Are Indian Retailers ready for Mall Culture?

Authors: 1. Prof. Pritee Saxena Faculty Member-Marketing MemberICFAI Business School, Mumbai 2. Prof. Satish Ailawadi Associate Professor-Marketing ProfessorVESs Institute of Management Studies & Research, Mumbai

THE ROADMAP.
The Changing Retail Scenario Retail Real Estate in India Malls or High-Streets? The Study.. FDI in Retail Conclusion.

RETAIL CHANGE.

YEAR 2004 Total Retail Market: INR 13139 Bn Total Organized Retail Market : INR 152 Bn Share of Malls: INR 29Bn

YEAR 2010 Total Retail Market: INR 20850 Bn Total Organized Retail Market : INR 524 Bn Share of Malls: INR 384.47Bn

INDIAN RETAIL BY 2006-07 2006 50 million sq. feet of space under development. 7 major cities to account for 41 mill sq. feet under development. 300 malls, shopping centres and multiplexes under construction. To have 35 Hypermarkets,325 large Departmental Stores, and 1500 Supermarkets.

(Source: Images Retail)

Key facts
Organised Retail to form 10% of total Retailing by the end of this decade. Cultural and Regional differences are the biggest challenges. They deter Retailers, from adopting a single format. Hypermarket is emerging as the most favourable format, for the time being. Convenience store is the best way to tackle Unorganised market. Indias vast middle class and its virtually untapped Retail Sector are key attractions for global Retail Giants. 51% FDI in single brand retailing allowed to attract investment and technology and to cater to the demand for branded goods in India. Of the total organised retail space being developed panIndia, 35% is to come up in Tier II and Tier III cities. ( Source Knight Frank Research & Bharat Book Review )

THE CHANGE

Evolution of Indian Retail

Historic/Rural Reach Traditional/Pervasive Reach Government Supported Modern Formats/ International

[A Phone Call Away]

Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls PDS Outlets Khadi Stores Cooperatives
[The Wonder Years]

[While You Were Sleeping]

Convenience Stores Mom and Pop/Kiranas Weekly Markets Village Fairs Melas
Source of Entertainment Neighborhood Stores/Convenience

[The Government Awakes]

Availability/ Low Costs / Distribution

Shopping Experience/Efficiency (Source: ICICI - FDI In Retail)

THE CHANGING SHOPPING EXPERIENCE.

Malls. Hyper marts/Supermarkets Department Stores Discount Stores Specialty Stores Convenience Stores MBOs FEC (Family Entertainment Centre)

TODAYS RETAIL FORMATS

CATEGORIES OF INDIAN RETAILERS

Corporate Houses Tatas: Tata Trent RPG group: Food World, Health and Glow, etc ITC: Wills Life Style Rahejas (Shoppers Stop), Hiranandani (Haiko), DLF(DT cinemas) etc. Dedicated brand outlets Nike, Reebok, Zodiac etc Multi-brand outlets Vijay Sales, Viveks etc Manufacturers/ Exporters Pantaloons, Bata, Weekender

CONSUMPTION-LED GROWTH IN INDIA

Rising Income Levels
30.0 25.0 Rs '000 (Per Annum) 20.0 15.0 10.0 5.0 0.0 2001 2002 2003 2004 2005 18.9 20.2 21.4 23.7 26.1

Cheaper Credit ...

