INDUSTRY ANALYTICS AN ANALYSIS OF INDIAN RETAIL INDUSTRY

SUBMITTED BY: GROUP NO. : 5 SECTION :E

GROUP MEMBERS:

Anshuman Sharma (08 PG 289) G. Praneetha (08 PG 301) Kushal Rastogi (08 PG 313) Parul Pratap Rai (08 PG 323) Priya Rajvansh (08 PG 334) Swayamvara Singh (08 PG 349)

SUBMITTED TO:

Dr. R.Venkatamuni Reddy

DATE OF SUBMISSION: 25.02.2009

ACKNOWLEDGEMENT

We are immensely grateful to Dr.R.Venatamuni Reddy for providing us with valuable inputs for this report through his in-depth analysis of the industries of India as well as globally. This report wouldnt have been successful without his guidance, which made a subject like Industrial Analytics very interactive and interesting. His approach in teaching familiarized us to use databases and hence make broad decisions. This report would prepare the students for the Student Internship Program and give comprehensive insight into the Indian Economy and the Indian Retail industry.

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Table of Contents
1. GLOBAL RETAIL SECTOR .............................................................................................. 9 1.1 Growth in the Global Retail Market ...................................................................................... 9 1.2 Present State of Global Retail Industry ............................................................................... 12 2. OVERVIEW OF INDIAN RETAIL SECTOR................................................................. 14 2.1 Structure of Indian Retail Sector ......................................................................................... 14 2.2 Growth prospects in Indian Retail Sector ........................................................................... 15 2.3 Evolution in Organized Retail ............................................................................................. 16 2.4 Impact of Recession ............................................................................................................ 19 3. KEY DRIVERS OF GROWTH IN INDIAN RETAIL.................................................... 22 3.1 Consumer or Demand-Side Drivers .................................................................................... 23 3.2 Retailer or Supply-Side Drivers .......................................................................................... 28 3.3 Opportunities of Retail Sector ............................................................................................. 31 3.4 Key challenges impeding the growth of Organised Retail in India .................................... 34 3.5 Retail Solutions from CISCO .............................................................................................. 39 4. COMPANY ANALYSIS ..................................................................................................... 41 4.1 SHOPPERSs STOP LIMITED .......................................................................................... 41 4.1.1 Investment Strategies .................................................................................................... 41 4.1.2 Strategies Adopted Over Time to Tackle Competition ................................................. 42 4.2 TRENT LI MITED.............................................................................................................. 44 4.2.1 Investment Strategies .................................................................................................... 44 4.2.2 Strategies Adopted By Trent Ltd. to Tackle Competition ............................................. 45 4.3 VISHAL RETAIL LIMITED ............................................................................................. 46 4.3.1 Strategy employed by Vishal Retail Ltd. ....................................................................... 47

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4.4 PROVOGUE (INDIA) Ltd.................................................................................................. 48 4.4.1 Expansion Plans ........................................................................................................... 49 4.4.2 Marketing Strategy ....................................................................................................... 49 4.4.3 Investment Strategy....................................................................................................... 51 4.5 PANTALOON RETAIL (INDIA) LIMITED .................................................................... 52 5. QUANTITATIVE ANALYSIS ........................................................................................... 55 5.1 Ratio Analysis ..................................................................................................................... 55 5.2 Comparative Analysis of Companies with the Industry...................................................... 59 5.2.1 Debt Equity Ratio ......................................................................................................... 59 5.2.2 Current Ratio ................................................................................................................ 60 5.2.3 Inventory Turnover Ratio ............................................................................................. 61 5.2.4 Interest Cover Ratio...................................................................................................... 62 5.2.5 Return on Capital Employed ........................................................................................ 63 5.2.6 Return on Net Worth ..................................................................................................... 64 5.3 Trend Analysis .................................................................................................................... 66 5.3.1 Shoppers Stop .............................................................................................................. 66 5.3.2 Trent.............................................................................................................................. 69 5.3.3 Vishal ............................................................................................................................ 72 5.3.4 Provogue ....................................................................................................................... 74 5.3.5 Pantaloons .................................................................................................................... 77 6. QUALITATIVE ANALYSIS.............................................................................................. 81 6.1 Porters Five Forces of Analysis ......................................................................................... 81 6.3 SWOT Analysis................................................................................................................... 84 6.3.1 Shoppers Stop .............................................................................................................. 84 6.3.2 Trent Limited ................................................................................................................ 86

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6.3.3 Vishal Retail Limited .................................................................................................... 88 6.3.4 Provogue India Limited ................................................................................................ 90 6.3.5 Pantaloons Retail India Limited ................................................................................... 92 7. FUTURE OF INDIAN RETAIL ........................................................................................ 94 7.1 Comparison of past and future ............................................................................................ 94 7.2 Private label development progression ............................................................................... 96 7.3 The Best is yet to come ....................................................................................................... 97 7.4 Facts and Figures ................................................................................................................. 98 7.5 Recommendations ............................................................................................................... 99 References .................................................................................................................................. 102 Glossary ..................................................................................................................................... 105

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Table of Graphs
Graph 1.1 - Global Retail Sales .................................................................................................... 10 Graph 2.1 Total Share of Retail Sector in India............................................................................ 15 Graph 2.2 Organized Retail as a % of Total Retail Sales - 2008 .................................................. 17 Graph 2.3 Penetration of Organized Retail ................................................................................... 18 Graph 3.1 Growth in Private Consumer Spending ....................................................................... 23 Graph 3.2 Growths in Population ................................................................................................. 25 Graph 3.3 Increase in Internet Usage in 2008............................................................................... 26 Graph 3.4 Growing Young Population ......................................................................................... 31 Graph 3.5 Labor Cost per Worker across Asian Countries .......................................................... 33 Graph 4.1 Presence of Vishal Retail across .................................................................................. 46 Graph 5.1 Past 5 year Ratio analysis for Retail Sector ................................................................. 56 Graph 5.2 Comparison of Debt Equity Ratio of Major players .................................................... 59 Graph 5.3 Comparison of Current Ratio of Major players ........................................................... 60 Graph 5.4 Comparison of Inventory Turnover Ratio of Major players ........................................ 61 Graph 5.5 Comparison of Interest Cover Ratio of Major players................................................. 62 Graph 5.6 Comparison of ROCE Ratio of Major players ............................................................. 63 Graph 5.7 Comparison of Return on Net Worth Ratio of Major players ..................................... 64 Graph 5.8 Shoppers Stop Sales Trend Analysis ....................................................................... 67 Graph 5.9 Shoppers Stop Expenditure Trend Analysis ............................................................ 68 Graph 5.10 Shoppers Stop Profit Trend Analysis .................................................................... 68 Graph 5.11 Trent Limited Sales Trend Analysis ....................................................................... 70 Graph 5.12 Trent Limited Expenditure Trend Analysis ............................................................ 70
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Graph 5.13 Trent Limited Profit Trend Analysis....................................................................... 71 Graph 5.14 Vishal Retail Sales Trend Analysis......................................................................... 72 Graph 5.15 Vishal Retail Expenditure Trend Analysis ............................................................. 73 Graph 5.16 Vishal Retail Profit Trend Analysis ........................................................................ 73 Graph 5.17 Provogue Sales Trend Analysis .............................................................................. 75 Graph 5.18 Provogue Expenditure Trend Analysis ................................................................... 75 Graph 5.19 Provogue Profit Trend Analysis.............................................................................. 76 Graph 5.20 PRIL Sales Trend Analysis ..................................................................................... 77 Graph 5.20 PRIL Expenditure Trend Analysis .......................................................................... 78 Graph 5.20 PRIL Profit Trend Analysis .................................................................................... 78 Graph 7.1 Private label development progression ........................................................................ 96

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Chapter 1 GLOBAL RETAIL SECTOR

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1. GLOBAL RETAIL SECTOR

Retailing involves all activities accompanying to selling to ultimate consumer for their personnel family and household use, from a fixed location such as a department store or kiosk, in small or individual lots for direct consumption by the purchaser. Retailing is the interface between the producer and the individual consumer buying for personal consumption. Hence the success of retailing is highly dependent on an efficient supply chain management.

1.1 Growth in the Global Retail Market

The confluence of market forces has created an extremely complex climate for the global retail industry. In mature markets, retail sector is challenged by its inability to grow and maintain profit margins as a result of a constrained operating environment, market maturity & situation, slow population growth and more demanding consumers as well as highly volatile consumer behaviour. According to the research conducted by MVI (Management Ventures Inc) in 2007 found that modernizing retailers need capabilities in six core areas to win in the changing environment.
Pricing

Finance

Brand

Measurement

Operations

Execution

Today retailing is a primary driver of the global economy and has become an essential part of our lives. Of the worlds 10 largest retail companies, six are from the US and four are from Europe. These top ten had combined sales of $978.5 billion in 2007, according to international consulting group, Deloitte.

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Graph 1.1 - Global Retail Sales

14 12.17 12 11.44 10 8.37 8 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Value (US $ tn) 8.35 8.6 9.47 10.46 12.61 13.06

Data Source - Economic Cell, AEPC The issues that were competing for the retailers from the past 2 years are the power of technology, product transparency, privacy and security, Green business model, Talent management To maintain the highest level of profitability, retailers are establishing a presence in fertile foreign markets. Retail organizations now view their potential market share to include worldwide consumers, not just customers in their home country. Among the top 5 retailers in the world in terms of the revenue the largest retailer is, Wal-Mart which has its headquarters in US. The second largest retailer in the world is Carrefour of France followed by Tesco of UK, Metro of Germany and Home Depot of US.

Most Preferred International Retail Markets

The following table gives the top 15 countries which has the highest presence of international players in their retail market. India ranks 44 in the list. This is because of the FDI restrictions prevailing in the country. The situation is expected to change because of the liberalization in the

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FDI for retail sector which will be discussed later. Table 1 15 Most preferred International Retail Market Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Country UK Spain France Germany Italy Switzerland Austria United Arab Emirates China Russia United States Netherlands Singapore Belgium Ireland % of International Retailers Present 55% 51% 49% 47% 45% 42% 42% 41% 40% 39% 39% 38% 38% 37% 35%

Source: CB Richard Ellis Press Release It is also found that luxury goods dominated international retail scene, with almost 90 per cent respondents in the segment having a presence in more than 10 markets. This was markedly more than grocery, food and drinks, with just 60 per cent present in 10 or more markets. In clothing, footwear and accessories segments, 54 per cent retailers had operations in more than

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10 markets. Many luxury retailers are well-known particularly for their clothing range, such as Hugo Boss or Versace, reflecting the historical tendency for high fashion brands to be offered internationally. Least division was the department stores with only 5 per cent being represented in 10 or more markets.

1.2 Present State of Global Retail Industry

In 2009 in the retail industry Cutbacks, layoffs, closings and bankruptcy are the hottest retail trends in 2008. History will point to 2008 as the official beginning of a massive global retail recession. There were record-breaking declines in sales, inventories, and consumer confidence that caused revenue losses. As it was predicted in the Deloitte report, 2008 Industry Outlook: A look around the corner, U.S. retailing is challenging due to fears about the housing market, tightening credit, not to mention high gas prices and cost of living increases. The big retailers have been compensated top U.S. CEOs in fiscal year 2008 which ranged from a high of $30.6 million to a low of $1.00, according to Salary.com. Robert Iger, Walt Disney Co. received $30.6 million and Steve Jobs, Apple received $ 1.00 (source: About.com Overview of retail sector) As a result the retailers need to struggle to enhance sales by being creative and competitive but it's not enough to just show up. History shows that the retailers who survive economic setbacks are the ones who get inventive, get resourceful, and get noticed. One of the most exciting things to watch in the global retail landscape is the growth and influence of the BRIC emerging markets (Brazil, Russia, India and China). China is already a strong global performer and represented in the top 10 most international markets in our study. Within the primary cities, such as Beijing, Shanghai and Guangzhou in China, there is a significant concentration of wealth and it is around these cities that much of the international retail activity is well centred, Mr. Davies underscored. `Deloitte in its report, Global retail trends for 2009 has mentioned that successful retailers will find a way to enhance their customer experience, improving risk management, cutting cost, human resource management, multi-channel approach, thinking globally and branding.

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Chapter 2 INDIAN RETAIL SECTOR

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2. OVERVIEW OF INDIAN RETAIL SECTOR

India is one of the largest and highly fragmented Retail markets globally with the highest retail outlets in the world crossing over 12 million with unorganized players accounting for around 5% of market share. Among this unorganized player more than 80 percent of these run as small family businesses in small towns and cities in the form of kirana stores, push cart vendors, melas and mandis. In terms of employment the retail outlet in the unorganized sector feeds a household of six to seven members. The big retail players are beginning to realize the significance of this untapped market by entering these markets and are being accepted by these rural consumers. The rural retail revenues are estimated to increase by 60 per cent by 2012, with larger share of increase in demand for consumer and household products.

2.1 Structure of Indian Retail Sector

The Indian retail industry can therefore be broadly divided into organized and unorganized retailing. Unorganized sector constitutes of the local kiranas, hand cart, the vendors on the pavement etc. Unorganized retailing is still the backbone of the Indian retail industry contributing to over 95 per cent of total retail revenues. The organized sector on the other is hand trading undertaken by the licensed retailers who have registered themselves to sales as well as income tax. They constitute of corporate backed hypermarkets and retail chains. This modern retail has entered India as seen in sprawling shopping centres, multi-storeyed malls and huge complexes offer shopping, entertainment and food all under one roof.

