FDI IN

RETAIL

SECTOR

•FDI in Retail – Policy Perspectives.

•Retail Sector – An Overview.

•FDI Policy in Retail - Opportunities & Challenges.

•Emerging Human Resource Challenges.

•What lies ahead ?

Issues for Discussion

FDI IN RETAIL

POLICY PERSPECTIVE

The commitment of money or

capital to purchase financial

instruments or assets in order to

gain profitable returns.

An investment is..

Investment done by citizens and government of one country (home country) invest in industries of another country (host country).

An investment becomes foreign investment when..

Foreign Investme

nt through

Foreign Direct

Investments

Foreign Institutional Investors

Automatic Route

FDI Routes

Government

No permission required Approval /License required.

• 1991- FDI allowed selectively up to 51% in priority

sectors.

• 1997-FDI allowed up to 100% in sectors like mining,

manufacturing.

FDI Policy Initiatives

• 2000-06 FDI allowed up to 100% in specified sectors.

FDI limits increased.

Procedures further simplified

• The top 3 Indian Regions attracting the highest FDI.

Mumbai, Delhi and Karnataka.

Account for nearly 62% of the total FDI.

Modes of FDI

By Target

•Mergers and Acquisitions•Horizontal FDI•Vertical FDI. *Backward Vertical FDI *Forward Vertical FDI

By Motive

•Resource-Seeking•Market-Seeking•Efficiency-Seeking•Strategic-Asset-Seeking

Barter system

Weekly marketVillage melas

Kirana StoresConvenience store

Government Stores

Super marketsHyper marketsMallsBrand outlets

Introduction to Modern Retail

FDI Policy in Indian Retail Sector

Single Brand Retailing

• 51%

Cash and Carry Model

• 100%

Why Global Retailers Look Up to India?

Incentives attract FDI.

Market size and potential are sufficient inducers.

Tax breaks, import duty exemptions, land and power

subsidies, and other enticements.

Comparison of FDI Inflow.

FDI inflows from August 1991 to April2010 were

$134.6 billion.

FDI inflows from 2000-10 crossed $300 billion

RETAIL INDUSTRY : AN

OVERVIEW

Indian Retail Sector

GRDI Position : 3rd

Size : $ 400 billion

Growth Rate : 13%

GDP contribution : 12%

Major sector : Food and Grocery

Employment : 2nd largest industry

(35.06 million)

Types: Organized ( 5%)

Unorganized ( 95%)

• Corporates are increasingly coming into this sector.

• Demand of branded goods on a large scale.

• Demand of new and varied products.

• High quality product is preferred .

• Varied window display.

• E-tailers increase the presence.

Emerging Trends

Major Indian Retailers : Categories Format Description Retailers

Hypermarkets Offering basket of product Spencers, Big bazaar

Cash and Carry Bulk-buying requirement Bharti-wal-mart

Departmental stores Large layout, Wide merchandise mix

Lifestyle , Globus

Supermarkets Household product as well as food as integral part of the service

Apna bazaar , food bazaar

Shop-in-shop Shops located in shopping malls Navras ( big bazaar)

Specialty stores Focus on individual product type Brand Factory

Category killers Particular segment The LOFT

Discount stores Branded product at discounted prices

Subhiksha, levi’s outlet

Convenience stores Small Retail stores In and out

Retail Segment Percentage holding in sector

Major retailers

Food and grocery 63% Reliance fresh, Café brio, food bazaar

Clothing, textile and fashion

9% Westside, shoppers stop, globus

jewellery 5% Tanishq

Catering services 5% IRCTC

Consumer durable 4% Viveks, vijay sales, Croma

pharmaceuticals 4% Piramal group

Entertainment 3% Bowling co.,

Furnishing, utensils 3% Hometown, Tangent Concept

Mobile handsets 2% The mobile store,

Segmentation

• One of the world's largest industries exceeding US$ 9

trillion.

• Dominated by developed countries.

• 47 global fortune companies & 25 of Asia's top 200

companies are retailers.

• US, EU & Japan constitute 80% of world retail sales.

Retail Sector at Global Level

• Retail trade in Europe employs 15% of the European

workforce (3 million firms and 13 million workers).

