Report On Indian Retail Industry
Indian Retail Industry – Consumer is the king
Retailing, in a layman’s language involves the procurement of varied products in large quantities from various sources/producers and their sales in small lot for direct consumption to the purchaser. Retailing can broadly be classified into: organised and unorganised retail. Unorganised retailing refers to the traditional form of retailing with the retail outlets situated near the residential are as while organised retailing refers to the modern form of retailing with trading activities undertaken by licensed retailers generally located in commercial establishments/high-street areas.
Globally, the retail industry has grown at a brisk pace with a Compounded Annual Growth Rate (CAGR) of 7.77% during the period 2001-2006. The growing expanse of the top global retailers has ensured globalisation of the industry; however the opportunity for growth of organised retail is immense in countries such as India, S. Korea, Vietnam etc. where organised retailing is still at a nascent stage.
The Indian retail industry has witnessed a massive transition during the last few decades. The Indian retail has grown at a CAGR of 11.2% during the period FY04-FY07, with food and grocery accounting for the major share. Despite the industry being dominated by the unorganised retailers, the organised retailing revenues have soared at a CAGR of 19.5% during the period FY04-FY07. The apparel & footwear segment occupies the major share in the organised retail pie.
The Indian retail industry has strong linkages with the economic growth and development of the economy. It is primarily characterised by its hierarchical growth structure, high working capital requirements etc. The factors such as rising urbanisation, growing consumer class, growing per capita expenditure, greater interest evinced by the Venture capitalists / Private equity firms in the industry etc. have been driving the growth of organised retail. The growth of modern retailing has led to the emergence of varied formats such as Departmental stores, Supermarkets etc. In addition, few other formats such as rural retailing, E-retailing, luxury retailing etc. too have found favours with the Indian retailers. Each format being distinct from the other, the viability of their operations depends upon various factors such as average footfalls, sales per sq.ft etc. However the numerous licensing requirements as compared to other countries have proved to be a bottleneck in the growth of Indian retailing.
With subdued consumer sentiments as witnessed during the latter half of FY09, CARE Research expects the Indian Retail industry’s performance to remain steady during FY09. However considering the immense potentialities, the industry would witness robust performance in the long run. The report on ‘Indian Retail Industry’ unwinds answers to varied queries related to retailing (both organised and unorganised). The report comprises of three sections. Section I of the report provides a general overview of the industry. Section II deals with the nuances of organised retailing in India. Section III provides an overview of the Top-5 industry players, which is followed by a list of Annexures covering extensive industry data.
Section I Industry Overview
The initial stages of the report deals with the history of global retailing with a special focus on the major global players driving the retail growth
The evolution of the Indian retail industry together with the contribution of varied segments such as food & grocery, apparel & footwear etc, have been dealt in detail
The characteristics inherent to the industry have been described in detail by bringing out the changes in the various socio-economic factors affecting the industry
The factors propelling the industry’s growth (both demand-side and supply-side) have been covered under the head Growth Drivers
Section II Organised Retailing – An in-depth analysis
This section explores the growth of organised retailing in India particularly with respect to the emergence of varied retail formats such as Supermarket, Hypermarket etc.
The viability of these modern formats together with the determinants of such viability has been discussed at length. This section seeks to explore answers to questions such as:
What value propositions can different formats offer? Which is the most viable format for the retailer? What are the determinants of such viability? Which formats are the emerging
ones?
