4 GROWTH OF INDIAN RETAIL

AN EMPRICAL STUDY ON FACTORS INFLUENCING STORE IMAGE, SATISFACTION AND LOYALTY IN DEPARTMENT STORES 85

4 GROWTH OF INDIAN RETAIL India has been a nation of ‘dukandars’ – around 12 million retailers – consisting of more retail shops than those in the rest of world put together. Retailing has been in our blood - as shopkeepers or as shoppers. But things are changing in the country in the way shopping is done, the way retailing is getting modernized and organized, and the way people are viewing this industry – as students, as shoppers and as academicians.

Kishore Biyani 4.1 Introduction Retailing is an integral part of the value chain in an organization. It is a function that

provides the ‘last mileage connectivity’ between an organization and its customers. In

many parts of the world retailers have emerged as one of the most potent forces in

influencing the performance of the value chain.

Retailing is undergoing unprecedented change in developing economies. In India, this

change is very perceptible. The Q110 BMI India Retail Report forecasts that total retail

sales will grow from an estimated US$427bn in 2009 to US$798bn by 2014. As well as an

ever-expanding middle and upper class consumer base, there will also be opportunities in

India’s tier II and tier III cities. The greater availability of personal credit and a growing

vehicle population that provides improved mobility also contribute to a trend towards

annual retail sales growth of 16% in US dollar terms.

India’s nominal GDP was an estimated US$1.17trn in 2009. Average annual GDP growth

of 6.7% is predicted by BMI through to 2014. With the population expected to increase

from an estimated 1.17bn in 2009 to 1.25bn by 2014, GDP per capita is forecast to expand

by nearly 79% by the end of the forecast period, to reach US$1,791. The forecast for

consumer spending per capita is for an increase from US$701in 2009 to US$1,225 in

2014.

The growth in the overall retail market will be driven, in large part, by the explosion in the

organized retail market. It includes the Western concept of chain outlets, department

stores, supermarkets, etc. According to Investment Commission of India (ICI) data, this

segment accounted for US$12.10bn of sales in 2006, 4.6% of the total retail segment. It is

predicted that that organized retail sales will reach US$99.09bn by 2014, 12.4% of the

total.


A second factor is the success that local firms have had in developing the modern

concept. Domestic retailers such as Reliance Retail and Pantaloon Retail continue to

invest heavily in growing their store networks and improving their in-store offerings, and

the impact they have on growth will be boosted by the arrival of expansion-oriented

multinationals.

Mass grocery retail (MGR) sales in India are forecast to undergo enormous growth over

the forecast period. It is predicted that sales through MGR outlets will increase by 155% to

reach US$11.61bn in 2014. This is a consequence of India’s dramatic, rapid shift from

independently owned small-scale retailers to large, modern outlets - although it must also

be noted that this growth is forecast to come from a very low starting point.

Research data put consumer electronic sales at US$25.17bn in 2009, with the automotive

sector worth an estimated US$20.47bn and over-the-counter (OTC) pharmaceutical sales

standing at US$2.20bn. The latter is predicted to be the fastest growing sub-sector over

the forecast period, albeit from a low base, with BMI estimating that sales will reach

US$4.57bn by 2014, an increase of 107.8%.

So we see the strong underlying economic growth accounted by the population expansion,

the increasing wealth of individuals and the rapid construction of organized retail

infrastructure are key factors behind the forecast growth.

Fuelled by the growth in consumer income and changes in their spending patterns, the

retail industry is growing at a rapid pace. The economic liberalization of the country has

not only facilitated the entry of international retailers but also provided Indian retailers the

opportunity to adopt the best practices and formats of some of these successful

international retailers. But being largely unorganized in nature, the Indian retail sector is in

sharp contrast to global scenario. Retail sales in India amount to $180 billion. And it

account for 10-11 percent of the gross domestic product (GDP). The Indian retail sector

has around 14 million outlets and has the largest outlet density in the world. However,

most of these outlets are basic mom-and-pop stores with very basic offerings and fixed

prices.


There are several challenges that Indian retailing has to face; prominent among them are

real estate issues, capital availability, legal frame work, human resources, and supply

chain development and management. Bottlenecks in the supply chain result in limited

assortments and increased costs of sourcing. The high cost of real estate owing to

constrained supply is also a major factor inhibiting the growth of large format stores. New

rules are required to enable retail stores to operate everyday with longer hours and

utilization of part-time employees, without incurring any extra cost. At present, varying

sales tax and octroi tax rates in different states remain a substantial hindrance to the

growth of this sector. Retailing, as a major sector of the economy, has yet to receive any

overt political or bureaucratic support. Its success and growth is largely dependent on the

initiatives of the government.

In spite of these constraints, Indian retail has bright prospects, propelled by the fast

lifestyle changes taking place in the Indian household. Over the last decade, India’s

middle-and-high income population has grown at a rapid pace of over 10 percent per

annum, even as the large low income base has shrunk. The changing identity of Indian

women and the structure of family are driving the demand for convenience. Customers are

demanding the better store ambience and are looking for solution providers and external

guarantors of quality and usability. The Indian consumer is increasingly focusing on value,

convenience, variety, and a better shopping experience. The increase in variety, quality,

and availability of products, as well as increasing spending power has resulted in

consumers increasingly using hypermarkets, supermarkets and department stores for their

personal shopping. Malls that offer shopping with entertainment are springing up with

many parts of the country.

There are a significant number of new competitors in the retail sector, and the established

players are seeking opportunity to expand rapidly. Currently, the government does not

allow 100 percent foreign direct investment (FDI) in the retail sector. However, it is on the

anvil and the entry of multinational retail chains would change the entire retail scenario of

the country. Wal-Mart which took the franchising route to enter the country has now

entered in to the joint venture (Bharati Wal-Mart). The government has allowed single

brand retailers to make direct investments.


4.2 The Concept of Organized Retail According to the National Accounts Statistics of India the ‘unorganized sector’ includes

units whose activity is not regulated by any stature or legal provision, and/or those, which

do not maintain regular accounts. In the case of manufacturing, this covers all

manufacturing units using power and employing less than 10 workers or not using power

and employing less than 20 workers (PWC, CII Publication).

In the context of the retail sector, it could therefore be said to cover those forms of trade

which sell an assortment of products and services ranging from fruits and vegetables to

shoe repair. These product and services may be sold or offered out of fixed or mobile

location and the number of people employed could range between 10-20 people. Thus,

the neighbourhood kiryana store, the paanwala, the cobbler, the vegitable, fruit vendor, etc

would be termed as the unorganized sector. The primary purpose in defining the scope of

the unorganized sector is to understand the formats or the forms of the trade that would be

understood as unorganized and therefore, to further the understanding of the term

organized.

Modern trade can be defined as any organized form of retail or wholesale activity (both

food and non-food, under multiple formats), which is typically a multi-outlet chain of stores

or distribution centers run by professional management (PWC, CII Publication). Organized

retail in India is a new reality.

The retail sector comprises of establishments primarily engaged in retailing merchandise,

generally without transformation, and rendering services incidental to the sale of

merchandise. The retailing process is the final step in the distribution of merchandise;

retailers are therefore organized to sell merchandise in small quantities to the general

public. The growth of organized retailing is thus expected to lead to value migration

wholesale trade to retail trade.


Table 4.1. Phases of Growth in Retail Markets INCEPTION

(10 years) GROWTH

(15-25 years) MATURITY

(5-10 years) STAGNATION

(5-10 years) Characteristics

Evolving diffused formats Regional presence

Conjectural presence in each market

Lower market share per market

Lack of availability of retail real estate space at reasonable cost

High degree of competition from unorganized players

Investment stage with high incremental investments

Mainly promoter and angel investor financing

Presence in few merchandise categories

Lack of scientific merchandise planning process

High bargaining power of vendors

High logistics and merchandise acquisition costs

High degree of resistance from consumers towards organized formats

Established format characteristics

Development of specialty formats

Movement towards national presence

Rapid expansion phase

Availability of retail space at reasonable costs

Growth in internal and external competition

Larger penetration into individual markets

Accelerated investments in new projects with lower incremental investments

Private equity, venture capital, debt and equity market financing accessible

High cost of financing

Increase in breadth and depth of merchandise categories

Introduction of scientific merchandise planning process

Bargaining power with vendor increases

Consumers start accepting new formats.