• The world’s population is poised to expand 50% by 2050.

The world currently comprises of 78% poor, 11% middle

income and 11% rich.

Contribution Of Retail Industry to GDP of Various Economies

USA

China

Japan

Brazil

India

20%

8%

14%

6%

12%

Contribution Respective to GDP

US

Sales: $374.5 bn 

Earnings: $12.9

billion 

Stores: 6,800

worldwide

France

Sales: $130 bn

Earnings: $5.2 billion

Stores: 87,422

worldwide

UK

Sales: $102.6 billion

Earnings: $5.5 billion

Stores: 3,729

worldwide

Germany

Sales: $101 billion  

Earnings: $1.5 billion

Stores: 2,221

US

Sales: $77.3 bn 

Earnings: $4.2 billion

 

Stores: 2,258

India

China

Indonesia

Thailand

Malaysia

Taiwan

US

0 10 20 30 40 50 60 70 80 90 100

OrganisedUnorganised

US Taiwan

Malaysia

Thailand

Indonesia

China

India

Unorganised

15%

19% 45% 60% 70% 80% 95%

Organised 85%

81% 55% 40% 30% 20% 5%

Organised vs Unorganised Retail at Global Level

Emerging Concepts

Opportunity Analysis and Strategies in Retail Globally

India China

Focus on Services Focus on Industry

High labor cost Low Labor Cost

Home grown Capital FDI

Old technology Adaptability to Latest technology

Democratic Government Communist Government

India Vs. China

FDI POLICY IN RETAIL

OPPORTUNITIES

What Are Global Retailers Saying?

•A large emerging market .

Increase in disposable income of a family.

70 mn Indians – salary of $18,000.

Rise to 140 mn by 2011.

Consumer spending power increased by 75% in

last 3 years.

The per capita income in 2009–2010 has more

than doubled to US$ 849 from US$ 348 in 2000–01.

Demographics

INDIA

Characteristics of Indian Market

Source: McKinsey&Company

•Increase in consumer class.

Consumer class will grow

from 50 million at present to

583 million by 2025.

With more than 23 million

people taking their place

among the world’s

wealthiest citizens.

Consumer Class Shift

Upper class

Middle class

Lower class

•Wide demographics -- average age of 25 yrs.

•Brand consciousness.

60 % of population below age of 30.

Awareness through World Wide Web.

•Changing consumer mindset.

Focus shifting from low price to convenience, value

and a superior shopping experience.

•Small Basket Size Shaping of Consumption

Consumer Behaviour

Consumption Boom

Source: McKinsey&Company

•Easy consumer credit.

EMI & loan via credit cards --

easy for Indian consumers to

afford expensive products.

For instance, Casas Bahia’s-

Brazil.

Easy Credit

Upper class

Middle class

Lower class

Note: BOP C.K.Prahalad.

•Employment generation.

Second-largest employer after

agriculture.

Retail trade employing 35.06 million.

Wholesale trade generating an additional

employment of 5.48 million.

Employment Generation

Additional 1.6 mn jobs .

•Technology Better use of resources and

goods.

Wastage and Storage problems will be

resolved.

Efficient logistics, production, and

distribution channels.

Digital records.

Technology

Infrastructure

•Rural market.

Robust Consumption.

70% Indian households.

2/5 of the country’s total consumption pie.

Accounts to 45% of GDP.

Rural Market

Fiscal Growth

Evergreen Need

•FDI in Retail sector will resolve problems regarding foreign exchange in India.

•The life-long basic needs will keep on driving the Retail Industry.

Let the liberalisation be in steps rather than

being a leap.

FDI POLICY IN RETAIL

CHALLENGES

Challenges

SKILLED WORKERS

COMPETITION

REAL ESTATE PROBLEM

MARKET POWER

SUPPLY CHAIN MANAGEMENT

PROBLEM IN RAISING FUNDS

TAXATION POLICIES

INFLATION

• Major challenge faced by Organized retail sector:

In Retail, over 70 per cent of the labor force in

both sectors combined (organized and unorganized)

is either illiterate or educated below the primary

level.

• Labor Laws

Lack of Skilled Workforce

• A strong competition from mom and pop shops:-

Easily accessible & approachable.

