1. INDIAN ORGANIZED RETAILING SECTOR: CHALLENGES AND OPPORTUNITIES
PGDM (SEMESTER I)
NDIM
For class discussion at NDIM

2. FDI Stands for “Foreign Direct Investment”
“Interested Investors beyond the borders of a country being allowed to invest in local economy either through participation or partnership with a local company or directly as per regulations in force”
India- 2 Routes ; Automatic & Government
The controversy mostly is on FDI in Retail
Investors

3. RETAILING BUSINES: CONCEPT
Retail is the sale of goods and services from individuals or businesses to the end-user.
Retailing is the last point of contact between sellers and buyers.
Retailers are part of an integrated system called the supply chain.
A retailer purchases goods or products in large quantities from manufacturers directly or through a wholesale, and then sells smaller quantities to the consumer for a profit.

4. For class discussion at NDIM
INTERNATIONAL RETAIL
One of the world’s largest industry exceeding US $ 9 trillion.
Total retail contribution in World GDP is 27%. Organized retail in US accounts for 22% of GDP. The Share of organized retail in developing markets ranges between 20% to 55%
Dominated by developed countries. US, EU & Japan constitutes 80% of world retail sales
Market size: USA= US$ 2,350 Bn, UK= US$ 406 Bn, China US$ 313 Bn
Highly evolved US market has Wal-Mart taking only 8% market share UK market has Tesco with only 13.4% market share
China market still does not have a clear leader.
For class discussion at NDIM

5. For class discussion at NDIM
INTERNATIONAL RETAIL
DATA :
For class discussion at NDIM

6. RETAIL: ASIAN FALLOUT CASES
THAILAND :
Since entry of METRO, CARREFOUR, and METRO – they have captured 10% of market share.
Predatory pricing leading to profit margins below 1%.
Several local retailers shutting shops and about retailers unemployed and out of business
CHINA:
Carrefour and Wal-Mart making significant inroads to take charge of China Market.
Small local retailers finding it difficult to survive and cope with competition, some forced to close shops
For class discussion at NDIM

7. RETAIL: ASIAN FALLOUT CASES
INDIA DEBACLE:
LILLYPUT: Bankruptcy as it is saddled with huge debt pile up
Subhiksha: Improper business planning as they adopted aggressive expansion plans without stabilizing their cash flows
Working capital problems mounted, resulting in delays of payments to vendors. Severe financial crunch and hence had to shut operations
Pantaloons and Reliance: Saddled with huge debts, finding it difficult to fund their expansion programs, scouting for M&As options.
For class discussion at NDIM

8. Indian Retail Poised For Significant Growth…
*Projected
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Indian Retail expected to grow close to 12% p.a. in the next 10 years
For class discussion at NDIM

9. Retail Business: Rapid Transformation Anticipated
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2012
2007
Modern retail expected to gain % additional share in 5 years
For class discussion at NDIM

10. For class discussion at NDIM

11. Retail Business: Factors driving Growth
Healthy GDP growth rate and commitment to economic reforms
Burgeoning Middle Class Population and rising disposable income
Entry of MNCs and availability of wider range of products for buyers
Younger minds and rising income levels.
Dramatic change in consumption habits and aspiration for better lifestyle
THIS SLIDE IS FOR ASSOCHAM SIR HAS GIVEN IT TO ME ON AT 4’O CLOCK AND I HAVE DONE IT IN THE NEXT WEEK
For class discussion at NDIM

12. Retail Business: Factors driving Growth
Rising awareness due to sophisticated market communication pattern
Changing role of women and children in decision making process
The media revolution and the publicity and brand promotion measures
Consumers desire for having access to better ambience and diversity of choice under one roof
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For class discussion at NDIM

13. Retail Business: Factors driving Growth
Plastic Revolution: Increasing use of credit cards for categories relating to Apparel, Consumer Durable Goods, Food and Grocery etc.
Urbanization: Increased urbanization has led to higher customer density areas thus enabling retailers to use lesser number of stores to target the same number of customers.
Distance Coverage easier: With increased automobile penetration and an overall improvement in the transportation infrastructure, covering distances has become easier than before.
THIS SLIDE IS FOR ASSOCHAM SIR HAS GIVEN IT TO ME ON AT 4’O CLOCK AND I HAVE DONE IT IN THE NEXT WEEK
For class discussion at NDIM