Increasing specialization in formats

National and international presence

New store expansion tapers Oversupply of retail space

Significant competition from other organized players and overlapping formats

Increasing focus on differentiation strategies

Peak penetration into individual markets

Market share stagnates

Low incremental investments required

Investment funded through internal accruals

Cost of financing declines

Customer acquisition cost increases

Substantially large breadth and depth of merchandise categories

Private labels assume strategic significance for improving profitability

Vendors enjoy low bargaining power

Increasing collaboration with vendors to derive supply chain efficiencies

Consumers demand higher service levels as awareness increases

Consolidation of formats National and international

presence

New store expansion stagnates or falls

Retail supply space tappers, leading to higher acquisition costs/ lease rentals

Over penetration into individual markets

Growth decelerates

Market share of individual players decline

Dependence to external finance to fund investment increases

High cost of financing

Customer retention cost increases

Consolidation of merchandise categories

Revamp in private label strategy

Low bargaining power of vendors- vendors start loosing out as competitive pressures lead to squeezing of vendors

Consumers demand higher service levels as awareness increases

Consumers shift to alternate formats

Risks

Availability of finance

Low fixed cost coverage leading to high operational leverage

High individual property risk

Format risk due to stability Market risk in terms of

acceptability of format by customers

Finance availability

Highly geared financial structure

Private label investment

IT integration

Market risk due to increase in competition

Consumer retention risk

Business risk increases and payback periods from new projects increases

Increasing finance risk New project risks in

international markets

Competition from alternative formats

Consumer retention risks

AFRICAN MARKETS INDIAN MARKETS SOUTH ASIAN MARKETS DEVELOPED MARKETS

In the experience of many economies, retail markets pass through a life cycle and distinct

phases of growth. Table 4.1 shows the markets of the world and the stages of growth they

are at. Development of organized retail sector started in the western markets much before

they did in the rest of the world. These markets are characterized by the existence of

definite formats. The retailers have a national and many a times, an international

presence.


In the first phase, new entrants create awareness about modern formats and raise

consumer expectations. In the second phase, consumers demand modern formats as the

markets develop thereby leading to strong growth. As with the lifecycle in any industry, the

high rate of growth would lead to a stage where the market would reach maturity and all

the players would strengthen their positions. This would be the final phase where the

market would reach saturation, the growth would be limited and for sustainable growth,

retailers would explore new markets as well as evaluate inorganic opportunities.

The Indian market has just entered the stage of growth. The growth stage can last from 15

to 25 years. During this phase, various retail formats start emerging. Many retailers move

from local to a national presence. The concept of the retailers’ private label starts

emerging. Expansion and growth is rapid. Integration of process by use of Information

Technology becomes necessary. The A.T. Kearney 2009, Global Retail Development

Index (GDRI) further collaborates the point mentioned above. It states that countries

typically progress through four stages – opening, peaking, declining, and closing as they

evolve from emerging to mature markets, the time span can extend from five to ten years.

The report further places India at the phase of opening in the year 1995, and fast

approaching the stage of peaking in the year 2006 and maturing by 2009 (The 2009 A.T.

Kearney Global Retail Development Index).

4.3 The Evolution of Retail in India While barter is considered to be the oldest form of retail trade, since independence, retail

in India has evolved to support the unique needs of our country given its size and

complexity. Haats, Mandis and Melas have always been a part of the Indian landscape.

They still continue to be present in most parts of the country and form an essential part of

life and trade in various areas.

Public Distribution System (PDS) has its origin during WWII, when British introduced

rationing of grains. The system was started in 1939 in Mumbai (previously named

Bombay) and subsequently extended to other major towns and cities. By 1946, as many

as 771 cities/ towns were covered. The system was abolished post war, however, on

attaining Independence, India was forced to reintroduce it in 1950 in face of renewed

inflationary pressures in the economy. Today, PDS would emerge as single largest retail

chain in the country.


Source- ICICI Bank, presentation at FICCI on FDI on Retail, February 23, 2004

Figure 4.1- The Evolution of Retail in India

Organized retail formats that were introduced in pre independence era include Canteen

Stores Department (CSD) and Post Offices. CSD was introduced to provide canteen

facility to armed forces. Today CSD boost a turnover of more than Rs. 56,750 million with

34 depots, 3500 Unit Run Canteens (retail outlets), and over 10 million sq. ft. of

warehouse space. It retails 3,347 products which are procured from 505 suppliers

including 104 MNCs and has 12 million satisfied customers. (www.csdindia.com)

The Khadi & Village Industries (KVIC) was set up post independence. Today there are

more than 7,050 KVIC stores in India (www.kvic.org). In the first decade of 21st century a

lot has transformed in the Indian marketplace. During 1950s till 1980s, investment in

various industries was limited due to low purchasing power of the consumers and

governments’ policies favouring small scale sector. Initial step towards liberalization were

taken in 1985-90. It was in this period that many restrictions on private companies was

lifted, and in 1990s, the Indian economy slowly progressed from being state led to

becoming ‘market friendly’.

While independent retail stores like Akbarally’s, Vivek’s and Nalli’s have existed in India for

HISTORIC/ RURAL REACH

TRADITIONAL/

PERVASIVE REACH

GOVERNMENT

SUPPORTED

MODERN FORMATS/

INTERNATIONAL

Source of Entertainment

Neighbourhood stores/Convenience

Availability/ Low Cost/ Distribution

Shopping Experience/ Efficiency

WEEKLY MARKETS FAIRS MELAS

CONVENIENCE STORES/ MOM & POP/ KIRANAS

PDS OUTLETS KHASI STORES COOPERATIVES

EXCLUSIVE BRAND OUTLETS/ MALLS HYPER MARKETS SUPER MARKETS DEPARTMENT STORES

http://www.csdindia.com/

http://www.kvic.org/


a long time, the first attempts at organized retailing was noticed in textiles sector.

Raymond was pioneer in this field that set up stores to retail fabric. It also developed a

dealer network to retail its fabric. These dealers sold a mix of fabrics of various textile

companies. The Raymond’s distribution network today comprises of 20,000 retailers and

over 430 showrooms across the country (www.raymondindia.com).

Other textile manufacturers who also set up their own retail chains were Reliance- which

set up Vimal showrooms- and Garden Silk Mills with Garden Vareli. It was natural that with

the growth of textile retail, readymade branded apparel could not be far behind and next

wave of organized retail wave in India saw the likes of Madura Garments, Arvind Mills, etc.

set up showrooms for branded mens wear. With the success of the branded mens wear

store, the new age department store arrived in India in early 1990s.

This was in sense a beginning of a new era for retail in India. The fact that the post

liberalization, the economy had opened up and a new large middle class was spending

power has emerged, helped shape this sector. The vast middle class market demanded

value for money products. The emergence of modern Indian housewife, who managed her

home and work led to a demand for more products, a better shopping ambience, more

convenience and one stop shopping. This has fuelled the growth of department stores,

supermarkets and other super specialty stores. The concept of retail as entertainment

came to India with the advent of malls. The development of malls is now visible not only in

the major metros but also in the other parts of the country.

