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CHAPTER – III

AN OVERVIEW OF RETAIL INDUSTRY

3.1 INTRODUCTION

Retailing consists of the sale of goods or merchandise from a fixed location,

such as a department store, boutique or kiosk, or by mail, in small or individual lots

for direct consumption by the purchaser. Retailing may include subordinated services,

such as delivery. Purchasers may be individuals or business organizations. In

commerce, a "retailer" buys goods or products in large quantities from manufacturers

or importers, either directly or through a wholesaler, and then sells in smaller

quantities to the end-user. Retail establishments are often called shops or stores.

Retailers are at the end of the supply chain. The term "retailer" is also applied where

a service provider services the needs of a large number of individuals, such as a public

utility, like electric power.

Shops may be on residential streets, shopping streets with few or no houses or

in a shopping mall. Shopping streets may be for pedestrians only. Sometimes a

shopping street has a partial or full roof to protect customers from precipitation.

Online retailing, a type of electronic commerce used for business-to-consumer (B2C)

transactions and mail order, are forms of non-shop retailing.

Shopping generally refers to the act of buying products. Sometimes this is

done to obtain necessities such as food and clothing; sometimes it is done as a

recreational activity. Recreational shopping often involves window shopping (just

looking, not buying) and browsing and does not always result in a purchase.

Retail comes from the Old French word retailer, which means "to cut off, clip,

pare, divide" in terms of tailoring (1365). It was first recorded as a noun with the

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meaning of a "sale in small quantities" in 1433 (from the Middle French retail, "piece

cut off, shred, scrap, paring"). Like the French, the word retail in both Dutch and

German (detailhandel and Einzelhandel, respectively) also refers to the sale of small

quantities of items.

3.1.1 Retail pricing

The pricing technique used by most of the retailers is cost-plus pricing. This

involves in adding a markup amount (or percentage) to the retailer's cost. Another

common technique is suggested in retail pricing. This simply involves charging the

amount suggested by the manufacturer which is usually printed on the product by the

manufacturer.

3.1.2 Transfer mechanism

There are several ways in which consumers can receive goods from a retailer

and they are:

Counter service - where goods are out of reach of buyers and must be obtained

from the seller. This type of retailing is common for small expensive items (e.g. jewels)

and controlled items like medicine and liquor. It was common before the 1900s in the

United States and is more common in certain countries like India.

Delivery - where goods are shipped directly to consumers‘ homes or workplaces.

Mail order form, a printed catalog was invented in 1744 and was common in the late

19th and early 20th centuries. Ordering by telephone is now common, either from a

catalog, newspaper, television advertisement or a local restaurant menu, for immediate

service. Direct marketing, including telemarketing and television shopping channels,

are also used to generate telephone orders. It started gaining significant market share in

developed countries during the 2000s.

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Door-to-door sales - where the salesperson sometimes travels with the goods for

sale.

Self-service - where goods may be handled and examined prior to purchase

These are the ways in which consumers can receive goods from a retailer.

3.1.3 Second hand retailing

Some shops sell second-hand goods. In the case of a nonprofit shop, the public

donates goods to the shop to be sold. In give-away shops goods can be taken for free.

Another form is the pawnshops, in which goods are sold that were used as

collateral for loans. There are also "consignment" shops, where a person can place an

item in a store and if it sells, the person gives the shop owner a percentage of the sale

price. The advantage of selling an item in this way through established shops like this

gives the item exposure to more potential buyers.

Automatic approval is not allowed for foreign investment in retailing.

Regulations - restricting real estate purchases, and cumbersome local laws, 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, lack of retailing courses and study options, intrinsic complexity of

retailing – rapid price changes, constant threat of product obsolescence and low

margins are the drawbacks and obstacles faced by the retailers.

3.1.4 Sales techniques

Behind the scenes in retail, there is another factor at work. Corporations and

independent store owners alike are always trying to get the edge on their competitors.

One way to do this is to hire a merchandising solutions company to design custom

store displays that will attract more customers. The nation's largest retailers spend

millions every year on in-store marketing programs that correspond to seasonal and

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promotional changes. As products change, so will a retail landscape. Retailers can

also use facing techniques to create the look of a perfectly stocked store, even when it

is not.

A destination store is one where customers will initiate a trip specifically to

visit, sometimes over a large area. These stores are often used to "anchor" a shopping

mall or plaza, generating foot traffic, which is capitalized upon by smaller retailers.

3.1.5 Customer service

Customer service is the "sum of acts and elements that allow consumers to

receive what they need or desire from your retail establishment." It is important for a

sales associate to greet the customer and make himself available to help the customer

find whatever he needs. When a customer enters the store, it is important that the sales

associate does everything from his part to make the customer feel welcomed,

important, and make sure that he leave the store with satisfaction. Giving complete

importance to the customer, undivided attention and helping him find what he is

looking for will contribute to the customer's satisfaction.

3.2 RETAIL INDUSTRY IN INDIA

The Indian retail industry is divided into organized and unorganized sectors.

Organized retailing refers to trading activities undertaken by licensed retailers, that is,

those who are registered for sales tax, income tax, etc. These include the corporate-

backed hypermarkets and retail chains, and also the privately owned large retail

businesses.

Unorganized retailing, on the other hand, refers to the traditional formats of

low-cost retailing, for example, the local kirana shops, owner manned general stores,

paan/beedi shops, convenience stores, hand cart, pavement vendors, etc.

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India‘s retail sector is wearing new clothes and with a three-year compounded

annual growth rate of 46.64 per cent, retail is the fastest growing sector in the Indian

economy. Traditional markets are making way for new formats such as departmental

stores, hypermarkets, supermarkets and specialty stores. Western-style malls have

begun appearing in metros and second-rung cities alike, introducing the Indian

consumer to an unparalleled shopping experience.

The Indian retail sector is highly fragmented with 97 per cent of its business

being run by the unorganized retailers like the traditional family run stores and corner

stores. The organized retail however is at a very nascent stage though attempts are

being made to increase its proportion to 9-10 per cent by the year 2010 bringing in a

huge opportunity for prospective new players. The sector is the largest source of

employment after agriculture, and has deep penetration into rural India generating

more than 10 per cent of India‘s GDP.

