Retail-sector-in-india.pdf

A BRIEF REPORT ON RETAIL SECTOR IN INDIA January 2015

A brief report on Retail sector in India

1. RETAIL SECTOR IN INDIA 1.1

Overview The overall retail market in India is likely to reach Rs 47 trillion (US$ 792.84 billion) by FY 17, presenting a strong potential for foreign retailers planning to enter India. India is the 5th most favourable destination for international retailers. Of the total Indian retail market, 8% is made up by the organized retail segment. This segment is estimated to grow at a rate of almost 30% by 2015, and hence at a much faster pace than the overall retail market which is forecast to grow by 16% in the same period. Until 2011, the Indian Central Government did not allow Foreign Direct Investment (FDI) in multi-brand retail. This prevented foreign groups from any ownership in supermarkets, convenience stores or other retail outlets. In late 2012, the Government of India introduced a Foreign Direct Investment policy which allows foreign retailers to own up to 51 per cent in multi-brand retail and 100% in single brand retail. Retailing in India is one of the business enterprises of its economy and accounts for 14 to 15% of its GDP. The Indian retail market, currently estimated at around US$ 490 billion, is project to grow at a compound annual growth rate (CAGR) of 6 per cent to reach US$ 865 billion by 2023. India's retailing industry is essentially owner manned small shops account for more than 90%. In 2010, larger format convenience stores and supermarkets accounted for about 4% of the industry, and these were present only in large urban centres. The Indian retail industry is generally divided into organized and unorganized retailing: 



Organized retailing - Organized retailing refers to trading activities undertaken by licensed retailers, those who have registered for sales tax, income tax, etc. These include corporate-backed hypermarkets and retail chains, and also privately-owned large retail businesses. Various estimates put the share of organized retail to go up to 20 per cent by 2020. Unorganized retailing - Unorganized retailing refers to the traditional forms of low-cost retailing, for example, local kirana shops, owner-operated general stores, paan/beedi shops, convenience stores, hand cart and street vendors, etc. The growth of unorganized retail sector is pegged at 6 percent

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A brief report on Retail sector in India

1.2

Growth in Indian Retail

 

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A brief report on Retail sector in India

1.3

Major Indian Retailers Brands

Stores

REI Agro Ltd Retail Future Groups-Formats

6TEN and 6TEN kirana stores Big Bazaar, Food Bazaar, Pantaloons, Central, Fashion Station, Brand Factory, Depot, aLL, E-Zone etc. Fabindia Textiles, Home furnishings, handloom apparel, jewellery RP-Sanjiv Goenka Group Retail-Formats Spencer’s Hyper, Spencer's Daily, Music World, Au Bon Pain (International bakery cafeteria), Beverly Hills Polo Club The Tata Group-Formats Westside, Star India Bazaar, Steeljunction, Landmark, Titan Industries with World of Titans showrooms, Tanishq outlets, Croma. Reliance Retail-Formats Reliance MART, Reliance SUPER, Reliance FRESH, Reliance Footprint, Reliance Living, Reliance Digital, Reliance Jewellery, Reliance Trends, Reliance Autozone, iStore K Raheja Corp Group-Formats Shoppers Stop, Crossword, Hyper City, Inorbit Mall Lifestyle International-Lifestyle, Home Centre, Max, Fun City and International Franchise brand stores. Aditya Birla Group “More” Outlets Gitanjali Nakshatra, Gili, Asmi, D'damas, Gitanjali Jewels, Giantti, Gitanjali Gifts, etc Nmart Retails with 131 operating Stores till now and total 287 Stores in India and 1 to open in DUBAI Shortly and many more in Process Globally (ZAMBIA, BANGLADESH, SRI LANKA etc.). (Expected to be 500 by the end of 2012)

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2. GOVERNMENT POLICIES 2.1

Background India has liberalized its single brand retail industry to permit 100% foreign investment, with regulatory issues and legal structures pertinent to establish operations in this new dynamic market. India’s retail industry is estimated to be worth approximately US$411.28 billion and is still growing, expected to reach US$804.06 billion in 2015. As part of the economic liberalization process set in place by the Industrial Policy of 1991, the Indian government has opened the retail sector to FDI slowly through a series of steps:      