4.4 Drivers of Retail Growth in India

Indian retailing is not waiting for the size of business. The challenge lies in identifying the

key drivers that steer the Indian consumers’ perception and shopping behaviour. The

reality is that every retailer has to ‘understand his customers’ more discerningly than ever

before and make strategic choices to pursue the right target (customer) with the right

proposition (Banerjee, Arindham and Bibek Banerjee, 2000). The five main values sought

by shopper are variety, value for money, product quality, fashion attributes and time

saving.

To understand the Indian shopper we need to analyze his/her changing socio-economic

and demographics.

http://www.raymondindia.com/


4.4.1 Socio Economic Factors Socio economic factors are seen as fundamental to development. India is today a nation

which has a large middle class, a youth population which is happy spending and a steady

rate of growth of GDP. Table 4.2 indicates the changes that have been visible in India over

a period of time.

The primary indicator of socio-economic change is the increase in the life expectancy from

58 years in the year 1991-91 to an average of 67 years in 2009-10. In recent years India

has achieved 100 percent literacy rate in the age group of 15 to 35 years. Basic amenities

like drinking water and electricity are also commonly available. So in last 20 years there

has been a tremendous change in the basic quality of live of an average India. With the

basic necessities being taken care of, there is a good chance that the demand for other

product or services will increase.

Table 4.2. Indicators of Socio–Economic Changes in India Socio-Economic Indicators of Change in India

(1991-92, 1996-97, 2006-07, 2009-10) Indicators 1991-92 1996-97 2006-07 2009-10

Life expectancy (in years) Male 57.7 60.1 66.1 66.6 Female 58.7 61.1 67.1 67.8

Infant morality rate (per ‘000 births) 78.0 68.0 48.0 -

Death rate (per ‘000) 10.0 68.0 48.0 -

Birth rate (per ‘000) 28.9 25.7 21.7 21.4

Fertility rate (per ‘000) 130.3 113.0 91.4 90.7

Literacy rate (%) 15-35 years 56 90 100 100 07 years and above 52 75 90 94

Per capita consumption of food grains (in Kg.) 182.0 193.6 225.0 228.0

Villages without drinking water (‘000) 3.0 - - -

Villages partially covered (< 40 lpcd) 150.0 - - -

Electricity as source of lighting Rural 27 50 80 83 Urban 75 80 95 97

Source- www.indiastats.com, www.unhabitat.org

4.4.2 Changing Income Profiles Steady economic growth has fuelled the increase in personal income in India. The middle-

class forms the backbone of the Indian market story and it is the rising incomes in the

young middle class population that is fuelling its growth. Table 4.3 indicates that there has

been a steady growth in disposable income of Indian consumers.

http://www.indiastats.com/


Table 4.3. The growing Indian Middle Class Classification Income Class 1995-96 2001-02 2005-06 2009-10 CAGR (%)

Deprived < 90 131,176 135,378 132,250 114,394 -2 Aspirers 90-200 28,901 41,262 53,276 75,304 8 Seekers 200-500 3,881 9,034 13,813 22,268 12 Near Rich 1,000-2,000 189 546 1,122 2,373 20 Clear Rich 2,000-5,000 63 201 454 1,037 23 Sheer Rich 5,000-10,000 11 40 103 255 26 Super Rich >10,000 5 20 53 141 28

Total 164,876 188,192 188,192 204,283 221,945

CAGR between the period 2001-02 and 2009-10 Note- Income is in Rs. ‘000 per annum at 2001-02 prices, while households are in ‘000s Source- NCAER

The proportion of the major consuming class (population that has an annual income that is

higher than Rs. 90,000) has risen from 20 percent in 1995-96 to 28 percent in 2001-02, 35

percent by 2006-07 and about 48 percent by 2009-10. This translates into a CAGR of 9.3

percent resulting in higher spending capacity and larger consumption.

Though the aspiring class shows a CAGR of only 8 percent, its share has more than

doubled from 15 percent to 34 percent from the year 1995-96 to 2009-10. The households

in the category of seekers has also increased to around 10 percent of total households

from 1995-96 to 2009-10. This is reflective of the growth in the consuming class. An

increase in the spending class implies an expanding opportunity that retailers can tap.

The share of households falling in the deprived category has shown a negative growth

from the period 2001-02 to 2009-10. At the same time, the share of households falling in

super rich, sheer rich, near rich and almost rich is seen to be increasing, which is reflective

of an increasing affluent society and this is also an indicator of consumption levels and the

products consumed. This increase in incomes has happened in both urban and rural India,

giving rise to what is now popularly termed as the ‘Great Indian Middle Class’.

4.4.3 The Age Factor Compared with several advanced countries, where the overall population is aging, India is

very young nation with more than 70 percent of its population below the age of 40, and

more than 47 percent below the age of 20. The median age of Indians is about 24 years

(www.unhabitat.org).

In 1990, the population between the segments 0-14 years was 36.2 percent. It showed the

further decline in at 33.5 percent in 2000, 31.5 percent in 2005, and has further declined to

http://www.unhabitat.org/


29.4 percent in 2010. In 1990, the population above 65 years of age was 4.3 percent,

growing up to 4.9 percent in 2000, 5.3 percent in 2005, and 5.7 percent in 2010. As India’s

birth rate has traditionally been high, the proportion of the population at the working age

(20-44 years) is projected to increase from 32.2 percent in 1996 to 40.5 percent in 2016.

Those aged 45 and over accounted for just 17.3 percent in 1996 - a proportion that is likely

to rise to 23.5 percent by 2016 (www.unhabitat.org).

This age distribution is of significance to the marketers of goods and services. It partially

explains the boom in all Indian cities in consumption of impulse products and leisure

related expenditure in general. The increasing youth population which also started earning

early also increases the overall purchasing capacity in the country, and has implications

for productivity of labour.

The projected increase in the economically active population of young Indians holds the

key to India’s prosperity and its economic potential over the next 20 years, and is expected

to unlock a new wave of consumer demand provided the current trend of economic

liberalization continues and generates investment and trade opportunities in the economy.

4.4.3 The Changing Role of Women and the Evolving family Structure The population of working woman has increased from 22 percent in 1991 to 26 percent in

2001 and 35 in 2010. The increased economic independence of women has redefined the

rules of social behaviour. Apart from an increased family income, it has lead to a change in

the kind of products and services which are demanded. The purchasing habit of working

woman is different from that of a housewife, since the former has lesser time to devote to

the household tasks. Working women would prefer a one-stop shop for purchasing their

regular products. Also, a working woman’s propensity for spending is higher than that of a

house wife. The increase in the number of working women will hence drive the need for

convenience and will play a major role in the success of many modern retail formats in the

country.

Apart from the increase in the number of working women, the average household sizes

have also decreased from 5.57 in 1991 to 5.36 in 2001 to further 5.33 in 2010. With more

and more nuclear families proliferating, it is to be reasonably expected that time poverty is

setting in. nearly 1.5 - 2 percent of joint families give rise to nuclear families every year.



The rise in the number of nuclear families typically, is seen as a factor which will translate

in to higher spending on retail goods and works in favour of organized retailing. In fact, it is

estimated that nuclearisation would account for 3 to 4 percent increase in aggregate

spending over the next five years. Thus, nuclearisation of families is also seen as a driver

of modern retail trade.

4.4.5 The Changing Consumption Basket Occupational changes and the expansion of media have made a significant change to the

way the consumer lives and spends his money. The increase in the contribution made by

the services is also a reflection of the new opportunities that are available to the youth in

terms of job opportunities. The Indian population today is characterized by youth who also

have spending power. There is also an easier acceptance of luxury and an increased

willingness to experiment with mainstream fashion, resulting in an increased willingness

towards disposability and casting out, from apparels to cars to mobile phones to consumer

durables. Occupational changes and the expansion of media have made significant

change to the way consumer lives and spends his money. The changes in income brought

about changes in the aspirations and the spending patterns of the consumers.

If one looks at the private final consumption expenditures for the period 1999-2000 to

2004-5, one finds a change in the amount spend by customers on various products. The

same is indicated in table 4.4.