Over the past few years, the retail sales in India are hovering around 33-35 per

cent of GDP as compared to around 20 per cent in the US. The table gives the picture

of India‘s retail trade as compared to the US and China.

TABLE - 3.1

Retail Trade – India, US and China

Countries Trade (US $

Billion) Employment

Shops

(Million)

Organized Sector

Shares (%)

India 180 – 394 7 12 2 – 3

China 360 12 2.7 20

US 3800 12.6 - 16 15.3 80

Source: The Economist

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The sector has witnessed immense growth during the last few years. The key

drivers includes changing consumer profile and demographics, increase in the number

of international brands available in the Indian market, economic implications of the

Government increasing urbanization, credit availability, improvement in the

infrastructure, increasing investments in technology and real estate building a world

class shopping environment for the consumers. In order to keep pace with the

increasing demand, there has been a hectic activity in terms of entry of international

labels, expansion plans, and focus on technology, operations and processes.

This has lead to more complex relationships involving suppliers, third party

distributors and retailers, which can be dealt with the help of an efficient supply chain.

A proper supply chain will help meet the competition head-on, manage stock

availability; supplier relations, new value-added services, cost cutting and most

importantly reduce the wastage levels in fresh produce.

Large Indian players like Reliance, Rahejas, Bharti AirTel, ITC and many

more are making significant investments in this sector leading to emergence of big

retailers who can bargain with suppliers to reap economies of scale. Hence,

discounting is becoming an accepted practice. Proper infrastructure is a pre-requisite

in retailing, which would help to modernize India and facilitate rapid economic

growth. This would help in efficient delivery of goods and value-added services to the

consumer making a higher contribution to the GDP.

3.2.1 Food and grocery retail

The food business in India is largely unorganized adding up to barely Rs.400

billion, with other large players adding another 50 per cent to that. The All India food

consumption is close to Rs.9,000 billion, with the total urban consumption being

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around Rs.3,300 billion. This means that the aggregate revenues of large food players

is currently only 5 per cent of the total Indian market, and around 15-20 per cent of

total urban food consumption. Most food is sold in the local ‗wet‘ market, vendors,

roadside push cart sellers or tiny kirana stores. According to McKinsey report, the

share of an Indian household's spending on food is one of the highest in the world,

with 48 per cent of income being spent on food and beverages.

3.2.2 Apparel retail

The ready-mades and western outfits are growing at 40-45 per cent annually,

as the market teams up with international brands and new entrants entering this

segment creating an Rs.5 billion market for the premium grooming segment. The past

few years has seen the sector aligning itself with global trends with retailing

companies like Shoppers‘ stop and Crossroads entering the fray to entice the middle

class. However, it is estimated that this segment would grow to Rs. 3 billion in the

next three years.

3.2.3 Gems and Jewellery retail

The gems and jewellery market is the key emerging area, accounting for a

high proportion of retail spends. India is the largest consumer of gold in the world

with an estimated annual consumption of 1000 tonnes, considering actual imports and

recycled gold. The market for jewellery is estimated to be Rs. 650 billion during the

year 2006.

3.2.4 Pharmaceutical retail

The pharma retailing is estimated at about Rs. 300 billion, with 15 per cent of

the 51 lakh retail stores in India being chemists. Pharma retailing will follow the trend

of becoming more organised and corporatised as is seen in other retailing formats

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(food, apparel etc). A few corporates who have already forayed into this segment

include Dr Morepen, Medicine Shoppe, Apollo pharmacies, Global Healthline Pvt

Ltd, and the recently launched CRS Health from SAK Industries. In the south, RPG

group‘s Health & Glow is already in this category, though it is not a pure play pharma

retailer but is more in the health and beauty care business.

3.2.5 Music Retail

The size of the Indian music industry, as per the Images-KSA Study, is

estimated at Rs.11 billion of which about 36 percent is consumed through the pirated

market and organized music retailing constitutes about 14 percent, equivalent to

Rs.1.5 billion.

3.2.6 Book retail

The book industry is estimated at over Rs. 30 billion, out of which organized

retail accounts for only 7 per cent (at Rs.2.10 billion). This segment is seen to be

emerging with text and curriculum books accounting to about 50 per cent of the total

sales. The gifting habit in India is catching on fast with books enjoying a significant

share, thus expecting this sector to grow by 15 per cent annually.

3.2.7 Consumer durables retail

The consumer durables market can be stratified into consumer electronics

comprising of TV sets, audio systems, VCD/DVD players and others; and appliances

like washing machines, microwave ovens and air conditioners (A/Cs). The existing

size of this sector stands at an estimated US$ 4.5 Billion with organized retailing

being at 5 per cent.

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3.3 RETAILING FORMATS IN INDIA

Modern retailing has entered in India in the form of sprawling malls and huge

complexes offering shopping, entertainment, leisure to the consumer as the retailers

experiment with a variety of formats, from discount stores to supermarkets to

hypermarkets to specialty chains. However, kiranas still continue to score over

modern formats primarily due to the convenience factor. The organized segment

typically comprises of a large number of retailers, greater enforcement of taxation

mechanisms and better labour law monitoring system. It's no longer about just

stocking and selling but about efficient supply chain management, developing vendor

relationship quality customer service, efficient merchandising and timely promotional

campaigns.

FIGURE – 3.1

Retail formats available in India

Source: IT Retailing: Are You In The Loop?