14. OPTIONS FOR RETAILING Retailing can be undertaken from
Fixed Locations
Door 2 Door
Online Portals
Through Net Working
Other Supporting Services
Delivery
Short Term Credits
Service Supports

15. INDIAN RETAIL: TYPES OF RETAILING
Organized Retailing: Refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include, hypermarkets and retail chains, and the privately owned large retail businesses.
Organized Retailing offers a different experience and ambience under one roof under organized framework starting from entry into shop till exit after billing and delivery
Unorganized Retailing, Refers to traditional formats of low-cost retailing. For example: - the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, pavement vendors, etc.
Share of organized sector in total retailing business is expected to touch around 13% depending on the pace of reforms and interests of foreign/ private investors to diversify in this field
For class discussion at NDIM

16. INDIAN RETAIL: FORMATS OF RETAILING
Independent Retail Shops/ Own Retail Showrooms – SONY, LG, Walt Disney, HITACHI
Corporate Retail/ Supermarket Chain – Food Bazaar, Big Bazaar, SPENCERS, etc
International Franchising system – McDonalds, Pizza Hut, KFC
Hyper Markets like Westside, Ebony: The preferred format for international retailers entering India.
Convenience Stores like Mother Dairy, 24x7,
Departmental Stores: BENZER, SHOPPERS STOP
For class discussion at NDIM

17. Retail : Contemporary Trade Formats
THIS SLIDE IS FOR ASSOCHAM SIR HAS GIVEN IT TO ME ON AT 4’O CLOCK AND I HAVE DONE IT IN THE NEXT WEEK
* Other formats include specialty stores in Apparel, Footwear, Watches, Furniture & Furnishing, Toys, Convenience formats etc.
Multiple formats would be introduced in a simultaneous rather than a sequential manner in India
For class discussion at NDIM

18. INDIAN RETAIL : TYPES OF PLAYERS
BIG PLAYERS
FUTURE GROUP: FOOD BAZAAR, BIG BAZAAR, PANTALOONS
RELIANCE AND RPG GROUP – INCLUDING SPENCERS, MUSIC WORLD RELIANCE DIGITAL, AND RELIANCE FRESH
TATAS: WESTSIDE AND CROMA
SMALL PLAYERS :
VISHAL MEGA MART
CANTARBIL
SHOPPERS STOP
EBONY
NATURES ESSENCE
For class discussion at NDIM

19. Specialty Retailing gathering prominence
Specialty Retail is Emerging in the following fields:
Food and Grocery – MOTHER DIARY, RELIANCE
Apparels – SEVERAL SUCH IN INDIA
Entertainment – MUSIC WORLD
Health Care - APOLLO
Travel & Tourism
Telecom & IT
Office supplies and Stationery - W H SMITH
THIS SLIDE IS FOR ASSOCHAM SIR HAS GIVEN IT TO ME ON AT 4’O CLOCK AND I HAVE DONE IT IN THE NEXT WEEK
For class discussion at NDIM

20. INDIAN RETAIL : CHALLENGES
Lack of right formats
No investment in supply chain infrastructure
Sole focus on front end and reduced focus on back end linkages like cold storage, warehousing facilities, logistics, farmer development, etc
Minimal focus on prudent customer service over the fast life cycle
Lack of trained and competent manpower and ground staff - critical constraint indeed
Non availability of credit at competitive rates – leading to high capital costs
For class discussion at NDIM

21. INDIAN RETAIL : CHALLENGES
Inconsistent availability, quality, and pricing
Spending by consumers visiting malls, retail shops not encouraging and promising as expected – mainly window shopping
High Real Estate Prices and rising Rentals
Industry margins very thin as low as 5-6% and therefore volume growth to support generation of positive cash flows
Taxation structure skewed: e.g. sales tax, VAT, Import duties, etc
FDI policy announced – but still some ambiguity pending
For class discussion at NDIM

22. RETAIL: CRITICAL SUCCESS FACTORS
The differentiating factor - Product decisions should be based on local market dynamics such as customer diversity, account needs, competition, etc
Location of stores: Cluster Approach, proximity to areas where potential customers reside, and centralized warehousing
Convenience: Approach, Parking, Flexible Timings, Amenities, ambience
Creating tangible/ Intagible assets: outputs, goodwill, technology, brand equity,
For class discussion at NDIM