Advantages of Conventional and Modern Organized Retail Formats

Conventional Large bargaining power Proximity to consumers Modern Organized Low operating-cost and overheads Range and variety of goods

Long operating-hours Strong relations with Long operating-hours Quality assurance (brand customers Convenience and hygiene related, durability) Quality assurance (brand related, durability)

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2.2 Growth prospects in Indian Retail Sector

The Indian retail industry today is the 5th largest retail destination and the second most attractive market for investment in the globe after Veitnam as reported by AT Kearney's seventh annual Global Retail Development Index (GRDI), in 2008.The growing popularity of the Indian retail sector has resulted in a growing awareness about brands and quality products. As a whole Indian retail sector has made life convenient, easy, quick and affordable. Indian retail sector, especially organized retail is growing rapidly, with the customer spending growing in an unpredicted manner. It is undergoing a metamorphosis. The diagram clearly demonstrates the evolution of the retail industry. Till 1980 the retail industry continued in the form of kiranas that is unorganized retailing. Later in 1990s Branded retail outlets like Food world, Nilgris and local retail outlets like Trinetra super market, Apna Bazaar, came into existence. Now big players like Reliance, Bharti, Tatas, ITC and other reputed companies are entering into organized retail businesses.

Graph 2.1 Total Share of Retail Sector in India

(Data Source: Datamonitor) The big multinational retailers are slowly entering India in the form of direct entrance eg: - Nike, Reebok, Metro etc or Joint Ventures e.g.: - Bharti with Wal-Mart and Tatas with Tesco. 2008 onwards the retail sector realized the significance of technology and understanding the
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opportunities the retail sector had to offer efforts have been made to leverage traditional formats. It is estimated that 2011 will see a remarkable growth in retail sector in terms of investments to optimally benefit from the unexplored retail market.

2.3 Evolution in Organized Retail

The Organized Retail Industry in India is estimated to be around US $25.4bn at the end of CY2008, which only around 5% of total retail market. Among the BRIC countries only in India the share of organized retail is low. The share of organized retail in other BRIC countries is,
Evolution of Indian Retail Industry

M&A, Consolidation, High Investments, Confluence of Indian Retail Technology Adoption, Leveraging Traditional formats for Modern Retail

Growth

Entry, Growth, Expansion, Top Line Focus for Organized Retail

Range, Portfolio, Format Options, Beginning of the Rural-Urban Retail Merge

Per capita Retail Space

2000

2005

2008

1st Phase

2nd Phase

3rd Phase

2011

4th Phase

Source:IBEC

Brazil (36%), Russia (33%) and China (20%). Globally, Organised Retail accounts for around 52% of Total Retail. It is seen that the organized sector in India still has a long way to go
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because the unorganized retail still continues to dominate the retail market. But the organized retailing is growing at a fast pace. The organized retail market is presently ~5 percent of the total retail, that is around Rs 67,310 crores and is expected to compound at 27 percent per annum, aggregating to Rs 1,75,103 crores (7.44 percent of the total retail) in 201011. The organized Share of retail sector is expected to increase to 8-9 percent in 2010-11 as compared to 4 percent in 2007.However due to urban rural divide the growth is likely to concentrate more on metros and large cities. Kamal Nath, Indias minister for Commerce & Industry was quoted as saying The India Retail Report 2009 is a well researched and professionally presented document that brings forth several opportunities that could benefit the Indian consumers. I look forward to the Indian retail sector continuing on its developmental growth path and spreading its benefit to all.

Graph 2.2 Organized Retail as a % of Total Retail Sales - 2008

(Data Source:ICRIER Retail Report 2008) The graph shows that the growth in the retail sector is assured and inevitable. In this sense the retail industry does indeed spread its benefit to all. Today it contributes around 12% to the GDP as compared to around 8-10% in 2007 and is likely to reach 22% by 2010 touching around US$ 416 billion. McKinsey report 'The rise of Indian Consumer Market', estimates that the Indian consumer market is likely to grow four times by 2025.That will be an incredible contribution in
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terms of employment. In the present the Indian retail sector provides employment to 8 per cent of the nation's workforce which is expected to augment in the future. The food and grocery constitutes the highest retail volume and this share has shown a tremendous growth over the years. This is the largest vertical of 74.4 percent of retail size that compromises of fruits and vegetables, milk and milk products, staples, cereals and other eatables. According to NSSO 60th round, 54 percent of the rural and 42 percent of urban expenditure was on food.

Graph 2.3 Penetration of Organized Retail

Penetration of Organized Retail
Books, Music and Gifts 13.08 86.92

Footwear

32.84

67.16

Beauty Care

3.56

96.44

Jewelry and Watches Home Dcor and Furnishing Consumer Durables

6.19

93.81

8.76

91.24

17.04

82.96

Clothing and Textile

16.39

83.61

Food and Beverages 0

0.98 20 Organized Retail 40

99.02 60 Traditional Retail 80 100

(Source: IBEC)
The second largest share is commanded by the apparels. Clothing and textile is a large organised vertical and is dominated by big retailers like Pantaloon, Pyramyd, Koutons. This owes to the increasing disposable incomes and change in the lifestyle.

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The organized retail is attracting and will continue to attract the entry of new players both domestic and foreign as can be observed by the variety of domestic and international brands available in stores.

(Organised Vs Unorganised) Vs Foreign Investors

There have been huge controversies regarding the organized retail taking over the unorganized sector and the following adverse impact on the lives of various local retailers. The small retailers feel that they cannot fight the big retailers like reliance fresh, spencers, food bazaar that are taking away their market share. For the security of domestic retailers there was a ban on foreign investment in multi brand retailing that kept big foreign players like Wal Mart and Carrefour from entering India. But now FDI of 51% is permitted in India though only through single branded retail outlets and not through multi brand outlets. Again they can only enter the market through franchisees. This is how global players are entering India, like Wal-Mart entering India in join hands with Bharati Enterprises. However domestic companies like Reliance Industries, are confident that even if foreign players enter the Indian market the domestic retail players will continue to have a competitive advantage over them. Competitive advantage will be achieved due to low labor and property costs. New entrants to the organized retail sector will also face higher labor and property costs than traditional firms and must bear the additional expense of back-up power supplies. Other barriers will include expensive and often inadequate supply-chain infrastructure, inflexible labor laws, complicated property codes, multiple licensing requirements and a shortage of skilled managerial staff.

2.4 Impact of Recession

Interestingly despite the global crisis when other sectors are struggling to survive the retail sector has not been impacted in a big way as revealed by the ETIG analysis conducted by the economic times. According to the second-quarter results of leading 70 consumer-related firms there was a rise in their aggregate revenues by 8.5 per cent during the September 2008 quarter over the same period in 2007. Even though this was lower than the 9 per cent growth posted during the first quarter of 2008-09, it was a lot higher than the 7 per cent registered during the previous three
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quarters for these firms. There is further good news when the retail rentals dropped by around 30-40%. Further drops in rentals can be expected in 2009 which will open a plethora of opportunities for the retailers in terms of their expansion plans. The extraordinary role played by retail sector throughout the world in increasing productivity of consumer goods and services are commendable. It is also becoming a major industry by creating millions of employment opportunities for people directly and indirectly. Retail industry has become one of the most dynamic sectors in India with numerous players entering the market and this in turn has made the industry competitive and lucrative.

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Chapter 3 KEY DRIVERS, OPPORTUNITIES & CHALLENGES

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3. KEY DRIVERS OF GROWTH IN INDIAN RETAIL

The Indian retail industry has a size of $300 billion and its contribution to the Indian economy has been enormous. As a result of improvement in income dynamics, favorable demographics and spending patterns India has witnessed an unprecedented consumption boom. 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. It has helped improve the standard of living of most Indians and will continue to do so in the future. Policy makers are optimistic about the growth prospects of the retail industry and its followed impact on the Indian economy as a whole. 70% of organised retail is concentrated in 6 major cities. Of 300 million Indian middle class, only 15% live in these 6 major cities, which means theres huge buying power in Indias tier 2 and 3 cities, location of several of the Funds developments (currently highly under serviced). At present Organised Retail in India is at a blossoming stage but its growth is at a scorching pace. The key drivers that will sustain this growth can be categorized as, Consumer or Demand-side drivers Retailer or Supply-side drivers.

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3.1 Consumer or Demand-Side Drivers a) Increasing Disposable Income of Indian Middle class
The Indian Middle class comprising Seekers and Strivers is the consuming class and prime target segment for Retailers in India. These two categories together constituted around 6.4% of Total Households in India in 2005 but accounted for 20% of the disposable income.

Graph 3.1 Growth in Private Consumer Spending

The increase in the consumer spending over the five consecutive years has been above average from FYO4-FY08. The Indian Middle class is gaining weightage, both in terms of volume as well as value.

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The middle class is estimated to constitute around 25% of Total Households by 2015 and 46% by 2025, controlling 44% and 58% of the total disposable income in the country by 2015 and 2025, respectively. This growth in the Indian Middle class coupled with growth in their disposable income levels which will drive future growth of Organised Retail in India. population having incomes higher than Rs 90,000) is expected to reach 48 percent by 2009-10 from 20 percent in 1995-95. During FY2004-08, the real per capita income growth averaged around 7.3%, which was higher than average Inflation of 5.1% during the period. This bodes well for Indian Retail as consumers are likely to spend more and stabilise their savings for future big-ticket purchases. We believe that long-term growth in per capita income will induce consumption Indian consumers that will result in growth of Indian Retail Industry.

b) Personal Consumption as a percentage of GDP

Personal consumption as a percentage of GDP India is second only to Vietnam in Asia and a close fourth globally. Robust growth of Indian economy will result in increase in personal consumption as a percentage of GDP. According to IMA, Asia, India had one of the highest personal consumption as a percentage of GDP in Asia at around 55% in 2007. This portends well for Indian Retail as with per capita income growing, this personal consumption would translate into higher Retail Sales. Hence, India with one of the highest personal consumption as a percentage of GDP in Asia, seems to be a better and more opportunistic bet in the Retail Sector compared to China (~35%), Singapore (~45%), Hong Kong (~50%) and South Korea (~46%)

c) Population As a Growth Driver

Growing Working women population The propensity to spend in the case of working women is higher by 1.3 times as compared by housewives. According to the census report, the population of working women increased to 26 percent in 2001 as compared to 22 percent in 1991.

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Adoption of Nuclear Family culture

The increase in per capita income paved way to increase the nuclear-family culture. The proportion of nuclear families as a percentage of total household population has increased as shown by fall in average household size from 5.57 in 1991to 5.36 in 2007, expected to fall further to 5.02 by 2011. This will fuel the growth of organised retail.

Baby Boomer Effect

The demographics of Indian population has a steep growth in earning population (15-60 yrs). In 2000, 593 million people (58.3percent of total population) constituted the age bracket of 15-60 yrs growing from an unprecedented level of 335 million people (54 percent of total population) in 1975 at a rate of 77 percent (CAGR of 2.3 percent) in contrast to a population growth of 64 percent (CAGR of 2 percent) over the same period of 25 years. Over the next 15 years, the earning population is expected to increase to 62.8 percent in 2015, translating into a population of 782 million.

Graph 3.2 Growths in Population

Growth in Urban Population

Urbanization has increased at a rate of 2.7 percent over the last 10 years (1990-2000). In 2000,

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the urban population was estimated to be 281 million (27.7 percent of the total population). This trend is likely to continue and urbanization is expected to grow at 2.4.

d) Plastic Money becoming a greater Pie of credit

According to Euro monitor, India is the second fastest growing Financial Cards market in the Asia - Pacific region. India's Credit Card base is estimated to grow at an annual rate of 30-35% from 27mn cards in 2007. It is expected that Credit Card growth would remain on high growth trajectory and fuel growth in Modern Retail on Credit. The Indian Retail Market is estimated to be US $511bn at the end of CY2008 out of which Credit Cards Sales are expected to contribute around 1.2%, which is expected to be around 1.4% of the total Retail Sales in India at the end of CY2010. Indian consumers are increasingly using Credit Cards for purchasing and shopping, dining, jewellery and durable goods due to attractive and consumer friendly schemes by various banks. A natural progression for Retailers like Pantaloon and Shoppers' Stop has been the Loyalty cards that and either standalone or in collaboration with banks and offer discounts and free purchases to the cardholders. Also it is believed that these Loyalty cards hold the key to future growth of Modern Retail in India.

e) Internet Driving Awareness and Online Purchases

There has been a substantial increase in the number of Indians using the Internet. Indians have started using the Internet not only for increasing awareness but also to shop online. This, along with the increase in Credit Cards and options like cash-on-delivery have opened new avenues for

Graph 3.3 Increase in Internet Usage in 2008

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Indian consumers. Indian Retailers are missing out on the opportunity that Amazon.com and EBay are providing to the US consumer. Recently, Future Group, the owner of Pantaloon, launched futurebazaar.com to capture the ever-growing Internet savvy Indians. Such web portals not only provide the convenience of home shopping but also provides the advantage of savings on costs managed by Organised Retailers. Since there will be demographic shift in population growth, urbanization and migration due to transition in urban household growth and income distribution. The total retail market in the top 67 cities in India in 2006 was Rs. 2.55 trillion, which is expected to increase to Rs. 3.91 trillion in 2011. According to CRISIL, around 87 percent of the retail opportunity comes from top 25 cities compromising Metro: Delhi, Mumbai, Calcutta Mini Metros: Hyderabad, Chennai, Bangalore, Ahmedabad and Pune Tier I cities: Kanpur , Nagpur, Surat and Ludhiana Tier II cities: Coimbatore, Chandigarh, Lucknow, Kochi, Jaipur Tier III cities: Vadodara, Vizag, Indore, Vijaywada, Thiruvananthpura,Bhopal, Nashik and Madurai.

f) Increasing technology adoption

With modern retail store formats growing players are increasingly deploying advanced Information Technology tools for managing their supply chain, warehousing and logistics requirements. Retail sector constituted 8 per cent of the IT export revenues in 2005-06. Apart from the industry giants, the small scale retailers are also embracing IT solutions to optimise their operational efficiencies. Big league IT firms like IBM India, Oracle and SAP are developing solutions for smaller retailers requirements. The Food & Grocery (F&G) segment enjoys dominant market share of 75% of the Indian Retail Sector but has miniscule 1% penetration in Organised Retail Hypermarts to lead the Future growth in Organised Retail.