Table 4.4. The Changing Spends on Consumption 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

Food 45.63 41.21 41.16 37.48 37.07 35.37 Beverages 0.78 0.82 0.99 1.33 1.33 1.58 Hotels & Restaurants 1.81 1.88 1.91 1.91 1.91 2.00 Clothing and Footwear 5.24 5.93 5.23 5.18 5.14 5.17 Furnishings, Appliances 3.23 3.36 3.34 3.37 3.33 3.43 Medical & Health Care 4.33 4.80 5.20 5.73 5.91 6.21 Education 1.88 1.96 2.03 2.17 2.18 2.23

Source- National Income Statistics, CMIE, October 2006, pp 78.

Discretionary spending has already risen from 35 percent of average household

consumption in 1985 to 52 percent in 2005 (McKinsey Global Institute, 2007).

The historical pattern in most developing economies shows that as income rise, consumer

ten to spend proportionally less on basic necessities and more on discretionary items. A

similar change is underway in India. As millions of deprived households move into the


aspirer segment, they will begin to be able to afford product and services beyond their

immediate needs for food and clothing.

4.4.6 Increased Credit Friendliness There is a radical change in the consumer’s mindset regarding credit. There has been a

dramatic shift in terms of how a consumer defines capital expenditure and revenue

expenditure. Many capital expenditures, i.e. money spent on buying house, vehicle,

jewellery or consumer durables have transformed into consumer revenue expenditure

because of easy availability of finance.

Credit cards are a means of spending or for that matter, increased spending, and this

auger well for the development of modern trade.

4.4.7 Geographical Dispersion of Market Potential There is a considerable variance in economic prosperity levels among various Indian

states, which linked to the overall wealth creation from agriculture, trade and industrial

development. Accordingly, there are affluent and poor districts in most states, classified

according to their market potential. At national level India has 600 plus districts of which

the top 150 districts (Class A) account for 78 percent, while the next 150 account for 15

percent of the national market potential for a wide category of goods. The remaining

districts (Class C) which have 40 percent of the geographic share are backward and

account for only 7 percent market potential. The spread of affluent and non-affluent

districts is uniform in all four regions. However, the Eastern, Northeastern and Central

regions of India have the largest share of backward districts.

Urbanization has increased considerably in last two decades of liberalization (see Table

4.5). In 1990, the urban population was estimated to be 210.7 million (24.7 percent of the

total population) which increased to 280.6 million in 2000 (28.0 percent of the total

population). In 2010, the urban population is 380.0 million (33.0 percent of the total

population). Urbanization marks an increased growth in consumption and spending.

Table 4.5. Population Growth (Rural-Urban) in India Year

Rural Urban Total Population

(million) %

increase Population

(million) %

increase Population

(million) %

increase

1990 630.3 - 210.7 - 850.0 -

2000 720.0 13.7 280.6 31.7 1000.6 18.4

2010 770.2 07.2 380.0 32.9 1150.2 14.5 Source- www.unhabitat.org


Rural areas, where over 67 percent of Indian population still lives, are witnessing

widespread changes in the shopper market. In fact, the rural market has outpaced India’s

urban market in demand for durable and non-durable goods (see Table 4.6., 4.7 and 4.8).

Table 4.6. Rural Demand for Consumer Durables

(Percentage of all India)

1995-96 2001-02 2009-10

Scooters 33.1 39.4 39.9 Motorcycles 47.3 39.8 48.3 Mopeds 52.7 58.2 57.7 Cars/ Jeeps 2.1 8.0 10.9 Automobiles 37.9 36.0 37.9 Television 54.0 54.5 44.2 White Goods 23.8 23.9 23.7 Fans 50.0 56.9 56.7 Low Cost items 58.1 60.1 61.3

Source- The Great Indian Market, Result from NCAER’s Market Information Survey of Households, August 9, 2005

Table 4.7. Rural Demand for Consumer Expendables

(Percentage of all India)

1995-96 2001-02 2009-10

Edible Oil 64.3 67.1 62.9 Health Beverages 28.6 27.3 28.1 Packaged Beverages 36.0 42.8 30.3

Source- The Great Indian Market, Result from NCAER’s Market Information Survey of Households, August 9, 2005

Table 4.8. Rural Urban Consumption Expenditure

(Percentage of monthly household)

Area of Allocation Urban Rural

Fuel & Lighting 9 10 Clothing (including Bedding and Footwear)

6 7

Medical care 6 7 Sugar, salt and spices 3 5 Cereals 9 17

Source- The Times of India, New Delhi, February 1, 2008, pg. 14

Estimates suggest that the rural market is growing twice as fast as urban market. Due to

agricultural growth, income redistribution, and the communication revolution, rural India

today accounts for a sizable market share of a wide range of products. However, it has

been found that rural shoppers, unlike their urban counterparts, do not distinguish between

occupational and personal spending. That is because 70-80 percent of rural consumers

are farmers, who are, in a way, self-employed businessmen. From whatever they earn,


they have to spend on the household as well as the farm. As a result the rural spending

basket not only consists of personal and household items but also occupational

expenditure on fertilizers, seeds, and pesticides, etc (The Marketing White Book, Business

World).

4.5 Structure of Indian Retail Industry The retail industry in India is largely unorganized and predominantly consists of small,

independent, owner managed shops consisting of the local kirana shops, owner-manned

general stores, chemists, footwear shops, apparel shops, paan and beedi shops, hand-

cart hawkers, pavement vendors, etc. which together make up the so-called ‘unorganized

retail’ or traditional retail. The last 5-7 years have witnessed the entry of a number of

organized retailers6 opening stores in various modern formats in metros and other

important cities. Still, the overall share of organized retailing in total retail business has

remained low. Figure 4.2 transcripts the growth of organized retail in India.

Source- KSA Technopak Analysis

Figure 4.2- Percentage Growth of Organized Retail Trade over Total Retail

Organized retail which at present (2010) is only 5.07 percent of total retail trade, is likely to

grow and contribute about 20 percent of total retail business by 2020.

10591 350

11308 408

12023 479

14574 598

16206 715

18150 854

20328 1020

All figures in Rs. Billion

5.07

4.10

4.40

4.70

3.98 3.60

3.30


Table 4.9 gives the category-wise growth of Indian retail, total as well as the organized

sector, in recent years. While total retail sales have grown from Rs. 10,591 billion (US$

230 billion) in 2003-04 to Rs. 14,574 billion (US$ 322 billion) in 2006-07, which is at an

annual compound growth rate of about 11 per cent, the organized retail sales grew much

more at about 20 per cent per annum from Rs. 350 billion (US$ 7.6 billion) in 2003-04 to

Rs. 598 billion (US$ 13.2 billion) in 2006-07. As a result, the share of organized retail in

total retail grew, although slowly, from 3.3 per cent in 2003-04 to 4.1 per cent in 2006-07.

Food and grocery constitutes the bulk of Indian retailing and its share was about two-thirds

in 2003-04 gradually falling to about 60 per cent in 2006-07 (Table 4.10). The next in

importance is clothing and footwear, the share of which has been about 7 percent in 2003-

04 and rose to 9 per cent in 2006-07. The third biggest category is non-institutional

healthcare whose share has slowly reduced from 9 per cent in 2003-04 to 8 per cent in

2006-07. The next is furniture, furnishing, appliances and services, whose share rose from

about 5 per cent in 2003-04 to 7 per cent in 2006-07. The category of jewellery, watches,

etc. constituted about 6 per cent of total Indian retailing in 2006-07, rising from 5 per cent

in 2003-04.