23. RETAIL: CRITICAL SUCCESS FACTORS
Building the right workforce: Ability to deliver positive experience for consumers, product knowledge, communication, etiquettes, personality, etc
Aggressive Customer Relationship Management: Loyalty Programs, Customer experience to be enriching, Response to customer feedback, sound customer interaction, resolving queries
Redesigning supply chain framework: Better inventory control mechanism, availability of appropriate storage facilities, and replenishment of shelves with products preferred by customers. Stabilizing procurement and replenishments cycle, mimize logistics costs, prefer direct sourcing, etc
For class discussion at NDIM

24. INDIAN RETAIL : SOME PROGRESS
Quality of merchandising and packaging improving and visible
Firms investing in staff and sponsoring people for training and development workshops
Ambience and facilities in malls – a distinct improvement
Multi Brand Stores offering a plethora of choice for customers
Availability enhanced for domestic and foreign brands
For class discussion at NDIM

25. INDIAN RETAIL : SOME PROGRESS
Organized retailing stores like Big Bazaar, Shoppers Stop expanding into tier II and tier II cities
Metro, StarBucks – TATA, Marks and Spencers are already here
Big players like Walmart, Carrefour, IKEA, TESCO planning to enter India in a big way either independently or through Joint venture
Some have set up back end office centres e.g. TESCO, WAL-MART
Rural Opportunity interesting for organized retailers
For class discussion at NDIM

26. FDI: WHAT IT IMPLIES “ Foreign Direct Investment “
Allowing Interested Investors from Abroad to Invest either directly or through participation with Local Players in Various Sectors of Economy
i.e. Joint venture or 100% wholly owned subsidiary

27. India & FDI Automatic Route
FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.
Policy allows FDI in retail under above

28. India & FDI Government Route
FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.
Most Oppositions revolve around FDI in Retail

29. INDIAN RETAIL : FDI STATUS
In 2006, 51 percent investment in a single brand retail outlet was permitted . FDI in Multi-Brand retailing was prohibited in India.
Recent Reforms Proposed: 51% FDI in Multi-brand outlets, and 100% FDI in single branded stores allowed.
FDI in Multi Brand Retail is opened up to 51%, with the following conditions:
Minimum investment of US$ 100 million
50% of US$ 100 million to be invested in the back-end infrastructure
Also, 30% of sourcing to be done from small scale industries
Stores can be opened only in cities with a minimum population of 1 million
States will have freedom to decide entry of international retailer with 51% FDI
For class discussion at NDIM

30. INDIAN RETAIL : BENEFITS OF FDI
Competition - Catalysts to spur competition & innovation in retail industry.
Consumers - Improved product availability, wide choice, better quality & reduce wastages , and Consumers to get best products and services at reasonable price.
Back End & Supply Chain Improvement : Inadequate storage facilities cause heavy losses to farmers – so entry of foreign firms to bring in best supply chain practices and efficiency in back end operations
Capital and Tax contribution: Foreign firms infuse capital, and also spur investment and capital formation. Also, business activity earnings are subject to tax resulting in additional income for the government.
For class discussion at NDIM

31. INDIAN RETAIL : BENEFITS OF FDI
Food inflation and fluctuation in food prices can be controlled.
Better Realization for Farmers : FDI to ensure better realization for farmers & producers, due to direct procurement from farmers. Absence of complex chain of distributors leads to reduced inefficiency in terms of cost disadvantages , non timely delivery, etc
Economic Growth : Sourcing from India will increase & Exports to get significant boost. India can also become a shopping destination for the world. Certain sectors like textiles, handicrafts, etc would stand to gain
Employment Will Increase - Government says lot many jobs will be created for people - In India, where unemployment is a major problem, foreign companies that come to India, will offer jobs to Indians.
For class discussion at NDIM

32. INDIAN RETAIL : DISADVANTAGES OF FDI
Job Losses: Retail industry in India is the second largest employer after agriculture, Any game changing situation can lead to heavy job losses particularly in rural areas and small cities
Power of Scale: Unfair competition and abilities of big retailers to sustain losses can lead to large scale exit of domestic retailers, especially the small family managed outlets.
Prefer Localization: Indian retail sector including organized sector is still at an infancy and nascent stage. It is critical that the retail sector is allowed to grow and consolidate first, before opening to foreign investors
The fallout in Thailand and China: Government, opened its door to invite the large retailers. Government now forced to give financial assistance as local entities forced to lay off staff because Wal-Mart and others has been ruthlessly pressing down on the supplier’s margin.
Market Power: Market dominance by foreign players may exert severe competition for domestic retail outlets.
For class discussion at NDIM

