Are Indian Retailers Are Indian Retailers ready for Mall ready for Mall

Culture? Culture? Authors:Authors:

1. Prof. Pritee Saxena1. Prof. Pritee SaxenaFaculty Member-MarketingFaculty Member-Marketing

ICFAI Business School, MumbaiICFAI Business School, Mumbai

2. Prof. Satish Ailawadi2. Prof. Satish Ailawadi Associate Professor-MarketingAssociate Professor-Marketing

VES’s Institute of Management Studies & Research, VES’s Institute of Management Studies & Research, MumbaiMumbai

THE ROADMAP….THE ROADMAP….

• The Changing Retail Scenario• Retail Real Estate in India• Malls or High-Streets?• The Study..• FDI in Retail• Conclusion….

RETAIL CHANGE….RETAIL CHANGE….

YEAR 2004

Total Retail Market: INR 13139 Bn

Total Organized Retail Market : INR 152 Bn

Share of Malls: INR 29Bn

YEAR 2010

Total Retail Market: INR 20850 Bn

Total Organized Retail Market : INR 524 Bn

Share of Malls: INR 384.47Bn

INDIAN RETAIL BY 2006-07INDIAN RETAIL BY 2006-07• 50 million sq. feet of space under development.• 7 major cities to account for 41 mill sq. feet under

development.• 300 malls, shopping centres and multiplexes under

construction.• To have 35 Hypermarkets,325 large Departmental Stores,

and 1500 Supermarkets.

(Source: Images Retail)

Key facts…Key facts…• Organised Retail to form 10% of total Retailing by the end of

this decade.• Cultural and Regional differences are the biggest challenges.

They deter Retailers, from adopting a single format.• Hypermarket is emerging as the most favourable format, for

the time being.• Convenience store is the best way to tackle Unorganised

market.• India’s vast middle class and its virtually untapped Retail

Sector are key attractions for global Retail Giants.• 51% FDI in single brand retailing allowed to attract

investment and technology and to cater to the demand for branded goods in India.

• Of the total organised retail space being developed pan-India, 35% is to come up in Tier –II and Tier – III cities.

( Source – Knight Frank Research & Bharat Book Review )

THE CHANGE…

Weekly MarketsVillage FairsMelas

Convenience StoresMom and Pop/Kiranas

PDS OutletsKhadi StoresCooperatives

Exclusive Brand OutletsHyper/Super MarketsDepartment StoresShopping Malls

Traditional/Pervasive Reach

Government Supported

Historic/Rural Reach

Modern Formats/ International

Evolution of Indian Retail

Source of Entertainmen

t

Neighborhood Stores/Convenie

nce

Availability/ Low Costs / Distribution

Shopping Experience/Efficiency

(Source: ICICI - FDI In Retail)

[While You Were Sleeping]

[A Phone Call Away]

[The Government Awakes]

[The Wonder Years]

THE CHANGING SHOPPING EXPERIENCE….

TODAY’S RETAIL TODAY’S RETAIL FORMATSFORMATS

• Malls. • Hyper marts/Supermarkets• Department Stores• Discount Stores• Specialty Stores• Convenience Stores• MBO’s• FEC (Family Entertainment Centre)

CATEGORIES OF INDIAN CATEGORIES OF INDIAN RETAILERSRETAILERS

• Corporate Houses• Tatas: Tata Trent• RPG group: Food World, Health and Glow, etc• ITC: Wills Life Style• Rahejas (Shoppers Stop), 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

1

43

121

0

20

40

60

80

100

120

140

1998 2004 2007E

25

48

80

0

10

20

30

40

50

60

70

80

1998 2004 2007E

Rising Income Levels … Cheaper Credit ... … & Benign Inflation

3.84.3

4.0

5.4

3.4 3.93.8

7.1

3.4

3.6

6.5

3.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2001 2002 2003 2004 2005

Consumer Price Inflation

Wholesale Price Inflation

6.06.06.36.57.0

8.0

12.5 12.0 12.011.5 11.0 10.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2000 2001 2002 2003 2004 2005

