INFRASTRUCTURAL ISSUES REGARDING ORGANIZED RETAIL
IN INDIA
-SOUMYA CHAKRABARTI(109)-SATYAM GAMBHIR(096)
Growth of Indian Retail
• 590mn$ by 2011-12.• Over I trn $ by 2016-17.• 16 % by 2011-12
Source: Technopak analysis
Key issues in Indian retail market
* KPMG Consumer Markets Survey
Key issues in Indian retail market
Source: Retail in India, Getting organized to drive growth, CII-A.T.Kearney Report, 2006
Criticality of issues
Source: Retail in India, Getting organized to drive growth, CII-A.T.Kearney Report, 2006
INFRASTRUCTURE ISSUES
• Real estate• Transport • Supply chain issues - Cold chain infrastructure
REAL ESTATE REQUIREMENTS
• Property rates: Rs 8-10 crore per location.• Planned investment- US$ 35 bn over next 5-7 years• 93% investment for the urban market.• Retail space required: 487 mn sq ft • 50% - shopping malls • 50% - formats like supermarkets.• Planned - 143 mn sq ft of mall space • Still …… a shortage of more than 40% in mall space.• Required retail space is around 7-8 times current space
Source: RETAIL IN INDIA – Mathew Joseph, Nirupama Soundararajan, ICRIER, 2009
FACTORS IMPEDING ORGANISED RETAIL REAL ESTATE DEVELOPMENT
• Outdated Rent Control Act CASE: Mr. R.K.Gupta, Landlord, Connaught
Place Source: Outdated Rent Control Act is stifling our cities, Times Of India, June 12, 2010
• Lack of clear ownership titles
FACTORS IMPEDING ORGANISED RETAIL REAL ESTATE DEVELOPMENT
• Land Ceiling Act hindering growth
• High stamp duty - 12.5% in Gujarat & 8% in Delhi - Cost upto 6-10% of sales.
• Zoning restrictions
Source: 1) SMALL VS MALL, Prof. H.Venkateshwarlu, Dr.C.V.Ranjani, Indian Jornal Of Marketing, October,2007 2) Managing Retailing – P.K.Sinha, D.P.Uniyal,2008
FACTORS IMPEDING ORGANISED RETAIL REAL ESTATE DEVELOPMENT
• Lack of proper city planning - Delhi master plan provides only 16% commercial space.
Source: Retail in India, Getting organized to drive growth, CII-A.T.Kearney Report, 2006
FACTORS IMPEDING ORGANISED RETAIL REAL ESTATE DEVELOPMENT
• Absence of a centralised title registry providing title gurantee
• Lack of uniformity in local laws & their application
• Non-availability of bank financing• High interest rates & transfer taxes• Lack of transparency in transaction values• Very few takers of quality space
Source: RETAIL IN INDIA – Mathew Joseph, Nirupama Soundararajan, ICRIER, 2009
SOLUTION TO REAL ESTATE DEVELOPMENT PROBLEMS
• Public private partnership (PPP)
RISING RENTALS
• Rent to revenue ratio - 4% for a hypermarket - 10% for a department store - 20% for niche retailers.
• Department store needs to make Rs2000/sq ft per month just to break-even
Source: ORGANISED RETAILING IN INDIA: ISSUES & CHALLENGES, Prof. Sudhanshu Shekhar Kar, Dr.Sarat Kumar Sahoo,Indian Journal Of Marketing, November 2009.
RENTALS EATING INTO PROFIT MARGINS
Source: Jones Lang Lasalle Meghraj Report on India Retail 2008, KPMG Analysis
WHY RENTALS HAVE BEEN INCREASING ?
• Demand outstripping supply
• Pro- tenant Rent Control Act
SOLUTION TO EXHORBITANT RENTALS(REVENUE SHARING MODEL)
• RETAILERS• To reduce high
operating costs• Wants security if sales
are low• Fuel expansion plans• Fixed % of profits is
paid
• LANDLORDS• Huge stock of unsold
inventory of retail space
• 145 million sq ft of commercial space in metros has no takers
Source: Business Today, 11 September, 2010
CLEARANCES REQUIRED
And many more…..
Solution to multiple clearance
• Single window system at the local government level
WHY INFRASTRUCTURE FOR RETAIL STORES IS AN IMPORTANT ISSUE ?
With every 25 km & With every 10 rupees. Consumers are known to shift loyalties
Source: ORGANISED RETAILING IN INDIA: ISSUES & CHALLENGES, Prof. Sudhanshu Shekhar Kar, Dr.Sarat Kumar Sahoo,Indian Journal Of Marketing, November 2009.
THANK YOU !!!