Provide services like Free home delivery and goods on

credit.

They change consumer focus.

COMPETITION

INDI

AN

• Pantaloons

• Reliance

• Bharti retail

• RPG• Lifest

yle• K

raheja

• Subhiksha

• Piramyd

• Trent• Vishal

group

GLOBAL

• Tesco• Walm

art• Metro• Carref

our• B&Q• Targe

t

Problem of Real Estate

Clustering of outlets.

Highest Stamp Duty.

FORMAT AVERAGE SIZE

Convenience Stores 800 sq. feet

Discount Stores 1000 sq. feet

Category Killers 8000 sq. feet

Specialty Stores Single-category

Shop-in-Shop Within Large malls

Organized Retail Formats in India

FORMAT AVERAGE SIZE

Supermarket Large in Size Typical in layout

Department Stores 10,000 – 60,000 sq. feet

Cash and Carry 75,000 Sq. feet

Hypermarkets 50,000 – 1,00,000 sq. feet

• Market power is in hands of unorganized retail.

• Potential of Indian Market is US$ 200 billion whereas India is just earning its 3%.

Market Power

Unorganized

•95%

Organized •5%

Absence of Developed supply chainShrinkage

Lack of logistic Infra.

Corruption

Additional Intermediaries

Technology Hurdles

Shrinkage

Lack of Logistic Infrastructure

In India every year there is pilferage of US$ 65 billion

whereas in USA it is just 1-2%.

Due to lack of proper storage infrastructure post-

harvest losses of farm produce is Rs. 1 trillion cr.

annually.

In terms of corruption India stands at 85th position.

Because of paper work, corruption is present along the

entire supply chain.

Corruption

Additional IntermediariesIn India, there are additional 2-3 intermediaries as

compared to USA.

i. They dominate the value chain.

ii. They flout mandi norms & their pricing lacks

transparency.

India is still in developing stage in installing and

managing an effective IT system especially in rural areas

which hampers the overall growth of organized retail

sector.

Technology Hurdle

Banks are reluctant to finance retailers because of falling

demand of organized retailers in India as it has witnessed

failure of many stores like Spencer's, Subhiksha, etc.

Problem in Raising Funds

• Taxation laws in India favors only small retail businesses.

• Implementation of non-uniform VAT across states.

• Octroi and entry tax in some states.

Taxation & Stringent Approvals

• No Automatic Approval for FDI- Only 51% FDI is

allowed to one brand shops in Indian retail sector.

• Complications in issuance of licenses like a hypermarket

in Mumbai must apply for 29 unique licenses & then when

it has to come up with second store it has to apply for same

29 licenses all over again.

Inflation Effect on Indian Retail Industry

Disturbed economic status.

Challenge to get more customers at

low cost.

Liquidity pressure

EMERGING HUMAN

RESOURCE CHALLENGES

• Indian retail sector :

Employs 8% (35 million)of the working population.

Could yield 12 to 15 million retail jobs in the coming

five years.

• Out of which organized segment is about 0.3 million.

• Retail sector grew at 9.4% on real terms & 15.4% on

nominal terms.

Present Scenario

Value Chain & Core Processes

Front End Operations

Back End Operations

Store Operations

MerchandisingLogistics &

DistributionsMarketing

Procurement/ Purchase

Corporate Services

Functional Distribution of Employment in Retail

Distribution of Human Resource by Education Level

Profile RequiredMBA Graduates with 5-10years of Experience

Graduates with 2-5years of Experience

Graduates/ 12th Pass/ 10th Pass

Graduates/ 12th Pass/ 10th Pass

Skill Requirements &

Skill Gaps

Associates&

Executives

Level Skills Required Skill Gaps

TransactionprocessingAssociate/Billing associate

• Computer Skills• Transactions

• Knowledge• Soft Skills

Customerservicerepresentative/SalesAssociate/Salesperson

• Selling Skills• Promotional Schemes• Product Knowledge

•Comm. Skills• Knowledge• Cross Selling

MerchandisingAssociate/Executive

• Responsibility• Routine Visits

• Customize

Purchaseexecutive

• New Vendors• Communicate

• Delivery of merchandise during peak demand season

Executive/MarketingAssociate

•Marketing Strategies• Feedback• Knowledge

• Communication

Senior Manager & Manager

Level Skills Required Skill Gaps

Store Manager/DepartmentManager

•Management • Proficient Tools•Sales Promotion Programms

•CrossFunctional Activities•Man Management Skills•knowledge.