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3.2 Retailer or Supply-Side Drivers a) Increased Investments in Retail

According to the E&Y estimates investments in Organised Retail will possibly touch US $25bn in 2010, up from US $3bn in 2006. Funds would essentially flow into the sector through Private Equity, IPO route and infusion of funds through warrants. This will allow organised players in Retail to expand at a very high rate and play on economies of scale in the Supply Chain and procurement. Also it is believed that due to the current economic environment and delays on part of Real Estate developers of around 18-24 months in terms of execution, around half of US $25bn of investments would materialise by FY2011E. At an average investment of Rs3,000 per sq. ft. By Retailers, these investments would translate to 175mn sq. ft. of Organised Retail space by FY2011. All key Retailers in India have chalked out substantial investments over next 3-4 years to fuel their expansion plans. Pantaloon is expected to invest around Rs6,000 cr over the next four years to fuel its three-fold expansion plan and take its total Retail space to 26mn sq. ft. by FY2012. Vishal Retail is expected to invest Rs3,000cr to fuel its ambitious five-fold expansion plan to take its total Retail space to 10mn sq. ft. by FY2011.

b) Tier- II & III cities to fuel future growth of Modern Retail

The initial Retail revolution in India began in the big Tier-I cities. However, now the Retail hubs in India are now finding their way to the smaller Tier-II and III cities as well, which have hitherto been left out of it. The changing landscape of Indian Retail and increasing competition has also forced Retailers to tap growth opportunity in Tier-II and III cities in India. The Top-784 cities in India constitute about 26% of population and contribute 35% to Total Retail Sales. TierII and III cities account for 18% of the overall population and contribute 22% to the Total Retail sales. Thus, there are substantial opportunities to be tapped in Tier-II and III cities of India for expansion of the Retail footprint Growth Markets: Organised Retail in places like Lucknow, Ludhiana, Jaipur, Chandigarh and
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Kochi are at growth phase as the people in these cities have the money to spend but dont have enough Organised Retail outlets. So this is where the next big opportunity for Retailers lies. Emerging Markets: Amidst the Retail activity, due to development, the distant and emerging towns like Agra, Amritsar, Indore, Nashik, Mysore, etc. are understanding the meaning of Organized Retail and discovering the shopping experience at Malls. It can be estimated that Organised Retail can strengthen its base here over the next 4-5 years to reap profits. Nascent Markets: At the end of the Retail spectrum lie towns like Varanasi, Srinagar, Bhopal, Rajkot and Guwahati where consumers are getting aware about the concept of Organised Retail and its benefits. However, these places are still at a nascent stage of the Retail activity and are expected to grow over the next 8-10 years.

c) Shortened Supply Chain benefits consumers

A Traditional supply chain in India comprises 5-6 levels from Wholesaler to Sub-Wholesaler to the Distributor to the Local Mom and Pop stores to the Consumers. Two major disadvantages of this Supply Chain are as follows: a) Cost of the product increases at every stage of the Supply Chain resulting in increase in the price of the products due to cascading effect, and b) Increase in shrinkage at every stage of the Supply Chain results in loss of goods for consumption.

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Traditional v/s Modern supply chain

One of the biggest advantages of a Modern Retail Supply Chain has been elimination of the middlemen thereby reducing the intermediaries to 2-3. This shortening of Supply Chain favours the farmers (in case of agricultural goods) or manufacturers as they get better price for their products and consumers benefit from the low prices that retailers can afford to offer due to the savings arising out of shortening of the Supply Chain. Both the Traditional and Modern Supply Chain work in tandem in the current Retail environment in India.

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3.3 Opportunities of Retail Sector

India is going to be an attractive destination for global operations with leading retailers seeking emerging markets overseas. India presents a significant market with a young population just beginning to embrace lifestyle changes.

a) Rapid Economic Growth

The fast and furious pace of the Indian economy is the driving force for the Indian consumerism, confident about earnings , and also spending a large proportion of their disposable incomes. Projections by various analysts suggest that India has the potential to be labelled the fastest-growing economy and the developed economies by 2050. India, promises a continued robust growth story.

b) The Young India Graph 3.4 Growing Young Population

India possesses the advantage of having a largely young population. 35 percent of Indias population is under 14 years of age and more than 60 per cent of the population is
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estimated to constitute the working age group (15-60) till 2050. This trend is projected to continue for the next decade, with the share set to reach its maximum in 2010. The large proportion of the working-age population translates to a lucrative consumer base vis--vis other economies of the world, placing India on the radar as one of the most promising retail destinations of the world.

c) Potential Untapped Market

India ranks first, ahead of Russia, in terms of emerging market potential. Organised retail penetration is on the rise and offers an attractive proposition for entry of new players as well as scope for expansion for existing players. A steadily rising percentage of rich and super rich population and impressive disposable incomes offers a spectrum of opportunities, spanning from rural retailing to luxury retailing. Pantaloon Retail India Limited, one of Indias retail giants captures a mere 0.3 per cent of total market; compared to Tesco Plc, which captures 14.3per cent of Englands market and Walmart which captures 20 per cent of USAs market; giving an insight into the large untapped market potential.

d) Abundant Availability of Skilled Labour

India has a vast resource base of talent and skilled labour. Over 37,000,000 students were enrolled in about 150,000 pre-college institutes and over 11,700,000 in 14,000 higher education institutions in 2005-06 With English being the language for business in India, the language skills of the Indian workforce score higher than that of emerging economies. Retail Management is a sought after education stream amongst students, with over 15 premier institutes offering specialised courses in Retail Management.

e) Emergence of India as the Retail Hub

Riding on the back of a strong manufacturing industry, India is fast emerging as an important global sourcing hub for top international brands. India has had a continued presence in the global scenario as one of the leading exporters of apparels and textiles.

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The expiry of the Multi Fiber Arrangement has further widened the global markets for apparel. Many international brands have identified India as one of the important supply centres for procurement of textiles and apparels Wal-Marts sourcing operations was estimated at US$ 1 billion, Tescos around US$ 100 million

Graph 3.5 Labor Cost per Worker across Asian Countries

f) Low Cost of Operations

The most attractive component of Indias value proposition is its cost attractiveness. Leading players are turning towards the TIER 1 & TIER 2 cities as these cities offer cost advantage in terms of low cost labour .Also well educated individuals are turning to these cities are ideal candidates to boost the growth of modern organised retail formats.

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3.4 Key challenges impeding the growth of Organised Retail in India

The key challenges facing Organised Retail in India are acceptance of Organised Retail by the Traditional retailers (which is leading to tougher regulatory measures by the government), supply chain inefficiencies, high real estate costs, increasing personnel costs, high execution risks in terms of store rollouts and high shrinkage that hits Retailers' Bottom-lines. We believe that these challenges would result in Margin contraction for most players. However, increasing economies of scale and scope would result in savings for the Retailers and mitigate Margin contraction to a large extent Formats like Wedding Malls, which are unheard of in the far west are found to be very successful in the Indian market. The Wedding Malls for instance, stock the complete range of wedding product offerings from apparel to jewellery. The retail industry players are successfully blending knowledge from the experiences of the global retail industry with the unique requirements and preferences of the Indian consumer. Such customisation to the latent needs of the Indian consumer has brought about a great deal of innovation in the product offerings as well the retail formats in which they are being sold. Khadi & Village Industries Commission is set to roll out a string of swanky Khadi Plazas, which would showcase the traditional handloom textiles in a completely new form. Over 7,000 existing outlets are to be beefed up to cater to the changing tastes of the young Indian consumer and thereby provide a boost to the presently stagnant sales of the khadi textiles. The latest addition to the list of diverse retail formats are the Village Malls, with the fair price shops being revamped to cater to larger needs of local populations. The Government of Gujarat has spearheaded one such initiative with 512 Village malls launched in the state with further plans for 508 such malls. Retailing as an industry in India has still a long way to go. To become a truly flourishingindustry, retailing needs to cross the following hurdles. Automatic approval is not allowed for foreign investment in retail. Regulations restricting real estate purchases, and cumbersome local laws.

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-Taxation, which favors small retail businesses. Absence of developed supply chain and integrated IT management. Lack of trained work force. Low skill level for retailing management. Intrinsic complexity of retailing rapid price changes, constant threat of product

a) Obsolescence and Low Margins

The retailers in India have to learn both the art and science of retailing by closely following how retailers in other parts of the world are organizing, managing, and coping up with new challenges in an ever-changing marketplace. Indian retailers must use innovative retail formats to enhance shopping experience, and try to understand the regional variations in consumer attitudes to retailing. Retailing marketing efforts have to improve in the country- advertising, promotions, and campaigns to attract customers; building loyalty by identifying regular shoppers and offering benefits to them; efficiently managing high-value customers; and monitoring customer needs constantly, are some of the aspects which Indian retailers need to focus upon on a more pro-active basis. Despite the presence of the basic ingredients required for growth of the retail industry in India, it still faces substantial hurdles that will retard and inhibit its growth in the future. One of the key impediments was the lack of FDI status, which is now allowed. There is a limited capital investment in supply chain infrastructure, which is a key for development and growth of food retailing and also constrained access to world-class retail practices. Multiplicity and complexity of taxes, lack of proper infrastructure and relatively high cost of real estate are the other impediments to the growth of retailing. While the industry and the government are trying to remove many of these hurdles, some of the roadblocks will remain and will continue to affect the smooth growth of this industry. Fitch believes that while the market share of organized retail will grow and become significant in the next decade, this growth would, however, not be at the same rapid pace as in other emerging markets. Organized retailing in India is gaining wider acceptance.

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The development of the organized retail sector, during the last decade, has begun to change the face of retailing, especially, in the major metros of the country. Experiences in the developed and developing countries prove that performance of organized retail is strongly linked to the performance of the economy as a whole. This is mainly on account of the reach and penetration of this business and its scientific approach in dealing with customers and their needs. In spite of the positive prospects of this industry, Indian retailing faces some major hurdles, which stymied its growth. Early signs of organized retail were visible even in the 1970s when Nilgiris(food), Viveks(consumer durables) and Nallis(sarees) started their operations. However, as a result of the roadblocks, the industry remained in a rudimentary stage. While these retailers gave the necessary ambience to customers, little effort was made to introduce world-class customer care practices and improve operating efficiencies.

b) Acceptance of Organised Retail

Growth of Organised Retail in India largely depends on acceptance of the Modern Retail format in India. There exists the challenge of Traditional Retailers accepting co-

existence of Modern Retail in the ecosystem going ahead. It may be noted such opposition had also taken political overtones in recent times. A case in point was the hurdles faced by retailers like Reliance and Spencers' in opening their stores in UP and West Bengal, respectively. Another recent instance of Modern Retail getting impacted by political influence was Metro AG. not being able to open its Cash and Carry store in West Bengal due to cancellation of its APMC licence. At the end of it, the West Bengal government did allow the Metro AG shop. Nonetheless, the chain of events has forced Retailers to re-think their strategies to be in sync with the political bigwigs and trade unions before opening a store. Thus, even though Modern Retail has tremendous growth potential in India, the key players face a challenge from the local trade unions and political parties in the garb of upholding the rights of the Traditional Retailers Real Estate costs still high compared to global benchmarks According to industry experts, Real Estate costs are not in sync with sales and vary as much as 10% of sales, which is too high compared to 3-4% for the global Retailers. For instance, Pantaloon
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shelled out over 8.4% in Rents and Mall Management fees in 2007-08. Such high Rental costs make the business model infeasible for most retailers as the current MRP regime does not allow Retailers to charge consumers different prices for the same product according to location, ie., higher price for the up-market stores and lower prices for downtown hypermarts. Moreover, many Retailers have moved out of prime destinations in various Malls in TierI cities as they are not clocking Sales in proportion to the Rent that they are paying, which is sometimes as high as Rs50lakh per month. Thus, it has become imperative for Real Estate developers and Retailers to work out a revenue-sharing model, which will result in a win-win situation for both. However, the final choice lies with the strategy a Retailer chooses to adopt. Vishal Retail plays on volume growth in Tier-II and III cities whereas Shoppers Stop and Pantaloon rely on big-ticket purchases in Tier-I cities. Lack of specialist workers and management personnel has led to Supply-Demand imbalance in nascent sector.

c) High Personnel costs

On an average, the Indian Organised Retail players shell out upwards of 7% of Sales towardsPersonnel costs. For instance, Wal-Mart spends around 17% of its Revenues as Personnelcosts. Given that ratio, Indian salary to US salary is less than 30%, this means that the world's biggest Retailer, Wal-Mart spends around 5.1% of its Revenues on employees. Such high HR costs are essentially the costs incurred on training the employees as there's a huge deficiency of skilled labour in India. Attrition rates in the Industry are also as high as 50%, which is high compared to other Sectors. Factors that contribute to high rate of attrition in theIndian Organised Retail are change in career path, employee benefits offered by competition, flexible and better working hours and conditions.

d) At the point of sale

Instead of a PC or cash register, a growing number of Point of Sale (POS) solutions take

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advantage of a colour touch screen at the sales counter. Many POS systems connect to instore computers that, in turn, link to computers at the companys headquarters. With well designed software, touch screens can provide a simple, easy-to-use mechanism for cashiers to handle just about any transactionreducing 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 computerbased training during non-business hours. Add a swivel base and the associates will be able to use a workstation to review services or products with customers.