Retail formats available in

India

Mono/exclusiv

e branded

retail shops

Multi-branded

retail shops

Convergence

retail outlets

Exclusive

showrooms either

owned or

franchised out by

a manufacturer

Focus on

particular

product

categories and

carry most of

the brands

available

Usually have on display

most of the convergence

as well as consumer

electronic products

including communication

and IT goods

Complete range

available for a

given brand,

certified

product quality

Customers get

to have more

choices as many

brands are on

display

One stop shop for

customers, many

product lines of

different brands on

display

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The modern retail formats are encouraging development of well-established

and efficient supply chains in each segment ensuring efficient movement of goods

from farms to kitchens, which will result in huge savings for the farmers as well as for

the nation. The Government also stands to gain through more efficient collection of

tax revenues. Along with the modern retail formats, the non-store retailing channels

are also witnessing action with HUL initiating Sangam Direct, a direct to home

service. Network marketing has been growing quite fast and has a few large players

today.

In the Forthcoming years it can be said that the hypermarket route will emerge

as the most preferred format for international retailers stepping into the country. At

present, there are 50 hypermarkets operated by four to five large retailers spread

across 67 cities catering to a population of half-a-million or more. Estimates indicate

that this sector will have the potential to absorb many more hypermarkets in the next

four to five years.

Retailer

Traditionally, the small store ( kirana ) retailing has been one of the easiest

ways to generate self-employment, as it requires minimum investments in terms of

land, labour and capital. These stores are not affected by the modern retailing as it is

still considered very convenient to shop. In order to keep pace with the modern

formats, kiranas have now started providing more value-added services like stocking

ready to cook vegetables and other fresh produce. They also provide services like

credit, phone service, home delivery etc.

The organized retailing has helped in promoting several niche categories such

as packaged fruit juices, hair creams, fabric bleaches, shower gels, depilatory products

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and convenience and health foods, which are generally not found in the local kirana

stores.

Looking at the vast opportunity in this sector, big players like Reliance and

Rahejas has announced its plans to become the country's largest modern retainers by

establishing a chain of stores across all major cities. Apart from metro cities, several

small towns like Nagpur, Nasik, Ahmedabad, Aurangabad, Sholapur, Kolhapur and

Amravati are witnessing the expansion of modern retailing. Small towns in

Maharashtra are emerging as retail hubs for large chain stores like Pantaloon Retail

because many small cities like Nagpur have a student population, lower real estate

costs, fewer power cuts and lower levels of attrition. However, retailers need to adjust

their product mix for smaller cities, as they tend to be more conservative than the

metros.

In order for the market to grow in modern retailing, it is necessary that steps

are taken for rewriting laws, restructuring the tax regime, accessing and developing

new skills and investing significantly in India.

3.3.1 Merger and acquisition activity

India witnessed a record number of M&A deals in the first half of 2006, which

were collectively worth US$ 25.6 billion. A significant number of deals have been

carried out in the Indian retail sector during the past few months in order to acquire a

larger share in the growing domestic market and to compete against the prospective

global and domestic players. The table below shows some recent deals that have taken

place in the Indian retail sector.

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TABLE – 3.2

Recent Merger and Acquisition Deals in India

Year

Acquired

Nature of

Stake

Consideration

Company

US $

Million

(%)

Target JV

Acquired

2005 Liberty

Shoes Retail Footwear 51 3

2005 Indus-

League Retail Clothing 68 5

2005 Odyssey

India Leisure Retails 100 14

2005 Land Mark Book, Music,

Accessories 74 24

2006 Bistro TGI Friday‘s(A

Restaurant Food) 25 N/A

2006 Indus-

League

Etam Group,

Lingerie 50 8

Source: Pricewaterhouse Coppers, Asia-Pacific M&A bulletin.

3.4 PROFILE OF THE MAJOR PLAYERS IN RETAIL

3.4.1 Pantaloon Retail

Pantaloon Retail (India) Limited, is India‘s leading retail company with

presence across multiple lines of businesses. The company owns and manages

multiple retail formats that cater to a wide cross-section of the Indian society and is

able to capture almost the entire consumption basket of the Indian consumer.

Headquartered in Mumbai (Bombay), the company operates through 4 million square

feet of retail space, has over 140 stores across 32 cities in India and employs over

14,000 people.

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Pantaloon Retail forayed into modern retail in 1997 with the launching of

fashion retail chain, Pantaloons in Kolkata. In 2001, it launched Big Bazaar, a

hypermarket chain that combines the look and feel of Indian bazaars, with aspects of

modern retail, like choice, convenience and hygiene. The group‘s subsidiary

companies include, Home Solutions Retail India Ltd, Pantaloon Industries Ltd,

Galaxy Entertainment and Indus League Clothing. The group also has joint venture

companies with a number of partners including French retailer Etam group, Lee

Cooper, Manipal Healthcare, Talwalkar‘s, Gini & Jony and Liberty Shoes. Planet

Retail, a group company owns the franchisee of international brands like Marks &

Spencer, Debenhams, Next and Guess in India.

3.4.2 Lifestyle International

Lifestyle International Holdings Ltd‘s principal activity is the operation of

lifestyle department store and retail outlets. It focuses on high-end department store

format. As of December 31, 2005, Lifestyle International operated its retailing

business through two brand names, ‗SOGO‘ and ‗Jiuguang‘. The SOGO Department

Stores consists of the Company's flagship department store, SOGO CWB, in

Causeway Bay, Hong Kong, and the Tsimshatsui store, which features a slightly

different format that targets younger group of customers. The Jiuguang Department

Store, which is located in Shanghai, has a similar business format as that of the SOGO

store. During the year ended December 31, 2005, it launched SOGO CLUB, a

lifestyle service center. Some of the Company‘s subsidiaries include Asia Kinetic

Limited, Congenial Company Limited, Eastlord Development Limited, Everwin

Worldwide Limited and Fine Shine Limited.

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3.4.3 RPG Retail

RPG Enterprises is one of India‘s largest business conglomerates. Since its

inception in 1979, RPG Enterprises has been one of the fastest growing groups in

India with more than 20 companies operating successfully in 7 business sectors:

Retail, IT & Communications, Entertainment, Power, Transmission, Tyres and Life

Sciences.

Spencer‘s retail is the largest supermarket chain in India. Spencer‘s retail

offers the complete gamut of products & durables ranging from bread to bed covers;

from toothpaste to television. Spencer‘s today is operating across 80 stores spread

across 20 cities in the country with a retail trading area of more than half a million

square feet, and rapidly growing.