1995 – World Trade Organization’s general agreement on trade in services, which include both wholesale and retailing services, came into effect 1997 – FDI in cash and carry (wholesale) with 100% rights allowed under the government approval route 2006 – FDI in cash and carry (wholesale) brought under the automatic route Up-to 51% investment in a single- brand retail outlet permitted 2011 – 100% FDI in single –brand retail permitted 2013 - India further eased foreign investment rules in retail on 1st August 2013 in a renewed attempt to attract global supermarket chains. Foreign retailers have been keen to enter India's $500 billion retail market since the country allowed overseas investment in its supermarket sector in September 2012 but ambiguity around entry rules has kept them away.

a) FDI in “single-brand” retail - While the specific meaning of single-brand retail has not been clearly defined in any Indian government circular or notification, single-brand retail generally refers to the selling of goods under a single brand name. Up to 100% FDI is permissible in single-brand retail, subject to the Foreign Investment Promotion Board (FIPB) sanctions and conditions mentioned that are:    

Only single-brand products are sold (i.e. sale of multi-brand goods is not allowed, even if produced by the same manufacturer) Products are sold under the same brand internationally Single-brand products include only those identified during manufacturing Any additional product categories to be sold under single-brand retail must first receive additional government approval

FDI in single-brand retail implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand. For Adidas to sell products under the Reebok brand, which it owns, separate government permission is required and (if permission is granted) Reebok products must then be sold in separate retail outlets. b) FDI in “multi-brand” retail - The government of India has also not clearly defined the term “multi-brand retail,” FDI in multi-brand retail generally refers to selling multiple brands under one roof. Currently, this sector is limited to a maximum of 49% foreign equity participation. On July 2010, the Department of Industrial Policy and Promotion (DIPP) and the Ministry of Commerce circulated a discussion paper on allowing FDI in multi-brand retail. The Committee of Secretaries, led by Cabinet Secretary, recommended opening the retail sector for FDI with a 51% cap on FDI, minimum investment of US$100 million and a mandatory 50% capital

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reinvestment into backend operations. Notably, the paper does not put forward any upper limit on FDI in multi-brand retail The long-awaited scheme has been sent to the Cabinet for approval, but no decision has yet been made. There appears to be a broad consensus within the Committee of Secretaries that a 51% cap on FDI in multi-brand retail is acceptable. Meanwhile the Department of Consumer Affairs has supported the case for a 49% cap and the Small and Medium Enterprises Ministry has said the government should limit FDI in multi-brand retail to 18%. c)

Government “safety valves” on FDI - There is concern about the competition presented to domestic competitors and the monopolization of the domestic market by large international retail giants. The Indian government feels that FDI in multi-brand retailing must be dealt with cautiously, given the large potential scale and social impact. As such, the government is considering safety valves for standardize FDI in the sector. For example: A stipulated percentage of FDI in the sector could be required to be spent on building back-end infrastructure, logistics or agro-processing units in order to ensure that the foreign investors make a genuine contribution to the development of infrastructure and logistics. At least 50% of the jobs in the retail outlet could be reserved for rural youth and a certain amount of farm produce could be required to be procured from poor farmers. A minimum percentage of manufactured products could be required to be sourced from the SME sector in India. To ensure that the public distribution system and the Indian food security system, is not weakened, the government may reserve the right to procure a certain amount of food grains. To protect the interest of small retailers, an exclusive regulatory framework is made to ensure that the retailing giants do not resort to predatory pricing or acquire monopolistic tendencies.

2.2

Benefits of FDI in multi-brand retail Soaring inflation is one of the driving motives behind this move towards multi-brand retail. Allowing international retailers such as Wal-Mart and Carrefour, which have already set up wholesale operations in the country, to set up multi-brand retails stores will assist in keeping food and commodity prices under control. Moreover, industry experts feel allowing FDI will cut waste, as big players will build backend infrastructure. FDI in multi-brand retail would also help narrow the current account deficit. Additional benefits include moving away from an industry focus on intermediaries and job creation.   

