Retail in India

Towards growth and profitability

THE GREAT INDIAN RETAIL
STORY
Timeline of Retailing in
India

Source: Citigroup Research

 India a nation on the
move
Current GDP ~ $1 trillion
4th largest in terms of GDP (PPP)
terms
Target customer base 405 mn.
Growth rate likely to be sustained
above 8%
Changing consumer behavior -
consumerism
Growth in availability of
infrastructure and mall space
 GDP growth and Retail

Retail, GDP growth Organized Retail in 2010

 The organized players
Indian companies Foreign Players
Future Group Nike (Single brand)
Reliance Retail Levis (Single brand)
Bharti Wal-mart (JV)
Shoppers'Stop
Metro (Cash&Carry)
Pyramid
Aditya Birla Group
Subhiksha
Spencer Group
Tata Westside,
Tata Chroma
Organized retail, revenue
and volume growth

Total size of retail $300bln

Size of organized retail $8bln
% share of Organized retail 3%

Source: Economics times retail knowledge series

FORMATS
 Market Profile of Various
Formats
Department Stores: Shopper Stop, Lifestyle, Pantaloons
Hypermarkets: Big Bazaar, Spencer
Supermarkets and Conv. Stores: Subhiksha, Trinethra

Source: India Retail Report, 2007, Merrill Lynch

 Major Retail Formats

Department Stores Hypermarkets Supermarkets and

Conv. Stores
Well established, limited Relatively new concept, Main challenge to mom
competition but already as big as and pop stores
Entrenched in Indian department stores How to compensate for
Mindset Growing fast, but facilities that mom and pop
Score on shopping competition to intensify stores provide namely
experience Price Discount and Wide Home Delivery and
Stress on branding Varieties act as key Monthly Credit ?
Price not critical as they
attractions Immense Competitions,

cater to upper income Key to success will be building scale to achieve

class efficient Supply Chains and cost efficiencies will be
Store locations critical
OPPORTUNITY
&
CHALLENGES
 Which categories will
grow ?
Food and Groceries
Sector that the largest amount of consumer spends is concentrated.
Maximum opportunity for investments

Consumer durables
With increasing purchasing power, consumers tend to spend the
most on this category.
There is nothing to prevent a company from putting up shops
outside the city limits, because consumer durables are a
premeditated purchase.
Availability of finance options has increased spending in this sector.

Home products
With increasing private ownership of homes by relatively young
couples, across most major cities in India, national retail chains
offering home furniture (and accessories) have great potential.
Growth Potential In India

Source: AT Kearney , Citigroup Research Report

POLICIES
 Government Policies

51% FDI allowed in single-brand formats

100% FDI in cash-and-carry format
NO FDI in multi-brand stores ( like Wal-Mart)
Trends indicate that the FDI would open up in
retail sector, however political consensus has
to be reached before that happens
 Pros and Cons of allowing
FDI in retail
Benefits of FDI in retail
Inflow of investment and funds.
Improvement in the quality of
employment.
Generating more employment.
Increased local sourcing.
Provide better value to end
consumers.
Investments and improvement in the
supply chains and warehousing.
Franchising opportunities for local
entrepreneurs.
Growth of infrastructure.
Increased efficiency.
Cost reduction.
Implementation of IT in retail.
Stimulate infant industries and other
supporting industries.
Drawbacks of FDI in retail
Would give rise to cut-throat
competition rather than promoting
incremental business.
Promoting cartels and creating
monopoly.
Increase in the real estate prices.
Marginalize domestic entrepreneurs.
The financial strength of foreign
players would displace the
unorganized players.
Absence of proper regulatory
guidelines would induce unfair trade
practices like Predatory
OPINIONS
Growth Drivers & Barriers

Growth Drivers Barriers to Entry

Consumption Boom, Higher Regulatory barriers
Incomes Fragmented Suppliers
Favorable Demographics Lack of infrastructure
Changing Lifestyles and Supply Chain Complexities
Preferences Lack of skilled Human
Real estate boom Resource
Manufacturing Reforms Differential Taxation System
Reduction in import duties- Labor Legislation
offering Clustering of Malls
 Opinions on Formats and
Growth Potential
Consumer financing will be an important tool
to drive consumption Income growth alone
may not be sufficient
Margins to be driven by non-core businesses
Retailing will remain concentrated in the top
10 towns
Multi-format retailing to thrive
Large scope for rural retailing

Views of Mr Kishore Biyani, Pantaloon Retail India Retail Forum

 Views of Foreign Players
Environment not conducive enough
Only 51% FDI in single brand retailing
Many retailers (e.g.. IKEA) unwilling to enter
without 100% FDI)
Insufficient data on consumer behavior
Focus in India only on growth and not
profitability
Scope for private labels (only 4% in Asia
compared to 17% in western markets)

Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum
 Outlook and
challenges
Strong long-term growth potential
Severe cost pressure largely related to property rentals
Profitability likely to remain low - patient capital should
survive but weak players likely to exit in the near term
Consolidation is on the cards
Driven more by traffic growth than ticket growth
Convenience stores to remain integral part of retail
Need for catering to local flavors
Internet retailing still to pick up in India

Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum
 Heard from the street..
India's Mahindra Group to enter retail sector (Reuters
10/10/2007)
Reliance Retail Venture Falls Short of Opening Target
(Bloomberg 12/10/2007)
India's Populists Resist Big Retail (WSJ 9/10/2007)
Spencer's to reduce retail formats (ET 14/10/2007)
Small retailers embrace IT to boost operations (ET
12/10/2007)
THANK YOU