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A

Report

On

Productivity in Retail Industry in India

By Hassan Al Banna

HASSAN AL BANNA
The Indian Retail Scene

Organized Retailing and Kirana Shops

India's retail sector is going to transform and with a three-year compounded annual
growth rate of 46.64 per cent, retail sector is the fastest growing sector in the Indian
economy. Traditional markets are transforming themselves in new formats such as
departmental stores, hypermarkets, supermarkets and specialty stores. Western-style
malls have begun appearing in metros and near metro cities, introducing the Indian
consumer to a new shopping experience.
KSA-Technopak, a retail consulting and research agency, predicts that by 2010,
organized retailing in India will cross the US$ 21.5-billion mark from the current size of
US$ 7.5 billion.
The Indian retail market is of enormous size about US$ 350 billion. But organized retail
is not so huge and it is at only US$ 8 billion. However, the opportunity for growth is huge
—by 2010, organized retail is expected to grow to US$ 22 billion. With the growth of
organized retailing estimated at 40 per cent over the next few years, Indian retailing is
clearly at a tipping point.
This report attempts to analyze the areas where retail sector is growing and will grow,
what will be the target market segment for the retailers and how will they try to serve this
segment.

Overview

India is witnessing an unprecedented consumption boom. The economy is growing


between 8 to 10 percent and the resulting improvements in income dynamics along with
factors like favorable demographics and spending patterns are driving the consumption
demand. Indian Retail Industry is ranked among the ten largest retail markets in the
world. The attitudinal shift of the Indian consumer in terms of "Choice Preference",
"Value for Money" and the emergence of organized retail formats have transformed the
face of Retailing in India. The Indian retail industry is currently estimated to be a US$

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200 billion industry and organized Retailing comprises of 3 per cent (or) US$6.4 Billion
of the retail industry. With a growth over 20 percent per annum over the last 5 years,
organized retailing is projected to reach US$ 23 Billion by 2010.
The Indian retail industry though predominantly fragmented through the owner -run "
Mom and Pop outlets" has been witnessing the emergence of a few medium sized Indian
Retail chains, namely Pantaloon Retail, RPG Retail, Shoppers Stop, Westside (Tata
Group) and Lifestyle International. In the last few years, Indians have gone through a
dramatic transformation in lifestyle by moving from traditional spending on food,
groceries and clothing to lifestyle categories that deliver better quality and taste. Modern
retailing satisfies rising demand for such goods and services with many players entering
the bandwagon in an attempt to tap greater opportunities.
According to the report of American Management Consulting Firm A. T. Kearney's 2007
Global Retail Development Index (GRDI), India was on the first position , continuing for
three years (2005 and 2007), among 30 countries as the world's most attractive market for
mass merchant and food retailers seeking overseas growth. Currently it is in the second
position according to the report of American Management Consulting Firm A. T.
Kearney's 2008 Global Retail Development Index (GRDI). On the other hand, China is
loosing its attractiveness and making the way to India GRDI helps retailers to prioritize
their global development strategies by ranking emerging countries based on a set of 25
variables including economic and political risk, retail market alternatives, retail saturation
level, and the difference between gross domestic product growth and retail growth. The
study quotes: "The Indian retail market is gradually but surely opening up, while China's
market becomes increasingly saturated."

The fear of a recession looms over the United States. And as the cliche goes, whenever
the US sneezes, the world catches a cold. This is evident from the way the Indian markets
crashed taking a cue from a probable recession in the US and a global economic
slowdown.

Weakening of the American economy is bad news, not just for India, but for the rest of
the world too.

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So what is a recession?

A recession is a decline in a country's gross domestic product (GDP) growth for two or
more consecutive quarters of a year. A recession is also preceded by several quarters of
slowing down.

What causes it?

An economy which grows over a period of time tends to slow down the growth as a part
of the normal economic cycle. An economy typically expands for 6-10 years and tends to
go into a recession for about six months to 2 years.

A recession normally takes place when consumers lose confidence in the growth of the
economy and spend less.

This leads to a decreased demand for goods and services, which in turn leads to a
decrease in production, lay-offs and a sharp rise in unemployment.

Investors spend less as they fear stocks values will fall and thus stock markets fall on
negative sentiment.

Impact of a Possible US Recession in India

In other words, the effects of this recession on India may be quite distinct from those of
the past. Here are some areas worth following:

1. A credit crisis in the United States might lead to a restructuring of asset allocation at
pension funds. It has been suggested that CalPERS is likely to shift an additional US$24
billion to its international portfolio. A large portion of this is likely to flow into India and
China. If other funds follow suit, a cascading effect can be expected. Along with the
already significant dollar funds available, the additional funds could be deployed to
create infrastructure--roads, airports, and seaports--and be ready for a rapid takeoff when
normalcy is restored.

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2. In terms of specific sectors, the IT Enabled Services sector may be hit since a
majority of Indian IT firms derive 75% or more of their revenues from the United States--
a classic case of having put all eggs in one basket. If Fortune 500 companies slash their
IT budgets, Indian firms could be adversely affected. Instead of looking at the scenario as
a threat, the sector would do well to focus on product innovation (as opposed to merely
providing services). If this is done, India can emerge as a major player in the IT products
category as well.

