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• Outdated Rent Control Act CASE: Mr.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Place Source: Outdated Rent Control Act is stifling our cities, Times Of India, June 12, 2010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 !!!