8.0
14.0 12.0 10.0 8.0 8.0 6.0 4.0 2.0 0.0 2000 2001 2002 2003 2004 2005 7.0 6.5 6.3 6.0 12.5 12.0 Bank Rate Prime Lending Rate

& Benign Inflation

Consumer Price Inflation 7.1 Wholesale Price Inflation 6.5 5.4 3.4 3.4 3.8 4.3 3.4 4.0 3.6 3.8 3.9 7.0 6.0

Per Capita - At Current Prices

12.0

11.5

11.0

10.8 6.0

5.0 4.0 3.0 2.0 1.0 0.0 2000 2001 2002 2003

2004

2005

Young Demographics (average age 24 years) with Increasing Consumerism Instigated by Media Leading to Consumption Wave
Cellular Phones
(millions)

Cable TV Subscriptions
(million)
80 121 80 70 60 50 40 48

140 120 100 80 60 40 20 0 1998 2004 1 43

30 20 10 0

25

1998 2007E

2004

2007E

(Source : CMIE, Enam, Eco Survey)

YOUTH : NO GUILT OF CONSUMPTION

India Worlds Youngest Population, Median age of 24 yrs More than Half the Population has Grown up in Post Liberalization Era Population in the Age Group 15-44yrs (consuming class) Expected to Increase from 330mn in 2001 to 700mn by 2010
Median Age (yrs)

Indian Youth more Ambitious & Confident From Save Now & Consume Later to Affordable Indulgence
(Source: SSKI)

INDIAN RETAIL-LED REAL ESTATE

Not a Single Mall a Decade Ago - Less than Half a Dozen Malls a Year Ago Currently approximately 96 malls in India, expected to Rise to 158 by End of Current Year and 200 in next 3 years. By year 2006-07 : 50 mn sq.ft of Quality Space under Development 7 Major cities to account for 41 mn sq.ft Development To open - 35 Hypermarkets, 325 Large Department Stores 1500 Supermarkets and over 10,000 New Outlets Mall Space spread Across India by 2007

Source : Images KSA Technopak Study

DRIVERS OF CHANGE
Housing sector expected to sustain strong growth in light of attractive interest rates and tax incentives Commercial sector to grow in tandem with sectors like IT, ITES, Banking, Telecom, etc. Increasing numbers of shopping malls Lease v/s Buy gaining ground for commercial developments

Contd..
Heightened development in real estate in Tier II & III locations New Residential Models-Townships FDI would improve construction quality and improve efficiencies Potential Entry of Real Estate Mutual funds and Real Estate Investment Trusts

REAL ESTATE RATES.

( Source: JM Morgan Stanley Research)

THE STUDY

CATEGORIES IN INDIAN RETAIL SECTOR

SAMPLE SIZE
Category Mens Wear Brands Interviewed Zodiac, Daks, Numero Uno, Lacoste, Koutons, Oxemberg, Mens Boulevard, Tuille, John Players, Blue Tonic Amarsons, Satya Paul, Peppertree, After shock, Hakoba, Jashn Blackberry, Colorplus, Pepe Me & Moms, Scrams, Barbie, 4214 Ethos, Watches N More, Citizen, Swatch, Titan Ddamas, Gili, Orra, TBZ, Tanishq, Sia Art Jewellery VIP, Samsonite Archies, Galleria, Hallmark Regal, Minis, Catwalk, Charles & Keith, In-touch, Lords, Clarks, Kittens, Metro, Bata Spaces, Hasthkala, Hobby ideas, Pampered Home, Dreams Bombay Blues, Thai Lotus, Ruby Tuesday, Bateel, Sweet World , Subway, Rajdhani Womens Wear Unisex apparels Kidswear Time wear Jewellery Luggage Gifts Shoes

Home furnishings Food & Beverages

OBSERVATIONS
Category Price range (Rs.) Average Marg in (%) 10-15 20-30 25 25-30 30 37 27 27 28 25 15 Avg Shop Size (sq.ft) 800-1,000 1,5002,000 1,500 1,000 500-700 1,5002,000 1,0001,200 5,00-7,00 1,2001,500 1,5002,000 1,500 Location in Malls Mens Wear Womens Wear Unisex apparels Kidswear Time wear Jewellery Luggage Gifts Shoes Home furnishings Food & Beverages 500-5,000 300-30,000 850-8,000 200-1,000 300-30,000 600-30,000 500-2,000 50-1,000 200-4,000 500 onwards 50 onwards Ground Floor Womens Zone Ground First Floor/ Child Zone Ground Floor Ground Floor Zone Ground Floor Ground Floor Ground Floor Ground Zone Floor /Womens / Womens