3. The manufacturing sector has to ramp up scale economies, and improve


productivity and operational efficiency, thus lowering prices, if it wishes to offset the loss
of revenue from a possible US recession. The demand for appliances, consumer
electronics, apparel, and a host of products is huge and can be exploited to advantage by
adopting appropriate pricing strategies. Although unlikely, a prolonged recession might
see the emergence of new regional groupings--India, China, and Korea?

4. The tourism sector could be affected. Now is the time to aggressively promote health
tourism. Given the availability of talented professionals, and with a distinct cost
advantage, India can be the destination of choice for health tourism.

5. A recession in the United States may see the loss of some jobs in India. The concept of
Social Security, that has been absent until now, may gain momentum.

6. The Indian Rupee has appreciated in relation to the US dollar. Exporters are pushing
for government intervention and rate cuts. What is conveniently forgotten in this debate
is that a stronger Rupee would reduce the import bill, and narrow the overall trade deficit.
The Indian central bank (Reserve Bank of India) can intervene anytime and cut interest
rates, increasing liquidity in the economy, and catalyzing domestic demand. A strong
domestic demand would also help in competing globally when the recession is over.

In summary, at the macro-level, a recession in the US may bring down GDP growth, but
not by much. At the micro-level, specific sectors could be affected. Innovation now may
prove to be the engine for growth when the next boom occurs.

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For US firms, who have long looked at China as a better investment destination, this may
be a good time to look at India as well. After all, 350 million people with purchasing
power cannot be ignored. This is not a sales pitch for India, but only a gentle suggestion
to US corporations.

How to fight recession

Tax cuts are the first step that a government fighting recessionary trends or a full-fledged
recession proposes to do. In the current case, the Bush government has proposed a $150-
billion bailout package in tax cuts.

The government also hikes its spending to create more jobs and boost the manufacturing
and services sectors and to prop up the economy. The government also takes steps to help
the private sector come out of the crisis.

Past recessions

The US economy has suffered 10 recessions since the end of World War II. The Great
Depression in the United was an economic slowdown, from 1930 to 1939. It was a
decade of high unemployment, low profits, low prices of goods, and high poverty.

The trade market was brought to a standstill, which consequently affected the world
markets in the 1930s. Industries that suffered the most included agriculture, mining, and
logging.

In 1937, the American economy unexpectedly fell, lasting through most of 1938.
Production declined sharply, as did profits and employment. Unemployment jumped
from 14.3 per cent in 1937 to 19.0 per cent in 1938.

The US saw a recession during 1982-83 due to a tight monetary policy to control
inflation and sharp correction to overproduction of the previous decade. This was
followed by Black Monday in October 1987, when a stock market collapse saw the Dow
Jones Industrial Average plunge by 22.6 per cent affecting the lives of millions of
Americans.

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The early 1990s saw a collapse of junk bonds and a financial crisis.

The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest
expansion on record.

From March to November 2001, employment dropped by almost 1.7 million. In the 1990-
91 recession, the GDP fell 1.5 per cent from its peak in the second quarter of 1990. The
2001 recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000.

The dot-com burst hit the US economy and many developing countries as well. The
economy also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as
technology stock prices crashed.

Impact of a US recession on India

A slowdown in the US economy is bad news for India.

Indian companies have major outsourcing deals from the US. India's exports to the US
have also grown substantially over the years. The India economy is likely to lose between
1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big
tickets deals in the US would see their profit margins shrinking.

The worries for exporters will grow as rupee strengthens further against the dollar. But
experts note that the long-term prospects for India are stable. A weak dollar could bring
more foreign money to Indian markets. Oil may get cheaper brining down inflation. A
recession could bring down oil prices to $70.

Between January 2001 and December 2002, the Dow Jones Industrial Average went
down by 22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record
highs reached is taken, the DJIA was down 30 per cent in December 2002 from the highs
it hit in January 2000. In contrast, the Sensex was down 45 per cent.

The whole of Asia would be hit by a recession as it depends on the US economy. Asia is
yet to totally decouple itself (or be independent) from the rest of the world, say experts.

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The Growth Drivers

The Indian Retail growth can be attributed to the several factors including

* Demography Dynamics: Approximately 60 per cent of Indian population below 30


years of age.
* Double Incomes: Increasing instances of Double Incomes in most families coupled with
the rise in spending power.
* Plastic Revolution: Increasing use of credit cards for categories relating to Apparel,
Consumer Durable Goods, Food and Grocery etc.
* Urbanization: increased urbanization has led to higher customer density areas thus
enabling retailers to use lesser number of stores to target the same number of customers.
Aggregation of demand that occurs due to urbanization helps a retailer in reaping the
economies of scale.

Investment Opportunities
* Potential for Investment: The total estimated Investment Opportunity in the retail sector
is around US$ 5-6 Billion in the Next five years.
* Location: with modern retail formats having made their foray into the top cities namely
Hyderabad, Coimbatore, Ahmedabad, Mumbai, Pune, Chennai, Bangalore, Delhi, Nagpur
there exists tremendous potential in two tier towns over the next 5 years.
* Sectors with High Growth Potential: Certain segments that promise a high growth are o
Food and Grocery (91 per cent)o Clothing (55 per cent)o Furniture and Fixtures (27 per
cent)o Pharmacy (27 per cent) o Durables, Footwear & Leather, Watch & Jewellery (18
per cent).
* Fastest Growing Formats: Some of the formats that offer good growth potential are: o
Specialty and Super Market (45 per cent) o Hyper Market (36 per cent)o Discount stores
(27 per cent)o Department Stores (18 per cent)o Convenience Stores and E-Retailing (9
per cent)
* Supply Chain Infrastructure: Supply chain infrastructure in terms of cold chain and
Logistics.