Moving away from intermediary-only Job creation No threat to kiranas (mom-and-pop stores)

Several constituencies are positively impacted by modern trade Farmers/producers Consumers Government Inefficiencies in India’s food supply chain

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Modern trade improves the quality of life

Increased tax inflows for the government

Unorganised trade Kiranas as a major part of India’s retail sector

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Several layers of intermediaries

Greater choice

Organised and unorganised trade that is different in structure, size and in terms of taxes paid to the exchequer

High wastage levels (2440%)

More competitive prices

Lower than fair market value paid to farmers

Better quality of food products for modern trade players to transfer best practices to local farmers ’Lifestyle parity’ where Indian products are similar to those available overseas

The challenge of revenue collection from the unorganised retail sector Tax-compliant modern trade players who are large taxpayers

High final prices for consumers

India’s large retail sector that accommodates both organised and unorganised trade

Agents controlling prices Farmers benefit from modern trade.

Consumers benefit from modern trade

The government benefits from modern trade.

Wastage is reduced

In a democracy, fundamental tenet of progressive policy changes is that the main beneficiary must be the consumer.

State VAT revenues increase as modern trade grows and develops.

Income flow for farmers is stabilised.

As economies evolve, governments should provide for inclusive growth and minimal displacement.

Modern trade helps develop related sectors (supply chain, logistics, cold chain, etc.). Companies in these sectors contribute to the exchequer in terms of indirect taxes.

Unorganised trade benefit from modern trade. Kiranas can source food and non-food items, essential for operations, from cash-and carry providers, benefitting from bulk discounts. Kiranas can become franchise partners for modern trade players’ neighbourhood format.

The quality of fruits, produce, dairy, poultry, etc. is improved. Farmers are integrated into modern trade

2.3

Reform in Retail Sector  November 2011 - India allowed foreign supermarket chains to enter the country and own up to 51 percent in their Indian operations in an attempt to bring in much needed capital from abroad and build its poor infrastructure supply chain. It also allowed single brand retailers like Swedish furniture giant IKEA to own 100 percent of their business in India.

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 December 2011 - The government put the retail reform on hold, backtracking from its boldest measures in years in the face of political backlash from allies and opposition parties over worries that millions of small shopkeepers could go out of business.  January 2012 - India formally eliminated ownership restrictions on foreign investment in single-brand retail but required that companies source 30 percent from small local firms.  June 2012 - New Delhi began clearing the ground for a new push to open up the supermarket sector amid souring investor sentiment, double-digit food inflation and the threat of a credit-ratings downgrade.  September 2012 - India revived the retail reform, allowing foreign supermarkets to buy up to 51 percent in a local partner with restrictions around sourcing and investment in an effort to appease political opposition. Local sourcing requirements for single brand retailers were diluted.  June 2013 - The government issued a clarification and said global supermarket operators cannot acquire existing assets of Indian companies and that the initial mandatory $100 million investment to set up supply chain infrastructure and stores must be in new assets.  August 2013 - India relaxed sourcing and investment rules for supermarkets. It allowed retailers to meet 30 percent sourcing requirement over 5 years initially and said they only have to invest 50 percent of an "initial" mandatory investment of $100 million in setting up cold storages and warehouses.

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3. MAJOR PLAYERS

3.1

Tesco It is a British multinational grocery and general merchandise retailer headquartered in Cheshunt, United Kingdom. It is the third-largest retailer in the world measured by revenues (after WalMart and Carrefour) and the second-largest measured by profits (after Wal-Mart). It has stores in 14 countries across Asia, Europe and North America and is the grocery market leader in the UK (where it has a market share of around 30%), Malaysia, the Republic of Ireland and Thailand.