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3.5 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 world wide-area networks(WANs) and virtual private networks (VPNS) to access corporate and store information including radio frequency identification (RFID)-based 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 COMMUNICATION Reduces retail costs through converging data and voice

systems providing instant communication throughout stores and with enterprise applications and resources. STORE AS A MEDIUM Supports employee training and productivity and maximizes customer satisfaction within the store. Broadcasting

multichannel shopping and digital signage as well as revenue-boosting smart technologies and information kiosks. 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 companys logo, to the customer receipt, or to print multiple receipts for credit authorisation or for coupons, rebate offers or gift receipts, without adding to the transaction time.

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Chapter 4 MAJOR PLAYERS OF INDIAN RETAIL SECTOR

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4. COMPANY ANALYSIS

4.1 SHOPPERSs STOP LIMITED

Shoppers Stop Ltd. is a retail chain of branded and own label apparel, footwear, perfumes, cosmetics, jewellery, leather products and accessories, home products, books, music and toys. Shoppers Stop operates through 23 stores located in the cities of Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Jaipur and Gurgaon. Apart from the retail store chain Shoppers Stop, the company has forayed into specialty stores for books with Crossword Book Store having 41 outlets, home dcor with Home Stop having 2 stores and in cosmetics and maternal care through exclusive retail agreements with international brands like M.A.C. and Mother care having 11 stores respectively. Shoppers Stop Ltd. also ventured in the Food & Beverages business by opening Brio the caf bistro having 12 outlets and Desi Caf. The Company is occupying an aggregate area of 1,152,590 sq. ft. and Crossword Bookstores Ltd. occupies additional 201,890 sq ft.

4.1.1 Investment Strategies

i. Aggressive store rollout SSL has set for itself an aggressive retail expansion target of rolling out 79 stores from the current 60, across its various store formats by FY09. It had raised Rs.1528m from its IPO to part fund this expansion. This expansion will mark the entry of the company into Tier II cities like Pune and Ghaziabad and also its foray into the bell weather value-retailing segment with hyper city. The store rollout will broaden the companys target customer group and widen its presence across retailing formats.

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ii. Diversification of business to add value SSLs initiative to expand into different retail formats like hypermarkets and specialty stores in addition to its departmental store business will add significant value to the company. Though the revenue contribution from these new formats will be small in comparison to the existing business we expect the new divisions to add close to 30% to the profits of the company from FY07. iii. Strong loyalty base SSL has one of the most successful loyalty programmes, which has resulted in its First Citizen members base increasing to 644,500, in Q1FY07 from around 400,000 in FY05. Their contribution to sales has seen an upward spike from 50% in FY05 to 63%. This loyalty group gives SSL a competitive advantage in terms of repeat business. iv. The organized retail advantage The Indian domestic market has become an economic powerhouse with its large young working population, burgeoning disposable income levels, and emerging opportunities in the services sector. Going forward, organized retailing is projected to grow at the rate of 25-30% and is estimated to reach an astounding Rs.1, 000 bn by 2010. v. International Affiliations Shoppers Stop is the only retailer from India to become a member of the prestigious Intercontinental Group of Departmental Stores (IGDS). The IGDS consists of 29 experienced retailers from all over the world, which include established stores like Selfridges (England), Karstadt (Germany), Shanghai No. 1 (China), Matahari (Indonesia), Takashimaya (Japan), C K Tang (Singapore), Manor (Switzerland) and Lamcy Plaza (Dubai). This membership is restricted to one member organization per country/region.

4.1.2 Strategies Adopted Over Time to Tackle Competition

The way to the customers mind (and therefore his wallet) and the dynamics of maintaining the novelty in a relationship have definitely changed and changed rather irrevocably. However, the
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basic tenets of identifying a customer and making him feel special have remained the same thus providing some continuity to the old school of marketing. Some of these basic rules or guidelines which Shoppers Stop follows are: Rule No 1: Know thy customer! Rule No 2: Divide and Lure (with apologies to the British Empire!) Rule No 2.1: Pamper the best Rule No 2.2: Honour the rest Rule No 3: Rewards do build loyalty! Rule No 4: Show that you care Rule No 5: Designing products to make their customers life better Rule No 6: Dont look now; the customer is changing Rule No 7: Put the customer in charge Shoppers Stop is positioned as a family store delivering a complete shopping experience defined by its mission, vision and values. The customers fall between the range of 16 years to 35 years with an annual spend of around 1,50,000. Shoppers Stop also has an online store that puts them way ahead of the competition. It was not to create an alternative revenue-source to the offline stores, but to develop an extension to the present business. Shoppers Stop has launched co-branded credit cards with Citibank with a meaningful proportion of sales already on credit cards, it would only increase going forward

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4.2 TRENT LI MITED

Acquisition of a London-based retail chain Littlewoods by the Tatas was followed by the establishment of Trent Ltd. which is the parent company of Westside store, Star Bazaar and Fashion Yatra store which are chains of retail outlets promising customers an international shopping experience and value-for-money. Contemporary, high quality designs and a plethora of products have been successfully balanced to create the ultimate shopping experience for the consumers. Westside has chain stores in Mumbai, Bangalore, Hyderabad, Chennai, Pune, New Delhi and Kolkata with several departments to meet the varied shopping needs of customers including menswear, womenswear, lingerie, kidswear, household accessories, cosmetics and perfumes sections. Complementing the shopping ambience is a coffee shop, Cafe West, managed by the Taj Group. Trent has 18 Westside stores and one Hyper-market in the year 2004-05.

4.2.1 Investment Strategies

i. Rapid Growth In Stores Trent with a total square foot area of 600,000 square feet is adding another 1 million square feet. This means that the company expects to be about three times its size (aided with growth in same stores sales) over the next two or three years. ii. Diversification strategy for business In 2005, Trent Ltd. acquired Landmark, India's largest book and music retailer and recently the stake has been increased to 79%. Landmark in the last 3 years has expanded rapidly with about 15 stores across the country. The subsidiaries of the Trent Ltd. are Trent Brands Ltd and Fiora Services Ltd. In the year 2004-05, the company has acquired 100% of the share capital of Satnam Developers and Finance Pvt. Ltd. This company is engaged in the business of

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construction and development of real estates. In 2006, Trent Ltd formed a strategic alliance with DLF Universal Ltd through either one or more of its brands of Westside, Landmark and Star Bazaar has agreed to anchor the next 12 DLF malls across various cities of India with 27 stores totaling to a million sq ft of space. Recently in February 2009, Trent Ltd. announced a joint venture with Spains fashion retailers Inditex Group to develop and promote Zara stores in India with a 49% share in it.

4.2.2 Strategies Adopted By Trent Ltd. to Tackle Competition

Trent Ltd. has focused itself on a specific target segment that comprises of the youth. With major brands of apparel and jewellery under their store roof, Westside and other Trent Ltd. companies try to attract the younger lot. Trent has also been focused on social marketing by focusing on socially underprivileged children in order to provide them with a chance to have a better life tomorrow. Activities and rollouts like Light a Diya and Angels Tree are some of the social causes that Trent works toward to get in the minds of the mass and remain ahead of the competition. Recently Trent has come out with various offers under its ClubWest customer schemes like GOURMETWEST, KidsWest, Westside women stores etc. that provides consumers with an all new value for money and differtiated services proposal to finally aid to the companys interests

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4.3 VISHAL RETAIL LIMITED

Vishal Retail is a hypermarket chain established in Kolkata in 1986 that currently functions in major metro cities in India. The company is a pioneer in low prices everyday and does its business in grocery, department and apparels. Currently the company has over 100 stores throughout India which run under the name of Vishal Mega mart.

Graph 4.1 Presence of Vishal Retail across

The apparels rolled out by the company are under private label and the FMCG & Non-Apparel are under both private and renowned brands. The company is focused on increasing the private label products on its shelves. Vishal Retail's net profit has dropped by 86.7% for the quarter ended 31 December. The company has posted net profit worth Rs 2.15 crore compared with Rs15.55 crore for the same quarter FY'08 (Source: www.topnews.in)

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4.3.1 Strategy employed by Vishal Retail Ltd.

Vishal is from the existing 53 Mega marts expanded to 81 Mega marts by FY08 and aiming to further enhance it to 106 by FY09 (Source: JRG Capital Benefits) To compete with its competitors, Vishal Retail follows the strategy of value pricing, time pricing and discount pricing. The company also rolls out festive offers like Dhanteras Dhamaal to keep the customers interested and loyal. The company is in Tier II, III and IV cities strategically to rech the target customers that prefer value pricing as done by them. Vishal promotes heavily through print media and rarely ahs come out with television or other means of advertisement. Advertisements as offer brochures and pamphlets along with the local dailies serve them to be in an effective reach for their customers. The company sports an effective website that displays all the products under Vishals roof. Sales promotios like shop and fly and ghar basane ke char bahane offers are also effective as far as promotion is considered for Vishal Retail Ltd. Vishal Retail is moving into strategic alliances with the local kirana stores turning them into their franchise which would help the kirana stores to compete with the organized sector and observe economies of scale while Vishal would completely take over the kirana stores which would help them expand fast

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4.4 PROVOGUE (INDIA) Ltd

Provogue (India) Limited (PIL) was incorporated on 17th November 1997 as Acme Clothing Private Limited and commenced its operations as a manufacture and retailer of apparel for men under the brand Provogue. Provogue stands for fashion and not pure apparel, its designs are cutting edge and radical. Divisions of the company include accessories, women's wear and men's wear. The Company's manufacturing unit is situated at Nani Daman, Daman. To capitalize the opportunities in the retail business, the company through its subsidiary, Prozone Enterprises Pvt. Ltd collaborated with UK based, Liberty International Plc, is in the process of developing properties for commercial purposes including development of shopping malls. Promart, a division of Provogue will offer consumers their favorite brands at a great value through their off-price retail stores. The Company had launched the fashion brand Provogue' in March of the year 1998. After a year in 1999, PIL had introduced the brand Provogue in National Chain Stores like Piramyd, Shopper's Stop and Lifestyle. The Company had opened the first Provogue Studio (an exclusive brand outlet) in Lokhandwala, Andheri at Mumbai during the year 2000. Further, PIL had opened its second Studio Store in Chandigarh during the year next. PROZONE

Prozone-Liberty is in high gear preparing for launch of the first mall in FY 2010. Construction at Aurangabad is well advanced and teams are well entrenched in the process of completing Indias first regional shopping centre in a Tier 2 city. With a local catchment area of over 2 million inhabitants, the world class retail and entertainment concept will offer a large catchment area in the State of Maharashtra a chance to enjoy a shopping experience an experience the whole family can enjoy time and time again.

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Prozone-Liberty plans to develop a number of regional mixed-use retail centric shopping centres across India and Aurangabad will pave the way for our business model. PROMART

Promart, a division of Provogue launched its first store in Ahmedabad in May of the year 2007.2008 saw the launch of our first two Promart stores in Ahmedabad and Indore. The success of the concept has inspired to rollout stores in other cities . Promart offers the consumer a chance to own valued brands at discounted prices year round. The Promart concept is a seamless offprice department store housing Indias finest brands in fashion and lifestyle. Promart is a new environment for customers who need a bargain or want a bargain without comprising on the shopping experience. The store is designed to work for retailers needing a reliable, trusted outlet for off-price merchandise and to inspire customers to share in the promise of new India. Offprice retail stores are increasingly popular in developed economies. Established brands are turning over collections at a faster rate as the traditional fashion seasons evolve into a continuum of smaller range augmentations to keep offers fresh and exciting every visit.

4.4.1 Expansion Plans

Provogue India, a Mumbai-based retail company, has announced a Rs 90-crore expansion plan on 3rd October 2008, which will be funded through internal accruals and a preferential offer made earlier. The company had raised about Rs 314 crore through a preferential offer to Acacia Partners, T Rowe Price, Genesis and others. Provogue plans to expand in tier 2 cities by having ten new Promart stores- a smaller retail part of Provogue - in cities such as Jaipur, Lucknow and Coimbatore. Provogue is also expanding its exclusive brand outlets, which have a store size in the range of 1500 sq. ft. to 6000 sq. ft.