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* Rural Retail: Retail sector offers opportunities for exploration and investment in rural
areas, with Corporates and Entrepreneurs having made a foray in the past. India's largely
rural population has caught the eye of retailers looking for new areas of growth . ITC
launched the country's first rural mall 'Chaupal Sagar', offering a diverse product ranges
from FMCG to electronics appliance to automobiles, attempting to provide farmers a
one-stop destination for all of their needs. There has been yet another initiative by the
DCM Sriram Group called the 'Hariyali Bazaar', that has initially started off by providing
farm related inputs and services but plans to introduce the complete shopping basket in
due course. Other corporate bodies include Escorts and Tata Chemicals (with Tata Kisan
Sansar) setting up agri-stores to provide products/services targeted at the farmer in order
to tap the vast rural market.
* Wholesale Trading: wholesale trading also holds huge potential for growth. German
giant Metro AG and South African Shoprite Holdings have already made headway in this
segment by setting up stores selling merchandise on a wholesale basis in Bangalore and
Mumbai respectively. These new-format cash-and-carry stores attract large volumes from
a sizeable number of retailers who do not have to maintain relationships with multiple
suppliers for all their needs.
* Cheap Consumer Credit

Major Formats of In-Store Retailing

Format
Description
The Value Proposition
Branded Stores
Exclusive showrooms either owned or franchised out by a manufacturer.
Complete range available for a given brand, certified product quality
Specialty Stores
Focus on a specific consumer need, carry most of the brands available
Greater choice to the consumer, comparison between brands is possible
Department Stores

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Large stores having a wide variety of products, organized into different departments such
as clothing, house wares, furniture, appliances, toys, etc.
One stop shop catering to varied/ consumer needs.
Supermarkets
Extremely large self-service retail outlets
One stop shop catering to varied consumer needs
Discount Stores
Stores offering discounts on the retail price through selling high volumes and reaping
economies of scale
Low Prices
Hyper- mart
Larger than a supermarket, sometimes with a warehouse appearance, generally located in
quieter parts of the city
Low prices, vast choice available including services such as cafeterias.
Convenience stores
Small self-service formats located in crowded urban areas.
Convenient location and extended operating hours.
Shopping Malls
An enclosure having different formats of in-store retailers, all under one roof.
Variety of shops available to each other. Indian Retail- expanding the number of formats
In modern retailing, a key strategic choice is the format. Innovation in formats can
provide an edge to retailers. Organized retailers in India are trying a variety of formats,
ranging from discount stores to supermarkets to hypermarkets to specialty chains.

Formats Adopted by Key Players in India

Retailer
Original formats
Later Formats
RPG Retail
Supermarket (Foodworld)

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Hypermarket (Spencer's)Specialty Store (Health and Glow)
Piramal's
Department Store (Piramyd Megastore)
Discount Store (TruMart)
Pantaloon Retail
Small format outlets (Shoppe) Department Store (Pantaloon)
Supermarket (Food Bazaar) Hypermarket (Big Bazaar) Mall (Central)
K Raheja Group
Department Store (shopper's stop)Specialty Store (Crossword)
Supermarket (TBA) Hypermarket (TBA)
Tata/ Trent
Department Store (Westside)
Hypermarket (Star India Bazaar)
Landmark Group
Department Store (Lifestyle)
Hypermarket (TBA)
Others
Discount Store (Subhiksha, Margin Free, Apna Bazaar), Supermarket (Nilgiri's),
Specialty Electronics Road Ahead; Plans of Large Retailers * Reliance Retail: investing
Rs. 30,000 crore ($6.67 billion) in setting up multiple retail formats with expected sales
of Rs. 90,000 crore plus ($20 billion) by 2009-10. * Pantaloon Retail: Will occupy 10 mn
sq.ft retail space and achieve Rs.9,000 crore-plus ($2 bn) sales by 2008.* RPG: Planning
IPO will have 450-plus Music World, 50-plus Spencer's Hyper covering 4 mn sq.ft by
2010. * LIFESTYLE: Investing Rs.400 crore-plus ($90 mn) in next five years on Max
Hypermarkets & value retail stores, home and lifestyle centres. * Raheja's: Operates
Shoppers' Stop, Crossword, Inorbit Mall, and 'Home Stop' formats. Will operate 55
"Hypercity" hypermarkets with US$100 million sales across India by 2015.* Piramyd
Retail: Aiming to occupy 1.75 million sq.ft retail space through 150 stores in next five
years.* TATA (Trent Ltd.): Trent to open 27 more stores across its retail formats adding
1 mn sq.ft of space in the next 12 DLF malls. Titan industries to add 50-plus Titan and
Tanishq stores in 2006.