33. INDIAN RETAIL : FOREIGN PLAYERS EVINCING INTEREST
STARBUCKS – TATA: Already commenced operations in India in Tier I cities and select outlets have opened up, and based on the success propose to open more outlets.
BURGER KING: Huge expansion plans across India, China, and Indonesia as the management perceives that prospects are highly encouraging in emerging nations.
BHARTI – WALMART: Currently, the Joint venture terms have not been finalized and the exit of top management on account of bribery charges has affected the brand identity of WALMART. The Cash and Carry Model continues to exist for the time being.
For class discussion at NDIM

34. INDIAN RETAIL : FOREIGN PLAYERS EVINCING INTEREST
IKEA: Swedish Furniture Chain – Unique retail model – proposes to invest sizeable capital and operate independently. The business model is zero inventory carrying costs, DO IT YOURSELF APPROACH
TESCO: One of UKs biggest supermarket chain and operates In various European Countries – Proposes to commence operations once policy guidelines are clearer and political uncertainties are diluted.
RELIANCE – HAMLEY: An innovative super specialty retail venture between Reliance Group and HAMLEY’s of UK for setting up a retail venture in sports goods, toys, etc
DECATHLON – One of the largest French Sport Retailer had shown interest in opening up stores in India, but have deferred their immediate plans due to policy uncertainties and high inflation trends
For class discussion at NDIM

35. INDIAN RETAIL : FOREIGN PLAYERS EVINCING INTEREST
UNIQLO and H & M: Japan’s Uniqlo and Sweden’s Hennes and Mauritz (H&M) are set to be among the next global apparel labels that will have their own stores in India, although they are wary about high real estate prices and other constraints.
COSTCO – Fifth Largest retailer and wholesale warehouse Chain displaying national and regional brands at affordable wholesale prices below traditional wholesale or retail outlets.
Other firms like CARREFOUR, LOTUS ARTS (THAILAND) are planning to enter India.
Some have expressed interest in operating in Tier II and Tier III cities for scalability and economies of scale advantages. Many organizations may look at city outskirts or even micro markets as their next big bet.
For class discussion at NDIM

36. FOREIGN PLAYERS: GOING SLOW
Finding quality retail space and affordable rentals may prove to be a problem. However, Mumbai and Delhi are popular destinations due to relatively better business prospects.
The rental cost/ revenue ration could provide to be unviable, especially when real estate costs are high and pay offs occur much later.
Impending elections for 2-14 induced Political uncertainties and lack of regulatory reforms leading to delays.
India has not been able to attract sizeable foreign investments in comparison with countries like China and Malaysia within the region. Issues such as high inflation, large budget deficit and the slow pace of regulatory reforms are weighing down on business sentiment.
For class discussion at NDIM

37. Oppositions Oppositions (Critics)
Critics are vocal that it will bring in the demise of many small shops leading to massive unemployment & they command substantial following particularly amongst wide spread illiterate population
Big Giants will soon take over the control of the economy with superior powers & resources at their command

38. Oppositions
Local economy & suppliers will not benefit but will be pressurized to drop prices by Giants
India does not require foreign retailers but home grown companies & traditional markets can serve the purpose
Work will be done by locals, but profits will go to foreign companies

39. Benefits (Experts Opinion)
Benefits, if India is able to succeed in attracting organized retail industry with required supports, is also significant as per opinion of experts
Will bring in massive employment in organized sector with benefits to locals (China experienced employment growth rates of 9 m over 3 yrs) albeit with changed skill sets

40. Benefits
Massive Infrastructure up-gradation will come in increasing the overall efficiency in the economy, which will reduce the current huge amounts of wastage occurring to the economy
Increased tax revenues and profits retained within the country for local portion. History in other countries negates critics
Multi brand stipulation requires 30% local sourcing which will benefit the local industry
Will benefit end consumers in the area of price, convenience & quality of products & packaging

41. FDI in Retail (Summary)
Take Aways
In India currently FDI in Retail is far below International Scene
GOI has announced policies to Invite FDI interests in this sector
There are lot of oppositions & pro’s as well in the opinion of Experts on either side

42. For the class
What is your opinion & What should be the future direction to maximize benefits to the country & minimize opposition fears?
Thank You