4.4.2 Marketing Strategy

ACMEs strategy for popularizing the Provogue brand included high profile ground events and retailing through selective stores which covered national chain stores like Shoppers Stop, multi

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brand outlets and company exclusive studios. The lack of a product range was made up by an aggressive advertising campaign strategy which was backed by series of fashion shows across the country. The uniqueness of the fashion shows were that only women were invited, which generated curiosity and excitement and the customer was ready to accept the madness. There was also a growing realization that a distribution network had to be established. Therefore, Provogue first found space in Multi-brand outlets (MBOs) and progressed to be present in 120 MBOs by the end of 1999 and there on a distribution network was established across 30 A and B class cities. Before making a foray into a region, Provogue organized fashion shows to generate interest levels and then the product was rolled out for the public. This gave us positioning as the events were done by designers unlike a clothing manufacturer like us. Thus what we achieved was a designer brand tag, which made pricing relative in the minds of the consumers. While the distribution network was being developed the company simultaneously developed its strategy for brand building. Initially some faces were needed to create awareness. Personalities like John Abraham, Hrithik Roshan and the current brand ambassador Fardeen Khan have given considerable brand image to Provogue. One would be curious at this point to know whether just having a single face would have given consistency as far as brand image is concerned? No, asserts Mr Chaturvedi, who said that association with faces does not guarantee sales but it is the aspirational value, which the personality generates. A new face adds freshness to the brand, he adds. For the image positioning, the company has launched Provogue Lounge bar, a studio which doubles up as a Lounge bar at night. According to Mr Chaturvedi, the concept of Lounge bars is more aimed at creating a positioning for Provogue in the minds of the consumers. Maybe, Lounge bars is a non conformist idea but worldwide it is conforming to the norm. Lounge bar is an image and if it becomes an independent profit centre, we will look at expanding the concept to other places, said Mr Chaturvedi.

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4.4.3 Investment Strategy

By 2000, Provogue was ready to foray into other product lines like mens trousers, socks, wallets, T shirts and womens wear. But the expansion of the range necessitated the need for retail space, which was minimal, less than 10,000 square feet around the country covering only MBOs and a single exclusive store in Mumbai. Thats when the company decided to build up the exclusive studio strategy, with plans to open 36 studios in the next two years. The idea behind calling it a studio was the strategy to personalise the entire business and the range of products on offer. The studios gave the company the ability to display the entire range and also add on the product lines with launch of knitwear, wollens, ties, ladies handbags and scarves. In July 2001 the second studio was opened in Chandigarh and by the end of 2002, 30 more studios were opened across the country. Simultaneously, efforts at the back end enabled the company to save upon costs. To further cut cost the company set a factory at Daman which enabled it to enjoy tax holidays. Though it started with only mens shirt, today, its product range include the whole range of mens wear (shirts, T-shirts, bottom wear, wollens, accessories etc) and womens wear which include blouses, knit tops, trousers & skirts and accessories. For all this the company has its own design studio and to make it products distinct the company not only sources merchandise from the domestic market but also overseas. The price strategy of the company reveal that it has deliberately placed itself in the medium range with mens shirts starting at Rs 695 and trousers at Rs 1095. The womens wear are also at affordable rates with tops starting at Rs 595 and trousers at Rs 995. The company also has accessories to go with the outfits which include ties at Rs 595 onwards, socks for Rs 245 (two pairs), wallets at Rs 695 onwards and belts at Rs 695 and above.

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4.5 PANTALOON RETAIL (INDIA) LIMITED

Pantaloon Retail (India) Limited, is Indias leading retailer that operates multiple retail formats in both the value and lifestyle segment of the Indian consumer market. Headquartered in Mumbai (Bombay), the company operates over 12 million square feet of retail space, has over 1000 stores across 71 cities in India and employs over 30,000 people Multiple retail formats including Collection i, Furniture Bazaar, Shoe Factory, E-Zone, Depot and futurebazaar.com are launched across the nation in the year 2006. The Company had signed a Memorandum of Understanding (MOU) with Blue Foods Private Limited to form a 50-50 Joint Venture Company in July 31st of the year 2006 for setting up food courts and speciality restaurants across the country. In January of the year 2008, the company had entered into joint venture with US based Staples Indian office products business unit, Future Office. As at February 2008, Pantaloon awarded a comprehensive USD 50 million 5-year IT outsourcing contract to Wipro Infotech. The Company initiated its flagship hypermarket retail store 'Big Bazaar' in Barrdhaman city during January of the year 2008. Pantaloons launched an exclusive line of film merchandise 'TASHAN Collection' across all its 40 stores in April of the year 2008. Pantaloon Retail was recently awarded the International Retailer of the Year 2007 by the USbased National Retail Federation (NRF) and the Emerging Market Retailer of the Year 2007 at the World Retail Congress held in Barcelona. Pantaloon Retail is the flagship company of Future Group, a business group catering to the entire Indian consumption space. Future Group, led by its founder and Group CEO, Mr. Kishore Biyani, is one of Indias leading business houses with multiple businesses spanning across the consumption space. While retail

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forms the core business activity of Future Group, group subsidiaries are present in consumer finance, capital, insurance, leisure and entertainment, brand development, retail real estate development, retail media and logistics The company follows a multi-format retail startegy that captures almost the entire consumption basket of Indian customers. In the lifestyle segment, the group operates Pantaloons, a fashion retail chain and Central, a chain of seamless malls. In the value segment, its marquee brand, Big Bazaar is a hypermarket format that combines the look, touch and feel of Indian bazaars with the choice and convenience of modern retail. Future Groups joint venture partners include, USbased stationery products retailer,

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Chapter 5 QUANTITATIVE ANALYSIS

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5. QUANTITATIVE ANALYSIS 5.1 Ratio Analysis Industry

This segment of the report aims to analyse industry trends on the macro level and the performance of the companies at a micro level with the help of key ratios. The analysis focuses on analyzing the solvency, operating efficiency and profitability position of the 5 companies and their comparison with the state of the industry as whole

Industry - Retailing

Year Debt-Equity Ratio Current Ratio Inventory Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) ROCE (%) RONW (%)

Latest 0.67 1.57 5.59 4.99 8.36 6.84 6.99 14.66 13.52

2006 0.67 1.57 5.59 4.99 8.36 6.84 6.99 14.66 13.52

2005 0.75 1.46 5.78 4.02 8.72 7.2 6.92 17.1 17.24

2004 0.62 1.45 5.69 2.8 8.8 7.18 6.23 13.99 12

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Graph 5.1 Past 5 year Ratio analysis for Retail Sector

20 18 16 14 12 10 8 6 4 2 0 Debt-Equity Ratio Current Ratio Inventory Interest Cover Ratio ROCE (%) RONW (%) Latest 2006 2005 2004

YEAR: 2008
Pantaloon Vishal Retail (India) Retail Ltd Ltd Debt-Equity Ratio Current Ratio Turnover Ratios Inventory Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) ROCE (%) RONW (%) 4.57 1.92 9.28 7.71 5.27 12.82 8.76 2.49 2.62 12.91 10.16 9.03 17.42 20.43 6.8 7.71 8.14 6.42 7.31 5.87 5.07 8.47 2.29 5.39 2.13 4.46 5.87 2.36 2.58 2.98 17.27 14.81 12.3 12.64 9.04 1.21 1.83 1.95 1.64 Provogue (India) Ltd 0.36 2.27

Trent Ltd 0.13 1.53

Shoppers Stop Ltd 0.48 1.11

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YEAR: 2007
Pantaloon Retail (India) Ltd 1.17 1.96 Vishal Retail Ltd 1.49 1.55 Provogue (India) Ltd 0.31 2.19

Debt-Equity Ratio Current Ratio Turnover Ratios Inventory Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) ROCE (%) RONW (%)

Trent Ltd 0.2 1.4

Shoppers Stop Ltd 0.3 1.54

4.87 1.98 6.58 5.49 3.8 10.59 7.4

3.68 3.5 11.68 9.14 9.07 22.17 25.86

7.18 9.93 10.47 8.72 9.59 10 8.55

9.94 12.07 8.75 5.91 8.27 14.42 9.27

2.78 4.61 14.78 12.73 12.02 12.48 10.79

YEAR: 2006

Pantaloon Vishal Retail Retail (India) Ltd Ltd Debt-Equity Ratio Current Ratio Turnover Ratios Inventory Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) ROCE (%) RONW (%) 5.01 3.42 7.68 6.62 5.74 15.9 17.21 4.99 7.05 9.38 7.52 8.31 24.02 25.44 1.19 1.45 0.75 1.84

Trent Ltd 0.14 1.41 7.61 12.66 13.06 10.75 12.21 13.48 10.02

Shoppers Stop Ltd 0.4 1.39 11 16.54 8.37 6.32 7.99 16.79 14.87

Provogue (India) Ltd 0.58 2.26 2.98 4.92 13.97 11.68 11.6 14.77 15.66

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YEAR: 2005

Pantaloon Retail (India) Ltd Debt-Equity Ratio Current Ratio Turnover Ratios Inventory Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) ROCE (%) RONW (%) 5.01 2.88 8.72 7.49 6.12 19.47 24.6 1.67 1.6

Vishal Retail Ltd 0.71 2.7 5.07 6.1 6.08 4.09 5.41 16.11 13.89

Trent Ltd 0 1.75 7.61 15.56 10.83 8.89 10.26 9.86 7.12

Shoppers Stop Ltd 0.84 0.9 9.19 6.33 6.63 4.86 5.86 15.19 21.22

Provogue (India) Ltd 1.01 1.86 3.81 4.12 12.82 11.2 10.1 23.18 27.09

YEAR: 2004

Debt-Equity Ratio Current Ratio Turnover Ratios Inventory Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) ROCE (%) RONW (%)

Pantaloon Retail (India) Ltd 1.36 1.5 4.84 2 8.75 7.41 5.04 14.77 14.11

Vishal Retail Ltd 0.85 1.79 5.32 7.33 3.42 1.75 3.18 8.92 4.07

Trent Ltd 0 1.95 7.53 17.77 13.54 11.57 12.89 8.96 7.03

Shoppers Stop Ltd 0.75 1.02 8.48 2.92 6.78 4.92 5.09 14.47 14.3

Provogue (India) Ltd 1.76 1.71 3 1.94 10.88 8.77 6.36 19.5 19.05

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5.2 Comparative Analysis of Companies with the Industry

5.2.1 Debt Equity Ratio
The industry has a ratio of 0.67 which signifies that out of Rs 100 contributed Rs 67 is raised through debt .As far as the individual firms in the industry are concerned Vishal retail ltd has a debt equity ratio of 1.95 which is highest among the all the major players .Trent ltd has a ratio of 0.13 which is the least among the existing firms it states that Vishal retail ltd has got more exposure to debt as compared to Trent ltd which relies more on equity resources. Shoppers stop ltd and Provogue India ltd have a ratio of .48 and .36 respectively which is close to the industry trend. It can be inferred from the ratios of two companies that there is a possibility of raising additional finance through debt .PRIL has a ratio of 1.21 which exceeds the industry ratio by 0.54 which means PRIL has relied more on debt as a source of finance than other players in the industry.

Graph 5.2 Comparison of Debt Equity Ratio of Major players

2.5

2 Pantaloon Retail (India) Ltd Vishal Retail Ltd 1 Trent Ltd Shoppers Stop Ltd Provogue (India) Ltd 0.5

1.5

0 2008 2007 2006 2005 2004

Looking at the past 4 years as a whole the industrys debt equity ratio has been in the range of 0.63 to.75 wheras all the three market players except PRIL and vishal retail ltd operated at a adebt equity ratio below the industry standard.PRILs debt equity position can be considered as the best throughout the five years which shows how effectively the company has been able to
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maintain balance between the debt and equity as source of funds.

5.2.2 Current Ratio

The current ratio states the relationship between the current assets and current liabilities. As far as the industry trends the ratio stands at 1.57 which states that the current assets are 1.57 times of current liabilities when we come to the level of individual firms, Provogue india ltd has a ratio of 2.27 which portrays a strong working capital management of provogue india ltd. PRIL,Vishal retail ld & Trent ltd are closer to the industry trend whereas Shoppers stop has a current ratio of 1.11 which is a red signal for the same and suggests that the firm requires to pay more attention in this regard.

Graph 5.3 Comparison of Current Ratio of Major players

3 2.5 2 1.5 1 0.5 0 2008 2007 2006 2005 2004

Pantaloon Retail (India) Ltd Vishal Retail Ltd Trent Ltd Shoppers Stop Ltd Provogue (India) Ltd

Over the past five years the industy is operating at an average current ratio of 1.5 which is considered to be good for the same.At the micro level, All companies except Shoppers stop ltd has been able to operate at a ratio higher than that of the industry standard.Market players like Vishal retail ltd and Provogue India ltd hsve been able to effectivley manage their working capital than others. Considering the nature of the industry where working capital plays a crucial

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role, companies like PRIL, Trent has the opportunity to maintain balance between the current assets and current liabilities to gain competitive advantage.

5.2.3 Inventory Turnover Ratio

This ratio indicates the relationship between the cost of goods sold during a year and the average stock kept during that year. The ratio of the industry as whole stands at 5.59.Among the exisiting players in the industry shoppers stop ltd comes out to be the one having the highest ratio of 8.47 as compared to PRIL, Vishal, Trent ltd,SSL &PIL which are having ratios of 4.57 ,2.49,6.8 and 2.58.it shows that shoppers stop ltd s sales policies are comparatively effective than its competitors. in simple words it can be said that Shoppers stop ltd has been able to convert its stock into sales more rapidly when compared with its rivals

Graph 5.4 Comparison of Inventory Turnover Ratio of Major players

12

10

8 Pantaloon Retail (India) Ltd 6 Vishal Retail Ltd Trent Ltd 4 Shoppers Stop Ltd Provogue (India) Ltd 2

0 2008 2007 2006 2005 2004

The overall position of the industry pertaining to the Inventory turnover over the past few years has been more or less the same wherein the industry had an average of 5.5 .looking at thecompanies,Shoppers stop has been the front runner with the inventory turnover of above 8
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with Trent limited also showing sufficient balance between the cost of goods sold and the stock with the company.PRIL,Vishal& Provogue India ltd has not been able to effectively convert their stock into sales which is reflected in their ratio over the past 5 years.