Spencer‘s Retail is located in various parts of India like Chennai, Hyderabad,

Vizag, Bangalore, Mumbai, Aurangabad, Pune, Ghaziabad, Faridabad, Delhi, Cochin,

Trivandrum and many more are likely to come by this financial year.

3.4.4 Shopper’s Stop

The foundation of Shoppers‘ Stop was laid on October 27, 1991 by the K.

Raheja Corp. group of companies. From its inception, Shoppers‘ Stop has progressed

from being a single brand shop to becoming a Fashion & Lifestyle store for the

family.

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

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(Indonesia), Takashimaya (Japan), C K Tang (Singapore), Manor (Switzerland) and

Lamcy Plaza (Dubai).

3.4.5 Trent (Tata)

Trent (Tata) was established in 1998, Trent operates some of the nation‘s

largest and fastest growing retail store chains. A beginning was made in 1998 with

Westside, a lifestyle retail chain, which was followed up in 2004 with Star India

Bazaar, a hypermarket with a large assortment of products at the lowest prices. In

2005, it acquired Landmark, India‘s largest book and music retailer.

3.4.6 Vivek Ltd

Vivek Limited, is the largest Consumer Electronics & Home Appliances retail

chain in India, with 14 world class showrooms in Chennai, Bangalore and Salem;

covering a retail space area of over 1,00,000 sq. Ft.

Vivek Ltd proposes to expand its operations in Karnataka and also proposes to

open outlets in Andhra Pradesh. The company is working on a plan to open three

retail outlets in Mysore, Hubli and Mangalore in Karnataka and in Hyderabad,

Vijayawada and Visakhapatnam in Andhra Pradesh. Viveks currently has 22

showrooms in 5 cities.

3.5 INVESTMENT POLICY AND INITIATIVES

3.5.1 FDI Policy in the Retail Sector

India has kept the retail sector largely closed for outsiders to safeguard the

livelihood of nearly 15 million small storeowners and only allows 51 per cent foreign

investment in single-brand retail with prior Government permission. FDI is also

allowed in the wholesale business. Single-brand retailers such as Louis Vuitton,

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Fendi, LLadro, Nike and Toyota can operate now on their own. Metro is already

operating through the cash-and-carry wholesale mode.

The policy makers continue to explore areas where FDI can be invited without

hurting the interest of local retail community. Government is considering opening up

of the retail trading for select sectors such as electronic goods, stationery, sports

goods, and building equipment.

Foreign direct investment (FDI) in retail space, specialized goods retailing like

sports goods, electronics and stationery is also being contemplated. The Government

has to walk a tightrope to ensure a `level playing field' for everyone.

The policy of permitting 51 per cent FDI in single-brand product retailing has

led to the entry of only a few global brands such as Nike (footwear), Louis Vuitton

(shoes, travel accessories, watches, ties, textiles ready-to wear), Lladro (porcelain

goods), Fendi (luxury products), Damro (knock-down furniture), Argenterie Greggio

(silverware, cutlery, traditional home accessories and gift items) and Toyota (retail

trading of cars), into retail trading. A 12-billion euro French luxury industry is also

eyeing the domestic luxury segment to make a presence through retailing directly.

Recent Scenario in FDI Policy

Recently, government has announced to bring a policy of allowing 100% FDI

in Retail sector. The government trying to bring this with the recommendation of

Planning Commission Report headed by N.K.Singh in 2002 – which suggests 100%

FDI in Retail to be brought in as it will benefit both Consumers and farmers.

The government wants to introduce FDI mainly to reduce the profit of

middleman hence farmers would get a better price of their products and consumers

would also reap the benefits. The issue is in favour of both the farmers and

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consumers. This would be initially enforced in 43 cities where the population is more

than 1 million.

The proposed bill is not yet passed by the parliament as of today because of

strong opposition from the opposite party.

3.5.2 Business models for entry in Indian markets

Due to the FDI restrictions the international players are looking for alternative

avenues to enter the Indian markets. However, FDI restrictions in retailing have not

deterred prominent international players from setting up shops in India.

In recent developments, the Australian retail giant Woolworth Ltd made in

innovative entry in India‘s retail space, with India‘s Tata group. The Tata group has

floated Infiniti Retail Ltd, in venture with which will sell consumer goods and

electronics across the country. Infiniti Retail will be a 100 per cent subsidiary of Tata

Sons and will receive an initial equity infusion of Rs 4 billion. This Tata retail venture

joined hands with Australian retail giant Woolworths Ltd, which currently operates

more than 2,000 stores in 12 different formats.

While Infiniti will own and run retail operations in India, Woolworths, which

has attained notable success in selling electronics and consumer goods through its

Dick Smith Electronics chain, will provide technical support and strategic sourcing

facilities from its global network.

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At present entry into India‘s retail sector can be done through three different

routes. It can be done through any one of the following formats:

Franchise agreements

Most widely used entry route by multinational retailers

Fast food retailer Domino‘s entered India through master franchise root while

Pizza Hut entered through regional franchisee

Cash and Carry

100% FDI is allowed in wholesale trading which involves building wholesale

trading of a large distribution infrastructure to assist local manufacturers

The wholesaler deals only with smaller retailers and not with the consumers

Metro AG of Germany was the first significant global player to enter India

through this route

Strategic licensing

Foreign company enters into a licensing agreement with a domestic agreements

retailer

Mango, the Spanisn apparel brand has entered India through this route with an

agreement with Piramyd, Mumbai

SPAR entered into a similar agreement with Radhakrishna Foodlands Pvt. Ltd

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3.6 OPPORTUNITIES AND CHALLENGES IN RETAILING

3.6.1 Investment Opportunities in the Retail Sector

Kearney‘s study on global retailing trends has found that India is the least

competitive as well as least saturated of all major global markets. This implies that

there are significantly low entry barriers for players trying to setup base in India, in

terms of the competitive landscape. The report further stated that the global retailers

such as Walmart, Carrefour, Tesco and Casino would take advantage of the more

favourable FDI rules that are likely in India and enter the country through

partnerships with local retailers.

