changing pattern of retail environment

8/7/2019 CHANGING PATTERN OF RETAIL ENVIRONMENT

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BY: KUMARI PRIYANKA

A CASE STUDY OF

EASTERN INDIA


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The retail scenario is one of the fastestgrowing business in India over the couple ofyears.

India retail sector comprises of organizedretail and unorganized retail sector

90% of retailing in India fall into theunorganized sector

Organised sector is largely concentrated inbig cities.

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Organized retail in India is expected to grow

25-30 per cent yearly and is expected toincrease from Rs35, 000 crore in 2004-05 toRs109, 000 crore ($24 billion) by 2010

Retailing in India is poised for significantgrowth

Indian economy with increasingurbanization is pushing organized retailing

deeper into the country

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India is the fifth largest retail market in theworld

Total retail trade and is expected to grow at therate of 30% to 40%

The per capita consumption of around US$ 400compares poorly to US (US$ 27,643) and Asian

countries such as Japan (US$ 20,337), ChinaUS$ 609, Malaysia (US$ 2,042) and Thailand(US$ 1,572)

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Metros are basically regarded as Tier I cities,relatively smaller cities are regarded as Tier IIcities whereas smaller cities are considered as TierIII ones

One of the basic reasons for investments flockingin to the smaller cities is available properties andaffordable prices

Moreover, the special initiatives taken by the

respective governments in providing the smallercities with infrastructural facilities and creation ofSEZs, has played a vital role in promoting thesesmall towns into cities of the future

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However, the emerging winners in the presentreal estate scenario of India are the Tier IIIcities, which offer greater yields of up to 12

percent lack of availability of business equipped

infrastructure and exorbitant property prices inthe existing metros, the IT, ITES and the BPO

companies are vying for the smaller citieswhere they are promised better infrastructure,state-of-the-art office spaces and also skilledmanpower

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Companies ranging from pharmaceuticals tofinancial institutions, automobiles to the IT &ITES sectors; to the retail and real estate sector

are opting for the smaller cities transformingthem into India's fastest growing cities in amatter of few years

Tier I cities have reached a saturation point,with the yield gap witnessing significantmargin of 9.5 % to 10 %, the Tier II cities recorda yield of 10.5 % to 11.5 %

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Tier II cities like Pune, Kolkata and Hyderabadhave made business opportunities andinfrastructural development like never before

Now it is the turn of the Tier III cities or the

smaller cities like Jaipur, Ghaziabad, Kochi,Bhubaneswar, etc. to make it big into thereality.

Thereby, it will be no mistake if they are called

the extension cities of the booming metros

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Of the 700 upcoming malls in India, almost 40%will come up in tier II and III cities, which alsoaccount for large chunk of the approximate newretail supply of 20 million square feet a year

Chandigarh, Ludhiana, Kochi, Jaipur,Bhubaneswar and Coimbatore are among thosemarkets that are being targeted by both valueretailers and premium international brands

Tier II cities are witnessing large mix-use projectsin housing, retail, entertainment and hotels, whichare bringing in big investments and creating jobs.

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Demand for retail spaces in these cities isprimarily from banks, insurance companies,multi-branded stores and traders. Some

national brands like Raymond, Bata and Titanhave presence through franchisees anddistributors, while other retailers are alsosetting up exclusive stores in these markets

Boom in IT/ITES and retail sectors areexpected to create new job opportunities andexpedite economic growth in the tier II and IIIcities

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RETAIL SECTOR IN TIERRETAIL SECTOR IN TIER--II / TIERII / TIER--III CITIESIII CITIES

India has 12 million retail outlets. Theretail sector is the second largest source ofemployment and the job market is hugelyreceptive to retailing expertise as moreand more B-schools are now focusing on

the sector and large retailers are settingup retail academies. It is estimated tocreate 50,000 jobs a year in the next fiveyears

