FDI in Retail Policy Perspectives. Retail Sector An Overview.

FDI Policy in Retail - Opportunities & Challenges.

Emerging Human Resource Challenges.

Issues for Discussion

The commitment of money or

capital to purchase financial

instruments or assets in order to gain profitable returns.

Investment done by citizens and government of one country (home country) invest in industries of another country (host country).

Foreign Investment through

Foreign Direct Investments

Foreign Institutional Investors

Automatic Route

Government

No permission required

Approval /License required.

 1991- FDI allowed selectively up to 51% in priority sectors.

1997-FDI allowed up to 100% in sectors like mining,

manufacturing.

 2000-06 FDI allowed up to 100% in specified sectors. FDI limits increased. Procedures further simplified The top 3 Indian Regions attracting the highest FDI. Mumbai, Delhi and Karnataka. Account for nearly 62% of the total FDI.

Barter system

Weekly market Village melas

Kirana Stores Conveni ence store

Government Stores

Super markets Hyper markets Malls Brand outlets

Single Brand Retailing

51% 100%

Cash and Carry Model

Incentives attract FDI. Market size and potential are sufficient inducers.

Tax breaks, import duty exemptions, land and power

subsidies, and other enticements.

GRDI Position : 3rd Size : $ 400 billion Growth Rate : 13% GDP contribution : 12% Major sector : Food and Grocery Employment : 2nd largest industry (35.06 million) Types: Organized ( 5%) Unorganized ( 95%)

Corporates are increasingly coming into this sector.

Demand of branded goods on a large scale. Demand of new and varied products. High quality product is preferred . Varied window display.

E-tailers increase the presence.

Format

Description

Retailers

Hypermarkets
Cash and Carry Departmental stores Supermarkets Shop-in-shop Specialty stores Category killers

Offering basket of product

Bulk-buying requirement Large layout, Wide merchandise mix Household product as well as food as integral part of the service Shops located in shopping malls Focus on individual product type Particular segment

Spencers, Big bazaar

Bharti-wal-mart Lifestyle , Globus Apna bazaar , food bazaar Navras ( big bazaar) Brand Factory The LOFT

Discount stores
Convenience stores

Branded product at discounted prices

Small Retail stores

Subhiksha, levis outlet

In and out

Retail Segment

Percentage holding in sector

Major retailers

Food and grocery

Clothing, textile and fashion jewellery Catering services Consumer durable pharmaceuticals Entertainment Furnishing, utensils Mobile handsets

63%
9% 5% 5% 4% 4% 3% 3% 2%

Reliance fresh, Caf brio, food bazaar

Westside, shoppers stop, globus Tanishq IRCTC Viveks, vijay sales, Croma Piramal group Bowling co., Hometown, Tangent Concept The mobile store,

 One of the world's largest industries exceeding US$ 9

trillion. Dominated by developed countries. 47 global fortune companies & 25 of Asia's top 200 companies are retailers.

US, EU & Japan constitute 80% of world retail sales.

 Retail trade in Europe employs 15% of the European workforce (3 million firms and 13 million workers). The worlds population is poised to expand 50% by 2050.

The world currently comprises of 78% poor, 11% middle

income and 11% rich.

Contribution Respective to GDP

12% 6%
India Brazil Japan

14% 8% 20%

China USA

US Sales: $374.5 bn

France Sales: $130 bn

UK Sales: $102.6 billion

Germany Sales: $101 billion

US Sales: $77.3 bn

Earnings: $12.9 billion

Stores: 6,800 worldwide

Earnings: $5.2 billion Stores: 87,422 worldwide

Earnings: $5.5 billion Stores: 3,729 worldwide

Earnings: $1.5 billion Stores: 2,221

Earnings: $4.2 billion

Stores: 2,258

US Taiwan Malaysia Thailand Indonesia Organised Unorganised

China
India 0 20 40 60 80 100

US
Unorganised 15% Organised 85%

Taiwan Malaysia Thailand Indonesia China India

19% 81% 45% 55% 60% 40% 70% 30% 80% 20% 95% 5%

India Focus on Services High labor cost Home grown Capital Old technology Democratic Government

China Focus on Industry Low Labor Cost FDI Adaptability to Latest technology Communist Government

INDIA A large emerging market .

Increase in disposable income of a family. 70 mn Indians salary of $18,000.

Rise to 140 mn by 2011.

Consumer spending power increased by 75% in last 3 years. The per capita income in 20092010 has more than doubled to US$ 849 from US$ 348 in 200001.

Increase in consumer class.

Consumer class will grow

from 50 million at present to 583 million by 2025. With more than 23 million people taking their place

Upper class Middle class

Lower class

among the worlds

wealthiest citizens.

Wide demographics -- average age of 25 yrs.

Brand consciousness.
60 % of population below age of 30. Awareness through World Wide Web.

