Overview Of India Retail Sector

Overview of Indian Retail Sector

Retail Sector is the most booming sector in the Indian economy. Some of the biggest players of the world are going to enter the industry soon. It is on the threshold of bringing the next big revolution after the IT sector. Although organized retail market is not so strong as of now, it is expected to grow manifolds by the year 2010. The sector contributes 10% of the GDP, and is estimated to show 20% annual growth rate by the end of the decade as against the current growth rate of 8.5%. A CRISIL report says that the Indian retail market is the most fragmented in the world and that only 2% of the entire retailing business is in the organized sector. This suggests that the potential for growth is immense. There are about 300 new malls, 1500 supermarkets and 325 departmental stores currently being built in the cities across India. Estimates and predictions for retail sector: •

At present, the industry is estimated to be at more than US$ 400 billion by a study of McKinsey.

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The Economist Intelligence Unit (EIU) estimates the retail market in India will increase to US$608.9 billion in 2009 from US$394 billion in 2005.

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KPMG Report says that the organized retail would grow at a higher rate than the GDP in the next five years.

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The retail sector would generate employment for more than 2.5 million people by the year 2010, predicts an analysis by Ma Foi Management Consultants Ltd.

Some of the players present in the industry: Archies, Bata India Ltd, Big Bazaar, Crossword, Ebony Retail Holdings Ltd., Fabmall, Food Bazaar, Globus Stores Pvt. Ltd., Health and Glow, Liberty Shoes Ltd., MTR Foods Ltd., Music World Entertainment Ltd., Pantaloon Retail India Ltd., Shoppers Stop, Style SPA Furniture Ltd, Subhiksha, Titan Industries, Lifestyle, etc. New entrants entering the market soon will be Reliance Retail Ltd, Wal-Mart Stores, Carrefour, Tesco, Boots Group, etc.

Overview of Indian Retail Sector Evolution of the Sector Weekly Markets, Village and Rural Melas Source of entertainment Rural and historic reach

Convenience stores, Mom-and-pop / Kirana shops Neighborhood stores/convenience Traditional and pervasive reach

PDS outlets, Khadi stores, Cooperatives Government supported Availability/low costs/distribution

Exclusive Brand outlets, Hypermarkets and Supermarkets, Department stores and

Overview of Indian Retail Sector Shopping malls. Shopping experience/ efficiency Modern formats/ international Modern Format retailers Supermarkets Hypermarkets Department Stores Specialty Chains Company Owned Company Operated Traditional Format Retailers Kiranas: Traditional Mom and Pop Stores Kiosks Street Markets Exclusive /Multiple Brand Outlets Traditional vis a vis Modern Format Retailers The retail boom will face a strong competition from the 12 million mom-and-pop stores. These are easily accessible and provide services like free home delivery and goods at credit, which is not possible with hypermarkets and supermarkets. Buying from Malls, Supermarkets and Department stores like Subhiksha, Marks & Spencers, etc. provide a different environment where one can pick and choose from a variety of products. Owing to the entry of such big players, the small shopkeepers fear losing their business. Reliance Retail Ltd. has been inviting such people to join in its Dairy business as franchisees.

Overview of Indian Retail Sector Challenges The industry is facing a shortage of middle management level professionals. Major retailers are hiring aggressively from the similar and smaller organizations by offering better packages. They are creating various levels of management and hiring on a spree. Some of the areas such as technology, supply chain, distribution, logistics, marketing, product development and research are becoming very critical for the success of the organizations. All of these would lead to the recruitment of highly professional people who specialize in these fields. There is also a trend for hiring hotel management graduates, though now many retail schools are coming up, and Pantaloon has set up links with major business schools from where it would be selecting the right candidates. The sector is likely to produce 2 million jobs in the coming 3 years. There also exists a possibility that the retail sector would become a poaching ground once a number of domestic and international players enter the industry. Supply Chain Management The retail scenario is characterized by logistical challenges, constant changes in consumer preferences and evolution of new retail formats. All this increases the challenges faced by the industry. Various strategies are to be implemented to improve core business processes, such as logistics, innovation, transparency, distribution and inventory, management of point sale (POS) data. Retail majors are under serious pressure to improve their supply chain systems and distribution channels and reach the levels of quality and service desired by the consumers. Frauds in Retail It is one of the primary challenges the companies would have to face. Frauds, including vendor frauds, thefts, shoplifting and inaccuracy in supervision and administration are the challenges that are difficult to handle. This is so even after the use of security techniques, such as CCTVs and POS systems. As the size of the sector would increase, this would increase the number of thefts, frauds and discrepancies in the system. Challenges with Infrastructure and Logistics The lack of proper infrastructure and distribution channels in the country results in