The retail market in India is estimated atRs.5,88,000 crore. Of this the unorganizedmarket is worth Rs.5,83,000 crore and theorganized market is Rs.5,000 crore. Over8% of India's population is engaged in

retailing BY: KUMARI PRIYANKA


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Raw material cost

Personnel and administrative cost

Rentals

Other operational costs

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SupplySupply

DemandDemand

BarriersBarriers

SupplierSupplierBargaining PowerBargaining Power

CustomersCustomersBargaining powerBargaining power

CompetitionCompetition

Players are now moving to Tier II cities to increase penetrationand explore untapped markets as Tier I cities have reached asaturation level. They are also re-evaluating store viability andexpansion plans

Healthy economic growth, changing demographic profile,

increasing disposable incomes, changing consumer tastes andpreferences are some of the key factors that are driving and willcontinue to drive demand growth in the organized retail marketin India

Reforms by India in opening up its economy have greatlyimproved trade prospects, but major barriers still exist such asregulatory issues, supply chain complexities, inefficientinfrastructure, automatic approval not being allowed for foreigninvestment in retail

The bargaining power of suppliers varies depending upon thetarget segment, the format that they follow and the products theyoffer. The unorganized sector has a dominant position. There arefew players who have a slight edge over others on account ofbeing established players and enjoying brand distinction.

High, due to availability of wide choice

High. Competition is characterized by many factors, includingassortment, format, products, advertising, price, quality, service,location, reputation, credit and availability of retail space etc. Newentrants (business houses and international players if foreignparticipation is further liberalized) are expected to further

intensify the competition.BY: KUMARI PRIYANKA


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VALUE RETAILING LIFESTYLE RETAILING

which is typically a lowmargin-high volumebusiness (primarilyfood and groceries)

a high margin-lowvolume business(primarily apparel,footwear, etc)

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39%

11%9%7%

6%3%

2%

23%Textile & apparel

Food & Beveregesconsumer durables

home solution

Jwellery & watches

books, music, gifts

pharma

others

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The top five companies in retail hold a combinedmarket share of less than 2%

The Indian retail market has been ranked by ATKearney's eighth annual Global Retail DevelopmentIndex (GRDI), in 2009 as the most attractive emerging

market for investment in the retail sector retail trade in India's GDP is around 12 per cent, and is

estimated to reach 22 per cent by 2010 GoI estimate the retail sector is likely to grow to a

value of Rs. 2,00,000 crore (US$45 billion) and could

yield 10 to 15 million retail jobs in the coming fiveyears; currently this industry employs 8% of theworking population

India continues to be among the most attractivecountries for global retailers

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Mumbai was found to be the most preferredlocation followed closely by Bengaluru in the

second position AV Birla Group has a strong presence in apparel

retail and owns renowned brands like AllenSolly, Louis Phillipe, Trouser Town, Van Heusenand Peter England. The company has investment

plans to the tune of Rs 8000 9000 crores till 2010 Trent is a subsidiary of the Tata group; it operateslifestyle retail chain, book and music retailchain, consumer electronic chain etc. Westside, thelifestyle retail chain registered a turnover of Rs3.58 mn in 2006

Landmark Group invested Rs. 300 crores toexpand Max chain, and Rs 100 crores on Citymax 3star hotel chain. Lifestyle International is theirinternational brand business

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K Raheja Corp Group has a turnover of Rs 6.75billion which is expected to cross US$100 million

mark by 2010. Segments include books, music andgifts, apparel, entertainment etc.