The report also lays emphasis on the emerging retailing formats such as e-retailing, luxury retailing etc that would form the flavour of the future for the modern retailers
A comprehensive analysis of the major expenditure heads of the leading players in the industry has been presented in the report for the period spanning FY06-FY08
The various licensing and regulatory requirements together with the intricacies relating to the same have been dealt in detail
CARE Research also seeks to unwind the mysteries surrounding the long-raging debate on whether the growth of organised retailing in India would lead to the death of mom-&-
pop stores. Through detailed analysis backed by conclusive evidences, CARE Research recommends the optimum retailing mix in the long run
Modern retail may just be assumed as a business of purchase and sale of goods. However the modern retailers have to face many harsh realities on the growth path. The challenges to the modern retailers have been covered in detail
The challenges as faced by the organised retailers further goes a long way in describing the harsh realities behind modern retail
To estimate the size of the Indian retail industry and the penetration levels of organised retail in the urban and rural Indian markets for the period FY08-FY11, CARE Research has evolved out an industry model incorporating three different scenarios i.e. Optimistic, Most Likely and Pessimistic, to present a holistic view of the industry in light of the varied future developments
Section III Overview of Indian players
This section focuses on the profile of the Top-5 players in the Indian retail industry namely Pantaloon Retail, Shoppers Stop, Vishal Retail, Koutons Retail and Trent. The profile includes a brief business overview, corporate structure analysis, business model analysis in terms of various formats, size, along with their strengths and weaknesses
This section further elaborately covers the financial aspects – The revenue and the cost structure gets highlighted through income statement analysis. Working capital requirements, growth of asset base and financial structure are anlaysed using a combination of balance sheet, cash flows and ratio analysis as a tool. Further emphasis has been laid on drawing comparison between these players through pictorial analysis
Table of Contents:
Executive Summary
Section I – INDUSTRY OVERVIEW
1. Retailing – An Introduction
1.1 Retailing Basics
1.1.1 Unorganised Retail
1.1.2 Organised Retail
1.2 The International Retail Scenario
1.2.1 Stages of Evolution
1.2.2 Highlighting Features of Global Retailing
i Sizeable & Profitable Operations
ii Highly favoured Big-Box Formats
iii Regulatory Aspects
2. The Indian Retail Scenario
2.1 Industry Evolution
2.1.1 Indian Retail Story – Phase of Growth
2.2 The Unorganised Retail
2.3 The Organised Retail
2.3.1 The Growth Story
2.3.2 Gauging Organized Retailing in India – A statistical Approach
2.3.3 Segmental Analysis
i Apparel & Footwear
ii Food & Grocery
iii Furniture & Finishing
iv Jewellery & Watches
v Entertainment, Books, Sports Goods & Other Equipments
vi Other Segments
3. Industry Characteristics
3.1 Highly Unorganised & Fragmented Industry
3.2 Linkages with the Economic Growth
3.3 The Rural-Urban Divide
3.4 Hierarchy in Retail
3.5 Emergence of Multiple Retail Formats
3.6 Long Supply Chain
3.7 Working Capital Intensive
4. Industry growth Drivers
4.1 Demand-side Factors
4.1.1 Rising Urbanisation
4.1.2 Growing Consumer Class
4.1.3 Growing Per Capita Expenditure
4.1.4 Baby Boomer Effect
4.1.5 Growing spread of ‘Plastic Money’
4.1.6 Changing Face of Indian consumerism –From Necessities to Luxuries
4.1.7 Rising Number of Nuclear Families
4.1.7 Growing Female Working Population
4.2 Supply-side Factors
4.2.1 Retail Growth Through VC/PE Route
4.2.2 Developments in the Real Estate Scenario
Section II – ORGANISED RETAILING: AN INDEPTH
ANALYSIS
5. Retail Formats – An Insight
5.1 Major Forms of Retailing
5.1.1 Convenience Stores
5.1.2 Discount Stores
5.1.3 Factory / Company Outlets
5.1.4 Specialty Store
5.1.5 Supermarkets
5.1.6 Department Stores
5.1.7 Hypermarkets
5.2 Viability of various Retail Formats
5.2.1 Convenience Stores
5.2.2 Department Stores
5.2.3 Hypermarkets
5.2.4 Speciality Store
5.3 Determinants of Retail Format Viability
5.3.1 Average Number of Footfalls
5.3.2 Sales Per Sq. Ft.
5.3.3 Supply Chain Management
i) Minimization of Wastages
ii) Specialised Manufacturing
iii) Reducing Chances of Stock-out
5.3.4 Dependence on ‘Private Labels’
5.3.5 Technological Upgradation
5.3.6 Repeat Sales Through Loyalty programmes
5.3.7 Advertising & Sales promotion Activities
5.4 Emerging Retail Formats
5.4.1 Rural Retailing
i) Benefits to the Retailers
ii) Benefits to the Rural Populace
5.4.2 Luxury Retailing
5.4.3 Airport Retailing
5.4.4 E-Retailing
i) Convenient Shopping
ii) Value for Money
iii) Change in the
Consumers’ Attitude
iv) Easy Payment Options
v) Lack of ‘Touch & Feel’ Experience
vi) Lack of Transparency
in Transactions
vii) Untimely Delivery of Products
6. Cost Analysis
6.1 Unorganised Retail
6.2 Organised Retail
6.2.1 Procurement of Raw materials /Finished Goods
6.2.2 Labour Expenses
6.2.3 Selling & Distribution Expenses
6.2.4 Rental Expenses
6.2.5 Profit Margin
7. Licensing and Other Regulatory Aspects
7.1 Regulatory Structure
7.1.1 Strategic License Agreements
7.1.2 Manufacturing
7.1.3 Cash & Carry Wholesale Trading
7.1.4 Franchising
i) Unit Franchisee
ii) Multiple Franchisee
iii) Master Franchisee
iv) Regional Franchisee
7.2 Licensing Requirements
7.2.1 Shops & Establishment Act
7.2.2 Municipal Corporation Act
7.2.3 Agricultural Produce Marketing Committee Act
7.2.4 Standards of Weights and Measures Act
7.2.5 Drugs & Cosmetic Act
7.2.6 Prevention of Food Adulteration Act
7.2.7 The Competition Act
7.2.8 Liquor Licensing
7.3 Taxation Regime
7.3.1 Customs Duty
7.3.2 Duty on Export Promotion of Capital Goods (EPCG)
7.3.3 Service Tax
7.3.4 VAT
8. Organised v/s Unorganized Retailing- Death of Mom-&-Pop Stores in the Making ?
9. Challenges in Organised Retailing
9.1 Real Estate and Property Related Issues
9.2 Taxation & Policy Related Hurdles
9.3 Inefficiencies in Supply Chain Management
9.4 Increased Shrinkages
9.5 Scarcity of Workforce
9.6 Entry of Foreign Players
9.7 Political & Local Agitation
9.8 Analytical Model – PORTER’S FIVE FORCE MODEL
10. Industry Outlook
10.1 Scenario Drivers
10.1.1 Pessimistic Scenario Drivers
10.1.2 Optimistic Scenario Drivers
Section III – OVERVIEW OF INDIAN PLAYERS
11. COMPANY FOCUS
I) Pantaloon Retail India Ltd. (PRIL)
II) Shoppers Stop Ltd.
III) Vishal Retail Ltd (VRL)
IV) Koutons Retail India Ltd.
V) Trent Ltd.
ANNEXURES
1. Top 250 Global Retail Companies – A Statistical Overview
2. The Global Retail Development Index (GRDI) – 2008
3. India’s Retail Hierarchy
4. List of Brands / Stores Across Different Segments
5. List of Clearances Required for Retailing Operations
List of Figures
Fig 1.1 Comparison of World GDP Growth & World Retail Growth (%)
Fig 1.2 Stages of Retail Growth
Fig 1.3 Top 5 Countries by Retail Sales as on 2006
Fig 1.4 Format-wise Venture of Top-250 Global Retailers
Fig 2.1 Evolution of Indian Retail
Fig 2.2 Indian Retail pie – 2003-04
Fig 2.3 Indian Retail pie – 2006-07