Food Zone

Avg.Profit Margin Across Categories

40% 35% 30% 25% 20% 15% 10% 5% 0%

pp A

37% 27% 30% 28% 27%

25%

15%

ls re a

w Je

ry le el

ew m Ti

ar e & e ev B

s ge ra

s oe Sh m Ho e r Fu

g in h is n

s la el c is

s ou ne

Fo

od

Categories
Avg.Profit margin (%)

Avg.Store Area (per sq.ft)

2000 1800 1600 1400 1200 1000 800 600 400 200 0
pp A ls re a ry le el ew m Ti ar e & e ev B s ge ra s oe Sh m Ho e r Fu g in h is n s la el c is s ou ne

1900 1380 1207 1020 660

1890

700

w Je

Fo

od

Categories
Avg.Store Area (per sq.ft)

Avg.Ticket Price across categories

60000 50000 40000 30000 20000 10000 0
p Ap ls re a ry le el eW m Ti r ea s oe Sh om H e r Fu g in h is n s l la ce is s ou ne

51750

14950 2245 1443 483 1607

ew J

Categories
Avg.Ticket Price

Apparels (Malls Vs High Street)

100% 80% 60% 40% 20% 0% Men's Womens Malls Kids Unisex
15% 30% 35% 27% 85% 70% 73% 65%

High Street

Home Furnishings ( Malls Vs High Streets)

29%
In Malls Outlets In High Street outlets

71%

Jewellery ( Malls vs High Streets)

2%

In Malls Outlets In High Street outlets

98%

ISSUES TO BE ADDRESSED?
Efficacy of Mall Management- Contractual agreement Consumer traffic Real estate cost Mall Promotional schemes Mall layout and design Mall facilities like parking, safety, lighting and air conditioning, housekeeping and maintenance Mall location and shop neighborhood Mall Brands

FDI IN RETAIL..

FDI IN INDIAN RETAILING

Current Indian FDI Regime FDI not permitted in retail trade sector, except in: Private labels Hi-Tech items / items requiring specialized after sales service

CONTD.
Medical and diagnostic items Items sourced from the Indian small sector (manufactured with technology provided by the foreign collaborator) For 2 year test marketing (simultaneous commencement of investment in manufacturing facility required)

WHY FDI?
Improve competition Develop the market Greater level of exports due to increased sourcing by major players  Investment in technology Better lifestyle Manpower and skill development  Investment in whole supply chain Tourism Development

HOW FDI ?
FDI should be allowed in stages Initial stages: 26% FDI Establishment Phase: 49% FDI Mature Phase: 100% FDI FDI policy No incentives needed to attract FDI Market size and potential are sufficient inducers No need for costly tax breaks, import duty exemptions, land and power subsidies, and other enticements
2 Years 2 Years 2 Years

BENEFITS TO THE GOVERNMENT

Greater Per Capita Incom e Greater Consumer Spending due to economic boom GDP Grow th

Employ Benefits ment to Govt. Increasing Tax Paying Population

Greater Exports Greater Sourcing From India

Increased Tax Revenues

Reduced Tax Evasion

Challenges ahead
Differences between urban and rural consumers Cultural preferences and tastes that differ from global economy Fragmented Market Extensive Distribution network required High Capital Requirement Real Estate and Infrastructure

Thank You!

 Questionnaire

References
http://news.moneycontrol.com/india/newsarticle/stocksnew s.php?autono=225909 http://www.ciionline.org/Common/313/BACKGROUNDNOTE 2004.pdf http://www.garnerasia.com/gbiad6.html http://www.imagesfashion.com/Cover_story1_jan05.html http://www.imagesfashion.com/index.html Books Referred : Retail Management - A Strategic Approach by Barry Berman and Joel R Evans