Table 4.9. Growth India Retail - Total vs. Organized Indian Retail (Rs. Billion)

2003-04

2004-05

2005-06

2006-07

CAGR 2004-07

(%)

Food & Grocery 7034 7064 7418 8680 7.3 Beverages 212 309 373 518 34.7 Clothing & Footwear 777 993 1,036 1,356 20.4 Furniture, Furnishings, Appliances & Services 512 656 746 986 24.4 Non-institutional health care 950 972 1,022 1,159 6.9 Sports goods, entertainment, equipment & books 212 272 308 395 23.0 Personal care 371 433 465 617 18.5 Jewellery, watches, etc. 530 610 655 863 17.7

Total Retail 10,591 11,308 12,023 14,574 11.2

Organized Retail ( Rs. Billion) Food & Grocery 39 44 50 61 16.5 Beverages 11 12 13 16 14.7 Clothing & Footwear 168 189 212 251 14.3 Furniture, Furnishings, Appliances & Services 67 75 85 101 14.8 Non-institutional health care 14 16 19 24 20 Sports goods, entertainment, equipment & books 25 33 44 63 37.0 Personal care 11 15 22 33 46.9 Jewellery, watches, etc. 18 24 33 49 40.5

Total Organized Retail 350 408 479 598 19.5

Percent share of organized retail to total 3.3 3.6 4.0 4.1

Source- CSO, NSSO, and Technopak Advisers Pvt. Ltd.


Table 4.10. India Retail - Share of Categories (per cent)

2003-04 2004-05 2005-06 2006-07

Food & Grocery 66.4 62.5 61.7 59.6 Beverages 2.0 2.7 3.1 3.6 Clothing & Footwear 7.3 8.8 8.6 9.3 Furniture, Furnishings, Appliances & Services 4.8 5.8 6.2 6.8 Non-institutional health care 9.0 8.6 8 8.5 8.0 Sports goods, entertainment, equipment & books 2.0 2.4 2.6 2.7 Personal care 3.5 3.8 3.9 4.2 Jewellery, watches, etc. 5.0 5.4 5.4 5.9

Total Retail 100.0 100.0 100.0 100.0

Source: Computed from Technopak Advisers Pvt. Ltd. data.

While the overall share of organized retailing remains low, its share in certain categories is

relatively high and in certain other categories quite low. Thus, for clothing and footwear,

the share is already in the range of 19-22 per cent, for the category of sports goods,

entertainment, equipment and books the share is 12-16 percent, and for furniture,

furnishing, appliances and services, the share is 10-13 percent (Table 4.11). In contrast,

the share of organized sector in the largest category of food and grocery retailing,

although growing, remains just below one per cent.

Table 4.11. Share of Organized Sector in Total Retail by Category (%)

2003-04 2004-05 2005-06 2006-07

Food & Grocery 0.5 0.6 0.7 0.7 Beverages 5.0 3.8 3.6 3.1 Clothing & Footwear 21.6 19.0 20.4 18.5 Furniture, Furnishings, Appliances & Services 13.0 11.4 11.3 10.2 Non-institutional health care 1.5 1.7 1.9 2.1 Sports goods, entertainment, equipment & books 11.6 12.1 14.4 16.0 Personal care 2.8 3.5 4.7 5.4 Jewellery, watches, etc. 3.3 4.0 5.1 5.6

Total Retail 3.3 3.6 4.0 4.1

Source: Computed from Technopak Advisers Pvt. Ltd. data.

The growth in organized retailing in recent years can also be gauged by the rise of

shopping malls as well as the rising number of modern retail formats. In 1999, India had

just three shopping malls measuring less than one million sq. ft. By the end of 2006, the

country had 137 shopping malls equivalent to 28 million sq. ft. The pace of construction of

shopping malls is progressing rapidly and the number of malls is expected to be about 479

by the end of 2008 with a capacity of 126 million sq. ft. (ICICI Property Services-

Technopak Advisers Pvt. Ltd., 2007).


4.5.1 Traditional Retail Formats Traditional retail formats refer to those formats that have long been part of the retail

landscape of India. They include formats like kirana and independent stores that are

typical of the unorganized retail sector across product categories and also the most

administratively organized form of Indian retailing- cooperatives and government-

controlled retail institutions (like public distribution system and cottage emporiums). In

terms of professional management and efficiency of integration with value chain, the

traditional retail formats are better classified under the unorganized retail sector.

There are predominantly two types of traditional retail formats, namely:

1. Kirana and independent stores

2. Cooperative and government owned stores

Independent and kirana stores have emerged with the spread and density of population.

Historically, they are traced to the generation of surplus in agriculture that needed to be

sold to obtain other essential commodities by the producer. This was accomplished by the

emergence of trading class in India.

Generally, the kirana, mom-and-pop, and family owned retail stores represent the retail

business in India. These are usually the shops with a very small area, stocking a limited

range of products, varying from region to region according to the needs of the clientele or

whims of the owners.

About 78 percent of these retail stores are small family owned businesses utilizing only

household labour. Even among the retail enterprises that employ hired workers, the bulk of

them use less than three workers. These stores are low cost structures, mostly owner

operated, have negligible real estate and labour costs and little or taxes to pay. Consumer

familiarity that runs from generation to generation is one big advantage enjoyed by the

traditional retail sector. The retailer to consumer ratio is very low with many shops often

located close to people’s residence thus making location and convenience a major factor

for their popularity. Moreover, the retailer offers credit facilities depending on the size of

his business and seeming credibility of his customer.

Branding is not the key decision criteria for the majority of customers at the traditional


retail outlets, particularly in the small townships and rural India. Traditional retailers play a

significant role in the purchase decision, influencing both the product and brand

perception.

Conventionally, retailers source the merchandise from wholesalers and sell it to end-users.

Manufacturers distribute goods through carrying and forwarding agents to distributors and

wholesales. The merchandise prices get inflated to a great extent by the time it reaches

from the manufacturer to the end user. The new wave competition has had a healthy effect

on traditional retailers. Many are trying to introduce self-service formats, attractive

atmospherics, services such as home delivery, and even telephone based order delivery.

Cooperatives stores in India are the result of the cooperative movement that can be traced

to pre-independence period. They emerged as a reaction to the feudal system and

attempted to place the fruits of labour in the hands of the producer himself to make him

self reliant. The cooperative movement was strengthened after independence; yet it was

largely successful in western India. Government owned and /or operated stores emerged

after independence of their increased role in business and their responsibility towards

socio-economically weaker sections of the society, and for preservation of handicrafts,

promotion of tourism, ensuring fair prices, and distribution of essential items.

India has a large number of retail stores run by cooperative societies and government

bodies across product categories. Such initiatives were taken for various socio-economic

factors primarily, to promote industries and generate employment opportunities in rural

areas.

The examples of organized retailing format in India are Super Bazaars and Kendriya

Bhandars along with the administered price public distribution system. These stores were

among India’s earliest endeavors into organized retailing with a user friendly store format,

large variety and reasonable pricing.

However, these were characterized by average customer service, bureaucratic timings,

and poor upkeep. In a similar manner, cooperative movement in various industries such as

dairy products also led to the emergence of organized retail chain in the leading cities of

India, such as Mother Dairy outlets in Delhi and Parag in Lucknow. At the same time,


government established retail chains too provide effective marketing infrastructure to small

scale industries engaged in handicrafts and local goods such as KVIC stores in pan India,

and state emporiums in the leading cities.

4.5.2 Modern Retail Formats Formats that have emerged or become popular in the 1990s are classified as modern

retail formats. In terms of professional management and efficiency of integration with the

value chain, these formats are classified as part of organized retail chain in India.

Economic liberalization, competition, and foreign investment since 1990s led to the

proliferation of brands, with both foreign and Indian companies acquiring strong brand

equity for their products. Hence, franchising emerged as a popular mode of retailing. Over

the last 15 years, franchising as a format of retail expansion has gradually matured.

