Retail Ppt

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Challenges & Opportunities in Indian Retail Industry

Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ?

FDI in Indian retailing

Retailing: An overview

An overview



Retailing  World’s largest private industry US$ 6.6 trillion sales annually



Indian retailing  Largest employer after agriculture 8%* of population  Highest outlet density in world Around 12 mn outlets  Still evolving as an industry Long way to go

Retailing: An overview 

Wal-Mart  Topmost global Fortune 500 company(3 Consecutive Years)  Annual Sales of over US$ 250 bn  India’s two largest retail player turnover around US$ 158 mn (Bata) and US$ 102 mn (Shoppers Stop)



Fortune 100  9 Retailers  Carrefour, Ahold, Home Depot, Kroger, Metro, Kmart-Sears, Target, Albertsons’

An overview

Evolution of Indian retail Historic/Rural Reach

Traditional/Perva sive Reach

Government Supported

PDS Outlets Khadi Stores Cooperatives

Weekly Markets Village Fairs Melas Source of Entertainmen t

Modern Formats/ International

Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls

Convenience Stores Mom and Pop/Kiranas

Neighborhood Stores/Convenie nce

Availability/ Low Costs / Distribution

Shopping Experience/Efficie ncy

Evolution of Indian retail 

Indian retail 

Informal retailing Sector  Typically small retailers.  Evasion of taxes  Difficulty in enforcing collection mechanisms  No monitoring of labor laws

tax

Formal Retailing Sector  Typically large retailers  Greater enforcement of taxation mechanisms  High level of labor usage monitoring

Categories of Indian retail 

Indian retail 





Corporate Houses  Tatas: Tata Trent  RPG group: Food World, Health and Glow, etc  ITC: Wills Life Style  Rahejas(ShoppersStop), Hiranandani(Haiko), DLF(DT cinemas) etc. Dedicated brand outlets  Nike, Reebok, Zodiac etc Multi-brand outlets  Vijay Sales, Viveks etc Manufacturers/ Exporters  Pantaloons, Bata, Weekender

Classifying Indian retail 

Modern Format retailers  Supermarkets (Foodworld)  Hypermarkets (Big Bazaar)  Department Stores (S Stop)  Specialty Chains (Ikea)  Company Owned Company Operated



Traditional Format Retailers  Kiranas: Traditional Mom and Pop Stores  Kiosks  Street Markets  Exclusive /Multiple Brand Outlets

Indian retail

Large Indian retailers 

Hypermarket    



Department store 

Indian retailers

   



Big Bazaar Giants Shoprite Star Lifestyle Pantaloons Pyramids Shoppers Stop Trent

Entertainment    

Fame Adlabs Fun Republic Inox PVR

The changing Indian consumer 

Indian consumer





Greater per capita income  Increase in disposable income of middle class households  20.9%* growth in real disposable income in ’99-’03. Growing high and middle income population  Growing at a pace of over 10%* per annum over last decade Affordability growth  Falling interest rates  Easier consumer credit  Greater variety and quality at all price points

The changing Indian consumer

Indian consumer



The urban consumer  Getting exposed to international lifestyles  Inclined to acquiring asset  More discerning and demanding than ever



No longer need-based shopping  Shopping is a family experience Changing Mindset  Increasing tendency to spend  Post Liberalization children coming of age 100 mn 17-21 year olds*. Tend to spend freely. Greater levels of education





Challenges in the Industry Low domestic competition





Because of fragmented nature of industry



Lack of exposure to global best practices  Low entry barriers for unorganized retailing  Moderate entry barriers for organized retailing



Wholesale system under-invested leading to 20-40% wastage



Non level playing field issues  Wide differences in treatment of small and large retailers

Industry Challenges

Challenges……

issues



Real Estate Costs



Supply Chain Inconsistency



Poor Infrastructure



Lack of Skilled Manpower

Opportunities 

Anticipated growth

Market size  Current market size is roughly US$ 286 bn*  96% of the 12 Million stores are less than 500 Sq. ft.  Forecast Growth rate for the retailing industry is roughly 8.3% for 20032008  Sales from large format stores would rise by 24-49%**  Formal and modern format retailing would enjoy rapid growth

Growth factors



Growth factors

Growth determining factors  Government Policy  Infrastructure development  GDP growth  Employment generation and job creation In several new sunrise industries Implies greater purchasing power

The Indian advantage



Advantage India

India ranked 1st in the Global Kearney Retail Development Index India



Russia



China



A.T

THE SIZE OF THE OPPORTUNITY Products

Total Retail

Organised

Organised

Rs. Billion

Retail

Retail as %

Rs. Billion

of Total

Food & Grocery

6422

50

1

Textiles & Apparel

980

185

19

Jewelry & Watches

554

30

5

Consumer durables

415

43

10

Pharmaceuticals

364

10

3

Home Solutions

351

32

9

Books, Music & Gifts

115

15

13

Others

1159

111

10

10360

476

5

Total

FDI in Indian retailing 

FDI in Retail not permitted

Current Indian FDI Regime  FDI not permitted in retail trade sector, except in:  Private labels  Hi-Tech items / items requiring specialized after sales service  Medical and diagnostic items  Items sourced from the Indian small sector (manufactured with technology provided by the foreign collaborator)  For 2 year test marketing (simultaneous commencement of investment in manufacturing facility required)

FDI in Indian retailing

Current FDI



Metro Group of Germany  Cash-and-carry wholesale trading  Proposal faced strong opposition



Entities established prior to 1997  Allowed to continue with their existing foreign equity components.  No FDI restrictions in the retail sector pre-1997  Foodworld  51:49 JV between RPG and Dairy Farm International,  Leading food retailer in India now  Mc Donalds

International retailers in India: Strategies 

How they are present 

Franchise  International company gives name and technology to local partner. Gets royalty in return  In case master franchise is appointed for region or country, he has right to appoint local franchisees Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer, Mango Manufacturing  Company sets up Indian arm for production  Bata India. It also has right to retail in India

International retailers in India: Strategies 

Distribution  International company sets up local distribution office  Supply products to Indian retailers to sell  Also set up franchised outlets for brand Swarovski, Hugo Boss



Wholesale trading  Cash and Carry operations  100% FDI permitted  Metro Cash n Carry

How they are present

Why FDI?   

Benefits of FDI

Improve competition Develop the market Greater level of exports due to increased sourcing by major players  Sourcing by Wal-Mart from China improved multifold after FDI permitted in China  Similar increase in sourcing observed for Metro in India  Provides access to global markets for Indian producers

Why FDI? 

Investment in technology Cold storage chains solve the perennial problem of wastage  Greater investment in the food processing sector technology  Better operations in production cycle and distribution 

Benefits of FDI



Better lifestyle Greater level of wages paid by international players usually  More product variety  Newer product categories  Economies of scale to help lower consumer price  Increased purchasing capacity of consumers 

How FDI ? 

How FDI ? 

FDI should be allowed in stages  Initial stages: 26% FDI

2 yrs



Establishment Phase: 49% FDI 2 yrs



Mature Phase: 100% FDI

2 yrs

FDI policy  No incentives needed to attract FDI  Market size and potential are sufficient inducers  No need for costly tax breaks, import duty exemptions, land and power subsidies, and other enticements

Thank you

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