Overview of Indian Retail Sector Evolution of the Indian Retail Sector The origins of retailing in India can be traced back to the emergence of Kirana stores and mom-and-pop stores. These stores used to cater to the local people. Eventually the government supported the rural retail and many indigenous franchise stores came up with the help of Khadi & Village Industries Commission. The economy began to open up in the 1980s resulting in the change of retailing. The first few companies to come up with retail chains were in textile sector, for example, Bombay Dyeing, S Kumar's, Raymonds, etc. Later Titan launched retail showrooms in the organized retail sector. With the passage of time new entrants moved on from manufacturing to pure retailing. Retail outlets such as Foodworld in FMCG, Planet M and Musicworld in Music, Crossword in books entered the market before 1995. Shopping malls emerged in the urban areas giving a world-class experience to the customers. Eventually hypermarkets and supermarkets emerged. The evolution of the sector includes the continuous improvement in the supply chain management, distribution channels, technology, back-end operations, etc. this would finally lead to more of consolidation, mergers and acquisitions and huge investments. Phases in the evolution of retail sector Weekly Markets, Village and Rural Melas Source of entertainment and commercial exchange

Convenience stores, Mom-and-pop / Kirana shops Neighborhood stores/convenience

Overview of Indian Retail Sector Traditional and pervasive reach

PDS outlets, Khadi stores, Cooperatives Government supported Availability/low costs/distribution

Exclusive brand outlets, hypermarkets and supermarkets, department stores and shopping malls Shopping experience/ efficiency Modern formats/ international Percentage of Organised Retail across the world

Overview of Indian Retail Sector

International Retailers in India Major retail players like Walmart, Tommy Hilfiger, Carrefour, Marks & Spencer, Nike, etc. are going to foray into the booming retail industry in India. Indian fashion industry would see the advent of fashion brand DKNY through a franchisee agreement with S. Kumar's. In the food & beverages sector, McDonald's is going to penetrate the markets through 100 new outlets across the country. Encouraged by the huge success of Pizza Hut, McDonald's, and Dominos, another organization known as Starbucks has expressed its interest in opening up outlets in India through franchising. There are various kinds of restrictions on FDI in the Indian retail sector, but organizations can enter the industry through Strategic License agreements, Franchising and Cash and carry wholesale trading. The recent initiatives taken by the government to open up the sector for foreign players have lured many companies to enter the industry. Big players like Reliance Retail, Walmart-Bharti combination, Tesco, AV Birla group and Future group are all gearing up for huge investments and aggressive business

Overview of Indian Retail Sector strategies. The government is considering the introduction of multi brand specialty formats like consumer electronics, building, sports goods and construction and stationery. The government has allowed 51 percent foreign direct investment (FDI) in single brand retail outlets. Reliance Retail has announced its plan to open 5000 stores over the next 5 years. Many companies like Lee Cooper, Starbucks and Walmart have put forward their FDI proposals to the government. At present, the 12 million mom-and-pop and kirana stores dominating the retail landscape suffer from certain limitations, such as small size of operations, low cost format and pervasive use of tax evasion techniques. They also suffer from capital shortage, labour and real estate problems. Some experts believe that the influx of major retail chains would wipe out millions of these shops. This might leave a lot of people jobless. Legal, political, infrastructural, cultural and educational constraints would have to be considered if the sector truly desires to achieve the kind of future it has planned for itself. Retail Formats The following kinds of retail formats are found in India: •

Mom-and-pop stores: These are generally family-owned businesses catering to small sections of society. They are small, individually run and handled retail outlets.

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Category killers: Small specialty stores have expanded to offer a range of categories. They have widened their vision in terms of the number of categories. They are called category killers as they specialize in their fields, such as electronics (Best Buy) and sporting goods (Sport Authority).

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Department stores: These are the general merchandise retailers offering various kinds of quality products and services.

These do not offer full service category products and some carry a selective product line. K Raheja's Shoppers Stop is a good example of department stores. Other examples are Lifestyle and Westside. These stores have further categories, such as home and décor,

Overview of Indian Retail Sector clothing, groceries, toys, etc. •

Malls: These are the largest form of retail formats. They provide an ideal shopping experience by providing a mix of all kinds of products and services, food and entertainment under one roof. Examples are Sahara Mall, TDI Mall in Delhi.

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Specialty Stores: The retail chains, which deal in specific categories and provide deep assortment in them are specialty stores. Examples are RPG's Music World, Mumbai's bookstore Crossword, etc.

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Discount stores: These are the stores or factory outlets that provide discount on the MRP items. They focus on mass selling and reaching economies of scale or selling the stock left after the season is over.

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Hypermarkets/ Supermarkets: These are generally large self-service outlets, offering a variety of categories with deep assortments. These stores contribute 30% of all food and grocery organized retail sales. Example: Big Bazaar.

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Convenience stores: They are comparatively smaller stores located near residential areas. They are open for an extended period of the day and have a limited variety of stock and convenience products. Prices are slightly higher due to the convenience given to the customers.

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E-tailers: These are retailers that provide online facility of buying and selling products and services via Internet. They provide a picture and description of the product. A lot of such retailers are booming in the industry, as this method provides convenience and a wide variety for customer. But it does not provide a feel of the product and is sometimes not authentic. Examples are Amazon.com, Ebay.com, etc.

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Vending: This kind of retailing is making incursions into the industry. Smaller products such as beverages, snacks are some the items that can be bought through vending machines. At present, it is not very common in India.