Reliance has more than 300 Reliance Fresh stores;they have multiple formats and their sale isexpected to be Rs 90,000 crores ($20 billion) by2009-10

Pantaloon Retail has 450 stores across the countryand revenue of over Rs. 20 billion and is expectedto touch 30 million by 2010. Segments include

Food & grocery, e-tailing, homesolutions, consumerelectronics, entertainment, shoes, books, music &gifts, health & beauty care services

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The global economic slump has had its impact on the India retailsector. One of the earliest players in the Indian retail scenarioSubhiksha's operations came to a near standstill and requiredliquidity injection. Vishal Retail secured corporate debtrestructuring (CDR) plan from its lenders while other players likethe Reliance Retail run by Mukesh Ambani and Pantaloon ledKishore Biyani by went slow on expansion plans and even scaled

down operations. However, during the last quarter a bit ofconfidence was restored as the economy showed signs of growth. The year witnessed lot of activities such as closure of

stores, deferment of expansion plans, foreign players windingoperations etc. For instance, Argos pulled out of the franchiseeagreement with Shoppers Stop and Hypercity Retail India and

discontinued its trial operations - Hypercity Agros, catalogue andinternet retailing. While a few retailers struggled to carry out day today operations and were re-evaluating expansion plans, otherssought to join hands with international players for supply chainexpertise to strengthen their backend activities.

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Historically, availability of quality retail space has been a constraint forIndian retail. However, while the surge in mall development in the recentpast had to a certain extent increased supply, high rents had a dampeningeffect apart from the usual problems of delays in store opening and highmanpower attrition. However, in recent times, mall rentals have fallen upto 50% compared to their peak in FY08. This has enthused retailers to kick

start their expansion plans towards the end of FY09. At the sametime, they should also look to renegotiate rentals and bring down theiroverall costs. An alternative is the retailers adopting a revenue sharingmodel. In a revenue sharing model, a certain percentage of the sales arepaid to the mall owner or developer.

The retail players have lined up huge expansion plans. The players werenot only expanding scale of operation but were also venturing into new

formats and style of retailing to expand customer base and extend reachacross geographies. The huge capex plans have exerted pressure on netmargins on account of increased interest costs and depreciation charges.Further, the old formats have not matured enough to support their owngrowth. Retailers raised capital either by diluting equity or leveragingtheir balance sheets.

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1. The organized retail industry in India is facedwith stiff competition from the unorganized sector

2. There is a shortage of quality real estate and

infrastructure requirements in our country3. Opposition to Foreign Direct Investment from

small traders affects retail industry

4. Very high stamp duties on transfer of propertyaffects the industry

5. . Shortage of retail space in central and downtownlocations also hinders the growth of retailindustry

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6. Presence of strong Pro-tenancy laws makes itdifficult to evict tenants and this is posingproblems

7. Land-use conversion is time consuming andbecoming complex

8. For settling property disputes, it consumes lotof time

9. Rigid building laws makes procurement ofretail space difficult

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10. Non residents are not allowed to ownproperty except they are of Indian origin

11. Prohibition of Foreign investment in real estate

business12. Customs duties are levied on import of goods

in India

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My research was based on my awareness andobservation of retail sector of variousbusinesses. My study, by means of internet andbooks such Retail Management, and journals

such as Images Retail helped me immensely inmy research. However, retail, being the sectorin maximum touch with the ultimateconsumer, my personal observation andknowledge of my peers helped me get a better

understanding of the nature of the retailsector, the role it plays in a business, how itenables sales promotion to boost sales, andwhat customers expect from the retailers.

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Lifestyle International, a division of LandmarkGroup, plans to have more than 50 storesacross India by 201213.

Shoppers Stop has plans to invest Rs250 crore

to open 15 new supermarkets in the comingthree years.

Pantaloon Retail India (PRIL) plans to investUS$ 77.88 million this fiscal to add up toexisting 2.4 million sq ft retail space. PRILintends to set up 155 Big Bazaar stores by2014, raising its total network to 275 stores.

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Timex India will open another 52 stores byMarch 2011 at an investment of US$ 1.3 milliontaking its total store count to 120. In the first sixmonths of the current fiscal ending September

30, 2009, the company has recorded a net profitof US$ 1.2 million.

Australia's Retail Food Group is planning toenter the Indian market in 2010. It has plans to

clock US$ 87 million revenue in five years. In20 years they expect the India operations to belarger than the Australia operations.

BY: KUMARI PRIYANKA

changing pattern of retail environment

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