International franchising is also in an interesting phase in India as global organizations like

Pizza Hut, Marks and Spencer, McDonald’s, Subway, HP, Holiday Inn, Medicine Shoppe,

Domino’s, Gold’s Gym and Kentucky Fried Chicken (KFC) have set up franchises in India.

Industry sources claim that, franchising in India has been clocking a 60 percent year-on-

year growth which is likely to accelerate to 100 percent over the next five year period

(Economic Times, 24 Feb, 2008). In India, there are close to 40,000 franchisees, with an

annual turnover anywhere between Rs.8,000-Rs.10,000 crores from franchising. It is

estimated that total investment made by franchisees is over Rs.5,000 crores and over

300,000 are directly employed by franchised business (Economic Times, 4 Feb, 2008).

The franchisee showrooms of various readymade garments manufacturers like Arvind

Mills, Madura Garments, and Raymond etc. and Titan are perhaps the most visible

successes of franchising in India. One of the pioneers in this field, in the area of beauty

and personal care products has been Shahnaz Hussian. Today the chain of Shannaz

Hussian parlours has more than 200 franchisees in India (www.shahnaz-hussian.com). As

the economy evolves and retail as a sector continues to grow, various new avenues in

franchising are emerging in the Indian franchise scenario. Education is a key in India,

where there have been significant developments in franchising. The IT education sector is

fairly substantial at 40 percent. Franchising in the IT-Enabled Services (ITES) stands at 14

percent. The portfolio in the education sector is diverse- from children education in

http://www.shahnaz-hussian.com/


computer basics to expertise in languages and competitive exams, including foreign

universities admission exams. In the education category, NIIT, Eurokids, and ZILS are

performing well.

The other major retailing organization format in India is ‘chain stores’. More and more new

or established companies in other trade are coming in to the retail business in India,

contributing to the introduction of new formats like malls, supermarkets, hypermarkets,

discount stores, specialty stores and department stores.

Table 4.12 provides an analysis of the expansion of organized retail in terms of the

different modern retail formats. The total number of organized retail outlets rose from

3,125 covering an area of 3.3 million sq. ft. in 2001 to 27,076 with an area of 31 million sq.

ft. in 2006. Small-sized single-category specialty stores dominated the organized retail in

the beginning with almost two-thirds of total space in 2001. Departmental stores came

next with nearly a quarter of total space and supermarkets accounting for the balance of

about 12 per cent of organized retail space. There were no hypermarkets in India in 2001.

Specialty stores are still the most common modern retail format with over a half of total

modern retail space in 2006. Supermarkets and department stores occupied nearly an

equal space of 15-16 per cent each in 2006. In 2006, India had about 75 large-sized

hypermarkets carrying a tenth of the total modern retail space in the country. This format is

expected to gain more prominence in the future.

Table 4.12. Organized Retail Expansion by Format Format

Average size (sq. ft.)

2001 2006 Number of stores

Area (‘000 sq. ft.)

Share in total space

Number of stores

Area (‘000 sq. ft.)

Share in total space

Supermarkets / convenience stores

1,000

400

400

11.9

4,751

4,751

15.5

Hypermarkets 40,000 0 0 0 75 3,000 9.8 Discount stores 1,000 48 48 1.4 1,472 1,472 4.8 Specialty stores 800 2651 2121 633 20,612 16,490 53.7 Department stores 30,000 26 780 23.3 166 4,980 16.2

Total 3,125 3349 100 27,076 30,693 100.0

Source: Technopak Advisers Pvt. Ltd.

Hypermarkets A hypermarket is a very large retail unit offering merchandise at low prices. Hypermarkets

are characterized by large store size, low operating costs and margins, low prices, and a


comprehensive range of merchandise. Typically varying between 50,000 sq. ft. and 1,

00,000 sq. ft., hypermarkets offer a large basket of products, ranging from grocery, fresh

and processed food, beauty and household products, clothing and appliances, etc.

Reliance Hyper, Big Bazaar, Star India Bazaar, Spencer's Hyper (formerly Giant), Hyper

City, Choupal Sagar (rural hypermarket) are the major hypermarkets in India.

In 2010 there are 1,400 hypermarkets with 66 million sq. ft. of retail space that generate

revenue of $ 47.17 billion. Investment in hypermarkets is expected to be over $35 billion

by 2013, which would be 33 per cent of the total investment in organized retail by 2013

(Business Standard, June 10, 2010)

Cash-and-carry These are large B2B focused retail formats, buying and selling in bulk for various

commodities. At present, due to legal constraints, in most states they are not able to sell

fresh produce or liquor. Cash-and-carry (C&C) stores are large (more than 75,000 sq. ft.),

carry several thousand stock-keeping units (SKUs) and generally have bulk buying

requirements. In India an example of this is Metro, the Germany-based C&C, which has

outlets in Bangalore and Hyderabad. Wal-Mart has ventured with cash and carry format

with Bharati and has opened its first outlet in 2009 in Amritsar, Punjab.

Supermarket Supermarkets, generally large in size and typical in layouts, offer not only household

products but also food as an integral part of their services. The family is their target

customer and typical examples of this retailing format in India are Apna Bazaar, Sabka

Bazaar, Haiko, Nilgiri's, Spencer’s from the RPG Group, Food Bazaar from Pantaloon

Retail, etc.

Shop-in-Shop There is a proliferation of large shopping malls across major cities. Since they are

becoming a major shopping destination for customers, more and more retail brands are

devising strategies to scale their store size in order to gain presence within the large

format, department or supermarket, within these malls.

For example, Infinity, a retail brand selling international jewellery and crystal ware from

Kolkata's Magma Group, has already established presence in over 36 department chains


and exclusive brand stores in less than five years. Shop-in-shops have to rely heavily on a

very efficiently managed supply chain system so as to ensure that stock replenishment is

done fast, as there is limited space for buffer stocks.

Specialty Store Specialty stores stress on one or limited number of complementary product categories and

extend a high level of service to their customers. In India, the traditionally independent

retailers in the specialized market centre operate in a particular product category, as these

centers attract large crowd. Such specialized retail operations provide expertise,

economies of scale, bargain and image to the particular stores.

Specialty stores are single-category, focusing on individuals and group clusters of the

same class, with high product loyalty. Typical examples of such retail format are: footwear

stores, music stores, electronic and household stores, gift stores, food and beverages

retailers, and even focused apparel chain or brand stores. Besides all these formats, the

Indian market is flooded with formats labeled as multi-brand outlets (MBOs), exclusive

brand outlets (EBOs), kiosks and corners, and shop-in-shops. Recently, with the advent of

organized retailing, many companies and retail chains have opted for this retail format

such as furniture (Gautier), durables (Vivek’s), watches (Titan), etc. in particular, this kind

of retail format appeals to lifestyle product categories such as apparel, watches, home

fashions, and jewellery, etc. The largest penetration of organized retail would possibly

happen in this format in categories such as health and beauty, home improvement, and IT

products, etc.

Category Killers – Large Specialty Retailers Category killers focus on a particular segment and are able to provide a wide range of

choice to the consumer, usually at affordable prices due to the scale they achieve.

Examples of category killers in the West include Office Mart in the US. In the Indian

context, the experiment in the sector has been led by ‘The Loft’, a footwear store in Powai,

Mumbai measuring 18,000 sq. ft.

Discount Store A discount store is a retail store offering a wide range of products, mostly branded, at

discounted prices. The retailers offer a broad variety of merchandise mix, limited or no

service, and low prices are characterized by low margins, heavy advertising, low


investments on fixtures, limited support from sales people, etc. discount stores prefer

shopping centres that provide space at lower rents as they attract customers from other

adjoining stores in the shopping centre. The average size of such stores is 1,000 sq. ft.

