Minor Project Assignment 2 Literature Review

Submitted to: Dr. Sanjeev Kumar Associate Professor Department of FMS

Submitted by: Aarthy Thirumalai Abhishek Toppo Priyadharashini S.

Priyanka Pratishriti Rohit Jaiswal S. Vigneshwaran

Contents
Topics
Theoretical Data Retail: Brief Overview Retail Market Size Rural Retailing on a High Retail - Government Initiatives Retail - Road Ahead Reliance Trends

Page No.

Empirical Data References

Theoretical Data:
Retail: Brief Overview The Indian retail sector is highly fragmented with more than 90 per cent of its business being carried out by traditional family run small stores. This provides immense opportunity for large scale retailers to set-up their operations a slew of organized retail formats like departmental stores, hypermarkets, supermarkets and specialty stores are swiftly replacing the traditional formats dramatically altering the retailing landscape in India. India is the third-most attractive retail market for global retailers among the 30 largest emerging markets, according to US consulting group AT Kearneys report published in June 2010. Retail Market Size The total retail sales in India will grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015, according to the BMI India Retail report for the third quarter of 2011. Robust economic growth, high disposable income with the end-consumer and the rapid construction of organised retail infrastructure are key factors behind the forecast growth. Along with the expansion in middle and upper class consumer base, the report identifies potential in Indias tier-II and tier-III cities as well. The greater availability of personal credit and a growing vehicle population providing improved mobility also contribute to a trend towards annual retail sales growth of 12.2 per cent. Indian retail sector accounts for 22 per cent of the country's gross domestic product (GDP) and contributes to 8 per cent of the total employment. Rural Retailing on a High Rural retailing enjoys an intense focus from big brands. Future Group and Godrej Agrovet's joint venture (JV) in rural retailing, 'Aadhar', is all set for a revamp. The group promoter Kishore Biyani has revealed that the JV is planning to come up with wholesale distribution centers across different districts and franchisees would be rolled out to local entrepreneurs who would have a better understanding of the concerned area. They would be able to source the products from these wholesale centers and then sell it in their villages. The alliance operates stores in Gujarat, Maharashtra, Haryana and Punjab and mainly sells wheat and paddy apart from daily need products. The company also provides farmers with solutions to problems regarding their agricultural output, which includes what kind of crop can they plant and when, along with technocommercial suggestions to help them give a better output.

Meanwhile, Rajkot based Champion Agro Ltd is planning to come up with single window shopping facility for farmers. The company already has 35 agri-retailing outlets in the Saurashtra region, and is expected to open around 400 outlets at a taluka level across Gujarat by 2016. It will open 50 new outlets by the end of 2011with an investment of US$ 3.3 million. The overall investment planned is between US$ 66.7 US$ 88.94 million. Also, FMCG and retail giants are making good use of technology to reach out to rural India. From low-cost handsets to tablet PCs, the Indian FMCG and retail sector is latching on to technology and applications to reach out to rural India. For instance, Marico is using mobile technology innovatively to arm its field representatives in their procurement process. The IT team at Marico developed a mobile-based application for Nokia 5235 series handsets. The company gave these GPS-enabled phones to 120 of its field representatives, with mapped routes. This helped the agri-representative to get the exact route and also saved on time. The mobile application can also get real-time data from farmers. Pictures of crop and soil taken from the camera are used for monitoring progress of contract farming, seed information and weather condition. Since the data is available online, this also helps the company analyse and take decisions quickly. Meanwhile Hindustan Unilever Ltd (HUL) is experimenting with tablet PCs in its attempt to increase its rural reach. It has been able to reach to 500,000 outlets in a years time. According to Nitin Paranjape, managing director, HUL, We put all the villages on an IT map. The name of the village, its total strength, nearest distributors available, whether it has a school, a hospital, a primary health centre, all of this was mapped. We used this information to determine the opportunity the village presented to us. Organised vs Unorganised Retailing The Indian retail market, over the last decade, has been increasingly leaning towards organised retailing formats. The pattern in domestic retailing is altering in the favour of organised modern retailing, a big change from the traditional plethora of unorganised family-owned businesses. Rapid urbanisation, changes in shopping pattern, demographic dividend and proactive measures by the Government are abetting the growth of the retail sector in India. Organised retail in India is expected to increase from 5 per cent of the total market in 2008 to 14 - 18 per cent of the total retail market and reach US$ 450 billion by 2015, according to a McKinsey & Company report titled 'The Great Indian Bazaar: Organised Retail Comes of Age in India'. Furthermore, according to a report titled 'India Organised Retail Market 2010', published by Knight Frank India, during 2010-12 around 55 million square feet (sq ft) of retail space will be ready in Mumbai, national capital

