INDUSTRY: RETAILING (2007-08)

The Indian retail landscape is evolving with interplay of several demographic and
economic factors. A strong 9% GDP growth, backed by changing consumer behaviour
in favour of larger discretionary spend, has set the stage for a healthy 8.6% growth in
the retail space over FY07-11E.

Key highlights:

• The big opportunity lies in the growing share of organized retail in a space
otherwise dominated by traditional retail forms. The growing trend of consumers
to allocate a larger share of income to consumption and gradual improvement in
lifestyle has opened up an opportunity in the form of under penetration of
organised retail. The expected organised retail would grow at 42% CAGR, to
reach USD 70 bn by FY11E, accounting for 15% of total retail as against 4.1%
currently.

• Favourable demographics, changing consumer preferences, desire for a superior

experience, easy availability of credit, development of real estate, and large
investments in improving supply chain efficiencies in the country are set to give a
fillip to consumption.

• A major portion of the opportunity thrown up by organized retail will be

concentrated in metros and tier I cities, given that the top 784 towns constitute
35% of the retail market. Of these, metros and tier I cities account for more than
60%.

• To make the most of the expanding consumer disposable income, retailers are
targeting multiple formats and value propositions to capture maximum share of
the consumer’s wallet. In this bid, the first leg of growth is expected to be driven
by hypermarkets and supermarkets.

• It is expected that the retailers would pump in over USD 25 bn into the sector
over the next four years to scale up their retailing operations and strengthen
back-end systems.

India Most Attractive Retail Destination - Time Ripe for Entry

India has been rated as the most attractive retail destination in the world by AT Kearney
for the third year in a row; the company’s annual Global Retail Development Index
(GRDI) ranks 30 emerging countries, selected from a universe of 185 countries, on a
100 point scale (based on country risk, population size, and wealth) to find out the
relative attractiveness of these markets.
5.1. Growth Drivers

Indian retail is witnessing a confluence of several favourable factors such as steady

economic growth, favourable demographics, easy availability of credit, investments in
infrastructure creation, and supply of real estate and malls. This, coupled with low
penetration, creates a base for the next big leap of growth for the organised retailing
industry.

Source: Edelweiss Research (Report: Retail Shopping goes hyper – 15/02/2008)

India tops the AT Kearney's annual Global Retail Development Index (GRDI) for the
third consecutive year, maintaining its position as the most attractive market for retail
investment.
The Indian retail market, which is the fifth largest retail destination globally, according to
industry estimates is estimated to grow from the US$ 330 billion in 2007 to US$ 427
billion by 2010 and US$ 637 billion by 2015. Simultaneously, modern retail is likely to
increase its share in the total retail market to 22 per cent by 2010.

Continuing the robust growth of the organised retail in India, according to the Credit
Rating and Information Services of India, the industry raked in US$ 25.44 billion
turnover in 2007-08 as against US$ 16.99 billion in 2006-07, a whopping growth rate of
49.73 per cent.

India has one of the largest numbers of retail outlets in the world. Of the 12 million retail
outlets present in the country, nearly 5 million sell food and related products. Thought
the market has been dominated by unorganised players, the entry of domestic and
international organised players is set to change the scenario.

Organised retail segment has been growing at a blistering pace, exceeding all previous
estimates. According to a study by Deloitte Haskins and Sells, organised retail has
increased its share from 5 per cent of total retail sales in 2006 to 8 per cent in 2007. The
fastest growing segments have been the wholesale cash and carry stores (150 per
cent) followed by supermarkets (100 per cent) and hypermarkets (75-80 per cent).
Further, it estimates the organised segment to account for 25 per cent of the total sales
by 2011.

Retail space

Driven by changing lifestyles, strong income growth and favourable demographic

patterns, Indian retail is expanding at a rapid pace. Mall space, from a meagre one
million square feet in 2002, is expected to touch 40 million square feet by end-2007 and
an estimated 60 million square feet by end-2008, says Jones Lang LaSalle's third
annual Retailer Sentiment Survey-Asia.

Alongside, Indian cities are witnessing a paradigm shift from traditional forms of retailing
into a modern organized sector. A report by Images Retail estimates the number of
operational malls to more than double to over 412 with 205 million square feet by 2010
and further 715 malls by 2015, on the back of major retail developments even in tier II
and tier III cities in India.

Luxury Retail

With consumers for luxury goods more in numbers than adult population of several
countries, the Indian luxury retail market is estimated to leap-frog from around US$ 3.5
billion to US$ 30 billion by 2015, according to a survey done by AT Kearney. India's
luxury market, estimated to be the 12th largest in the world, has been growing at the
rate of 25 per cent per annum.
Already Indians splurge US$ 2.9 billion on luxury assets, spend another US$ 953 million
on luxury services and top it by buying luxury goods worth US$ 377 million. And with a
rapidly expanding population of high net worth individuals, India could emerge as the
next hub for luxury goods consumption.

Source: Edelweiss Research (Report: Retail Shopping goes hyper – 15/02/2008)