3.1.1 Tesco in India Tesco has had a limited presence in India with a service centre in Bangalore, and outsourcing. In 2008 Tesco announced their intention to invest an initial £60m ($115m) to open a wholesale cash-and-carry business based in Mumbai with the assistance of the Tata Group. The global service operations of Tesco HSC are involved in creating and executing strategic initiatives for Tesco retail stores worldwide. These strategic initiatives cover the IT, Business, Financial, Commercial and Property aspects, among others, of Tesco operations. The operations cover all internal and external platforms that drive Tesco's business, making it one of the world's most preferred retail stores. Tesco is the first major international retailer to have a fully-owned support centre in India. We are dedicated to make the Tesco experience better for over 60 million customers worldwide, simpler for over 500,000 employees and achieve cost-efficiencies. 3.2

IKEA IKEA is a privately held, international home products company that designs and sells ready-toassemble furniture such as beds, chairs, desks, appliances and home accessories. The company is the world's largest furniture retailer. Founded in Sweden in 1943 by 17-year-old Ingvar Kamprad, The first IKÉA store was opened in Älmhult, Småland in 1953, while the first stores outside Sweden were opened in Norway (1963) and Denmark (1969). The stores spread to other parts of Europe in the 1970s, with the first store outside Scandinavia opening in Switzerland (1973), followed by Germany (1974). Things were going so well for the company, that in 1973, the company's German executives accidentally opened a store in Konstanz when they had meant to open one in Koblenz. Later that decade, stores opened in other parts of the world, including Japan (1974), Australia and Hong Kong (1975), Canada (1976) and Singapore (1978). IKEA further expanded in the 1980s, opening stores in France & Spain (1981), Belgium (1984), the United States (1985), the United Kingdom (1987) and Italy (1989) among other areas. The company expanded into more countries in the 1990s and 2000s. Germany, with 44 stores, is IKEA's biggest market, followed by the United States, with 37. At the end of 2009 financial year, the IKEA group had 267 stores in 25 countries. Swedish furniture home accessories IKEA is planning to enter India with a Euros 1.5 billion (around Rs 10,500 crores) investment in a single-brand retail venture. In the first phase it plans to set up 25 stores with an investment of Euros 600 million (around Rs 4,200 crores) in opening 25 stores. The company has already sought government permission to set up a 100% Indian venture and has also promised to increase its sourcing from the country. In these stores companies are permitted to stock goods from one brand only. The entry also comes with the stipulation that at least 30% of the products have to be sourced from Indian micro, small and medium enterprises - a major area of concern for IKEA until recently. Private & Confidential

 

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3.3

Future Group Future Group is India’s largest retailer and one of the leading business houses with a strong presence in retail. Future Group is established in 1994 by Mr. Kishore Biyani.  Future Group’s products come under the category of durable as well as nondurable. It offers perishable products, food items which are frequently approached by consumers. Also, offers Clothing, Apparel, Home décor items, Furniture which comes under the category of Nondurable.  The company owns a portfolio of 24 leading brands and covers more than 121 cities.   Future Group, India's largest retail chain in both value and lifestyle formats, is aiming to have 50,000 Big Bazaar direct franchisees by the end of this year.  The company has already launched the franchisee-based models in Mumbai, Hyderabad and Gujarat. It launched in Delhi on January 11, 2014.  The Future Group is providing its franchisees an electronic device, which would have all the information about its products and offers. The franchisee employees would visit the consumer's place and collect the orders. The company is targeting kirana shops, medical stores, persons with consumer network, insurance agents and persons engaged in professional services like payment of bills etc, as franchisees.  Through this venture, the company would also try to expand its base in the tier 2 and tier 3 cities, where the Future group still has no retail store. In return, the Future group is paying a commission ranging from 3 per cent to 20 per cent, depending on the kind of products sold.

3.4

Shoppers Stop Limited Shoppers Stop Ltd is a professionally managed and systems driven organisation promoted by the K Raheja Corp Group (Chandru L Raheja Group), one of the leading players in the country in the business of real estate development and hotels. Since its inception in 1991, Shoppers Stop Ltd has introduced various retail formats in India. The chain has become the highest benchmark for the Indian retail industry. Apart from the flagship business of department stores, there are also specialty stores for books, home decor and maternity care & infant care. Symbolizing the era of global recognition for Indian retailers, Shoppers Stop Ltd is the only Indian retailer to be shortlisted in the Retail Advertising Award category for its in-store marketing at the retail industry’s globally recognized event – World Retail Congress. Shoppers Stop had been named the merging Market Retailer of the Year at the prestigious World Retail Awards, which took place on 10th April '08, in Barcelona. The World Retail Congress is the most influential and highest profile gathering of the retail industry across all retail segments across the globe. Shoppers Stop Shoppers Stop is India’s largest retail chain of large format department stores with 172 stores in 25 cities across the country occupying an aggregate area of over 4.81 million square feet with an offering of more than 400 finest international and national brands. India’s premier fashion and lifestyle destination, Shoppers Stop currently has stores in Ahmedabad, Aurangabad, Amritsar, Bangalore, Bhopal, Chennai, Delhi, Durgapur, Gurgaon, Ghaziabad, Hyderabad, Indore, Jaipur, Kolkata, Latur, Lucknow, Mumbai, Mysore, Noida, Pune, Siliguri and Vijayawada. Private & Confidential

