The Indian Retail Sector

The Indian Retail Sector

LAKSHMI NARAYANA SWAMY

Industry Evolution of retail sales 

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Traditionally retailing in India can be traced to the emergency of the neighborhood ‘KIRANA’ stores catering to the convenience of the consumers.

era of Government support for rural retail: Indigenous franchise model of store chains run by KHADI & Village Industries commission.

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1980s experienced slow change as India began to open up economy. Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw the emergence of retail chains Later Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches.

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The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Retailers. For e.g. Food World, SUBHIKSHA and NILGIRI in food and FMCG; Planet M and Music World Crossword and Fountainhead in books.

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Post 1995 onwards saw an emergence of shopping CENTERS mainly in urban areas, with

facilities like car parking targeted to provide a complete destination experience for all segments of society. 

Emergence of hyper and super markets trying to provide customer with 3 V’s -Value, Variety and Volume Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid At year end of 2000 the size of the Indian organized retail industry is estimated at Rs. 13,000 Crore.

Retailing formats in India 

Malls: The largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts. Ranges from 60,000sq ft to 7,00,000 sq ft and they lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof example include Shoppers Stop, PIRAMYD, PANTALOON etc.

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Specialty Stores:

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Departmental Stores are expected to take over the apparel business from exclusive brand showrooms Among these, the biggest success is K.RAHEJA‘S Shoppers Stop, which started in Mumbai and now has more than seven large stores (over 30,000 sq. ft) across India and even has its own in store brand for clothes called Stop..

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Discount Stores:

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Department Stores: Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs. Further classified into localized departments such as clothing, toys, home, groceries, etc.

Convenience Stores: These are relatively small stores 400-2,000 sq. feet located near residential areas. They stock a limited range of high-turnover convenience products and are usually open for extended periods during the day, seven days a week. Prices are slightly higher due to the convenience premium.

As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in bulk reaching economies of scale or excess stock left over at the season. The product category can range from a variety of perishable/ non perishable goods

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Hyper marts & Supermarkets: Large self service outlets, catering to varied shopper needs are termed as Supermarkets. These are located in or near residential high streets. These stores today contribute to 30% of all food & grocery organized retail sales. Super Markets can further be classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales.

Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword, RPG's Music World and the Times Group's music chain Planet M, are focusing on specific market segments and have established themselves strongly in their sectors.

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Department Stores:

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M.B.O’ Multi Brand outlets, also known as Category Killers, offer several brands across a single product category. These usually do well in busy market places and Metros.

Retailing formats in India India’s number of Domestic grocery chains and Early Foreign Entrants

Recent Trends 

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Retailing in India is witnessing a huge revamping exercise as can be seen in the graph India is rated the fifth most attractive emerging retail market: a potential goldmine. Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 percent or US$ 6.4 billion As per a report by KPMG the annual growth of department stores is estimated at 24% Ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney.

Retail Sales in India

Recent Trends contd. Traditionally three factors have plagued the retail industry:

Unorganized :: Vast Vast majority majority of of the the twelve twelve million million stores stores are are small small "father "father and and son" son" outlets outlets

Fragmented :: Mostly Mostly small small individually individually owned owned

businesses, businesses, average average size size of of outlet outlet equals equals 50 50 sq. sq. ft. ft. Though Though India India has has the the highest highest number number of of retail retail outlets outlets per per capita capita in in the the world, world, the the retail retail space space per per capita capita at at 22 sq. sq. ftft per per person person is is amongst amongst the the lowest. lowest.

Rural bias:: Nearly Nearly two two thirds thirds of of the the stores stores are are located located in in

rural rural areas. areas. Rural Rural retail retail industry industry has has typically typically two two forms: forms: "HAATS" "HAATS" and and MELAS". MELAS". HAATS HAATS are are the the weekly weekly markets markets serve serve groups groups of of 10-50 10-50 villages villages and and sell sell day-to-day day-to-day necessities. necessities. MELAS MELAS are are larger larger in in size size and and more more sophisticated sophisticated in in terms terms of of the the goods goods sold sold like like TVS. TVS.

Recent changes:

Experimentation with formats::

Retailing Retailing in in India India is is still still evolving evolving and and the the sector sector is is witnessing witnessing aa series series of of experiments experiments across across the the country country with with new new formats formats being being tested tested out. out. Ex. Ex. Quasi-mall, Quasi-mall, sub-urban sub-urban discount discount stores, stores, Cash Cash and and carry carry etc. etc.