region (NCR), Bengaluru, Kolkata, Chennai, Hyderabad and Pune. Besides, between 2010 and 2012, the organised retail real estate stock will grow from the existing 41 million sq ft to 95 million sq ft. Driven by the growth of organised retail coupled with changing consumer habits, food retail sector in India is set to be more than double to US$ 150 billion by 2025, according to a report by KPMG. Retail Trends The Indian retail industry has grown at a Compounded Annual Growth Rate (CAGR) of 13.3% for the period FY06-10. The growth in the Indian economy since the last decade and the change in consumption pattern of the Indian populace in terms of higher proportion of middle class population, greater proportion of working women etc can unarguably be linked to the growth of the Indian retailing industry. Of all the segments in retail, the contribution of food & grocery remained the highest at 58% of the total retail sales during FY10, with the clothing & footwear segment remaining the second largest contributor occupying 10% of the total retail pie during the same period. However in terms of growth figures, the entertainment, books & sports goods equipment segment outperformed the other retail segments registering a CAGR of 22.5% during the period FY06-10. In spite of the growth, the industry remains largely fragmented with the organized retailing still at a nascent stage. In case of overall retailing revenues, the food & grocery segment accounted for the highest share at 58% of the total retailing pie aggregating Rs.11.49 lakh crore during FY10. In the organised retailing, the food & grocery segment stood as the second largest contributor with revenues aggregating Rs.24,273 crore during the same period. However, the organised retail penetration of other segments such as clothing & footwear, entertainment & books and furniture & furnishing surpassed that of the food & grocery segment. The Indian retail industry has witnessed rampant growth over the last decade. However, during the economic recession since the latter half of FY09, the retailers especially in the organised segment suffered a set-back in the form of declining revenues and halt in their capex plans. The unemployment situation, further aggravating the fear of job losses during the recession, resulted in muted consumer spending with the consumers choosing to spend on necessities rather than discretionary items; the industry thus witnessed decline in footfalls, conversion rate, which was especially apparent in the decline of same store sales. The slowdown in consumer spending led to the inventory being stacked up resulting in a low inventory turnaround ratio, registering a decline to 4.3 times during FY09 from 4.8 times during FY08. Before the onset of recession, the large scale expansion plans of the Indian retailers warranted an increase in inventory and greater store operating expenses in the form of rentals and staff expenses thus increasing the working capital requirement.

However with the economic recession in effect, the retailers were faced with a liquidity crunch owing to difficulties in raising funds both from the equity as well as debt markets. Additionally, the funds raised during the economic boom attracted higher interest rates thereby affecting the retailers ability to service the interest as well as principal repayments during the downturn. The total interest outgo of the retailers as tracked by CARE Research registered a y-o-y growth of 78.6% during FY09. Even though, post recession, the industry is witnessing a gradual turnaround, it is met by a few stumbling blocks that constitute the challenges ahead for the Indian retail industry viz. higher store rentals as compared to retailers globally, taxation & other policy regulations, inefficiencies in supply chain management and higher rate of shrinkage. In spite of the said challenges, the authors expect the Indian retail industry to grow on the backdrop of expectant rise in the countrys Gross Domestic Product (GDP) during the period FY11-FY13. The rise in income level of the Indian populace, in turn, is expected to fuel the domestic consumption ultimately resulting in higher revenues for the Indian retailers. Importantly, the authors expect the penetration of organised retail in the total retail pie to increase by FY13 owing to the expanding reach of the retailers to tier-II & III cities accompanied by higher consumer spend on discretionary items. Also, in an attempt to increase margins, the authors expect the retailers would restore to adapting measures such as increasing the share of private labels in the total store sales, reducing store level operating expenses etc. The report on the Indian retail industry provides a comprehensive overview of all the above mentioned parameters with detailed forecasts. The global economic recession and the corresponding decline in retail sales volumes since the latter half of FY09 adversely affected the prospects of the Indian retail industry. The growth in the Indian retail story witnessed in the form of huge capex plans, growing footfalls etc during the pre-recession period made way for adherence to austerity measures by the retailers such as store closures/re-location of stores, employee layoffs and the curbing of other operating expenses during the period spanning the economic recession. However, the gradual revival in the global economy and the improving unemployment situation since H2FY10 has correspondingly led to the revival in the confidence of the Indian consumers, ultimately resulting in greater footfalls, higher conversion and growth in same-store sales (SSS) as compared to a year ago. The authors report on The Indian Retail Industry seeks to answer queries such as: Indias expected Private Final Consumption Expenditure (PFCE), the expected size of Indian retail & organised retail industry. To what extent would the penetration of organised retail increase from the current level? What are the challenges the industry is likely to face in the foreseeable future? With Indian retail data spanning from FY05-10 garnered through a well-

established network of primary and secondary sources and the authors outlook on the industry for the period FY11-FY13 on retail sales, organised retail penetration etc, the report is indispensable for any company in the retail industry, banks/Financial Institutions (FIs), policy makers, research & academic organizations, other international and national agencies etc. Additionally, the four quarterly updates from the date of subscription accompanying the said report would form a potent tool for the subscribers to keep abreast of the happenings in the industry.