In India, the ‘discount stores’ concept works with a difference. Indian consumers are price

conscious, interested in the best of the offerings, that is, the brands at the least price. One

needs to classify the stores on the basis of perpetual discount stores, extent of discount,

category wise discount, item/ brand wise discount, GP-based discount, general discount,

loyalty discount, special discount, festival discount, stock clearance discount, and fixed

amount discount. Vendor partnership is an essential element in the success of the

operations. A store’s operations and inventory management need to be very efficient and

effective to keep the running expenditure under control. Display should be self explanatory

to guide the customer in his buying decision. Price tags should be pasted depending on

the commodity so that they are visible irrespective of the category of the merchandise.

Typical examples of such stores in India are: food and grocery stores offering discounts,

like Subhiksha, Margin Free, etc. and the factory outlets of apparel and footwear brands,

namely, Levi’s factory outlet, Nike’s factory outlet, Koutons, etc.

Convenience Store A convenience store is a relatively small retail store located near a residential area (closer

to the consumer), open long hours, seven days a week, and carrying a limited range of

staples and groceries. Some Indian examples of convenience stores include: In & Out,

Safal, amongst others. The average size of a convenience store is around 800 sq. ft.

Department Store Department stores generally have a large layout with a wide range of merchandise mix,

usually in cohesive categories, such as fashion accessories, gifts and home furnishings,

but skewed towards garments. These stores are focused towards a wider consumer

audience catchment, with in-store services as a primary differentiator. Usually, department

stores are located within a planned shopping centers or traditional up-market downtown

centers. The department stores usually have 10,000 - 60,000 sq. ft. of retail space.

Various examples include:

Shoppers' Stop, controlled by the K. Raheja Group, a pioneering chain in the

country's organized retail;


Pantaloons, a family chain store, which is another major player in the segment;

Westside, the department store chain from Tata Group's Trent Ltd;

Ebony, a department store chain from another real estate developer, the DS

Group;

Lifestyle, part of the Dubai-based retail chain, Landmark Group; and

the Globus department and superstore chain.

Recently in India, many leading independent retailers of the cities and even new entrants

are indicating preference for autonomous department stores. For example, Appeal, a

leading fashion store in west Delhi and the Baniya store in Jammu offer a wide range of

products such as gifts, dry fruits, sports material, apparel, home fashion, curtain, bed-

sheets, etc. customers are free to move around the store unlike the traditional counter set-

ups in India.

Various departments within the store have a designated selling space allocated to them,

including a point-of-sales terminal to transact and record sales, and salespeople to assist

customers. A majority of the department stores in India possess women’s, men’s, kids’,

fashion accessories, and kitchenware and home fashion departments. Some departments,

to provide convenience to their customers in the browsing and selection of the

merchandise, have further sections on ethnic/ Western, formal/ causal, and accessories.

Department stores provide a distinctive shopping experience to customers on account on

account of services (home delivery, credit card, restaurants, cloakroom, and changing

room etc.) extended along with core offerings and atmospherics of the retail store. Pricing

of the merchandise offered is relatively high due to trained sales staff, range of

merchandise offered and services, and high capital investments. Department stores,

generally, opt for centralized buying taking in to consideration the preferences and tastes

of the consumers. In case of multiplicity of departments within stores, each department

carries out its own buying in accordance with the demand patterns of their customers.

Some department stores deal only in specific product category on account of variety and

brand available in particular product category, examples being Arcus in Gurgoan and the

Food Bazaar chain of grocery stores.


Ebony Retail Holdings Ltd.

Ebony launched its store in 1994 at South Extension, New Delhi. Its main goal is to give world-class

shopping experience to the Indian consumer. It has successfully opened seven stores across seven

cities in India.

Ebony Retail Holdings Ltd has initiated several industry trends, making a distinguished place for

itself in the industry. The most prominent and successful Ebony in-house brand are ETC and a

special books and music venture called Wordsworth. Ebony has opened its stores in Chandigarh,

Noida, Ludhiana, Jalandhar, Amritsar and Faridabad apart from New Delhi. Almost 8000 people

visit its stores everyday and the figures double during the weekends. It is known for its value added

benefits, promotions, and discounts throughout the year. It keeps its employees motivated and

encouraged through regular promotions and incentives.

The range of products and services offered by the company include well known apparel brands,

household items, cosmetics and personal care products, jewellery, fashion accessories, household

items, cosmetics, furnishing, crystal wear, books and music, sourced from across the world. Ebony

also has a marketing tie- up with Planet M.

The company has formed 'Ebony Elite Club', which comprises of 55000 Ebony loyalists. The club

introduces various promotional schemes, privileges, and discounts through Ebony Gold card issued

for the club members.

DS Group is the promoter of Ebony Retail Holdings Ltd., which is a multinational company founded

in the 1940s. It is known for its operations in various verticals but in India the group is making its

imprints in retailing and infrastructure.

Globus

Globus was launched in 1998 as a part of the Rajan Raheja Group. The company opened its first

outlet in Indore followed by two more in Chennai. The flagship store was opened on 1st November

2001 in Mumbai, followed by a vibrant store in New Delhi.

Subsequently, its stores were launched in Bangalore, Ghaziabad, Kanpur, Ahmedabad, Noida,

Lucknow, Varanasi and Hyderabad.The organization has an innovative and adaptive environment.

Globus has achieved customer delight by presenting value products and services through

continuous improvement. It has a team of dedicated and passionate employees maintained by

constant training.

Globus has developed long lasting relationships with its business partners. It employs the best

practices of the industry through cost analysis. It has brought about a veritable revolution in the

retail industry through its constant efforts and innovation in apparels. It has been a benchmark for

many upcoming retailers. It has brought about an important change in the industry and has


distinguished itself from others. Globus has acquired the best processes and procedures in various

fields, such as Marketing & Brand Development, Research & Design, Human Resources, Services,

Administering Policies & Procedures and Production & Merchandising.

The group wishes to add 100 fashion stores by the end of 2008. It has blended its resources of

technology and people in such a way as to get a competitive advantage over others.

Lifestyle

Lifestyle is an international fashion store of the Landmark Group, a Dubai-based company.

Lifestyle created a revolution in the Indian Retail Industry by bringing a truly international shopping

experience. It was launched in Chennai, and now it is one of the largest professional retailers

spread across 3,25,000 sq. ft. in various cities such as Chennai, Gurgaon, Mumbai, Hyderabad and

Banglore. It is a heaven for shoppers with a vibrant and spicy lifestyle. It provides a wide choice of

products at affordable prices with a convenient world-class environment and a friendly layout.

Being one of the best shopping destinations, it has won the ‘Most Respected Company in the

Indian Retail Sector' and the 'Most Admired Large Format Retail Company' awards in India

Pantaloon (Big Bazaar)

Pantaloon Retail is the flagship enterprise of the Future Group. Pantaloon Retail (India) Limited has

spread across various businesses and cities in India. Pantaloon owns multiple retail formats and is

able to cater to a large section of the society. The company has over 140 stores across 32 cities in

India and 14000 employees. The headquarters of the company are situated at Mumbai. The

organization made an incursion into the modern retail (fashion) in 1997. Big Bazaar, a hypermarket

chain, was introduced in the year 2001, with an Indian touch of convenience and hygiene. Food

Bazaar, food and grocery chain, and Central Mall located at various Metros are other important

parts of the group.

Others include Collection (home improvement products), E-zone (consumer electronics), Depot

(books, music, stationery and gifts), Blue Sky (fashion accessories) and Shoe Factory (footwear).

The company has also launched a retailing venture known as futurebazaar.com. The vision of

Future group is to ‘Deliver Everything, Everywhere, Every time to Every Indian Consumer in the

most profitable manner.’

Shoppers Stop

K. Raheja group of companies founded Shoppers' Stop on October 27, 1991. Shoppers' Stop is

famous for the expertise and acumen relating to the current practices of the industry. It provides

quality services, products and the right kind of shopping environment.