Changing consumer mindset.

Focus shifting from low price to convenience, value and a superior shopping experience. Small Basket Size Shaping of Consumption

Easy consumer credit.

EMI & loan via credit cards -easy for Indian consumers to

Upper class Middle class

afford expensive products.

For instance, Casas BahiasBrazil.

Lower class

Employment generation.
Second-largest employer after agriculture.

Retail trade employing 35.06 million.

Wholesale trade generating an additional employment of 5.48 million.

Additional 1.6 mn jobs .

Technology Better use of resources and goods. Wastage and Storage problems will be

resolved.
Efficient logistics, production, and distribution channels.

Digital records.

Rural market.
Robust Consumption. 70% Indian households. 2/5 of the countrys total consumption pie. Accounts to 45% of GDP.

FDI in Retail sector will resolve problems regarding foreign exchange in India.

The life-long basic needs will keep on driving the Retail Industry.

Let the liberalisation be in steps rather than being a leap.

SKILLED WORKERS
INFLATION COMPETITION

TAXATION POLICIES

REAL ESTATE PROBLEM

PROBLEM IN RAISING FUNDS SUPPLY CHAIN MANAGEMENT

MARKET POWER

 Major challenge faced by Organized retail sector:

In Retail, over 70 per cent of the labor force in

both sectors combined (organized and unorganized) is either illiterate or educated below the primary level. Labor Laws

 A strong competition from mom and pop shops:-

Easily accessible & approachable.

Provide services like Free home delivery and goods on credit. They change consumer focus.

Pantaloons Reliance Bharti retail RPG Lifestyle K raheja Subhiksha Piramyd Trent Vishal group

GLOBAL

INDIAN

Tesco Walmart Metro Carrefour B&Q Target

Clustering of outlets.

Highest Stamp Duty.

FORMAT Convenience Stores Discount Stores Category Killers

AVERAGE SIZE 800 sq. feet 1000 sq. feet 8000 sq. feet

Specialty Stores
Shop-in-Shop

Single-category
Within Large malls

FORMAT
Supermarket Department Stores Cash and Carry Hypermarkets

AVERAGE SIZE
Large in Size Typical in layout 10,000 60,000 sq. feet 75,000 Sq. feet 50,000 1,00,000 sq. feet

 Market power is in hands of unorganized retail.

Unorganized Organized

95%
5%

Potential of Indian Market is US$ 200 billion whereas India is just earning its 3%.

India is still in developing stage in installing and managing an effective IT system especially in rural areas which hampers the overall growth of organized retail sector.

Banks are reluctant to finance retailers because of falling

demand of organized retailers in India as it has witnessed

failure of many stores like Spencer's, Subhiksha, etc.

 Taxation laws in India favors only small retail businesses. Implementation of non-uniform VAT across states. Octroi and entry tax in some states.

 No Automatic Approval for FDI- Only 51% FDI is allowed to one brand shops in Indian retail sector.

Complications in issuance of licenses like a hypermarket

in Mumbai must apply for 29 unique licenses & then when

it has to come up with second store it has to apply for same 29 licenses all over again.

Disturbed economic status. Challenge to get more customers at low cost.

Liquidity pressure

 Indian retail sector : Employs 8% (35 million)of the working population. Could yield 12 to 15 million retail jobs in the coming five years.

Out of which organized segment is about 0.3 million.

Retail sector grew at 9.4% on real terms & 15.4% on nominal terms.

Demand
Communication Skills

Multi Tasking

Supply
Limited Retail Training

Opportunities
Higher Level Skills

 The Retailers Association of India (RAI) - Diploma and Degree Programs in Retailing - Bharti Retail and Vishal Retail - 5,000 trained persons

 Investment into warehouse and cold storage chain will result in significant efficiency on supply chain.
Farmers benefited through direct marketing and contract farming programme. Improves farm production through modern techniques.

Increasing availability of low interest credit for farmers.

Expected Growth
1.4
CAGR 10%

1.3

1.2
1 0.8 0.6 0.4 0.2 0 2008 2011 2013 2018 0.35 0.59 0.83

In the last four year, the consumer spending in India climbed up to 75%. By the year 2013, the organized sector is also expected to grow at a CAGR of 40%. The total number of shopping malls is expected to expand at a CAGR of over 18.9 per cent by 2015.

The initial cap on investment could be pegged at 49%.

FDI should be leveraged to create back-end infrastructure.

FDI will be a powerful driver to curb inflation.

?????

To develop our rural sector ,should conditionalitys be put on the FDI funded chains relating to employment? For example, should we stipulate that at least 35% of the jobs in the retail outlets should be reserved for the rural youth?

Urban migration Opportunity to urban and rural unemployed Alternative incentive schemes

Restrict the number of stores that can be operated in a city.

Allow access to the small retailers to the stores through special windows.

Thank You