Other retailers such as Marks & Spencer and the Benetton Group, who operate

through a franchisee model, would most likely switch to a hybrid ownership structure.

A good talent pool, unlimited opportunities, huge markets and availability of quality

raw materials at cheaper costs is expected to make India overtake the world's best

retail economies by 2042, according to industry players.

The retail industry in India, according to experts, will be a major employment

generator in the future. Currently, the market share of organised modern retail is

above 4 percent of the total retail industry, thereby leaving a huge untapped

opportunity. The sector is expected to see an investment of over $30 billion within the

next 4-5 years, catapulting modern retail in the country to $175-200 billion by 2016,

according to Technopak estimates.

Out of the total organised retail market of Rs 550 billion, the business of

fashion accounts for Rs 300.80 billion, which translates in to nearly 55 per cent of the

organised retail segment in the country. Total fashion sector was estimated at Rs

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1,914 billion and forms about 15 percent of the country‘s retail market of Rs 12,000

billion.

Commanding such a large chunk of the organised retail business in India,

fashion retailing has been responsible for single-handedly driving the business of

retail in India.

3.6.2 Challenges in Retailing

The industry is facing a severe shortage of talented professionals, especially at

the middle-management level. Most Indian retail players are under serious pressure

to make their supply chains more efficient in order to deliver the levels of quality and

service that consumers are demanding. Long intermediation chains would increase the

cost by 15 percent.

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.

The available talent pool does not back retail sector as the sector has only

emerged recently from its nascent phase. Further, retailing is yet to become a

preferred career option for most of India‘s educated class in sectors like IT, BPO and

financial services.

Even though the Government is attempting to implement a uniform value-

added 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.

Stringent labour laws govern the number of hours worked and minimum

wages to be paid leading to limited flexibility of operations and employment of part-

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time employees. Further, 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.

The retail sector does not have ‗industry‘ status, yet making it difficult for

retailers to raise finance from banks to fund their expansion plans. Government

restrictions on the FDI are leading to an absence of foreign players resulting into

limited exposure to best practices.

Non-availability of Government land and zonal restrictions has made it

difficult to find a good real estate in terms of location and size. Also lack of clear

ownership titles and high stamp duty has resulted in disorganized nature of

transactions.

3.7 INDIAN RETAIL INDUSTRY 2005

The retailing industry in India estimated at INR 930,000 crores (2003-04) is

expected to grow at 5% p.a. and the organized retailing is well on its way to become

an INR. 350 billion market by 2005 according to INDIA RETAIL REPORT 2005 :

An IMAGES-KSA Technopak study released at the KSA Retail Summit 2005 here on

Friday by Mr. Kishore Biyani, Manging Director of Pantaloon Retail, India's largest

retailer. ― The size of the organized retailing market stood at Rs. 280 billion in 2004 ,

thereby, making up a mere 3% of the total retailing market. Moving forward,

organized retailing is projected to grow at the rate of 25%-30% p.a. and is estimated

to reach an astounding INR 1000 billion by 2010. Further, its contribution to total

retailing sales is likely to rise to 9% by the end of the decade,‖ said Mr. Arvind

Singhal, Chairman, KSA Technopak.

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3.7.1 India Retail BY 2006-07

50 million sq ft of quality space under development

7 major cities to account for 41 million sq ft development

300 malls, shopping centres and multiplexes under construction

To open 35 hypermarkets, 325 large department stores, 1500 supermarkets and

over 10,000 new outlets

T - Truth

Trust and solid relationships are built on telling the truth. Companies should

maintain this principle both with internal and external customers. It is imperative that

this value is represented in everything a company does.

R - Responsibility

Trust is built when everyone within an organization realizes what their

responsibilities are and that they are held accountable for them. Choose to schedule

reviews quarterly for every member of the company to make sure they are aware of

their responsibilities. Take ownership of mistakes and be diligent to find ways to

make corrections.

U - Unselfishness

Trust is built when employees honestly offer their time and talent in the

workplace and do their work sincerly. Customers always appreciate those employees

who come forward to satisfy the customer. Customers don't appreciate hearing how

badly the employee wants to go home, or how they didn't get a break, or how awful

their schedule is.

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S - Security

Trust is built on a feeling of security. Good lighting in the parking lot and

store entrance, fitting rooms with doors that lock and alarm systems that are visible

always make the customer feel safe in your place of business. Employees in retailing

want to feel a sense of job security and that they are appreciated for the job they do.

T - Teamwork

Trust is built when everyone within the organization feels a sense of

ownership. How well do your employees work together? Are they willing to go out of

their way to help each other out? Do the managers roll up their sleeves to help when

the workload is overwhelming? Is there a reward system in place that encourages

employees who want to excel? Most importantly, are there cheerleaders within the

organization to keep the momentum going when times are tough?

3.7.2 Trend Analysis on the basis of Secondary Data:

TABLE – 3.3

Trend Analysis on the basis of Secondary Data

Factors/Year 1999 2002 2005

Total Retail (in 100 crores INR) 7000 8250 10000

Organised Retail (in 100 crores INR) 50 150 350

% share of organized retail 0.7 1.8 3.5

Trend equation for the amount spent in organized retail in INDIA.

Equation for linear trend Tt = b0+b1t

Where, Tt = trend value in period t, b0 = intercept of the trend line, b1= slope of the

trend line,

t = time

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To compute b1= ∑tyt – (∑t∑yt)/n

∑ t2 – (∑t)

2/n

To compute b0 = (∑yt/n) – b1∑ t/n

T Yt Tyt t2

1 50 50 1

2 150 300 4

3 350 1050 9

Total = 6 550 1400 14

3/3614

3/)550*6(14001b b0 = (550/3) – 150*2

= 150 = 183 – 75 = 108

Now, the trend equation is Tt = 108 + 150t

Inference:

The trend equation reveals that the retail sector is going in positive way and

the share in organized retail is going to be increased in the forth coming years. This

still insists the need for healthy CRM practices.