Bank Rate Prime Lending Rate

Cellular Phones(millions) Cable TV Subscriptions

(million)

Per Capita - At Current Prices

18.9 20.2 21.423.7

26.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2001 2002 2003 2004 2005

Rs

'000

(P

er A

nn

um

)

Young Demographics (average age 24 years) with Increasing

Consumerism Instigated by Media Leading to Consumption Wave

(Source : CMIE, Enam, Eco Survey)

CONSUMPTION-LED GROWTH IN INDIA

• India – World’s Youngest Population, Median age of 24 yrs

• More than Half the Population has Grown up in Post Liberalization Era

• Population in the Age Group 15-44yrs (consuming class) Expected to Increase from 330mn in 2001 to 700mn by 2010

• Indian Youth – more Ambitious & Confident

• From ‘Save Now & Consume Later’ to ‘Affordable Indulgence’

Median Age (yrs)

YOUTH : NO GUILT OF CONSUMPTION

(Source: SSKI)

INDIAN RETAIL-LED REAL ESTATE

Source : Images KSA Technopak Study

• Not a Single Mall a Decade Ago - Less than Half a Dozen Malls a Year Ago

• Currently approximately 96 malls in India, expected to Rise to 158 by End of Current Year and 200 in next 3 years.

• By year 2006-07 :

– 50 mn sq.ft of Quality Space under Development

– 7 Major cities to account for 41 mn sq.ft Development

– To open - 35 Hypermarkets, 325 Large Department Stores

– 1500 Supermarkets and over 10,000 New Outlets

• Mall Space spread Across India by 2007

DRIVERS OF CHANGEDRIVERS OF CHANGE

• Housing sector expected to sustain strong growth in light of attractive interest rates and tax incentives

• Commercial sector to grow in tandem with sectors like IT, ITES, Banking, Telecom, etc.

• Increasing numbers of shopping malls

• Lease v/s Buy gaining ground for commercial developments

Contd…..Contd…..• Heightened development in real estate in

Tier II & III locations

• New Residential Models-Townships• FDI would improve construction quality

and improve efficiencies

• Potential Entry of Real Estate Mutual funds and Real Estate Investment Trusts

REAL ESTATE RATES….REAL ESTATE RATES….

( Source: JM Morgan Stanley Research)

THE STUDY……

CATEGORIES IN INDIAN CATEGORIES IN INDIAN RETAIL SECTOR RETAIL SECTOR

SAMPLE SIZESAMPLE SIZECategory Brands Interviewed

Men’s Wear Zodiac, Daks, Numero Uno, Lacoste, Koutons, Oxemberg, Men’s Boulevard, Tuille, John Players, Blue Tonic

Women’s Wear Amarsons, Satya Paul, Peppertree, After shock, Hakoba, Jashn

Unisex apparels Blackberry, Colorplus, Pepe

Kidswear Me & Moms, Scrams, Barbie, 4214

Time wear Ethos, Watches N More, Citizen, Swatch, Titan

Jewellery D’damas, Gili, Orra, TBZ, Tanishq, Sia Art Jewellery

Luggage VIP, Samsonite

Gifts Archies, Galleria, Hallmark

Shoes Regal, Minis, Catwalk, Charles & Keith, In-touch, Lords, Clarks, Kittens, Metro, Bata

Home furnishings Spaces, Hasthkala, Hobby ideas, Pampered Home, Dreams

Food & Beverages Bombay Blues, Thai Lotus, Ruby Tuesday, Bateel, Sweet World, Subway, Rajdhani

OBSERVATIONS…OBSERVATIONS…Category Price range

(Rs.) Average

Margin (%)

Avg Shop Size

(sq.ft)