Store design:: Biggest Biggest challenge challenge for for Organized Organized

retailing retailing to to create create aa “customer-pull” “customer-pull” environment environment that that increases increases the the amount amount of of impulse impulse shopping. shopping. Research Research shows shows that that the the chances chances of of senses senses dictating dictating sales sales are are upto upto 10-15%. 10-15%. Retail Retail chains chains like like MusicWorld, MusicWorld, Baristas, Baristas, Piramyd Piramyd and and Globus Globus are are laying laying major major emphasis emphasis & & investing investing heavily heavily in in store store design. design.

Emergence of discount stores:: They They

are are expected expected to to spearhead spearhead the the organized organized retailing retailing revolution. revolution. Stores Stores trying trying to to emulate emulate the the model model of of Wal-Mart. Wal-Mart. Ex. Ex. Big Big Bazaar, Bazaar, Bombay Bombay Bazaar, Bazaar, Rags. Rags.

Unorganized retailing is getting organized::

To To meet meet the the challenges challenges of of organized organized retailing retailing such such as as large large Cineplex's, Cineplex's, and and malls, malls, which which are are backed backed by by the the corporate corporate house house such such as as 'Nasals' 'Nasals' and and 'PVR‘ 'PVR‘ the the unorganized unorganized sector sector is is getting getting organized. organized. 25 25 stores stores in in Delhi Delhi under under the the banner banner of of Provision Provision mart mart are are joining joining hands hands to to combine combine monthly monthly buying. buying. Bombay Bombay Bazaar Bazaar and and Footmark Footmark formed formed which which are are aggregations aggregations of of Karana's. Karana's.

Recent Trends contd. 

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Multiple drivers leading to a consumption boom: – Favorable demographics – Growth in income – Increasing population of women – Raising aspirations : Value added goods sales Food and apparel retailing key drivers of growth Organized retailing in India has been largely an urban phenomenon with affluent classes and growing number of double-income households More successful in cities in the south and west of India. Reasons range from differences in consumer buying behavior to cost of real estate and taxation laws. Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption – ITC is experimenting with retailing through its e-Choupal and Chou pal Sager – rural hypermarkets. – HLL is using its Project Shakhty initiative – leveraging women self-help groups – to explore the rural market. – Mahatmas is leveraging technology and network marketing concepts to act as an aggregator and serve the rural markets. IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change buying behavior across the globe. ‘e-tailing’ slowly making its presence felt.

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Companies using their own web portal or tie-sups with horizontal players like Rediff.com and Indiatimes.com to offer products on the web.

Major Retailers 

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India’s top retailers are largely lifestyle, clothing and apparel stores This is followed by grocery stores Following the past trends and business models in the west retail giants such as Pantaloon, Shoppers’ Stop and Lifestyle are likely to target metros and small cities almost doubling their current number of stores These Walmart wannabes have the economy of scale to be low –medium cost retailers pocketing narrow margin

Leading Retailers

India vs. World 

Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9 million outlets in USA, catering to more than 13 times of the total retail market size as compared to India.

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India has the highest number of outlets per capita in the world - widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per person).

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Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail industry. Almost 100 times more than the turnover of HLL (India's largest FMCG company).

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Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) can compare.

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The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail industry employs about three million people. One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HL L’s annual turnover.

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Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing (against 7 percent employed in India today).

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60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of the fastest-growing 50 retailers have just one format

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Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average inventory turns ratio of about 18. Many Indian retailers KPMG surveyed have inventory turns levels between 4 and 10. Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail shelves (translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.

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Future direction: Positives

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AT Kearney has estimated India’s total retail market at US$ 202.6 billion which is expected to grow at a compounded 30 per cent over the next five years. With the Organised retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010.

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The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over next decade Over next two years India will see several Indian retail businesses attaining a critical mass as growth in the industry picks up momentum driven by two key factors availability of quality

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real estate and mall management practices Consumer preference for shopping in new environments. 

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Wal-Mart : huge plans for India. Moving a senior official from its headquarters in Bentonville, Arkansas, to head its market research and business development functions pertaining to its retail plans in India. New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty major DLF Properties to set up shop in a mall in New Delhi. Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, AHMEDABAD, LUCKNOW and Bangalore in the next four months.

Future direction: Concerns

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68 million square feet of mall space is expected to be available by end of 2007, which might lead to overcapacity of malls Lack of differentiation among the malls that are coming up. One option may be to look at specialization. Poor inventory turns and stock availability measures - retailers clearly need to augment their operations. Operations of retailers and suppliers are not integrated. Efficient replenishment practices practiced in the Indian auto and auto-component industry can be leveraged to implement efficient supply chain management techniques. Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity ordered, is an issue Sales tax laws - lead to retailers having state-level procurement and storage leads to Indian retailers having higher inventories. VAT has helped alleviate this a bit. Increased adoption of IT and shrinkage management will be a critical area. Supply chain and customer relations followed by merchandising, facilities management and vendor development are areas which have significant gaps and proactive training is a key imperative for overcoming these.

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