Indian Retail Industry In 2009

Saurabh Gadkari (2008-2010) Balaji Institute of Telecom and Management(BITM),Pune

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India Retail Market Statistics • A booming US$ 300 billion retail market in India • largest industry in India, with an employment of around 8% contributing to over 10% of the country's GDP

• currently GDP contribution of around 12 per cent, and is likely to reach 22 per cent by 2010. • 10% annual growth in Retail market since 2000

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India Retail Market Statistics • 5.5 retail outlets per 1000 population, highest in the world • 25-30% annual growth in retail loans and credit cards • The organized retail sector currently accounts for around 5 per cent of the Indian retail market. • Organized Retail is predicted to capture 15 – 20% market share by 2010. • Over 100 malls of over 30 million sq feet of new shopping centre space are projected to open in India between 2009 and end-2010.

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India Retail Market Statistics

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Top retailers in India: • • • • • • • • • •

Shoppers' Stop Westside (Trent) Pantaloon (Big Bazaar) Lifestyle RPG Retail (Foodworld, Musicworld) Crossword Wills Lifestyle Globus Piramals ( Pyramid & Crosswords) Ebony Retail Holdings Ltd.

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Industry in boom: • Foreign direct investment (FDI) inflows as on July 2009 in singlebrand retail trading, stood at approx. US$ 46.60 million • India's overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a compound annual growth rate (CAGR) of 10 per cent. • organized retail, which is pegged at around US$ 8.14 billion, is expected to grow at a CAGR of 40 per cent to touch US$ 107 billion by 2013. • In India, apparel is the second largest retail category and is expected to grow by 12-15 per cent per year

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Reasons behind retail growth: • Unexploited and under penetrated. • Consumer spending has risen sharply at 75% as the youth population has seen a significant increase in its disposable income. • Changing lifestyles, and favorable demographic patterns. • Easy availability of credit, and large scale real estate developments • Ever-expanding middle- and upper-class consumer base • Highest GDP growth rates of the last few years. • Newer opportunities such as airport real estate are emerging with the upgrade of the major and secondary airports, as well as a change in government policy allowing expansion of retail activity at airports.

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Percentage of Organized Retail USA - 85% Taiwan - 81% Malaysia - 55% Thailand - 40% Brazil - 36% Indonesia - 30% Poland - 20% China - 20% India - 3%

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Several challenges: • Foreign investment is allowed in retail operations only up to a limit of 51 per cent foreign equity, and only in businesses that are selling a single brand (brands such as Louis Vuitton, and most recently Marks and Spencer, have taken advantage of this route). • Shortage of talented professionals, especially at the middle-management level. • Lack of adequate infrastructure with respect to roads, electricity, cold chains and ports has further led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices. • Even though the government is attempting to implement a uniform valueadded tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network.

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Several challenges: • Multiple clearances are required by the same company for opening new outlets adding to the costs incurred and time taken to expand presence in the country. • Non- availability of government land and zonal restrictions has made it difficult to find a good real estate in terms of location and size.

• lack of clear ownership titles and high stamp duty has resulted in disorganized nature of transactions.

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Organized retailing: advantages to Indian economy • Organized retailers have started procuring fruit and vegetables from farmers directly bypassing the various intermediaries who add more costs than value to the food chain.

• They are investing heavily on logistics in the form of centralized warehousing and distribution centers, transport and cold storage, either directly or through engaging third party logistics companies.(current annual total loss of about Rs. 1,000 billion in the agricultural supply chain) • Organized retailing will work with farmers to: (i) improve yields by enabling them to obtain quality input supplies; (ii) adopt superior farm technology and practices; and (iii) access timely credit at reasonable rates.

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Organized retailing: advantages to Indian economy • Small-scale manufacturers will be the major beneficiaries of private labels. • Unorganized retailers normally do not pay taxes and most of them are not even registered for sales tax, VAT, or income tax. Organized retailers, by contrast, are corporate entities and hence file tax returns regularly.

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impact on the traditional mom and pop store? The answer could be a co-existence. The major advantage for the smaller players is the size, complexity and diversity of our Indian Markets. It is too early to predict the erosion of the mom and pop stores in India. This is also proved by countries where WalMart the world’s biggest retailer operates. The smaller stores have a peaceful coexistence in these countries with the number one company in the fortune 500 list.

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India’s retail journey in recession: • Organized retail penetration which was expected to touch 16% by 2012 from current 5% is likely to trace 10.5% only. • A large number of retailers have experienced a drop in footfalls which is mirrored by slowing Same Store Sales(SSS) growth figures . This also adversely impacts the time taken to break-even for new stores. • Rentals – skyrocketing to all time high

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India’s retail journey in recession: The slowing sales are resulting in lower inventory turnover and increasing working capital requirements for retailers. This in turn has resulted in liquidity pressures for many retailers. Margin contraction- Interest burden adversely impacts profits

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Strategies to help retailers cope with the slowdown:

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Strategies to help retailers cope with the slowdown:

18 Efficient store management, Reevaluating store viability Managing costs: Resource optimization improving labor productivity Manpower retention & training revenue sharing model Renegotiating Real estate costs: Inventory Management

Leveraging Information Technology RFID, GPS, intelligent video analytics, point-of-sales terminals or sensorbased shop carts, Supply chain visibility

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Strategies to help retailers cope with the slowdown:

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Strategies to help retailers cope with the slowdown:

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Inventory Management:

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Some of the strategies adopted by retailers:

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Recession spears private label appeal:

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Venture into under penetrated markets: Rural Retailing • rural India accounted for almost half of the Indian retail market, which was worth about USD 300 billion. With most of the retail markets getting saturated in Tier I and Tier II cities, the next phase of growth is likely to be seen in the rural markets. • Major domestic retailers have started setting up farm linkages. • Few Examples include, DCM’s Hariyali Kisan Bazaars, Pantaloon Godrej’s joint venture Aadhars, ITC’s Choupal Sagars, Tata’s Kisan Sansars and Reliance Fresh are some of the established rural retail chains.

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Summary:

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References: • • • • •

Indian Retail report :KPMG IN INDIA www.ibef.org www.naukrihub.com http://business.mapsofindia.com http://www.valuenotes.com