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Small is big for Indian retail

It's raining malls in small-town India. Whether it's Kanpur, Ahmedabad, Indore, Agra,
Baroda or Surat, the mall and multiplex culture has caught on in the country's smaller
cities, powered by the burgeoning purchasing power of India's middle-class. From a
handful of malls in the mid '90s, India today has nearly 200 malls spread across large and
small cities. And 700 new malls are coming up all over India-40% of them concentrated
in the smaller cities.
Small-town India is the next big thing in the retail business. Consider these numbers: in
2005, the contribution of smaller cities to total organized retailing sales was 15%. By the
end of this year, that proportion is expected to grow to 25%. Organized retailing in small-
town India is growing at a staggering 50-60% a year compared to 35%-40% in the large
cities. The striking point is that it is the big names in the organized retail business that are
eyeing these new opportunities.
The Kishore Biyani-owned Future Group, India's largest retailer, plans to invest Rs 3,600
crore in 100 stores in 30 cities, increasing its retail space from 3.5 million square feet to
30 million sq feet. The RPG group plans to open malls in all cities with a population of
over 8 lakh.
Similarly, Wills Lifestyle, the garments and accessories retailing division of ITC Ltd,
plans to increase its footprint by doubling the number of stores from 50 to around 100 in
the next two to three years, mostly in smaller cities. Even Sunil Mittal's Bharti group has
announced plans to get into food and farm products retailing. All these plans, however,
are dwarfed by Mukesh Ambani's ambitions to do a Wal-Mart in India by investing $5.60
billion (Rs 25,000 crore) and covering 1,500 cities and towns.
The small-town retail boom could be considered a show-case of India's free-market
prosperity. It is being powered by healthy economic growth that is making more Indians
more prosperous. Organized retailers have understood this and are hoping to ride the
wave, exploit the first-mover advantage and establish strong brand loyalties in these
relatively under-served markets.
Indeed, this is probably the most compelling example of the trickle-down impact of
liberalization in India. Looking ahead, retail analysts suggest that the sustained success of

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the IT and ITeS industries in small towns is expected to create more jobs and enhance
spending power.
Typically, small cities offer a 15% to 30% cost advantage over larger cities, not just in
terms of employee costs but real estate costs as well, not to speak of the gains that accrue
from reduced staff attrition rates. This gap is expected to widen over the next few years,
creating a pull for smaller towns that will, in turn, power the small-town retail revolution.
At present, real estate costs present a major incentive for India's organized retailers.
Average rental values for ground-floor space are Rs 50-60 per square foot a month,
against Rs 100-120 per sq foot a month in the bigger cities. However, a strong demand
for retail space has more than doubled rentals in cities like Jaipur, Chandigarh, Surat and
Lucknow. While in the metros, retailers are filling gaps by increasing more stores, in
small towns, these malls are way beyond the expectations of the consumers. These cities
are untapped markets and retailers find it important to establish their brands there.
Most smaller cities are seeing plenty of action. For instance, Ludhiana can already boast
worldwide restaurant chains like KFC, McDonald's, Pizza Hut, Domino's Pizza, Ruby
Tuesday and Subway. A new world-class, 25-acre commercial centre and some seven
new shopping malls-cum-entertainment centres are under construction.
The Indian retail market is estimated at $350 billion. But organized retail is estimated at
only $8 billion. However, the opportunity is huge—by 2010, organized retail is expected
to grow to $22 billion. With the growth of organized retailing estimated at 40% (CAGR)
over the next few years, Indian retailing is clearly at a tipping point. India is currently the
ninth largest retail market in the world. It is names like Dehradun, Vijayawada, Lucknow
and Nasik that will power India up the rankings soon.
Small Local Stores / Kiranas
The small local stores have dominated Indian retailing over the decades and are present in
every village and local community, addressing the needs of the population in the area and
being the point of contact with the consumer. The distribution networks of brands extend
right upto this point to stay in touch with customer needs and preferences.
India like most other countries has a very large network of local stores. The retail
industry in rural India has typically two forms: "Haats" and "Melas". You will find these
in almost every village and locality. A lot of them function as paan and cigarette outlets

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with tea and coffee sometimes also offered. Besides this these stores stock and offer
small eats and soft drinks including biscuits, soft drinks, chocolate, sweets, bread and
baked products. Many of them also sell fruits like bananas and a range of toiletries and
cosmetics like soaps, shampoos, toothpastes and some creams. These small stores cater to
the needs of their own local population and travelers who stop by for a smoke or a snack.
A little larger format is the neighborhood grocery store that focuses on grains, foods,
snacks and toiletries besides other home essentials. Fruits and vegetables that are
perishable are usually maintained and offered by exclusive vegetable stores and not by
the normal groceries. Every fair sized village is likely to have at least one grocery store, a
fruit and vegetable shop and a paan and cigarette shop. The new addition of the past
decade is to have a telephone booth that lets locals and travelers make national and
international telephone calls. This network is very large and spread all across India. It is
not really a network since each store is individual or family owned and has no connection
with the other. It does however represent a network since large consumer product
companies like Unilever, Procter & Gamble, Colgate-Palmolive, Cadbury, Coca Cola,
Pepsi and ITC uses them as their final point of retail to the consumer. While it is
commonly believed that the new retail chains will drive these small stores out of
business, reality points the other way and it is likely that these stores will continue even
in the next two decades of growth. These small stores are very personal and have strong
relationships with the local population. They are points of news and connection. They
offer credit to the local population and help out in times of crisis. They also have a very
good understanding of requirements of the local population and have very low overheads
enabling them to offer the best price for their products.
Shopping Malls
The new shopping malls that have been expanding their footprint across Indian cities are
well designed, built on international formats of retailing and integrated with
entertainment and restaurants to provide a complete family experience. Over 300 malls
are expected to be built over the next two years and most Indian cities with over a million
population will be exposed to this modern method of retailing.
Shopping malls have existed in India since several decades but were designed and built to
house several shops in a single facility. These malls also known as Shopping Arcades