3.7.3 Rural Retailing

Of late, India's large rural population has also caught the eye of retailers

looking for new areas of growth. ITC launched the country's first rural mall ‗

Chaupal Sagar' , offering a diverse product range from FMCG to electronics

appliance to automobiles, attempting to provide farmers a one-stop destination for all

of their needs. There has been yet another initiative by the DCM Sriram Group called

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the ‗ Hariyali Bazaar', that has initially started off by providing farm related inputs

and services but plans to introduce the complete shopping basket in due course. Other

corporate bodies include Escorts, and Tata Chemicals (with Tata Kisan Sansar) setting

up agri-stores to provide products/services targeted at the farmer in order to tap the

vast rural market.

Commenting on the Rural Retailing chapter in INDIA RETAIL REPORT

2005, Mr. Adi B. Godrej, Chairman, The Godrej Group (India's one of the leading

corporate majors) said that his group had also launched the concept of agri-stores

named 'Adhaar', which served as one-stop shops for farmers selling agricultural

products such as fertilisers & animal feed and also providing farmers knowledge on

how to effectively utilise these products.

FDI could indeed do a lot in this sector as entry of international retailers would

bring in the required expertise to set the supply chain in place which would result in

elimination of wastage, better prices and quality for consumers and higher income for

farmers besides of course farm produce retailing getting a facelift, said Mr. Godrej.

Tapping in the fresh farm produce sector, the group plans to take its recently

launched retail concept – Nature's Basket - to newer cities steadily. Godrej Group's

Agro and Food division, Godrej Agrovet Ltd. (GAVL) operates the format, selling a

variety of vegetables, fruits and herbs - both local and exotic thereby introducing the

concept of 'farm-to-plate' to urbanites. Godrej plans to open four more Nature's

Basket stores in Mumbai before taking them national. Setting up cost of a store is

about INR 5-10 million and per stores sales are expected in the range of INR 30- Rs

50 million a year.

Interestingly, the world's largest corporation, Wal-mart, also had its roots in

rural America. Unlike many other retailers who started from urban centres and then

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trickled down to rural areas, Wal-mart had started from rural areas and then came

closer to cities over a period of time. Many more such concepts are likely to be tested

in the future as marketers and retailers begin to acknowledge that the rural consumer

is more than a ‗poor cousin' of the urban counterpart. The IMAGES KSA Report

avers that these concepts are likely to go a long way in bringing a huge untapped

population within the purview of organized retailing, thereby, increasing the size of

the total market.

3.7.4 Potential for all Formats to Thrive:

Most of the global powerhouses in the retailing sector such as Wal-Mart,

Carrefour, Tesco etc have adopted multi-format and multi-product strategies in order

to customize their product offering for distinct target segments. Similar trends are

likely to be exhibited in India as all formats present prospects for growth, the Report

says.

Further, with the emergence of larger store formats like superstores and

hypermarkets in countries like UK, France, Germany, Spain since the 1980s and

Eastern Europe more recently, traditional food retailers have been able to stock more

extensive non-food ranges. In fact, Tesco, UK's leading grocer, has become the

number one apparel retailer in the Czech Republic and also a major player in Hungary

apart from being one of the fastest growing clothing retailers in the UK. Together

with its rival, Wal-Mart-owned ASDA, Tesco is one of the food sector's most

successful exponents of clothing in Europe.

The Report goes on to detail a wide variety of roadblocks that hamper the

growth of otherwise upbeat scenario. A few of them are regulatory barriers,

fragmented suppliers, lack of skilled personnel, differential taxation system, labour

legislation and lack of ‗industry' status. Recounting some critical success factors in

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retail the IMAGES-KSA report emphasises that all and any solutions ought to be

India-centric even as strategic and operational attributes like value proposition,

service, experience, efficiency, hygiene etc. must be benchmarked with global

standards. It also favours adopting an effective private label strategy and the necessity

to pass on operational gains achieved to end-consumers in order to offer a superior

price-value equation, thereby, competing effectively with the unorganized segment.

The Centre‘s announcement on foreign direct investment (FDI) in Indian

retail could help existing retailers deleverage their balance sheets. However, the

complexities involved could delay this process, with benefits not expected to accrue

in the next two to three years. India Ratings expects foreign investors to partner with

established retailers in the Indian markets who have a footprint in the larger cities and

towns given the complexity and dynamics of the Indian consumer markets. There is

unlikely to be a stable solution as the political will of the Indian States regarding the

new policy may change. Besides, such splitting of retail business into separate legal

entities to enable funding from foreign retailers may reduce the operational benefits of

logistics and sourcing. According to the recent policy, foreign investors in retail JVs

would be accountable for setting up back-end infrastructure in a time-bound fashion.

Retailers with majority foreign holdings and having strong operational and legal ties

with higher rated foreign partners (higher than the India Country Ceiling assigned by

Fitch Ratings) could benefit in terms of ratings.

3.8 ABOUT VARIOUS RETAIL STORES IN CHENNAI

3.8.1 MORE:

The Group‘s foray into the retail sector began in 2006, when it acquired

Trinethra, the south-India based chain of stores. May 2007 saw Aditya Birla Retail

Limited (ABRL), launching their own brand of stores MORE.

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ABRL‘s vision is to consistently provide all Indian families differentiated and

complete shopping experience, to be one of the top two retailers in India while

delivering superior value to all stakeholders.

Till end of July 2008, the company has set up 640 supermarkets and two

hypermarkets. All the supermarkets (including the former Trinethra stores) are now

branded MORE and the hypermarkets are branded MORE Megastore. The company

has around 11,000 employees and has a pan India presence.

The supermarkets have a minimum size of 2,500 sq ft, while hypermarkets are

larger with a minimum size of 50,000 sq ft. The stores offer a range of products in

processed foods, home and personal care, fruits and vegetables, general merchandise,

apparel and CDIT. In addition, many of the stores have a bakery and other shop in

shops catering to mobile stores, pharmacy, Indian sweets and the like.

