Fragmented : Mostly small individually owned businesses,
average size of outlet equals 50 s.q. ft. Though India has the
highest number of retail outlets per capita in the world, the retail
space per capita at 2 s.q. ft per person is amongst the lowest.
Rural bias: Nearly two thirds of the stores are located in rural
areas. Rural retail industry has typically two forms: "Haats" and
“Melas". Haats are the weekly markets : serve groups of 10-50
villages and sell day-to-day necessities. Melas are larger in size
and more sophisticated in terms of the goods sold (like TVs)
Recent changes:
Experimentation with formats: Retailing in India is still evolving
and the sector is witnessing a series of experiments across the
country with new formats being tested out. Ex. Quasi-mall, sub-
urban discount stores, Cash and carry etc.
Store design : Biggest challenge for organised retailing to
create a “customer-pull” environment that increases the amount
of impulse shopping. Research shows that the chances of
senses dictating sales are upto 10-15%. Retail chains like
MusicWorld, Baristas, Piramyd and Globus are laying major
emphasis & investing heavily in store design.
Emergence of discount stores: They are expected to
spearhead the organised retailing revolution. Stores trying to
emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay
Bazaar, RPGs.
Unorganized retailing is getting organized: To meet the
challenges of organized retailing such as large cineplexes, and
malls, which are backed by the corporate house such as 'Ansals'
and 'PVR‘ the unorganized sector is getting organized. 25 stores
in Delhi under the banner of Provision mart are joining hands to
combine monthly buying. Bombay Bazaar and Efoodmart formed
which are aggregations of Kiranas.
 Recent Trends contd.
 Multiple drivers leading to a consumption boom:
– Favorable demographics
– Growth in income
– Increasing population of women
– Raising aspirations : Value added goods sales
 Food and apparel retailing key drivers of growth
 Organized retailing in India has been largely an urban phenomenon with affluent classes and
growing number of double-income households.
 More successful in cities in the south and west of India. Reasons range from differences in
consumer buying behavior to cost of real estate and taxation laws.
 Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural
market across most categories of consumption
– ITC is experimenting with retailing through its e-Choupal and Choupal Sagar – rural
hypermarkets.
– HLL is using its Project Shakti initiative – leveraging women self-help groups – to explore the
rural market.
– Mahamaza is leveraging technology and network marketing concepts to act as an
aggregator and serve the rural markets.
 IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change
buying behavior across the globe.
 ‘e-tailing’ slowly making its presence felt.
 Companies using their own web portal or tie-sups with horizontal players like Rediff.com and
Indiatimes.com to offer products on the web.
 Major Retailers

 India’s top retailers are largely Leading Retailers

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

 Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to
0.9 million outlets in USA, catering to more than 13 times of the total retail market size as compared to
India
 India has the highest number of outlets per capita in the world - widely spread retail network but with the
lowest per capita retail space (@ 2 sq. ft. per person)
 Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail
industry. Almost 100 times more than the turnover of HLL (India's largest FMCG company).
 Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store
(Shoppers' Stop, Westside, Lifestyle) can compare.
 The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in
Wal-Mart are about 1.3 million where as the entire Indian retail industry employs about three million
people.
 One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HLL's annual turnover.
 Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing
(against 7 percent employed in India today).
 60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of
the fastest-growing 50 retailers have just one format
 Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average inventory
turns ratio of about 18. Many Indian retailers KPMG surveyed have inventory turns levels between 4 and
10.
 Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail
shelves (translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers
surveyed ranged from 5 to 15 percent.
 Future direction: Positives

 AT Kearney has estimated India’s total retail market at US$ 202.6 billion which is expected to
grow at a compounded 30 per cent over the next five years.
 With the organised retail segment growing at the rate of 25-30 per cent per annum, revenues
from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010.
 The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the
next decade
 Over next two years India will see several Indian retail businesses attaining a critical mass as
growth in the industry picks up momentum driven by two key factors:
– Availability of quality real estate and mall management practices
– Consumer preference for shopping in new environments
 Wal-Mart : huge plans for India. Moving a senior official from its headquarters in Bentonville,
Arkansas, to head its market research and business development functions pertaining to its
retail plans in India.
 New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty major DLF
Properties to set up shop in a mall in New Delhi.
 Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, Ahmedabad,
Lucknow and Bangalore in the next four months.
 Future direction: Concerns

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

 AT Kearny
 Forrester Research 2006
 KPMG-FICCI Report
 http://www.indiainbusiness.nic.in/