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offered only rows of shops, most of which were small stores that promised bargains for
their various wares. These Shopping Arcades tried to maximize on their store space and
did not offer any areas for recreation and entertainment. The present day malls are a
creation of the past few years post 2000. They are designed professionally using a lot of
international experience and combine shopping with a lot of brand building, recreation,
food and entertainment. Malls also have a large format store that serves as their anchor
for shopping and a prominent restaurant that anchors the food needs of visitors. Most
malls also feature a multiplex cinema that offers entertainment to the visitors of the mall.
Finally the mall has large atria and open spaces to allow visitors and families to hang-out.
These new format malls are coming up in all the major cities of India. The cities that are
seeing the first rush of malls are New Delhi, Noida, Gurgaon, Chandigarh, Mumbai,
Pune, Bangalore, Ahmedabad, Chennai, Kochi, Hyderabad, Kolkata
The next run-up of the malls will be the second level cities of India that includes
Visakhapatnam, Coimbatore, Trivandrum, Raipur, Bhopal, Surat, Jaipur, Kanpur,
Lucknow, Ranchi, Cuttack, Dehra Dun.
The new malls are air-conditioned and have spacious areas and accesses which make
them a true breath of fresh-air from the earlier arcades and shop line streets that used to
be the available options for Indian customers.

Malls: The new face of retail market

Robust GDP growth, stronger currency reserves and ever-improving market and
operating environments are propelling the Indian market through a period of stellar
growth - and the retail community is responding with newer formats and innovative
products. The economy of India has shown a remarkable increase driven by overall
political and social stability.
The decade-old economic reforms have engendered a new, shop-till-you-drop breed of
middle class Indians who, having tasted the shopping experience of big cities overseas,
have fuelled a demand that was inevitable -- the rise of the shopping malls. Centrally air-
conditioned malls with piped music, high-speed lifts and escalators, underground parking
space, a multiplex movie theater, multi-cuisine restaurants and a host of national and

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international brands, these malls generates approximately 25,000 footfalls each, per day,
with figures doubling on weekends.
Sobha Group has set its eyes on launching the largest retail mall in the country. Retail Biz
tracks this unprecedented move that is ready to add a new chapter in the history of Indian
retailing. It is estimated that there are 450 malls in various stages of development across
India, 60 in the greater Delhi area alone. This trend has attracted several major global
retail players to India. International style shopping has finally come to India - and with a
splash.

Productivity in retail industry in India

Below given is the retail trade figures in India for the corresponding years :

Retail Trade 2005 2006 2007 2008 2009 2010


Retail Sales
15,409 17,360 19,465 21,715 24,215 27,107
(Rs Bn)
Retail sales
349.4 385.8 421.3 467.0 516.3 564.7
(Us $bn)
Retail Sales
volume 6.0 7.5 7.7 6.9 6.8 7.3
growth (%)
Retail sales
US$ Value 13.6 10.4 9.2 10.8 10.6 9.4
growth (%)

The trends that are driving the growth of retail sector in India are:

• Low share of organized retailing


• Falling real estate prices
• Increase in disposable income and customer aspiration
• Increase in expenditure for luxury items

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INDIA RETAIL: 2006 (at current prices)

India
Organized %
Retail
Retail Segments Retail Organized
Value
(Rs.Crore) in 2006
(Rs.Crore)
Clothing, Textiles &
113,500 21,400 18.9
Fashion Accessories
Jewellery 60,200 1,680 2.8
Watches 3,950 1,800 45.6
Footwear 13,750 5,200 37.8
Health & Beauty care
3,800 400 10.6
services
Pharmaceuticals 42,200 1,100 2.6
Consumer Durables,
Home 48,100 5,000 10.4
Appliances/equipments
Mobile handsets.
21,650 1,740 8.0
Accessories & Services
Furnishings, Utensils,
Furniture-Home & 40,650 3,700 9.1
Office
Food & Grocery 743,900 5,800 0.8
Catering Services (F &
57,000 3,940 6.9
B)
Books, Music & Gifts 13,300 1,680 12.6
Entertainment 38,000 1,560 4.1
US$ 270 US$ 12.4
Billion Billion

Quick Stats of Indian Retail

Markets

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• Market size (total) 2006: US$ 300 bn/annum
• Market size (total) 2010: US$ 427 bn/annum
• Market size (total) 2015: US$ 637 bn/annum
• Market size (modern retail) 2006: US$ 9-12 bn/annum
• Market size (modern retail) 2011: US$ 60 bn/annum
• Annual rate of growth (modern retail): 35%
• Penetration (modern retail) 2006: 3 to 4%
• Penetration (modern retail) 2010: 10%
• Number of retail outlets (total): 12 million

Investment

New Investment by 2011: US$ 30 bn

Employment

• No. of persons employed (total): 21 mn


• No. of new jobs in next two years: 2 mn.

Wealth

No. of dollar designated millionaires in India(2006) 100,015


Retail Space

• Typical space per outlet: 100 to 500 sq.ft.