"Our mission is to change the way people shop. We will give them

more.,"says Mr. Kumar Mangalam Birla, Chairman, Aditya Birla Group. This

statement clearly articulates what Indian consumers can expect from the more. chain

of stores from Aditya Birla Retail Limited.

The More supermarket for you advantage: it promises a world-class

pleasurable shopping experience to Indian consumers in their very own

neighbourhood. Quality, variety, convenience and value are the four delivery

cornerstones of the chain of More supermarket stores.

Quality

Every product goes through a thorough quality check process, ensuring 100

per cent satisfaction.

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Variety

Apart from a large range of national brands, shoppers will also find a section

called the Best of India, which is an assortment of unique products sourced from

across India. The wide range of fresh fruits and vegetables along with private label

offerings under brand names Value, Select and Premium ensures that variety is a

promise delivered across the store.

Convenience

Convenient locations within easy reach of consumers and a neat, cheerful and

friendly layout, enough isle space, signage that speaks the consumers‘ language

aiding in identifying what people has come to shop for easily, all go a long way in

ensuring convenience.

Value

It promises best in market pricing. Linking up directly with farmers to source

fresh fruits, vegetables and staples ensure great quality as well as great price. Add to

this, the membership programme Clubmore., which provides convenience, customised

shopping solutions and savings, and the value promise becomes all the more evident.

3.8.2 Nilgiris (supermarket)

Nilgiris is a supermarket chain in South India, which is very popular among

the locals for its good quality products and self-service shopping experience. It is also

one of the oldest supermarket chains in India with origins dating back to 1905 and

hence its products are sold under the brand name of "Nilgiris 1905". Also, unlike

almost all other supermarkets and grocery shops in India, Nilgiris sells its own

products among other brands.

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The origin of this supermarket chain can be traced back to Muthusamy

Mudaliar, who was a mail runner for the British in colonial India. Muthusamy carried

letters and cheques for the British from Mettupalayam to the hill stations of Ooty and

Coonoor. As he was flooded with requests to carry dairy products and other items, he

opened a small shop in 1905, after buying the butter business of an Englishman in

Vannarpet and soon, "The Nilgiri Dairy Farm Ltd." was established. In 1936, he

moved his shop to Brigade Road, Bangalore. The Nilgiri Dairy Farm Ltd. specialized

in dairy, dairy products, bakery and chocolates. Muthusamy's son Chenniappan

expanded the company by setting up a modest store in Bangalore to sell Nilgiris' own

products.

However, after Chenniappan's visit to the U.S. and Europe, this modest store

was expanded into a supermarket. Though Chenniappan was influenced by the

supermarket concept in the U.S. and Europe, he developed the Nilgiris supermarket to

fit in with the local culture and set guidelines for its growth. Soon, the Nilgiris

supermarket chain spread to Chennai, Erode and Coimbatore.

In September–October 2006, Actis, a UK-based private equity investor,

invested US$65 million in the Nilgiris Group in order to strengthen the group's

manufacturing and franchising operations in South India. This investment has given

Actis a controlling interest (more than 51% stake) in the Nilgiris group.

3.8.3 Reliance opens a ‘fresh’ chapter in retail

Just five months after Mukesh Ambani spelt out his retail plans, Reliance's

retail foray has moved at breakneck speed to open its first store in its fresh food

format- Reliance Fresh in Hyderabad. CNBC-TV18 takes a look at the new store.

Reliance's Rs25,000 crore retail foray is being pitched as a friendly neighbourhood

store. Dominated by fresh produce, dairy and bread, Reliance Fresh is a compact 2000

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sq ft store. Gunender Kapur, president and CEO, Foods Business, RIL, says, "In this

format the focus in on fresh fruits and veggies and staple products that consumers buy

very frequently from the shop." The efficiency of Reliance's much talked about farm

to folk supply chain is being put to test with this retail launch. This particular store is

directly procuring from the farmers of Andhra Pradesh, Karnataka and Tamil Nadu

giving it a quality and pricing advantage, something that Reliance hopes will fuel its

success.

Private labels across multiple categories are expected to drive Reliance's retail

formats. And with this new store comes the company's food brand 'Reliance Select'.

Next in line is Fresh Plus — Reliance's second retail format will house a pharmacy,

and section for apparel and consumer durables. Reliance also hopes to roll out its

hypermarket format — 75,000 square feet of multiple brands of apparel, FMCG,

groceries and white goods.

For now, the spotlight remains on Reliance Fresh — 40 similar stores are

being planned in Hyderabad, 11 of which will open their doors to customers on

November 3. After ITC's Choupal Fresh and Landmark's Max Retail stores, Reliance

joins the list of retailers who chose Hyderabad to test waters. The city offers real

estate at a price that doesn't quite pinch

Reliance is gearing up to revolutionize the retailing industry in India. A world

class shopping environment, state of art technology, a seamless supply chain

infrastructure, a host of unique value-added services and above all, unmatched

customer experience, is what this initiative is all about. Reliance is aiming to touch

almost every Indian customer and supplier.

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3.8.4 Big Bazaar

Big Bazaar is a chain of hypermarket in India. Currently there are 210 stores

across 80 cities and towns in India. Big Bazaar is designed as an agglomeration of

bazaars or Indian markets with clusters offering a wide range of merchandise

including fashion and apparels, food products, general merchandise, furniture,

electronics, books, fast food and leisure and entertainment sections.

Big Bazaar is part of Future Group, which also owns the Central Hypermarket,

and is owned through a wholly owned subsidiary of Pantaloon Retail India Limited,

that is listed on Indian stock exchanges.

Big Bazaar was launched in September, 2001 with the opening of its first four

stores in Calcutta, Indore, Bangalore and Hyderabad in 22 days. Within a span of ten

years, there are now 150 Big Bazaar stores in 80 cities and towns across India.

Big Bazaar was started by Kishore Biyani, the Group CEO and Managing

Director of Pantaloon Retail. Though Big Bazaar was launched purely as a fashion

format including apparel, cosmetics, accessory and general merchandise, over the

years Big Bazaar has included a wide range of products and service offerings under

their retail chain. The current formats include Big Bazaar, Food Bazaar, Electronic

Bazaar and Furniture Bazaar.