Location in Malls

Men’s Wear 500-5,000 10-15 800-1,000 Ground Floor

Women’s Wear 300-30,000 20-30 1,500-2,000 Women’s Zone

Unisex apparels

850-8,000 25 1,500 Ground

Kidswear 200-1,000 25-30 1,000 First Floor/ Child Zone

Time wear 300-30,000 30 500-700 Ground Floor

Jewellery 600-30,000 37 1,500-2,000 Ground Floor / Women’s’ Zone

Luggage 500-2,000 27 1,000-1,200 Ground Floor

Gifts 50-1,000 27 5,00-7,00 Ground Floor

Shoes 200-4,000 28 1,200-1,500 Ground Floor

Home furnishings

500 onwards 25 1,500-2,000 Ground Floor /Women’s’ Zone

Food & Beverages

50 onwards 15 1,500 Food Zone

Avg.Profit Margin Across Categories

27%

37%

30%

15%

28%25%

27%

0%5%

10%15%20%25%30%35%40%

Categories

Avg.Profit margin (%)

Avg.Store Area (per sq.ft)

1380

1900

660

12071020

1890

700

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Categories

Avg.Store Area (per sq.ft)

Avg.Ticket Price across categories

2245

14950

51750

1443 483 16070

10000

20000

30000

40000

50000

60000

Categories

Avg.Ticket Price

15%

85%

70%

30%

65%

35%27%

73%

0%

20%

40%

60%

80%

100%

Men's Womens Kids Unisex

Apparels (Malls Vs High Street)

Malls High Street

Jewellery ( Malls vs High Streets)

2%

98%

In Malls Outlets

In High Street outlets

Home Furnishings ( Malls Vs High Streets)

71%

29%

In Malls Outlets

In High Street outlets

ISSUES TO BE ADDRESSED?ISSUES TO BE ADDRESSED?• Efficacy of Mall Management- Contractual agreement

• Consumer traffic

• Real estate cost

• Mall Promotional schemes

• Mall layout and design

• Mall facilities like parking, safety, lighting and air conditioning, housekeeping and maintenance

• Mall location and shop neighborhood

• Mall Brands

FDI IN RETAIL..

FDI IN INDIAN RETAILING

• Current Indian FDI Regime

– FDI not permitted in retail trade sector, except in:

• Private labels

• Hi-Tech items / items requiring specialized after sales service

CONTD….CONTD….• 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)

WHY FDI?

• Improve competition• Develop the market• Greater level of exports due to increased sourcing by major

players Investment in technology• Better lifestyle• Manpower and skill development Investment in whole supply chain• Tourism Development

HOW FDI ?• FDI should be allowed in stages

– Initial stages: 26% FDI

– Establishment Phase: 49% FDI

– Mature Phase: 100% FDI

• 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

2 Years

2 Years

2 Years

BENEFITS TO THE BENEFITS TO THE GOVERNMENTGOVERNMENT

Greater Per Capita Income

Greater ConsumerSpending due to

economic boom

Increasing Tax Paying Population

Greater Sourcing

From India

Reduced TaxEvasion

GDP Growth

Increased Tax Revenues

Greater Exports

Employment

Benefits to Govt.

Challenges ahead…Challenges ahead…• Differences between urban and rural consumers

• Cultural preferences and tastes that differ from global economy

• Fragmented Market

• Extensive Distribution network required

• High Capital Requirement

• Real Estate and Infrastructure

Thank You!

• Questionnaire

ReferencesReferences

• http://news.moneycontrol.com/india/newsarticle/stocksnews.php?autono=225909http://www.ciionline.org/Common/313/BACKGROUNDNOTE2004.pdfhttp://www.garnerasia.com/gbiad6.htmlhttp://www.imagesfashion.com/Cover_story1_jan05.htmlhttp://www.imagesfashion.com/index.html

• Books Referred :

Retail Management - A Strategic Approach by Barry Berman and Joel R Evans