• Space occupied (modern retail): 35 mn sq.ft.
• Operating Malls 2007: 114 (35 mn sq.ft.)
• New Malls under construction: 361 (117 mn sq.ft.)
• New space distribution: 65% (top 7 cities), 35% (tier II & III cities)
• New space distribution (among top 7 cities): NCR 34%, Mumbai 23%, Rest 43%

Labor Productivity Growth Improves Worldwide

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Worldwide labor productivity growth is improving, despite political and economic crises
in Asia and Russia, and significant economic slowdowns in Europe, according to a report
by The Conference Board.

Global labor productivity growth was 1.8% for the 1995-2002 period, up from only 1% in
the first half of the 1990s. But the rest of the world’s productivity level relative to the
U.S. is just 21%. This translates into per capita income amounting to only just 19% of the
U.S. level.

The Conference Board report is based on a comprehensive and regularly updated


statistical database that now covers 97 countries. It includes more than 20 years of
economic performance, revealing both productivity levels (GDP per employee for all
countries and GDP per hour for 36 more developed economies) and growth rates of GDP,
labor input and productivity. The report also measures average per capita income and
explains why, despite comparable levels of productivity, many countries are still far
behind the U.S. on this key measure of economic strength and prosperity.

WHY ASIA REMAINS THE LEADER

Asia leads the world in labor productivity growth at 3.4% between 1990 and 2002. East
Asia has rebounded strongly from its 1997-1998 crisis, registering solid 3.6%
productivity growth since 1998. China continues to be a worldwide leader in labor
productivity growth, at 6.5% annually. India leads South Asia with 3.4% productivity
growth between 1995 and 2002. Japan experienced a significant acceleration in per hour
labor productivity growth in 2003, increasing from 1.8% in 2002 to 2.9% in 2003. In
addition, its labor-input growth was positive for the first time in 3 years.

Even Africa has returned to positive productivity growth, with improvements in almost
all countries since 1995. But it still lags significantly behind most regions at 0.9%.
Productivity growth in the Middle East has also been very slow – just 0.8% between 1995
and 2002.

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“Gains in East Asia and the Pacific, which account for 42% of world employment, and
South Asia, with 18% of world employment, are critical to future productivity advances,”
says Robert McGuckin, Director of Economic Research at The Conference Board and co-
author of the report with Bart van Ark, Consulting Director for The Conference Board’s
International Economic Research.

Critical areas to watch for significant improvement in living standards are China, which
has 28% of all the world’s jobs, and India (15%).

Both China and India have shown very strong productivity growth, with China’s at over
6%, driven by massive restructuring and privatization. India’s productivity is growing at
3.5%, spurred by reforms that have opened up competition and increased foreign
investment. The gains in productivity were mirrored in the 10 new European Union
members that have also been privatizing inefficient government enterprises at a rapid
rate.

“China and India will have to continue the reform process, since their productivity levels
are only 14% and 9% of the U.S. productivity levels,” concludes McGuckin. “Per capita
incomes aren’t likely to rise without stronger productivity growth in these areas.”

Retail Hardware: An important aspect of Productivity

Technology and innovation seem to be the only saviours for the highly competitive
Indian retail industry as it now faces up to global competition. By Varun Aggarwal

The Indian organized retail segment is seeing companies like Globus, Pantaloon and
Reliance gearing up to fend off the challenge of foreign players who are poised to enter
the Indian market. However, it is not going to be that easy for Indian retailers to handle
the competition. Indian companies need a sound infrastructure something that foreign
companies already possess. Today, a shopper needs much more than just a wide range of
products. He needs convenience and quick cash-out all at a competitive price.

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Technology plays an important role in overcoming such hurdles. Cost savings through
technology can help garner a competitive price for a retail vendor.

At the point of sale

Instead of a PC or cash register, a growing number of Point of Sale (POS) solutions take
advantage of a colour touch screen at the sales counter. Many POS systems connect to in-
store computers that, in turn, link to computers at the company’s headquarters. With well-
designed software, touch screens can provide a simple, easy-to-use mechanism for
cashiers to handle just about any transaction—reducing training time while improving
productivity and customer service. Touch screens are popular in the hospitality and
convenience store industries and are rapidly gaining acceptance in other retail markets.

Some businesses choose to combine other options with a touch screen POS. For example,
full motion video and integrated stereo speakers (or optional headphones) provide a
multi-media platform that allows these workstations to do double duty as Web- or
computer-based training during non-business hours. Add a swivel base and your
associates will be able to use a workstation to review services or products with
customers.

RETAIL SOLUTIONS FROM CISCO


Cisco retail solutions have four modules, each designed to
meet specific needs in the retail environment:
Store Connectivity Increases operating efficiency
across stores using wide-area
networks (WANs) and virtual
private networks (VPNs) to access
corporate and store information,
including radio-frequency
identification (RFID)-based

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inventory management and
standard retail applications
Store Mobility Uses wireless technologies at the
point of sale for faster checkout
and real-time product information,
in the store to improve operations,
and throughout the supply chain to
reduce costs
IP Communications Reduces retail costs through
converging data and voice
systems, providing instant
communication throughout stores
and with enterprise applications
and resources
The Store as a Medium Supports employee training and
productivity and maximizes
customer satisfaction with in-store
broadcasting, multichannel
shopping, and digital signage, as
well as revenue-boosting smart
technologies and information
kiosks

Bar code scanners enable you to collect detailed data regarding products that your
customers purchase—information that is useful for inventory management,
merchandising and marketing decisions. Successful retailers use this information in data
warehousing applications to fine-tune store assortments and help assure that consumers
find the products that they want on the shelves, when they shop.