MerchandisingManager/Sr.MerchandisingManager

• Current Market Trends• Product Knowledge• Visual Merchandising Concepts

• Understanding• Soft Skills

PurchaseManager/CategoryManager

• Sourcing Alternatives• Track Inventory Level

• Negotiation Skills• Soft Skills

Level Skills Required Skills Gap

Senior Manager/Manager

•Availabilityof merchandise.•Maintenance •Design/modify the logistic schemes.• Negotiation with warehouse owners.

•Availability ofexperienced Logisticspersonnel is a keychallenge

MarketingManager/Sr.MarketingManger/MarketingOfficer

• Knowledge of data analysis.•Understand customer behavior.•Coordinate with media agencies.

• Ability to understand•Communication

Factors Leading to Difference in Skill Intensity Across Retail Segments

Complexity/Technical Nature of Product

Nature of Supply Chain

Changes in the Product Nature/ Type

Level of Customer

Involvement

Store Characteristics

Price Segment(Luxury, Mass market etc.

Intensity of Skill Requirement

Issues

Demand• Communication Skills

• Multi Tasking

Supply• Limited Retail Training

Opportunities

• Higher Level Skills

Current Training/Education Infrastructure

• The Retailers Association of India (RAI)

- Diploma and Degree Programs in Retailing

- Bharti Retail and Vishal Retail

- 5,000 trained persons

Projected Industry Size

Skill Pyramid4-5%

30-33%

10-15%

50-53%

Level 3

Level 2

Level 1

Level 4

WHAT LIES AHEAD?

• Employment.

• Unfair competition.

• Under-developed organized retail sector.

NSSO Concerns On Opening Up Of FDI

FDI can be a powerful catalyst to spur competition in the retail industry.

It can bring about: Supply Chain Improvement Investment in Technology Manpower and Skill development Efficient Small and Medium Scale Industries Increase in exports

‘FDI In Retail- A Policy Perspective’, - FICCI and ICICI

Lifestyle plans to have more than 50 stores across

India by 2012–13.

Future Investments

Major Retail Players Entering Into India

• Investment into warehouse and cold storage chain will result in significant efficiency on supply chain.

• Farmers benefited through direct marketing and contract farming programme.

• Improves farm production through modern techniques.

• Increasing availability of low interest credit for farmers.

Benefits Envisaged To Agriculture Through The Opening Of FDI

Future Predictions

2008 2011 2013 20180

0.2

0.4

0.6

0.8

1

1.2

1.4

0.35

0.59

0.830000000000001

1.3

Expected Growth

CAGR 10%

• In the last four year, the consumer spending in India climbed up to 75%.

• By the year 2013, the organized sector is also expected to grow at a CAGR of 40%.

• The total number of shopping malls is expected to expand at a CAGR of over 18.9 per cent by 2015.

The initial cap on investment could be pegged at 49%.

FDI should be leveraged to create back-end infrastructure.

FDI will be a powerful driver to curb inflation.

Recommendations

To develop our rural sector ,should conditionality’s be put on the FDI funded chains relating to employment?

For example, should we stipulate that at least 35% of the jobs in the retail outlets should be reserved for the rural youth?

?????

Urban migration

Opportunity to urban and rural unemployed

Alternative incentive schemes

Industry experts predict that the next phase of growth in the retail sector will emerge from the rural markets.

By 2012 the rural retail market is projected to have a total of more than 50 per cent market share.

Apparel, along with food and grocery, will lead organised retailing in India.(RNCOS)

Road Map

What additional steps should be taken to protect small retailers?

Should an exclusive legal and regulatory framework be established to protect their interests?

?????

National legal framework cannot be effective.

Hamper growth in retail sector.

Incentives directly to benefit small retailers.

Restrict the number of stores that can be operated in a city.

Allow access to the small retailers to the stores through special windows.

Recommendations

 

Thank You