 

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Shoppers Stop is also the only Indian member of the Inter Continental Group of Department Stores (IGDS) along with 29 other experienced retailers from all over the world. This has helped the company gain insight into the new and emerging practices followed internationally. HomeStop HomeStop is the first-of-its-kind premium home concept store at Bengaluru – Magrath road and Royal Meenakshi Mall, Mumbai – Malad, Vashi and R-City Mall, New Delhi, Pune, Lucknow, Ahmedabad and Vijayawada offering a wide range of products and some of the most reputed national and international brands. It is a one-stop-shop for all home needs ranging from home décor to furniture, bath accessories to bedroom furnishings, mattresses to draperies, carpets to modular kitchens & health equipment all under one roof. Crossword Book Store Spacious, well laid out bookstores that feature methodical classifications, clear signages, dedicated enquiry /orders desks and attractive displays along with cafés, reading tables and chairs within the store make Crossword the leader in the lifestyle bookstore category. It currently has 86 stores. Its unique product mix of books, magazines, CD-ROMs, music, stationery and toys is further enhanced with services like Dial-a-book and Email-a-book and facilities like gift vouchers and Return, Exchange & Refunds policy. Mothercare & Early Learning Centre (ELC) Shoppers Stop Ltd. has an exclusive retail arrangement (for the department store segment) with Mothercare PLC of UK to open & operate shop-in-shops of Mothercare and ELC stores in India within Shoppers Stop stores. Mothercare is UK's premium international brand for maternity, infant and childcare products. Currently there are 38 stores of Mothercare (including 6 standalone stores) with a presence in 11 cities. Estee Lauder group Shoppers Stop Limited has entered into non exclusive retail agreement with world-renowned cosmetics major Estee Lauder to open M.A.C, Clinique and Estee Lauder stores in India. M.A.C (Makeup-Art Cosmetics) the professional brand of choice is the first brand under the Estee Lauder Group of Companies' portfolio to enter the Indian retail market. Currently, with Shoppers Stop Ltd. there are 20 M.A.C. stores operating in Mumbai, Bengaluru, Delhi, Amritsar, Chennai, Hyderabad, Pune, Kolkata and Ludhiana. Clinique currently has 10 stores/doors (including 2 standalone stores) and Estee Lauder has 5 stores/doors including 3 standalone stores, one each in Mumbai, Bengaluru and Delhi. HyperCity Shoppers Stop Limited has acquired a majority stake of 51% equity share capital in Hypercity Retail (India) Ltd, thus making it a subsidiary of Shoppers Stop Ltd. HyperCity operates 12 stores one store each in Ahmedabad, Pune, Ludhiana ,Amritsar, Bhopal, Jaipur, Navi Mumbai and Hyderabad and 2 stores each in Mumbai and Bengaluru.

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HyperCity has redefined the experience of the Indian consumer in the big store format. Its offering includes food and grocery, general merchandise and apparel. The business operates a “More to Discover” by-line and delivers quality product at great value in a bright, spacious, modern environment. Airport Retailing Currently, it has 1 store in Hyderabad domestic airport and 2 stores in Bengaluru domestic airport. 4 duty free stores are run by the JV Company in the international airport at Bengaluru. TimeZone Entertainment Shoppers Stop Ltd. believes that the Indian consumers are looking for multiple options to entertain themselves and their families. It has forayed into the Entertainment sector by acquiring a 45% stake in Time Zone Entertainment Private Limited which is in the business of operating Family Entertainment Centres (FECs). TimeZone currently has 17 doors in key cities in India.

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