What Lies In Store For The Retailing Industry In India

Submitted By Submitted To
Hitesh Manocha
Anumol Phillip Akanksha Pandey Divisha Jha Megha Goel Mehak Agarwal Rinki Khanna Sabyasachi Mukherjee

Retailing Industry Evolution In The emergence of the neighbourhood Kirana dukaan. India
Era of government support for rural retail

The post-liberalization period

The emergence of retail chains. Post 1995 onwards saw an emergence of shopping centers, Mainly in urban areas, with facilities like car parking. Emergence of hyper and super markets trying to provide customer with 3 Value, Variety and Volume.

Expanding target consumer segment.

Some Facts Of Retail Industry In The Indian retail industry is divided into organized and unorganized India sectors.
With a 3 year compound annual growth rate of 46.64%, retail is the fastest growing sector in the Indian economy. In addition to the mega cities of Mumbai an Delhi, cities such as Bangalore, Pune, Hyderabad, Kolkata and Chennai are also witnessing a boom in organized retail activity.

98% of the Indian retail sector is covered unorganized retailers.

The retail sector is the largest source of employment. Practically, every major Indian business group is looking for opportunities in the growing retailing industry.

Some Facts Of Retail Industry In There are some attempts at indigenous formats aimed at the India
rural markets. Carrefour, Tesco, and Wal-Mart are the international players already operating in India, with several like Euroset, Supervalue and Starbucks having plan to enter soon. Overall, the Indian retailing industry is expected to grow US$635 billion by 2015. Major retailers: Pantaloon, TATA, RPG Group, Reliance, AV Birla Group.

Current entry options for foreign players: Franchise agreement, Cash and Carry wholesale trading, and Strategic licensing agreement.

Retail Formats Available In India

Mono/Exclusive branded retail shop

Multi-Brand Retail Shop

Convergence Retail Outlet

Exclusive showrooms either owned or franchised out by a manufacturer.

Focus on particular product and carry most of the brand available.

Usually have on display most of the convergence as well as consumer/electronic products including communication and IT goods.

Complete range available for a given brand, certified product quality

Customer s get to have more choices as many as brand are on display.

One stop shop for customers, many product lines of different brands on display.

Definition of Retail
In 2004, The High Court of Delhi defined the term retail as a sale for final consumption in contrast to a sale for further sale or processing A sale to the ultimate consumer

Division of Retail Industry

Organized Retailing

Trading activities undertaken by licensed retailers

Unorganized Retailing Refers to the traditional formats of low-cost retailing. The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers

Entry Options For Foreign Players prior to FDI Policy

Franchise Agreements -Pizza Hut, Marks and spencer

Cash And Carry Wholesale Trading -Metro AG of Germany

Strategic Licensing Agreements -Mango, the Spanish apparel brand has entered India through this route with an agreement with Piramyd Manufacturing and Wholly Owned Subsidiaries - The foreign brands such as Nike, Reebok, Adidas

ETOP Analysis In Retail Industry

Environmen t
Economi c International Political Regulator y Market Technologic al Suppliers

Economic environment
Indias impressive economic rate of 8-9% Increase in population leading to growing size of consuming class Increase in per capita income leading to increase in purchasing power

Market environment
Reach of organized retailing growing

Retailers are now trying to reach the smaller cities

In addition to traditional system they are now using the concept of supermarket, departmental stores etc

Political environment
Unorganized retail sector constitute about 98% of the total retail sector Political parties are often offensive toward the growth of the organized retail business

More protection to the unorganized vendors

International Environment
Increased exposure to television and internet resulted in openness and awareness of international development among Indians Ease of Travelling Abroad made people to experience foreign markets

Regulatory Environment
Foreign Investment up to 100% is still not permitted

Real estate laws at the state level not yet clear on the issue of allowing large commercial stores
Tax structure for the retailing industry still needs to be restructured

Socio-culture Environment
Changing age profile

Mostly young working population earning over US$ 5000

Contributing most to the growth of organized retail sector

Supplier Environment
Biggest constraint to the growth of retail industry in India

Vast geographical size of the country

Traditional, fragmented distribution & retailing networks Erratic logistics system Poor supply chain management system

Technological Environment
Growth in IT ---- Growth in retail sector.

Quick information processing & decision making

Reduction in processing cost Implementation of SCM & CRM helping in ordering & tracking inventory items, warehousing, transportation etc.

Opportunities
Economic Growth :
Positive Growth Rate
Growing Size of Consuming Class

International Market Awareness:

More Exposure to International Markets through TV and Internet

Cont.
Growing Market:
Consumer from larger area are getting reached.

Socio- Cultural Change:

Increasing Number of Youths and increment in income level.

Advancing Technology:
Software support to the operation Better Supply chain management

Threats
Cut -throat Competition

Competition with Indian and foreign players

Ambiguous Political Environment

Some Politicians are in favour of organized retailing and some are not in favor of organized retailing
More Regulations and Restrictions

Foreign Direct Investment Real Estate Laws

Contd .
Shortage of Personnel
Shortage of Trained and Skilled Manpower

Some of the Challenges

Shortage of Management Professionals Cash Flow and Supply Chain Management

Why Retail?
Huge unorganized market This sector is d largest source of employment after agriculture and has deep penetration into rural India generating almost 10% of the GDP

Over the last few years, retail sales in India are hovering 33-35% of the GDP as compared to 20% of US.
Countries Trade (US$ Billion) 180-394 Employme nt (%) 7 Shops (Million) 12 Organized Sector Share 2-3

INDIA

CHINA

360

12

2.7

20

US

3800

12.6-16

15.3

80

Key drivers
Changing consumer profile & Demographics Increase in number of international brands available in Indian market Economic implications of Govt. increasing urbanization Credit availability Improvement in infrastructure Increasing investments in technology

Real estate building, a world class shopping environment for the customers

Current entry options for foreign players

Franchise Agreements Most widely used entry route by multinational retailers Example: Dominos, Pizza hut

Cash & Carry Wholesale Trading

100% FDI in wholesale Trading a business model that virtually excludes all credit transactions, requiring up-front payment for all goods and services Foreign Company enters into a licensing agreement with a domestic Retailers

Strategic Licensing Agreements

FDI in India
POSITIVES For the economy:
Each retailer has to bring in at atleast $100 million + additional investment in backend & logistics Increase Exports Create new Jobs NEGATIVES Local kiranas Those in the vicinity of big stores may find it difficult to compete

For consumer Better choice of products under one roof Lower prices because of large scale & cutting intermediaries
For suppliers Better prices & big orders for economies of scale

Intermediaries Middlemen will become redundant as retailers begin to source directly

FMCG players May have to settle for lower margins as big retailers demand finer prices

Challenges in Retailing
1. Shortage of talented professional Especially at the middle management level.

2. Supply chains More efficient Shorter Chains

3. Lack of adequate infrastructure Roads, electricity, Ports 4. Not a preferred career option Educated class chose sectors like IT, BPO and Financial services 5. Non-availability of Government Land Difficult to find a good real estate in terms of location and size

Challenges in Retailing
6. Different Tax System Government is trying to implement a uniform value added tax across states Leading to increased costs and complexities Does not establish an effective distribution network 7. Stringent Labor Laws Part Time employees Minimum wages leading to limited flexibility of operations 8. No Industry Status Making it difficult to raise finance 9. Government restriction on FDI Leading to absence of foreign players Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices.

Thank You