Indian Retail s Analysis

8/2/2019 Indian Retail s Analysis

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AN ANALYSIS

OF

INDIAN RETAILSECTOR


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Indian Retail Scenario

Retailing in India is one of the pillars of its economy &accounting 14% to 15% of GDP.

Employs 40 million Indians (3.3%).

The retail sector in developing markets has experiencedexplosive growth over the past 10 years.

As the population has increased by 11%, retail spaceexpanded by 225 %

Retail sales per capita increased almost 100 %,

Internet access grew more than 400 %.

Developing countries now represent 42 % of globalretail sales.


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Structural changes


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Division of Retail Industry

Organized retailing -

licensed retailers, who are registered for sales tax, income tax, etc

constitute 3% of retail sector.

Growing 35% annually.

Unorganized retailing traditional formats of low-cost retailing, example, kirana shops,

owner manned general stores,paan/ beedi shops, conveniencestores, hand cart and pavement vendors,

Constitute 97% of retail sector.

Growth is pegged by 6% annually.

3%

97%

retail industry

organised retail

unorganised retail


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RETAIL FORMATS

Convenience Stores Discount Stores

Factory / company outlets

Supermarkets Department Stores

Hypermarkets

Rural Retailing

Airport Retailing

E-Retailing


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INDUSTRY CHARACTERISTICS

Highly unorganized (97%) & fragmented

industry.

Small to huge store (serves consumers through a smallgrocery store to a huge departmental store)

Long supply chain.

Working Capital intensive.

Hierarchy in retail. (Town Centers-District Centers- NeighborhoodCenters- Corner Stores.)

Linkages with the economic growth.

The rural-urban divide.


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INDUSTRY GROWTH DRIVERS

Demand factors

Rising Urbanization

Growing per capita

expenditures

Growing spread of plasticmoney'

Changing face of Indian

consumerism - from

necessities to luxuries Rising number of nuclear

families

Growing female working

population

Supply-side factors

Developments in the

real estate scenario

Retail growth

through VC/PE route


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Government policies FDI up to 100% for cash and carry wholesale trading and

export trading allowed under the automatic route.

100% FDI in integrated cold-storage chain & otherinfrastructure.

FDI up to 51 % with prior Government approval (i.e. ForeignInvestment Promotion Board (FIPB) approval ) for retail trade

of Single Brand products (now 100% allowed byjan10/2012)

50% jobs go to rural areas & 30% of inputs sourced fromSMEs.

India will allow 51% FDI in the multi-brand retail sector.


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Global development analysis

China ranks as the most

attractive emerging marketfor apparel retailersaccording to a study byglobal managementconsulting firm A.T. Kearney.

BrazilJumps to

First Placein Ranking ofTop

Developing Economies forGlobal Retail Expansion

Brazil, Uruguay and Chiletop China and India for newexpansion opportunities.

A.T. Kearney Global RetailDevelopment Index, 2011

Country

2011

Rank

2010

Rank Change

Brazil 1 5 +4

Uruguay 2 8 +6

Chile 3 6 +3

India 4 3 -1

Kuwait 5 2 -3

China 6 1 -5

Saudi Arabia 7 4 -3

Peru 8 9 +1

U.A.E. 9 7 -2

Turkey 10 18 +8


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Qualitative Aspects Threat of new entrant

Intensive Capital requirement.

Govt. policy on FDI.

Inability to build economies of scale.

Bargaining power of buyers High due wide variety of choices, FDI liberalization

Rivalry between existing competitors Highly competiveness due allowance of FDI.

Global competition increased.

Threat of Substitute Moderate to low due to unorganized retailing sector.

Bargaining power of suppliers Low as large number of potential suppliers.

Unorganized sector dominates the market.


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Industrial life cycle

The

graphically

representatio

n of growth of

retail industry

through years.


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Business analysis

Growth analysis

The growth in sales raised by 8.85% and earning by6.19%.(Last updated in January 2012)

Defensive industry

Retail sector considering food stores is less affected by

recession whereas luxury stores had an impact.

Cyclical industry

Consumer durables are most volatile.


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Impact of recession on retail sector

Earliest players -Subhiksha's -liquidityinjection.

Vishal Retail -debt restructuring (CDR) planfrom its lenders

Reliance Retail run by Mukesh Ambani and

Pantaloon led Kishore Biyani by went slowon expansion plans and even scaled downoperations.

organized segment suffered a set-back in the

form ofdeclining revenues and halt in theircapex plans.

Inventory being stacked up resulting in alow inventory turnaround ratio


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Challenges in India Barriers to FDI

FDI not permitted in pure retailing Franchisee arrangement

allowed.

High Cost of Real Estate

Complex Taxation System

Differential sales tax rates across states - Multi-point octroiSales tax avoidance by smaller stores.

Customer Preferences

Unavailability of Talent

Intermediaries dominate the value chain.

Infrastructure.

Absence of a farm-to-fork(PDS)

No Global Reach


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Indian retail will double in economic value,expanding by $400 billion by 2020.

25% market share an expected growth by 2021.

Huge Scope for Development Competitive MarketOrganized retail is fast growing at a rate of 30%YOY Greater opportunity for employment.

The industry is expected to grow at a rate of 12%

per annum for the next 5 years.

The Indian luxury market is expected to grow by25% per annum making India the 12th largest in the

world.


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Conclusion

Many investors like retail, because they are

personally familiar with itafter all, everybodyshops.

retail is overvalued due to many 1031 investors

searching for a safe investment.


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Indian Retail s Analysis

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