Retail in India

Towards growth and profitability

THE GREAT INDIAN RETAIL
STORY
Source: Citigroup Research
Timeline of Retailing in India
India a nation on the move
Current GDP ~ $1 trillion
4
th
largest in terms of GDP (PPP)
terms
Target customer base 405 mn.
Growth rate likely to be sustained
above 8%
Changing consumer behavior -
consumerism
Growth in availability of
infrastructure and mall space


GDP growth and Retail
Retail, GDP growth Organized Retail in 2010
The organized players
Indian companies
Future Group
Reliance Retail
Bharti
Shoppers'Stop
Pyramid
Aditya Birla Group
Subhiksha
Spencer Group
Tata Westside,
Tata Chroma
Foreign Players
Nike (Single brand)
Levis (Single brand)
Wal-mart (JV)
Metro (Cash&Carry)

Organized retail, revenue and
volume growth
Total size of retail $300bln
Size of organized retail $8bln
% share of Organized retail 3%
Source: Economics times retail knowledge series

FORMATS
Source: India Retail Report, 2007, Merrill Lynch
Market Profile of Various
Formats
Department Stores: Shopper Stop, Lifestyle, Pantaloons
Hypermarkets: Big Bazaar, Spencer
Supermarkets and Conv. Stores: Subhiksha, Trinethra


Department Stores Hypermarkets Supermarkets and
Conv. Stores
Well established, limited
competition
Entrenched in Indian
Mindset
Score on shopping
experience
Stress on branding
Price not critical as they
cater to upper income
class

Relatively new concept,
but already as big as
department stores
Growing fast, but
competition to intensify
Price Discount and Wide
Varieties act as key
attractions
Key to success will be
efficient Supply Chains and
Store locations

Main challenge to mom
and pop stores
How to compensate for
facilities that mom and pop
stores provide namely
Home Delivery and
Monthly Credit ?
Immense Competitions,
building scale to achieve
cost efficiencies will be
critical

Major Retail Formats

OPPORTUNITY
&
CHALLENGES
Which categories will grow ?
Food and Groceries
Sector that the largest amount of consumer spends is concentrated.
Maximum opportunity for investments

Consumer durables
With increasing purchasing power, consumers tend to spend the
most on this category.
There is nothing to prevent a company from putting up shops
outside the city limits, because consumer durables are a
premeditated purchase.
Availability of finance options has increased spending in this sector.

Home products
With increasing private ownership of homes by relatively young
couples, across most major cities in India, national retail chains
offering home furniture (and accessories) have great potential.
Source: AT Kearney , Citigroup Research Report
Growth Potential In India

POLICIES
Government Policies
51% FDI allowed in single-brand formats
100% FDI in cash-and-carry format
NO FDI in multi-brand stores ( like Wal-Mart)
Trends indicate that the FDI would open up in
retail sector, however political consensus has
to be reached before that happens

Benefits of FDI in retail Drawbacks of FDI in retail
Inflow of investment and funds.
Improvement in the quality of
employment.
Generating more employment.
Increased local sourcing.
Provide better value to end
consumers.
Investments and improvement in the
supply chains and warehousing.
Franchising opportunities for local
entrepreneurs.
Growth of infrastructure.
Increased efficiency.
Cost reduction.
Implementation of IT in retail.
Stimulate infant industries and other
supporting industries.
Would give rise to cut-throat
competition rather than promoting
incremental business.
Promoting cartels and creating
monopoly.
Increase in the real estate prices.
Marginalize domestic entrepreneurs.
The financial strength of foreign
players would displace the
unorganized players.
Absence of proper regulatory
guidelines would induce unfair trade
practices like Predatory
Pros and Cons of allowing
FDI in retail


OPINIONS
Growth Drivers Barriers to Entry
Consumption Boom, Higher
Incomes
Favorable Demographics
Changing Lifestyles and
Preferences
Real estate boom
Manufacturing Reforms
Reduction in import duties-
offering

Regulatory barriers
Fragmented Suppliers
Lack of infrastructure
Supply Chain Complexities
Lack of skilled Human
Resource
Differential Taxation System
Labor Legislation
Clustering of Malls
Growth Drivers & Barriers
Opinions on Formats and
Growth Potential
Consumer financing will be an important tool
to drive consumption Income growth alone
may not be sufficient
Margins to be driven by non-core businesses
Retailing will remain concentrated in the top
10 towns
Multi-format retailing to thrive
Large scope for rural retailing

Views of Mr Kishore Biyani, Pantaloon Retail India Retail Forum
Views of Foreign Players
Environment not conducive enough
Only 51% FDI in single brand retailing
Many retailers (e.g.. IKEA) unwilling to enter
without 100% FDI)
Insufficient data on consumer behavior
Focus in India only on growth and not
profitability
Scope for private labels (only 4% in Asia
compared to 17% in western markets)


Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum
Outlook and challenges
Strong long-term growth potential
Severe cost pressure largely related to property rentals
Profitability likely to remain low - patient capital should
survive but weak players likely to exit in the near term
Consolidation is on the cards
Driven more by traffic growth than ticket growth
Convenience stores to remain integral part of retail
Need for catering to local flavors
Internet retailing still to pick up in India


Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum
Heard from the street..
India's Mahindra Group to enter retail sector (Reuters
10/10/2007)
Reliance Retail Venture Falls Short of Opening Target
(Bloomberg 12/10/2007)
India's Populists Resist Big Retail (WSJ 9/10/2007)
Spencer's to reduce retail formats (ET 14/10/2007)
Small retailers embrace IT to boost operations (ET
12/10/2007)







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