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A quality scanner that reads bar codes on the first try will speed checkout and lead to
cashiers who are more comfortable and less frustrated. A pleasant cashier will transfer
this positive energy to customers.

On the customer side of the counter, most POS workstations are available with a choice
of customer displays, ranging from simple one- or two-line read-outs to full colour
screens that display Web-based colour graphics. The latter devices allow your customers
to learn more about your store, merchandise, or special promotions while they view
details of their transaction.

Electronic payment peripherals enable you to readily and efficiently handle credit and
debit card transactions. Among these are terminals that not only process electronic
payment but also capture signatures electronically. A signature capture terminal
incorporates a credit/debit card reader, provides means to enter a PIN number, and
includes a display for other customer input (e.g. for market surveys) and graphics-based
advertising.

Retail POS printers, especially thermal printers, deliver fast, quiet printing of receipts and
paper forms at the point of service. A quality thermal printer can have a positive impact
on store productivity through intelligent design and operator-friendly features. Because of
their speed, thermal printers can produce a record of most transactions in a fraction of a
second. This makes it possible to add information and graphics, such as a company’s
logo, to the customer receipt, or to print multiple receipts for credit authorization or for
coupons, rebate offers or gift receipts, without adding to the transaction time.

ENDPOINT SECURITY AT RETAIL


Gateway anti-virus Detects and eliminates viruses, worms
and spyware in real time. It scans

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incoming and outgoing email
attachments, FTP, and HTTP traffic.
Firewall It inspects content in network packets to
ensure that unauthorized traffic does not
pass into or out of the intranet. With
adequate performance, a firewall can be
deployed in-line for real-time
protection.
Intrusion Detection Stops attacks at network perimeter by
and Prevention analyzing traffic for worms, viruses and
other hazards. Analysis techniques
include behaviour-based learning and
heuristics in addition to signatures
defining known hazards.
VPN Enables secure communications tunnels
across the public Internet between
computing devices. With adequate
performance, a VPN can authenticate
users, encrypt data and manage
sessions.
Anti-spam It stops junk e-mail in its tracks.
Traffic Shaping Optimizes or guarantees network
performance with packet classification,
queue disciplines, policies, congestion
management, quality of service, and
fairness techniques. It improves latency,
service availability and bandwidth
utilization for cost efficient, high
performance networking.
Web-based It processes Web content to block

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Content Filtering inappropriate material and malicious
scripts from Java Applet, Cookies and
ActiveX scripts entering the intranet.

Networking and Security

With standalone networking systems, retailers run the risk of not getting information
quickly enough. Problems such lack of visibility into inventory, weaker relationships
with partners, poor forecasting, lost sales opportunities, or inconsistent customer service
can materialize. Globus understood this and implemented VPN. According to Meheriar
Patel, DGM & Head IT, Globus stores Pvt Limited, “We are using LAN and WAN setup
connected by MPLS, VPN. All our stores are connected through RF VPN.”

Many retailers lack instant lines of communication between workers, customers,


managers, vendor partners, and stores. This shortage of real-time information exchange
often compromises service, inventory, policy changes, and management decision making.
A solution that maximizes responsiveness by offering full networking of data, voice, and
video communications is essential. This can include mobile communications, providing
information access to workers at every level, from stockroom to store to executive
offices.

Retailers still often rely on older processes that increase operational costs and lower
productivity, such as outdated point-of-sale systems and technologies, ineffective
employee-management and training practices, or outdated inventory-management and
partner policies. The hurdles can be overcome using products from vendors such as Cisco
that improve store operations and productivity with offerings in mobile and telephony
communications, collaborative technologies, in-store broadcasting and training, and
integration with inventory-management and supply-chain applications.

Many retailers have set up data centres. Raymond has a data centre at Thane at its HO.
According to Anil Arora, Sr. Manager, IT, Raymond Limited, “The stores are not

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interconnected but they are connected through a bulletin board which is a collaboration
Web site, where the stores exchange information.” The company also has a DR site to
ensure business continuity. This site is also located at the HO.

Though security solutions such as IP surveillance and automation remain a pipedream,


most retailers take other measures to ensure a secure network. For instance, Globus uses a
Sonic WALL 4060 UTM box, which works as a firewall, content filter device, gateway
antivirus, IPSec VPN appliance, spam filter, Intrusion prevention system, antispyware
etc. Pantaloon on the other hand chose to deploy Fortinet’s FG500A after an intensive
evaluation process. “The device allows unified capabilities and is easy to manage and
monitor. It is used at the perimeter,” said Vishak Raman, Country Manager India,
Fortinet.

RFID for inventory control

In the retail industry, RFID assists in inventory control. All stocked items in a retail outlet
sport an inexpensive read-only tag that stores the product code and its description,
including the manufacturer, brand, batch number, expiry date and price. The shelves, exit
gates and warehouses are fitted with a small antenna that senses the RFID tag and reads
the information on it to update the inventory system in real-time. The benefits of such a
system are that it provides for total asset visibility, full inventory history with tracking
and reduced inventory-stocking levels that facilitate just-in-time deliveries. It also
ensures better process control for products in the facility, reduced shelf space and lead-
time that shorten across docking time, higher-level security, fewer errors and better
visibility of goods.