Fig 2.4 Share of Unorganized Retail in Total Retail
Fig 2.5 India’s Spending Pattern – FY 2007
Fig 2.6 Unorganised Retailing – Sales by Retailer Type (%) – 2006
Fig 2.7 Organised Retail – Total Revenues & % Penetration
Fig 2.8 Global Organised Retail Penetration vs. Purchasing Power- Great Room for
Improvement in India
Fig 2.9 Apparel & Footwear – Total Organized Retail and % Penetration
Fig 2.10 Food & Grocery -Total Organized Retail and % Penetration
Fig 2.11 Furniture & Furnishing -Total Organized Retail and % Penetration
Fig 2.12 Jewellery & Watches -Total Organized Retail and % Penetration
Fig 2.13 Entertainment, Books, Sports Goods & Other Equipments -Total Organized Retail
and % Penetration
Fig 2.14 Other Segments (Personal Care, Non- Institutional Healthcare and Other
Segments Beverages) -Total Organized Retail and % Penetration
Fig 2.15 Indian Organised Retail pie – 2003-04
Fig 2.16 Indian Organised Retail pie – 2006-07
Fig 3.1 Real GDP, Real PFCE & Retail Sales – CAGR for the Period 1994- 2007
Fig 4.1 Rural- Urban Population Divide
Fig 4.2 PFCE and Personal Disposable Income –Per Capita
Fig 4.3 Consumption Categorization as a % of GDP – 2005
Fig 4.4 Per Capita Monthly Expenditure – Urban
Fig 4.5 Per Capita Monthly Expenditure – Rural
Fig 4.6 Age Distribution of Indian Population
Fig 4.7 Median Age of Population
Fig 4.8 Credit Card Usage Trend
Fig 4.9 Debit Card Usage Trend
Fig 4.10 Changing Consumption Pattern – 1995 to 2025
Fig 4.11 Growth Trend of Nuclear Families
Fig 4.12 Growth Trend of Density & Population
Fig 4.13 Proportion of Female Working Population of the Total Working Population
Fig 4.14 Proportion of Female Working in Organised Industrial Activities
Fig 4.15 Total PE & VC Investments in India
Fig 4.16 Trends in Mall Development
Fig 4.17 Trends in Mall Area Occupancy
Fig 4.18 Tier-wise Distribution of Operational Mall Space
Fig 4.19 Tier-wise Distribution of Upcoming Mall Space
Fig 4.20 Distribution of Mall Ownership
Fig 4.21 Mall Ownership – Rental Distribution
Fig 4.22 Expected Mall Supply: 2008-11
Fig 5.1 High Net Worth Individual (HNI) Population Growth – 2007 (%)
Fig 5.2 Market Share of Premium & Luxury Brands in India- US$ bn
Fig 5.3 India- Internet Users & Penetration Level
Fig 8.1 Adverse Impact on Unorganised Retailers by Region (%)
Fig 8.2 Adverse Impact on Unorganised Retailers by Category (%)
Fig 9.1 Shrinkages as a % of Total Retail Sales
Fig 9.2 Distribution of External Shrinkages (%) – India
Fig 9.3 Distribution of Internal Shrinkages (%) – India
Fig 10.1 Sale of Private Labels as a % of Total Sales
Table Index
Table 1.1 World Retail Growth
Table 1.2 Top 250 Retailers Split –up by Regions / Countries
Table 1.3 Global Retailers in the Fortune 500 List – Year 2008
Table 2.1 Total Indian Retail Revenue – Rs. Bn
Table 2.2 Indicative Industry Growth on Reaching the Average Penetration Level
Table 3.1 Rural – Urban Retail Sales Divide
Table 3.2 India’s Retail Hierarchy
Table 3.3 Net Working Capital as a % of Total Capital Employed
Table 4.1 Income Distribution of the Households
Table 4.2 Major Investments by VC/ PE Firms
Table 5.1 Spread of Convenience Stores
Table 5.2 Spread of Discount Stores
Table 5.3 Spread of Speciality Stores
Table 5.4 Spread of Department Stores
Table 5.5 Spread of Hypermarkets
Table 5.6 Comparative Margins of Various Retail Formats
Table 5.7 Retail Formats- Characteristics
Table 5.8 Sales Per sq.ft of Various Modern Retail Formats
Table 5.9 Cost & Margins of Intermediaries in the Supply Chain (in Case of Potatoes)
Table 5.10 Private Labels of Leading Indian Retailers
Table 5.11 Loyalty Programmes of Retailers
Table 5.12 Media-wise Advertisement Expenditure by Retailers for the Period Jan-July, 2008
Table 5.13 Initiatives of the Modern Retailers in Rural India
Table 5.14 Global Luxury Brands in India
Table 5.15 JV’s in Indian Airport Retailing
Table 6.1 Raw Material Expenditure as a % of Total Expenditure
Table 6.2 Labour Expenditure as a % of Total Expenditure
Table 6.3 Selling & Distribution Expenditure as a % of Total Expenditure
Table 6.4 Rental Expenditure as a % of Total Expenditure
Table 6.5 Sensitivity Analysis of Rental Expenditures
Table 6.6 Gross Margins of Organised Retailers Across Various Product Categories (%)
Table 6.7 Profit Margins of Various Players
Table 7.1 Status of Market Reforms in Agriculture (APMC Act Amendments)
Table 8.1 Reasons Underlying the Falling Share of Turnover of Unorganised Retailers (%)
Table 8.2 Annual Growth in Turnover of Unorganised Retail Outlets
Table 8.3 Annual Growth in Profit of Unorganised Retail Outlets
Table 8.4 Distribution of Average Monthly Spending of Indian Households
Table 8.5 Savings (as a % of Spending) from Buying at Organised Outlets by Format
Table 10.1 FY08 Industry Estimates
Table 10.2 FY11 Industry Estimates
Table 10.3 Q3FY09 Performance Comparison of Various Players
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