5.2.4 Interest Cover Ratio

It is a measure of protection available to creditors for payment of interest charges to the company. The industry ratio is 4.99 which states that the PBIT is approximately 5 times of the total interest expense .looking at the companies, Trent ltd has a maximum ratio of 7.71 which reflects its soundness in paying interest charges to creditors. Among other players, PRIL has got the least ratio of 1.92 which cannot be considered sound from a creditors point of view. Vishal retail ltd, shoppers stop ltd and provogue ltd have got a ratio of 2.62, 2.29 & 2.98 respectively which states that they have to boost up their profitability with the industry trend.

Graph 5.5 Comparison of Interest Cover Ratio of Major players

20 18 16 14 12 10 8 6 4 2 0 2008 2007 2006 2005 2004 Pantaloon Retail (India) Ltd Vishal Retail Ltd Trent Ltd Shoppers Stop Ltd Provogue (India) Ltd

Industry has been operating at an average of 4.2 as interest cover for the past five years.At the micro level,Trent ltd has been one of the first movers in gaining confidence among the concerned parties when it comes to the obligation of interest payment.Vishal Retail were initially able to maintain sufficient cover for the interest payment but oflate the condition is changed which is
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self evident from the chart above depicting fall in the interest cover for the company.All the others market players haave been operating below the industry standard which is a cause of concern .

5.2.5 Return on Capital Employed

Return on capital employed shows the return generated on the net capital employed including owned and borrowed funds. The industry ratio stands at 14.666% which says that out of Rs 100 invested into the business approximately Rs 15 is earned as a return .at the micro level ,Vishal retail ltd has got a ROCE of 17.42% which is the highest among other major market players. It tells us that Vishal retail ltd has been able to generate more return on its capital employed when compared with its competitors

Graph 5.6 Comparison of ROCE Ratio of Major players

30

25

20 Pantaloon Retail (India) Ltd 15 Vishal Retail Ltd Trent Ltd 10 Shoppers Stop Ltd Provogue (India) Ltd

0 2008 2007 2006 2005 2004

Over the past 5 years the ROCE of the industry has been around 15 % wheas major players like
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Vishal retail ltd, Provogue India ltd and PRIL has been generating a return greater than the industry standard and has been operating with ratio of 15% and above.But trent ltd, oflate has not been able to maintain consistency in the return generated.Shoppers stop ltds return on capital employed has also declined in the recent years which were above the industry standard during 2004-05.

5.2.6 Return on Net Worth

Return on net worth describes the return generated on the owned funds which represents the owners of the business. At the macro level the industry generates 13.52% return on the net worth. Looking at the companies, Vishal retail limited comes out to be the leader with a return of around 20.4% .Shoppers stands on the weaker side with a return of 2.36% which states that it has been not been able to live up to the expectations of its shareholders. PRIL, Trent & Provogue India ld have maintained a single digit RONW rate less than the industry trend which itself showed double digit growth.

Graph 5.7 Comparison of Return on Net Worth Ratio of Major players

30

25

20 Pantaloon Retail (India) Ltd 15 Vishal Retail Ltd Trent Ltd Shoppers Stop Ltd 10 Provogue (India) Ltd

0 2008 2007 2006 2005 2004

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The average rate of return on net worth for the industry is around 14%which is very good considering the nascent stage in which the Indian organized sector is operating on. At the company level, Vishal Retail ltd has shown tremendous growth over the past 5 years and has built confidence among its shareholders .on the other hand players like Provogue India Ltd ,Shoppers stop Ltd,Trent Ltd has not been able to generate sufficient return on their net worth which is reflected in their ratios over the past five years .the incapability of not even meeting the industry standard has als0 been one of the disappointing factors and it can be the deciding factor for the future performance of these companies with the governments decision of liberalising FDI investment in single brand and multi brand retailing in recent FDI policy there will be stiff competition to maintain and grow in these ever growing industry.

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5.3 Trend Analysis

The growth of the five major players of the retail sector is being studied with the trend analysis by taking the variables like sales, expenditure and profit. With the past five year values a trend equation by using least square method is obtained. The line has an equation, Y = a + bt

Where, Y Projected value (sales, expense, profit) a Intercept of Y b Slope of the line t Any value of the time series Using this equation the values of the sales, expenses and profit for the year 2009 and 2010 is being forecasted for the five companies.

5.3.1 Shoppers Stop

From the past five years value the linear equation for the different variables the linear equation is calculated as, Sales Turnover = -9.3 + 237.65 t Total Income = -8.88 + 249.04 t With the help of the linear equation shown above the forecasted values are being found and shown in the graph.

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Graph 5.8 Shoppers Stop Sales Trend Analysis

2000.00 1800.00 1600.00 1400.00 1200.00 1000.00 800.00 600.00 400.00 200.00 0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 1209.17 1146.01 898.96 838.69 637.84 530.83 619.68 510.65 414.47 402.93 Sales Turnover (Rs.crore) Total Income (Rs.crore) 1485.39 (E) 1416.56 (E) 1734.44 (E) 1654.21 (E)

The graph shows that the sales turnover and the total income is growing at the rate of Rs. 237.65 crore and Rs. 249.04 crore respectively. This growth trend is shows that the company has potential growth in the future if the same trend follows. Raw Materials = 7.6 + 158.94 t Employee Cost = 0.17 + 15.20 t Selling and Admn Expenses = 0.03 + 23.93 t Total Expenses = 8.01 + 213.05 t Operating profit = -1.01 + 34.21 t Reported net Profit = 1.1 + 6.46 t

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Graph 5.9 Shoppers Stop Expenditure Trend Analysis

1600.00 1483.36 (E) 1400.00 1200.00 1042.27 1000.00 800.00 600.00 400.00 200.00 0.00 364.54 362.99 283.91 36.03 22.27 2004 39.60 132.69 143.59 (E) 167.52 (E) 64.30 86.39 106.25 (E) 91.05 (E) 39.91 58.37 78.14 2007 2008 2009 2010 2011 756.61 530.72 461.63 387.33 1105.03 (E) 946.08 (E) 751.71 560.24 1270.31 (E) Raw Materials (Rs.crore) Employee Cost (Rs.crore) Selling and Admin Expenses (Rs.crore) Total Expenses (Rs.crore)

2003

28.50 2005 2006

Graph 5.10 Shoppers Stop Profit Trend Analysis

300.00

250.00

238.51 (E) 204.29 (E)

200.00 158.59 131.51 100.00 68.69 50.00 49.46 12.02 0.00 2003 2004 2005 2006 2007 19.03 27.11 26.20 99.94

150.00

Operating Profit (Rs.crore) Reported Net Profit (Rs.crore) 37.66 (E) 6.97 44.12 (E)

2008

2009

2010

2011

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The expenditure shows that the raw materials consume the maximum percentage, the employee cost and selling and administrative expenses consume a minor percentage. The trend analysis shows that the raw materials cost is increasing at the rate of Rs. 158.94 crore followed by employee cost at the rate of Rs. 15.2 crore and the selling & administrative expenses at the rate of Rs. 23.93 crore. By taking all the expenses into consideration it is found that their total expense is increasing at the rate of about Rs. 831.68 crore every year. This increased expenditure in raw materials is in order to keep up with the increased demand with the customers. Their total expense is increasing because of their rapid expansion plan. From the linear equation it is calculated that their operating profit is increasing at the rate of Rs. 34.21 crore and their reported net profit is increasing at the rate of Rs. 6.46 crore. This huge difference between their operating profit and their reported net profit is because of the interest. As a whole, linear trend is being observed in their growth in their future.

5.3.2 Trent
From the past five years value the linear equation for the different variables the linear equation is calculated as, Sales Turnover = -3.4 + 114.455 t Total Income = -4.2 + 124.57 t Raw Materials = 1.71 + 63.28t Employee Cost = 0.15 + 7.53 t Selling and Admn Expenses = 1.05 + 25.22 t Total Expenses = -3.02 + 110.39 t Operating profit = 0.99 + 8.3 t Reported net Profit = 0.7 + 8.55 t

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Graph 5.11 Trent Limited Sales Trend Analysis

1000.00 900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 260.58 171.06 152.74 234.47 372.41 346.44 491.31 452.00 552.09 514.16 743.19 (E) 867.76 (E) 797.78 (E) 683.33 (E) Sales Turnover (Rs. Crore) Total Income (Rs. Crore)

Graph 5.12 Trent Limited Expenditure Trend Analysis

900.00 800.00 700.00 600.00 500.00 438.44 400.00 326.82 300.00 229.20 200.00 100.00 0.00 2003 193.40 144.67 131.76 259.92 278.26 150.27 (E) 175.49 (E) 115.21 Selling and Admin Expenses (Rs. Crore) Total Expenses (Rs. Crore) 377.97 (E) 501.62 441.25 (E) 769.70 (E) 659.31 (E) Raw Materials (Rs. Crore) Employee Cost (Rs. Crore)

77.30 69.92 94.92 45.04 (E)52.57 (E) 43.26 49.74 28.80 36.96 10.98 14.86 20.60 2004 2005 2006 2007 2008 2009 2010 2011

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Graph 5.13 Trent Limited Profit Trend Analysis

70.00 59.18 (E) 57.13 (E) 50.00 50.62 (E) 48.82 (E)

60.00

40.00

35.22

33.07 32.58 31.58

Operating Profit trend (Rs. Crore) Reported Net Profit (Rs. Crore) 18.30

30.00 19.83 20.00 17.20 19.06 13.16 10.00

24.38

0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011

The graph shows that their sales and expenditures follows almost linear pattern. Only their operating profit has decreased drastically from Rs. 33.07 crore in the year 2007 to Rs. 18.3 crore in the year 2008. But if the same trend follows their operating profit for the year 2009 is expected to increase to Rs. 48.82 crore. Because of this fluctuation in the operating profit their reported net profit has also seen some fluctuation in the year 2008. Their difference in the operating profit and the reported net profit has seen fluctuations in the past but it is expected that there will be only a minimum difference between the both in the future. It is expected that their sales will shows a positive growth in the future also the company is in the rapid expansion program. Their total income is calculated and found to increase at the rate of Rs.124.57 crore every year and the total expenses at the rate of Rs. 110.39 crore every year. In their total expenses raw materials consumes the major part followed by selling and administrative expenses which is followed by employee cost. Their employee cost is calculated to increase at a very minimum rate of Rs.7.53 crore every year.

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5.3.3 Vishal
From the past five years value the linear equation for the different variables the linear equation is calculated as, Sales Turnover = 15.35 + 136.94 t Total Income = 22.63 + 174.61 t Raw Materials = 14.91 + 116.64 t Employee Cost = 1.38 + 7.97 t Total Expenses = 19.88 + 159.59 t

Graph 5.14 Vishal Retail Sales Trend Analysis

1400.00

1313.52 1244.93 (E) 1070.32 (E) 973.91 (E) 831.34 1005.31 836.98 (E) Sales Turnover (Rs.crore) 602.65 Total Income (Rs.crore)

1200.00

1000.00

800.00

600.00

400.00

329.47 288.46 161.82 146.31

200.00

96.23

88.10 0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011

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Graph 5.15 Vishal Retail Expenditure Trend Analysis

1400.00 1183.74 1137.05 (E) 1000.00 862.68 800.00 760.94 714.75 (E) 600.00 573.47 977.46 (E) 831.39 (E) Raw Materials (Rs. Crore) Employee Cost (Rs. Crore) Total Expenses (Rs. Crore)

1200.00

400.00 302.52 200.00 93.22 0.00 2003 3.02 66.49 152.93 216.74 72.31 49.22 (E) 2009 57.20 (E) 2011

104.77 30.01 6.04 15.13 2006 2007

2004

2005

2008

2010

Graph 5.16 Vishal Retail Profit Trend Analysis

140.00 122.02 120.00 100.00 88.76 (E) 80.00 68.01 60.00 40.00 26.64 20.00 8.75 2.90 0.00 2003 0.38 2004 3.02 2006 2007 2008 2009 2010 2011 12.39 40.64 36.90 (E) 25.07 31.75 (E) 74.40 (E) Operating Profit (Rs.crore) Reported Net Profit (Rs.crore)

2005

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Operating profit = 14.36 + 19.88 t Reported net Profit = 0.85 + 5.15 t When the same trend follows in the future the sale of Vishal Retail is predicted as Rs.1070.32 crore. From the linear equation it is calculated that their annual sales growth rate is Rs.136.94 crore and the total income at the rate of Rs. 174.61 crore. There is a dramatic change in their expenditure from the year 2007 because of their rapid expansion plan program. With the same trend their total expense for the year 2009 is estimated as Rs.977.46 crore with the raw material to be Rs.714.75 crore. The operating profit and reported profit are calculated to increase at the rate of Rs.19.88 crore and Rs.5.15 crore respectively every year.