Most Big Bazaar stores are multi-level and are located in stand-alone

buildings in city centers as well as within shopping malls. These stores offer over

200,000 SKUs in a wide range of categories led primarily by fashion and food

products.

Food Bazaar, a supermarket format was incorporated within Big Bazaar in

2002 and is now present within every Big Bazaar as well as in independent locations.

A typical Big Bazaar is spread across around 50,000 square feet (4,600 m²) of retail

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space. While the larger metropolises have Big Bazaar Familycentres measuring

between 75,000 square feet (7,000 m²) and 160,000 square feet (15,000 m²), Big

Bazaar Express stores in smaller towns measure around 30,000 square feet (2,800 m²).

Big Bazaar has the facility to purchase products online through its official web

page, and offers free shipping on some of their products

3.9 INDIAN ORGANIZED RETAIL INDUSTRY

The Indian Retail Industry Scenario:

On the basis of a report published by the India Retail Forum, the Organized

retail accounted for Rs 55,000 crore (about $12.4 billion) in the year 2006 and still its

just about only 4.6% of the total Indian Retail Value that was about Rs 12,00,000

crore ($270 billion).It means that the major portion of the Indian Retail market is in

unorganized retail unlike USA where everything is mainly organized retail.

However, organized retail in India is expected to grow at a rapid rate of about

37% and 42% in 2007 and 2008 respectively. Of the last years $270 billion of Retail

Value, the major portion was dominated by Food and Grocery.

Retailing was about 60% of the value (about $160 billion). However in the

food and Grocery retailing more than 99% of the market is dominated by the

neighborhood Kirana Stores (Mom and Pop Stores).

It is expected that the organized retail will add over Rs 2,00,000 crore (about $

45 billion) by the year 2010.

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FIGURE – 3.2 Indian organized retail industry

Entertainment

2%

Book Music & Gifts

3%Catering Services

7%

Food & Grocery

12%

Furniture

8%

Mobile & Accessories

3%

Consumer Durables

9%

Health & Beauty

Products

3%

Jewellery

3%

Watches

4%

Footwear

9%

Health & Beauty Care

Services

1%

Clothing & Fashion

Accessories

36%

3.10 A REVIEW OF CHENNAI MARKET ACTIVITY MIDYEAR2006

3.10.1 High Street Retailing

Chennai has proved to be the most vibrant market in South India with low

spending thrift compared to other three metros. Foreign direct investments have

resulted in the city‘s residents enjoying higher disposable incomes, and a better

quality of life. This gives space for investors to probe in to the city at a faster pace.

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Chennai‘s organized retail market is witnessing plenty of action with large

multinationals fighting with aggressive domestic players for retailing space. The city

is today visualizing the emergence of global concepts in retailing space. Large

retailers like Shoppers' Stop, Lifestyle International, Westside, Globus and Ebony

have entered the market last year to fill a perceived gap in this segment. Despite

facing fresh competition, established stores are also showing appreciable growth in

the city.

3.10.2 Supply only in the CBD

The existing stock of organized retail space is under construction and no

deliveries in this quarter, thus resulting in a snail paced development in retail sector.

About 0.3 million sq.ft of space is expected to enter the Chennai retail market over the

next 12- 15 months. Developments on the arterial Anna Salai and Nungambakkam

alone are expected to contribute more than 60 per cent of this supply.

3.10.3 Demand for organized retail space

Chennai has a huge demand for organised malls due to increase in the number

of IT/ ITES industries entering the city. Growth in the high disposable income of IT

population and increasing consumer demand has triggered the establishment of retail

spaces in the city.

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TABLE - 3.4

Establishment of Retail Spaces in Chennai – Statistical Summary

Sub

market

Total

inventory

Under

construction

New

Deliveries

Total

Vacancy

Net

Absorbtion

(S.ft.)

Average

Rent per

Sq.ft. (Rs.)

CBD 21,80,000 15,30,000 - - 2,85,000 810-1134

Non

CBD

(city

limits) 11,56,065 1,56,065 - - 1,00,000 540-850

Suburban

BD 10,10,000 - - - 60,000 337.5-423

Total 43,46,065 16,86,065 - - 4,45,000

562.5-

802.35

CBD area includes Nungambakkam - Nungambakkam High Road, Khader

Nawaz Khan Road; Gopalapuram - Cathedral Road; Anna Salai, Mylapore -Dr. R K

Salai; Alwarpet - T.T.K Road, C.P. Ramaswamy Road; T. Nagar - Pondy Bazaar,

North Usman Road, G.N. Chetty Road, and Egmore

Non CBD (City limits) includes Anna Nagar - second and third avenue, Arcot

road, Vadapalani, Guindy, Nelson Manickam Road, Koyambedu, Velachery,

Poonamallee high road, Korattur, Purasaivakkam, Adyar - Sardar Patel Road, Gandhi

Nagar 1st Main Road, L.B Road, Besant Nagar - Second Avenue, Vailankanni Church

Road, Beach Road.

Suburban Business District includes OMR - Karapakkam, Sholinganallur,

Pallikkaranai, Semmenchery, Navalur, Siruseri, Ambattur; GST Road – Vandalur,

Perungulathur, Maraimalai Nagar; Porur, Perambur.

The report includes supply and absorption of mall developments only. The

numbers are indicative and gathered from primary and secondary sources.

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3.11 CONCLUSION

The retail sector has played a phenomenal role throughout the world in

increasing productivity of consumer goods and services. There is no denying the fact

that most of the developed economies are very much relying on their retail sector as a

locomotive of growth.

In India the Retail Sector is still in growing stage only. It has to travel a long

way to convert all unorganized retail sector into organized retail sector. Due to several

demographical, political and technological reasons India is still facing problems in

developing the organized retail sector. May be FDI which is a totally organized sector

may bring some change in the trend of organized retail sector in India.