In warehouses and container depots, pallets and containers are marked with read-write
RFID chips that contain details of origin, destination and other material details. Entry and
exit gates, vehicles and cranes are fitted with an antenna that senses the RFID tags and
records and updates the system to check for any deviation in the schedule. With precise
tracking of the location of pallets and containers within the warehouse, it is easy to

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pinpoint unscheduled movements. The system also considerably helps reduce costs and
time for check in and check out.

While Globus has already begun testing RFID, Madura Garments has implemented the
technology at its newly opened retail store, Planet Fashion in Bangalore. RFID tags help
automate dispatches from one factory and inventory at the warehouse. Pantaloon Retail
(India) has piloted an RFID project at one its warehouses in Tarapur using a thousand
RFID tags. The company is starting by implementing the technology at its warehouse. It
has selected a few lines of apparel, primarily shirts and trousers, for the RFID pilot. The
RFID application developed by Wipro Infotech fits to the overall solution in line with
Pantaloon’s business processes and IT landscape (from the factory outward to the
warehouse inward and from the warehouse outward) in order to capture real-time data.
The application integrates with Oracle database 10g and middleware along with an
implementation of the RFID hardware. It integrates with the existing IT infrastructure,
the in-house developed Retail Enterprise Manager. The primary objectives are a smoother
product lifecycle and item-level tagging for identification. The pilot was also an
opportunity to do a feasibility study regarding additional uses for RFID.

Other technologies

An interesting technology deployed at Hyper CITY is the I-Scan (Symbol Technologies-


New York) that allows the customer to scan merchandise as they pick products off-the-
shelf, thus saving them significant amount of shopping time. Once he finishes shopping,
the customer can hand the device over to the customer service desk and cash-out quickly.

The I-Scan hardware supports applications such as inventory scanning, price check, self-
check, self-check-out PoS and warehousing receiving.

IP surveillance is picking up steam. With IP cameras going for as low as Rs 7,000, the
technology is ripe for deployment. CIOs can use it to monitor remote locations over a
LAN or the Internet. R Mall uses D-Link’s IP surveillance cameras. D-Link has two more
advanced IP based Video Surveillance Cameras from their SecuriCam range, the DCS-
6620 and DCS-6620G (Wireless) with 10X Optical Zoom. The cameras feature dual

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Codec support, a 10X optical zoom lens, built-in microphone and low-light sensitivity for
nighttime surveillance.

Retail Updates

Wal-Mart and Bharti in India deal

The outlets will sell fruit and vegetables and other itemsA joint venture between Wal-
Mart Stores and India's Bharti Enterprises has been finalized, the pair said on Monday.
Bharti Wal-Mart Private Limited will operate wholesale cash-and-carry and supply chain
operations in India.

Opening 10 to 15 outlets by 2015, it plans to employ about 5,000 people selling


groceries, consumer goods, fruits and vegetables. India's retail industry is worth $300bn
(£148bn) a year and has attracted the interest of international retailers. Large overseas
retailers are currently barred by law at the retail level in India, but not in the wholesale
market.

Tesco, France's Carrefour, and Germany's Metro are all big names who have expressed
an interest in establishing operations in India.
The first Bharti Wal-Mart Private Limited cash-and-carry store is set to open by the end
of 2008.

"This venture promises to bring great value to millions of farmers, artisans, small
manufacturers and retailers across India," said Sunil Bharti Mittal, chairman and group
CEO of Bharti Enterprises.

"We are pleased to be a partner in developing this sector which is set to become a
significant engine of India's economic growth."

India to liberalize retail market

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The Indian retail market is estimated to be worth $250bn. Foreign retailers will be able to
own their own stores in India for the first time as part of a major government
liberalization of business. Until now, foreign businesses have only been allowed to
operate franchises for fear they would harm indigenous firms.

But new regulations will allow foreign retailers to own 51% of outlets as long as they
only sell single-brand goods. The competition drive, also affecting mining, energy and
transport, has been opposed by the Communist Party.

Job creation:

Nevertheless, the Indian government is determined to press ahead with the reforms which
it says will create jobs, while giving sufficient protection to Indian businesses.
This is aimed at attracting investment, technology and best global practices
Kamal Nath, Indian trade minister. Experts believe that retailers such as Nike, Reebok
and Marks & Spencer could take advantage of the changes to step up their investment in
India, the world's eighth largest retail market.

Trade minister Kamal Nath said the reforms were the first changes to laws governing
foreign investment in 15 years.

"This is aimed at attracting investment, technology and best global practices and catering
to the demand of branded goods in India," he said.
Under the new regime, only firms selling single-brand products will be able to directly
operate their own stores. This could prevent supermarket giants such as Wal-Mart and
Tesco which sell an array of goods from extending their presence in India.

Conclusion:
The productivity in retail depends on various factors such as

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Demography Dynamics, Double Incomes, Plastic Revolution, Urbanization, Potential for
Investment, Location, Sectors with High Growth Potential, Fastest Growing Formats,
Supply Chain Infrastructure, Rural Retail, Wholesale Trading, Cheap Consumer Credit,
retail hardware and technology.

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