5.3.4 Provogue
From the past five years value the linear equation for the different variables the linear equation is calculated as, Sales Turnover = 1.51 + 59.56 t Total Income = 1.74 + 66.06 t Raw Materials = 0.76 + 38.99 t Employee Cost = 0.17 + 2.19 t Selling and Admn Expenses = 0.14 + 11.31 t Total Expenses = 1.19 + 57.29 t Operating profit = 0.38 + 7.91 t Reported net Profit = 0.04 + 4.91 t

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Graph 5.17 Provogue Sales Trend Analysis

500.00 450.00 398.11 (E) 400.00 350.00 300.00 258.41 250.00 200.00 150.00 100.00 50.00 0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 63.60 54.76 121.98 177.78 156.41 115.02 238.67 Total Income (Rs.crore) 377.84 358.89 (E) 336.14 Sales Turnover (Rs.crore) 464.17 (E) 418.45 (E)

Graph 5.18 Provogue Expenditure Trend Analysis

450.00 400.00 350.00 300.00 273.72 (E) 250.00 200.00 156.57 150.00 107.82 100.00 56.50 50.00 0.00 2003 35.46 75.39 28.55 43.81 8.67 15.26 13.35 (E)15.55 (E) 2009 2010 2011 5.26 110.18 63.56 68.03 (E) 153.71 79.34 (E) 223.90 213.96 234.72 (E) 344.95 (E) 320.55 Raw Materials (Rs.crore) Employee Cost (Rs.crore) Selling and Admin Expenses (Rs.crore) Total Expenses (Rs.crore) 402.24 (E)

14.90 19.60 2.12 2.51 2005

2004

2006

2007

2008

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Graph 5.19 Provogue Profit Trend Analysis

60.00 55.78 (E) 50.00 47.59 47.87 (E)

40.00 32.71 30.00 25.97 20.00 20.66 19.60 13.77 10.00 8.80 7.22 5.90 0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 11.94 34.37 (E) 29.45 (E) Operating Profit (Rs.crore) Reported Net Profit (Rs.crore)

The overall growth of the Provogue retail is linear with a positive trend. The linear regression equation has shown that their sales are growing annually at the rate of Rs.59.56 crore and their total income at the rate of Rs.66.06 crore. The estimated total expense for the year 2009 is Rs.344.95 crore and for the year 2010 Rs.402.24 crore. The raw material cost, selling and administrative expenses to grow at the rate of Rs.38.99 crore, Rs.2.19 crore and Rs. 11.31 crore respectively. Only their employee cost is increasing at the lower rate. Their operating profit is calculated to increase at the rate of Rs.7.91 crore and the reported net profit at the rate of Rs.4.91 crore. The operating is increasing at the higher rate from the year 2007. This is because of the huge demand among the customers is increasing. This same linear trend is predicted to follow in the future also if the same condition prevails. The difference in the operating profit and reported net profit is also increasing from the year 2007.

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5.3.5 Pantaloons
From the past five years value the linear equation for the different variables the linear equation is calculated as, Sales Turnover = 58.63 + 806.65 t Total Income = 68.15 + 902.77 t Raw Materials = 48.59 + 623.38 t Employee Cost = 3.59 + 43.77 t Selling and Admn Expenses = 7.55 + 120.6 t Total Expenses = 62.09 + 831.68 t

Graph 5.20 PRIL Sales Trend Analysis

7000.00 5927.34 5484.77 (E) 5295.88 6387.54 (E) 5705.21 (E)

6000.00

5000.00

4898.55 (E) Sales Turnover (Rs.Crore)

4000.00

3851.44 3393.47

3000.00 2198.69 2000.00 1219.91 1000.00 684.90 658.35 0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 1084.39 1960.86 Total Income (Rs.Crore)

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Graph 5.20 PRIL Expenditure Trend Analysis

7000.00 5883.85 (E) 5446.88 5052.17 (E) 5000.00 4412.24 (E) 4000.00 3537.64 3000.00 2601.65 2000.00 1127.32 2042.74 1502.30 Total Expenses (Rs.Crore) 4170.62 3788.86 (E) Selling and Admin Expenses (Rs.Crore) Employee Cost (Rs.Crore) Raw Materials (Rs.Crore)

6000.00

1000.00

851.79 (E) 731.19 (E) 844.18 631.05 556.70 724.18 313.11 474.86 207.74 275.78 266.25 (E) 310.02 (E) 159.89 92.97 112.72 0.00 27.61 50.75 2003 2004 2005 2006 2007 2008 2009 2010 2011

Graph 5.20 PRIL Profit Trend Analysis

500.00 463.41 450.00 400.00 350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 2003 152.27 69.68 84.49 60.96 53.14 27.67 4.56 14.54 2005 2007 81.42 (E) 69.93 (E) 217.95 Operating Profit (Rs.Crore) 383.10 (E) 446.04 (E)

2009

2011

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Operating profit = 5.41 + 62.95 t Reported net Profit = 1.03 + 11.48 t The trend in the PRIL is positive and also from the year 2006 it is increasing at a rapid rate. This is because of their improvements in the supply chain management and introduction of new technologies for the maintenance of the stores. Because of which their expenses were also increasing. With this same trend the sales for the year 2009 is estimated as Rs.5484.77 crore. Their sales and total income is increasing annually at the rate of Rs. 902.77 crore and Rs.806.65 crore respectively. Their total expense is increasing at the rate of Rs.831.68 crore with their raw materials, selling & administrative expenses and employee cost increasing at the rate of Rs. 623.38 crore, Rs. 120.6 and Rs. 43.77 crore respectively. Their operating profit with the same trend is estimated to be around Rs.383.10 crore and the reported net profit to be Rs.69.93 crore respectively. This also shows that the company has a huge opportunity for growth in the future.

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Chapter 6 QUALITATIVE ANALYSIS

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6. QUALITATIVE ANALYSIS 6.1 Porters Five Forces of Analysis

Threat of New Entrants Threat of Substitutes Bargaining Power of Suppliers Bargaining Power of Consumers Competitive Rivalries

HIGH

HIGH

LOW

MODERATE

HIGH

Rivalry among competitors

High

Threat of Substitutes

High

High

Threat of New entrants

Industry Competitivenes s

Moderate
Bargaining power of buyers

Low
Bargaining power of suppliers

i. Threat of New Entrants

One trend that started over a decade ago has been a decreasing number of independent retailers. Walk through any mall and you'll notice that a majority of them are chain stores. While the barriers to start up a store are not impossible to overcome, the ability to establish favorable
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supply contracts, leases and be competitive is becoming virtually impossible. Their vertical structure and centralized buying gives chain stores a competitive advantage over independent retailers. 95% of the market is made up of small, uncomputerised family-run stores. Now there are finally signs that the Indian government is dropping its traditionally protectionist stance and opening up its retail market to greater overseas investment. Last month it eased restrictions on foreign investment, allowing overseas retailers to own 51% of outlets as long as they sell only single-brand goods. For the first time, chains like McDonalds, Marks & Spencer, Body Shop and Ikea can, if they want to, open and control their own operations in India. Previously, many of them had gone down the path of working with franchise partners, a policy followed by M&S which supplies clothes to eight "Planet Sports" stores. They look like M&S stores on the inside, but they are owned by local retailers, and the UK retailer has no plans for that to change. On the whole there is threat on new entrants in the retail industry.

i. Power of Suppliers
Historically, retailers have tried to exploit relationships with suppliers. A great example was in the 1970s, when Sears sought to dominate the household appliance market. Sears set very high standards for quality; suppliers that didn't meet these standards were dropped from the Sears line. You could also liken this to the strict control that Wal-Mart places on its suppliers. A contract with a large retailer such as Wal-Mart can make or break a small supplier. In the retail industry, suppliers tend to have very little power.

ii. Power of Buyers

Individually, customers have very little bargaining power with retail stores. It is very difficult to bargain with the clerk at Safeway for a better price on grapes. But as a whole, if customers demand high-quality products at bargain prices, it helps keep retailers honest. Taking this from the pother side of the coin we can say that customers have comparatively higher bargaining power in case of unorganized sector than organized sector. As the customer demands products from the organized units he will be focused more towards the quality aspect.

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iii. Availability of Substitutes

The tendency in retail is not to specialize in one good or service, but to deal in a wide range of products and services. This means that what one store offers you will likely find at another store. Retailers offering products that are unique have a distinct or absolute advantage over their competitors. For example:-MORE(A Birla Brand) provided variety of products which are more or less of similar nature and thus aids in making available different goods.

iv. Competitive Rivalry

Retailers always face stiff competition. The slow market growth for the retail market means that firms must fight each other for market share. More recently, they have tried to reduce the cutthroat pricing competition by offering frequent flier points, memberships and other special services to try and gain the customer's loyalty. The major market players in the Indian context i.e Shoppers' Stop Westside (Trent) Pantaloon (Big Bazaar) Lifestyle RPG Retail (Foodworld, Musicworld) Crossword Wills Lifestyle Globus Piramals ( Pyramid & Crosswords) Ebony Retail Holdings Ltd

are giving each other stiff but healthy completion which is evident from their aggressive marketing strategy and segment policies.

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6.3 SWOT Analysis

6.3.1 Shoppers Stop
For assessing the advantages and disadvantages shopper stop enjoys the SWOT analysis of the company has been done as: Strengths: Pioneer in departmental format. Loyal customer base accounts for 63% of revenue. Low risk and sturdy business model. Presence across retail segments; lifestyle, value and specialty retailing. Healthy financial position with low gearing. Low rentals due to long lease contracts. Weakness: Late foray into value retailing with 51% stake in promoter owned company. High spend on store makeovers and interiors to ensure pleasant shopping experience. Competition from standalone specialty stores. No standardization of product. Opportunity: 30% CAGR in organized retailing to result in better footfalls and conversion rates. Entry into TIER II and III cities. Benefit from the 16% increase in discretionary spend in Indian consumers because of presence across formats. Collaborations with foreign players because of a national brand. Threats: Impact of slowdown in consumer spends to be felt on department stores. Opening up of economy for free entry of foreign retail players. Employee shortage due to rapid growth in retailing.
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As it could be observed that percentage of sales dropped till 2006 but after that, the company seems to be more stable and less risky. Revenue of the company is increasing over the years. This signifies that company is trying to increase their market share and with the increasing consumption. It sales has increased very steeply over the years.

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6.3.2 Trent Limited

Strengths: Sold in house brand only higher margins, more control over manufacturers (quality,cost), no intermediary costs. Focus on 2 parameters style and affordability Huge financial base is there at the companys disposal which amounts to around Rs 2 billion from sale of Lakme Adept at conducting marketing research often and has a good in house team for it. Reach is very good with continuous growth in the number of stores at a rapid rate. Trent has a strong supply chain functioning. Weakness: The company is too focused only on apparels and jewellery which are seasonal in nature and is not willing to diversify into other product types. The company is still concentrating much on the renowned brands instead of own brands with the ratio of 70:30. If own brands could be focused on, they could bring in more loyalty, flexibility and high returns. (Source: Crisil) Trent invests very heavily in promotion and brand building but still suffers from poor economies of scale. Opportunities: There is 10 billion dollar untapped market in India for Trent to capitalise on. Trent could enter the food retail business as a study on food and grocery retail market as the food retail sales make up for close to 63 per cent of total retail sales in American retail chains. (Source: KSA Technopak) Trent positions its products in Westside as value for money which could be further enhanced by venturing into low cost product business to tap the lower middle class market through a downward stretch.

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Threats: Organised sector is open for other players and with new and new retailers improving the competition in the market by mushrooming their retail outlets. Market share of the unorganised sector still is ranges to 95% and if not looked upon, might increase further. (Source: Crisil)

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6.3.3 Vishal Retail Limited

Strengths: Vishal follows the concept of EDLP, time pricing and price discounts. Vishal Retail is into wide range of consumer goods which are sold under the value retail tag. Vishal emphasizes on backward integration. To reduce cost, Vishal does in house production of apparels, procurement of goods directly procurement of goods from the small and medium size vendors and manufacturers. Vishal has a very strong logistics and distribution system. Vishal targets the middle and lower middle class customers that form a very huge percentage of the total shopping population in India. Vishal has a strong recruitment cell that manages its human resources very well. Weakness: Apperels comprise of 63% of the revenue of the company which could be a risky figure looking at the season nature of the products. The company should try focus on evening it out and concentrating on the other product offerings as well. (Source: BLB Research) Vishal suffers from a high attrition rate of 35% which is not a good figure for a retail sector company to manage its resources. (Source: BLB Research) With the store cost skyrocketing, Vishal still operates in large space outlets. Opportunities: Vishal could focus more on the FMCG retail and has huge scope of own brand promotion to a different level. Vishal retail could extend itself into tier III and tier IV cities more to challenge the unorganized retailers with a different shopping experience for the consumers. Vishal could diversify into a brand retailer, retailing the major apparel in India as well.

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Threats: Vishal faces serious competition from the unorganized sector with whom it directly competes with through its pricing strategies. More and more stores are mushrooming in India providing latest in fashion apparels, to compete with these and maintain its value prices, Vishal Retail needs to devise strong strategies.