It has developed itself as a household name and has set high standards for itself with the mission

statement: ‘Nothing but the best’. In 2005, the company had 25 stores with a turnover of Rs. 1000

crores and 7 lakh sq. feet retail space in the year 2005. The average age of the employees in the

organization is 25 years.

Westside (Trent)

Tata Group founded Trent Ltd. (Westside) in 1998. The acquisition of a London-based retail chain

Littlewoods by the Tatas was followed by the establishment of Trent Ltd, which was later renamed

as Westside.

It is one of the largest and fastest growing chains serving the customers in various categories,

including men's wear, women's wear, kid's wear, footwear, cosmetics, perfumes and handbags,

household accessories, lingerie and gifts. The company offers products with a balance between

style and price. There are 25 Westside departmental stores operating in various cities like Mumbai,

Hyderabad, Pune, Delhi, Banglore, Noida, Gurgaon, Nagpur, Kolkata and many others.

Trent had established a hypermarket business with Star India Bazaar which provides them products

at lower price and better shopping experience. Star India Bazaar offers customers a variety of

products in categories, such as staple foods, fruits, vegetables, consumer electronics, health and

beauty products and many more at affordable prices.

In the year 2005, Trent acquired 76% stake in Landmark, which is one of the largest books and

music retail chains in the country.

Table 4.13. Major retail chains active in Indian Market

STORE FORMAT

COMPANY

BUSINESS GROUP

Hypermarkets Big Bazaar Future Group

Giant RPG Group

Supermarkets

FoodWorld RPG & Dairy Farm

Nilgiris Nilgiris

Food Bazaar Future Group

Discount Stores Subhiksha Viswapriya Group

Margin Free Markets Independent Retailer

Cash & Carry Metro Cash & Carry Germany's Metro Group

Department Stores

Ebony DS Group

Globus R Raheja Group

LifeStyle Landmark Group

Pantaloon Future Group

Shoppers Stop K Raheja Group

Westside Trent Ltd.

Specialist Retailing

Music World RPG Group

Tanishq TATA

Health & Glow RPG Group

Crossword Shoppers Stop & ICICI Ventures


Table 4.14. Challenges of Retail Sector in India Factors Description Implications

Barriers to FDI Single brand FDI allowed Absence of global players Limited exposure to best practices

Lack of Industry Status

Government does not recognize industry

Restricted availability of finance Restricts growth and scaling up

Structural Impediments

Lack of urbanization Poor transportation

infrastructure Consumer habit of buying fresh

food Administered pricing

Lack of awareness of Indian consumers

Restricted retail growth Growth of small, one-store formats,

with unmatchable cost structure Wastage of almost 20-25 percent

farm produce

High cost of real estate

Pro-tenant rent laws Non availability of government

land, zoning restrictions Lack of clear ownership titles,

high stamp

Difficult to find good real estate in terms of location and size

High land cost owing to constrained supply

Disorganized nature of transaction duty (10 percent)

Supply Chain Bottlenecks

Several segments like food and apparel reserved for SSI

Distribution, logistics constraints- restrictions of purchase and movement of food grains, absence of cold chain infrastructure

Long intermediate chain

Limited product range Makes scaling up difficult High cost and complexity of

sourcing and planning Lack of value addition and increase

in cost by almost 15 percent

Complex Taxation System

Differential tax rates across states

Multi-point octroi Sales tax avoidance by small

stores

Added cost and complexity of distribution

Cost advantage for smaller stores through tax evasion

Multiple Legislations Stringent Labour laws governing hours of work, minimum wages payments, multiple licenses/ clearances required

Limits flexibility in operations Irritant value in establishing chain

operations; adds to over all costs

Customer Preferences

Local consumption habits Need for variety Cultural issues

Leads to product proliferation Need to store larger level of SKUs at

store level Increases complexity in sourcing

and planning Increase the cost of store

management

Availability of Talent Highly educated class does not consider retailing a profession of choice

Lack of proper training

Lack of trained personnel Higher trial and error in managing

retail operations Increase in personnel costs

Manufacturer Backlash

No increase in margins Manufacturers reuse to dis-intermediate and pass on intermediary margins to retailers


4.6 Conclusion

India, a GRDI leader in 2009 and from 2005 to 2007, takes third place in ninth AT Kearney

study, 2010 (see Table 4.15). Despite the slight slip, India remains quite attractive for

retail. India’s GDP growth dipped to 6.7 percent in 2008-09, but reached to 7.2 percent in

2009-10 and is expected to reach 8 and 8.5 beyond that. The retail market is worth about

$410 billion, but only 5 percent of sales are through organized retail, meaning that the

opportunity in India remains immense. Retail should continue to grow rapidly- up to $535

billion in 2013 with 10 percent coming from organized retail, reflecting a fast growing

middle class demanding higher uality shopping environment and stronger brands.

4.15. AT Kearney Global Retail Development Index (GRDI) GRDI Rank

2004 2005 2006 2007 2008 2009 2010

Russia India # 1 India # 1 India # 1 Vietnam India # 1 China India # 2 Russia Russia Russia India # 2 Russia Kuwait China Ukraine Vietnam China Russia China India # 3 Slovenia China Ukraine Vietnam China UAE S. Arabia Croatia Slovenia China Ukraine Egypt S. Arabia Brazil Latvia Latvia Chile Chile Morocco Vietnam Chile Vietnam Croatia Latvia Latvia S. Arabia Chile UAE

Source: AT KEARNEY GRDI Reports 2004. 2005, 2006, 2007, 2008, 2009 and 2010.

Store growth and consumer insight have been the focus for past few years. The market is

maturing as most retailers are now focussing on profitable growth. Several domestic

retailers filed for bankruptcy or exited the market during the down turn including Subiksha

and magnet, while others optimized their operations, including store labour, rent

renegotiations and strategic cost management. Expansion plan did not slow, however:

Bharti Retail strengthened its position in northern India by opening 59 stores, Bharti Wal-

Mart is expected to open 10 to 15 wholesale locations in next three years, and Marks &

Spencers is considering pans to open additional outlets in next few years.

Established retailers are tapping into growing retail market by introducing innovative store

formats, such as community shopping, village malls and destination shopping stores. For

example, Future Group set up a first-of-its-kind community family shopping center in

Bangalore. Another innovative concept, ‘wedding malls,’ devoted to nearly every aspect of

weddings, are making the splash in the Indian market.

While rising commodity prices hit Indian consumers in all segments (including cereals,

grains, fruits and vegetables), retailers launched a wide range of private lables. More


profitable for retailers, these brands are gaining customer acxceptance in categories

beyonfd staples. Future Group plans add to 10 to 15 new private label categories every

year; this year, it expanded its Tasty treat lable to the breakfast cereal, noodle and soup

categories. Beyonfd private lables, Wal-Mart is working to change the agricultural supply

chain model in India to improve productivity and quality of goods by launching a direct

farm sourcing system.

Foreign players demonstrate strong interest in India- most major hyper market retailers

either have a presence or are studying the market for entry. In apparel, Zara (owned by

Spain’s Inditex Group) opened its first store in 2010, while Polp Ralph Lauren and Diesel

are expanding.

Desirable real estate is a lingering challenge for retailers. Mall rental rates are lower

because of an oversupply of space, but there is still a lack of quality street locations. Given

these challenges, many etailers see tier 2 cities as the next frontier. Customers in these

locations are proving similar to those in tier 1 cities, meaning that retail models translate

well- even increasing profitability because of lower operating cost. Spencer’s Retail. More

(owned by Aditya Birla group) and Shopper’s Stop (owned by K Raheja Group) already

plan to expand.

Regulations pose another challenge to retail growth in India, particularly the foreign

investment restrictions for multi brand retail, which will probably not change soon. As a

result, cash-and-carry format will thrive as foreign companies are allowed full ownership.

Wal-Mart and metro have already successfully entered through this route, and Careefour

and Tesco plan to follow.


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