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6.3.4 Provogue India Limited

Strengths: Strong brand recognition in the high fashion casual branded apparel Segment The management has strong understanding of fashion industry Having built a strong equity, Provogue is extending its reach as also add product categories - women's wear, innerwear, footwear and fashion accessories The Provogue brand continues to build its strong emotional connection with its customers Understanding of what Indias a contemporary fashion consumer want and need has led to the development of an iconic brand, which continues to be our key differentiator in Indias fashion and lifestyle market. Having successfully established itself as the brand of choice for youthful fashion conscious customers, Enduring appeal across apparel and accessories and we continue to strategically develop and expand the merchandise collections. Provogue is available through 228 outlets in 66 cities across the country. 124 own stores are now open and were proud of our shop-in-shop partners who have dedicated space to the provogue brand. These partners are the leading department stores and specialty fashion formats in India. The Company regards its human resources as amongst its most valuable assets and proactively reviews policies and processes by creating a work environment that encourages initiative, provides challenges and opportunities and recognizes the performance and potentials of its employees Weakness: Margins could be under pressure, due to opening of newer stores and increasing advertisement and promotional expenses Risks of operating in a highly volatile fashion industry Opportunities: Retail is the primary driver of the consumption story and the total retail market, now at

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about US$350 billion, is growing at over 10% per annum. Within this, the organized sector is growing at over 30% CAGR and expected to represent over 15% of total retail within 5 years creating a market approaching US$90 billion from US$17 billion last year. This will result in demand for new retail space of over 250 million square feet, requiring investments of over US$50 billion. The strong brand positioning and state of the art manufacturing capabilities further help to leverage the opportunity. Large investments and new retail concepts are changing the rapidly evolving organized retail landscape in India. This is not just restricted to the metros but has also spread to Tier- II and Tier-III cities. Provogue, Promart and Prozone are expected to benefit tremendously and the retail growth and the growth of the consuming class in Tier-II and Tier-III cities continues. A large pool of highly skilled workers, greater integration with the world economy and increasing domestic and foreign investment suggest that the Indian economy will continue its growth momentum for several years to come. This will also provide impetus to theretail industry, which is estimated to grow to $430 billion by 2010 from $330 billion in 2007. Hence we do not expect to be significantly affected by this risk. Threats: A slowdown in economic growth in India could cause the business to suffer as the Companys performance is highly dependent on the growth of the economy, which in turn leads to a rise in disposable incomes and consumption in the country. Apart from ever moving fashion trends, China may emerge as a viable rival in the longer run to the Indian retail industry as it has rapidly been increasing its manufacturing base. The demand for skilled man power outstrips the supply. The Company operates in upper market life style products associated with high advertisement costs and risk related to brand management. The inventory cost related to lifestyle garments is traditionally a matter of risk, however through effective inventory management the Company has reduced the risk to a minimal level. This risk would arise through the Companys inability to set trends and understand changing fashion styles, which can lead to lower sales and profitability.

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6.3.5 Pantaloons Retail India Limited

Strengths: Presence of the Company and its group formats in almost all segments Specialized services give niche advantage to the Company to have better and faster access to the customer needs. Cost control initiatives and frugal culture that is critical in a retail operations business Periodical reviews of the various operations have been done on regular basis to identify the any possible threat and address the same within time. Process of Enterprise Risk Management as a continuing process, in order to identify the new risks and to define and establish the control process to mitigate the identified risks. Controls in SAP. Weakness: Increased size of operation has the risk of execution and management. Opportunities: The Company has formats for various segments of the customers and capturing the maximum customers from each segment by having appropriate locations for each format. Competitive advantage over competitors and also ensuring that the Companys expansion plans on track. Threats: The organized retail business is evolving faster and with the availability of various options from the Company as well as the competitors, the business risk has increased. In the current environment, for any company the cost of doing business, including costs associated with energy, real estate, people etc and this can have an impact on the margins. With the increase of the size of operation the Company will also have the risk of the execution and management.

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Chapter 7 FUTURE OF INDIAN RETAIL

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7. FUTURE OF INDIAN RETAIL

Retail is clearly the sector that is poised to show the highest growth in the next five years. The sector is set for a revolution, as both the present players and new entrants are gearing up to explore the market. There has been a 1% rise in January 2009 retail sales as compared to 2008.

7.1 Comparison of past and future

The following table states clearly the way the retail industry has evolved and what changes can be expected in retailing in the future as compared to what it was in the past Past Stability & consolidation delegation TQM six sigma hierarchy Mass production Technology supports change Enforce order transactions Future Speed & imagination abdication Design management seamlessness personalization Technology drives change Thrive in chaos relationships

In the future modern retail development in India is expected to be focused on the following cities. In the west Retail players will concentrate on cities like Mumbai, Pune and Ahmedabad. In the North Delhi and the National Capital Region will see increased investments in terms of retailing. In the south Chennai, Bangalore, Hyderabad and in the east Kolkata will be targeted for retailing. Companies like Shoppers Stop, Trent, Reliance, Lifestyle, Tanishq, Crossroads, Akbarallys' and Tanishq already have planned to invest over Rs 5,000cr. Trent is on the edge to take both its brands 'Star India Bazaar' and 'Westside' to new cities, meanwhile Shoppers' Stop has recently geared up for expansion of present ones and to add 11 new stores including two hypermarkets. Also, Pantaloon has planned to add eight 'Big Bazaar' malls within the next 6 to 8 months.
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Players like Big Bazaar, Shoppers' Stop, Piramyd are expanding to smaller towns and cities. Reliance Industries Ltd (RIL) is substantially getting ready to enter in field of retailing. RIL is poised to emerge as the single largest player in this sector. On the other hand, Tescos, Wal-Marts or Safeways ultimately enter in the country. So finally, Shoppers' Stops, Westside, Pantaloons and Westsides in coming years have will face stiff competition. We in India need solutions tailor-made to our conditions. In a country, where culture and values play a very huge role in our habits- we have to have Indianised solutions! Ours is perhaps the only country in the world, where cigarettes are sold in singles and twos and not as packetsforcing the companies to have a robust distribution system that includes servicing a pan dabba owner three times with a cycle driven salesman- and offer a few hours credit. Today, the Indian consumer behaviour is rapidly changing with a shift in new generation's preference towards luxury commodities. With new boom in the retail industry, the country has identified new scope for real estate development. The already revolutionizing urbanization and growing demand for finished products has necessitated development of new space for retail outlets. Retail sector essentially targets the middle class and with there being an estimated more than half rise in middle class the future of retail looks bright. The graph estimates the high income segment to more than triple by 2016 which again is an indicator of optimistic future prospects for the retail sector. The future of retail will adopt a consumer adopted approach by making attempt to maximize value addition to the customer to gain market share as well as consumer loyalty. For this purpose the retail sector will follow the following approach as can be seen in the diagram

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7.2 Private label development progression Graph 7.1 Private label development progression
Innovation Leader Category leadership via New product Dev Share of Sales Specialist sub-brands e.g. healthy eating Good, Better, Best covering all price point Entry-price Own label fighter Me-too and Cheaper Brand alternatives Time & Investment

The consumers today and in the future have a plethora of options to choose from and so they opt for the best alternative. While making decisions they select the alternative keeping 4 essential criteria in mind which can be seen as follows

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Thus we can conclude that the future of retail holds abundant opportunities both for the retailers and for the consumers. The retailers will have to concentrate on product differentiation and service differentiation to survive in the fiercely competitive market in the future.

7.3 The Best is yet to come

Between 2009 2013, most of the current players would have expanded and consolidated (and some merged / acquired) exponentially compared to the situation during 2003-2008. By 2013, most of the major multi-national retailers (across formats and categories) would have entered India. Modern Indian retail currently experiencing a steep learning curve: the current turbulence is not entirely unexpected or undesirable. Investment options will further increase as the Government will finally open up international investment in the retail sector during 2009 2013 period. (Source: Indian retail forum 2008). According to Technopak Forecast as posted on the Indian retail forum 2008 for the year 2014, a) Size of modern retail in terms of Direct investment should be greater than US 30 Billion (2009-13) b) Revenues would be US$ 100+ Billion c) Share of total retail will be 16% d) Space occupied will be 500 Million sq ft e) Direct employment will be 2 Million f) Reach will be 600+ Towns, 50,000+ Villages "Many countries specially in south east Asia like Malaysia, Indonesia and Thailand have put in place regulations with a view to balance the conflicts of interests between modern retail and the traditional retailers and suppliers to modern retail. We hope to achieve the best interests of the Indian business through sustained efforts in this direction to make Indian retail truly competitive with global standards." Ajay Shankar, secretary, DIPP, Ministry of Commerce & Industry.

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In a report in the Thaindian News on March, 2008 India ranked 44th on the list of most preferred destinations by global retailers, according to a report by real estate consultant CB Richard Ellis. The report took into consideration the globalization of the retail industry and scrutinized retailer presence in relation to market sectors, country of origin, regional trends and other influences. This means we still have a long way to go.

7.4 Facts and Figures Markets

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.
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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%

7.5 Recommendations Poor quality of infrastructure, coupled with poor quality of the distribution sector, results
in logistics costs that are very high as a proportion of GDP, and inventories, which have to be maintained at an unusually high level. Distribution and marketing is a huge cost in Indian consumer markets. It's a lot easier to cut manufacturing costs than it is to cut distribution and marketing costs. To compete in this sector one needs to have up-to-date market information for planing and decision making. The second most important requirement is to manage costs widely in order to earn at least normal profits in face of stiff competition. Indian companies know Indian markets better, but foreign players will come in and challenge the locals by sheer cash power, the power to drive down prices. That will be the coming struggle.Strategic course of action for the coming years is required to be taken by the major players to sustain and grow in this ever growing market The Indian retailing sector is at an inflexion point where the growth of organized retailing and growth in the consumption by the Indian population is going to take a higher growth trajectory. Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption.It provides ample opportunities to the market players to capitalize on the same and take the first mover advantage. IT is a tool that has been used by retailers which has improved and eased thw way with which modern opeartions are carried on efficiently and still with foreing players coming up the opportunities for IT implementation in Retailing sector is very high . The increase in FDI flow has strengthened the foreign political relations and now foreign companies are trying to persuade the Indian Parliament to increase FDI capital

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depending on the sector. There are some chief bodies and boards that have been set up for the purpose of Foreign Direct Investment, such as: Project Approval Board (PAB) Licensing Committee (LC) District Industries Centers Investment Promotion and Infrastructure Development Cell Foreign Investment Promotion Board (1991) Foreign Investment Promotion Council (1996) Foreign Investment Implementation Authority (1999) Investment Commission (2004) With ample opportunities in this industry government restricition are bound to be removed or reduced to certain extent With the 30-40 per cent drop in retail rentals, Indian retailers are a happy lot. In fact, retailers are also foreseeing further drops in rentals in 2009 and they are optimistic about their expansion plans for this year.

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References

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References
http://rbi.gov.in http://www.indiaretailbiz.com/blog/ http://www.inrnews.com/realestateproperty/indias_retail_revolution_begin.html http://www.scribd.com/doc/4204883/Productivity-in-retail-industry-in-India http://business.mapsofindia.com/india-retail-industry/ REPORT from Angel Broking Segments in retail industry 2008 IBEF REPORT from Ernst & Young on Retail market & Opportunities . Retail Scene in India by DEEPA GUPTA & MUKUL GUPTA from department of management studies . INDIAN RETAIL INDUSTRY opportunities ,challenges and strategies by Prakash Chandra Dash, senior lecturer from Bhubaneswar Institute of Management & information Technology , Bhubaneswar http://Mospi.in Economic political weekly McKinsey Global Institute, 2008 http://www.ibef.org http://www.in.kpmg.com http://www.equitymaster.com http://www.capitaline.com www.financialexpress.com www.franchisebusiness.in

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www.shoppersstop.com www.nse-india.com www.wikipedia.com www.myiris.com www.moneycontrol.com www.geojit.com www.bseindia.com www.investopedia.com

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GLOSSARY

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Glossary
Compound annual growth rate (CAGR): The rate of return, usually expressed as a percentage that represents the cumulative effect that a series of gains or losses have on an original amount of capital over a period of time. Compound returns are usually expressed in annual terms, meaning that the percentage number that is reported represents the annualized rate at which capital has compounded over time. Earnings Per Share (EPS): The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability.

Calculated as

Debt-Equity Ratio: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Calculated as

EBITA: It is an acronym that refers to a company's earnings before the deduction of interest, tax and amortization expenses. It is a financial indicator used widely as a measure of efficiency and profitability.

Return on Capital Employed (ROCE): A ratio that indicates the efficiency and profitability of a company's capital investments. Calculated as

FDI (Foreign Direct Investment): The liberal investment regime, rapid growth of the economy, strong macroeconomic fundamentals, progressive de-licensing of sectors and the ease in doing business has attracted global corporations to invest in India. Foreign Direct Investment (FDI) inflows to developing countries are estimated to have gone up to

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U.S.$ 149 billion in 1997 from U.S.$ 130 billion in 1996. Indias share of global FDI flows raised from 1.8 per cent in 1996 to 2.2 per cent in 1997. On the other hand, Indias share in net portfolio investment flows to the developing countries declined to 5.1 per cent in 1997 after increasing to 8.7 per cent in 1996. Turnover: For a company, the ratio of annual sales to inventory; or equivalently, the fraction of a year that an average item remains in inventory. Profit Margin ratio: A ratio of profitability calculated as net income divided by

revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. Bargaining power: In negotiating, capacity of one party to dominate the other due to its influence, power, size, or status, or through a combination of different persuasion tactics. Economies of scale: Reduction in cost per unit resulting from increased production, realized through operational efficiencies. Economies of scale can be accomplished because as production increases, the cost of producing each additional unit falls. Product differentiation: Developing unique product differences with the intent to influence demand. Brand loyalty: Degree to which a consumer repeatedly purchases a brand. Patents: Grants made by a government that confers upon the creator of an invention the sole right to make, use, and sell that invention for a set period of time. Fragmentation: It means organization of production in which different stages of production are divided among different suppliers that are located in different countries. Now products traded between firms in different countries are components instead of final products. Final products may be sold to outside the region in which fragmentation happens (East Asian countries often sell their final products to Europe and the USA for example). Producers in less developed countries get positions of production chain that add less value to final product. Their challenge is to "climb upwards" on transnational production chain. Vertical integration: The term vertical integration describes a style of control. Vertically integrated companies are united through a hierarchy and share a common owner. Usually each member of the hierarchy produces a different product or service, and the products combine to satisfy a common need
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GDP: GDP is defined as the total market value of all final goods and services produced within a given country in a given period of time (usually a calendar year) Supply chain: A supply chain, logistics network, or supply network is the system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.

Trend Analysis: An aspect of technical analysis that tries to predict the future movement of a stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future.

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