Retail - Government Initiatives The Union Budget for FY11 had successfully managed to address a gamut of growth impediments from structural supply chain gaps in agriculture, funding constraints to infrastructure, continuing thrust on rural development, etc. For retailers, on one hand the Finance Minister had given clarity on the likely introduction of the DTC ( Direct Tax Code) & GST (Goods and Services Tax) by April 1, 2011. On the other hand, the Finance Minister had made only a reference to the Prime Minister's remarks on opening up of retail trade without announcing any further policy change in this regard. The Indian retail industry is the fifth largest in the world, where 95% of it is unorganized. With growing market demand, the industry is expected to grow at a pace of 25-30% annually and it accounts for over 10% of India's GDP and around 8% of the employment. To sustain the retail growth in India there is a need for stimulus from the Finance Ministry in the upcoming budget. India will announce new rules for foreign investment in retail by April 2012, paving the way for companies such as Wal-Mart Stores and Carrefour to open stores, according to Junior Trade Minister Jyotiraditya Scindia. A government panel has issued a report that recommends easing a law that prohibits non-Indian companies from operating multi-brand outlets. Allowing foreign investment in multi-brand retail may help moderate food prices, said Kaushik Basu, chief economic adviser in the finance ministry, who sits on the panel. India currently allows 51 per cent FDI in single-brand retail and 100 per cent in wholesale cash-and-carry operations. In a landmark decision, the government has eased norms for investments by foreign companies that are present in India through a joint venture (JV) or a technical collaboration. Now, the foreign company will not have to seek a noobjection certificate (NOC) from the Indian partner for investing in the sector where the joint venture operates.

The government has also relaxed norms for downstream investments and convertible instruments, giving foreign companies more powers. The changes are part of the third revision of the Consolidated FDI Policy. Retail Road Ahead There is a huge untapped opportunity in the retail sector, thus having immense scope for new entrants, driving large investments into the country. A good talent pool, huge markets and availability of raw materials at comparatively cheaper costs are expected to make India lead one of the worlds best retail economies by 2042. The industry is also slated to be a major employment generator in future. The Indian retail sector will continue to expand at a fast clip, with the number of malls in the country likely to swell to 280 in 2011-12 from 190 at present, a global real estate services firm has said. India has added around 5 million sq ft of retail space in 2010 and approximately 15 million sq ft of space is lined up to get operational in 2011-2012, CB Richard Ellis said. While the National Capital Region (NCR) has significant vacant retail space, another 4 million sq ft is lined up for development in 2011-12 in Delhi and its suburbs. Mumbai, the NCR and Bangalore will lead the rest of the country in terms of retail space development, accounting for almost 70% of the total area developed around the country in 2011-12, it said. Rents have depreciated by 30-40% on average across cities and have relatively headed toward stability post-correction in 2008, according to CBRE. There is no dearth of demand for retail spaces on rent at current rent levels, which the firm said would lead retailers to hire properties at the corrected rental levels.

Reliance Trends:

Empirical Data:
P. Pirakatheeswari1 investigated the retail scenario in India. The contribution of retail industry has been around 14% to the GDP, and it employs around 7% of the total population. According to the India Retail Report 2009, compiled by research group Images F&R Research2, the Indian retail industry is set to touch Rs 18,10,000 crore (US$ 390.68 billion) by 2010. The report specifies that by 2010, organized retail is likely to acquire 13 per cent of the total retail market and touch Rs 2,30,000 crore (US$ 49.64 billion). Within the retail sector, accessories and clothing segment will share 9.9% of the market with business worth Rs 1,31,300 crore (US$ 28.35 billion). P. Pirakatheeswari1 elaborates that the Indian retailing industry has recently witnessed hordes of big players like TATA, Birla, Reliance, Pantaloon Group, etc., leaping into it which has caused a major revolution in its marketing strategies and innovations. Now the Indian retail sector is being considered as the most dynamic and attractive sector in India. According to [2005-10] Global Retail Development Index3, India is positioned as the leading destination for retail investment. We find big retailers like Wal-mart and Tesco entering into Indian market. AT Kearney has estimated Indias total retail market at US$ 202.6 billion which is expected to grow at a compounded 30 percent over the next five years. In an exploratory study of the Indian retail sector D. Loganathan4 concludes that India is ranked second in the world, in terms of financial attractiveness during 2010. Research reports forecast India to be among the top five destinations for foreign investors during 2010-12. Organized retail in India is undergoing a metamorphosis and is expected to scale up to meet global standards over the next five years. The most significant period of growth for the sector was between year 2000 & 2006, when the sector revenues increased by about 93.5% translating to an average annual growth of 13.3%. The large proportion of the working age population translates to a

lucrative consumer base vis--vis other economic of the world, placing India on the radar as one of the most promising retail destination of the world. This will make the Indian organized retail sector enter into the important phase of reformations like the major players adjusting their formats to suit local tastes and buying behavior. Himanshu Talwar5 enlists the attributes driving the Indian retail industry as economic prosperity, rising incomes, increased per capita spending, rapid urbanization, improved infrastructure, liberalization of the Indian economy, flourishing manufacturing and services sectors, booming real estate industry and increasing foreign direct investment. Dr. M. Dhanabhakyam and A. Shanthi6 estimated that the premium apparel segment in India is valued at about Rs 1,900 crore and growing at 20 per cent. There is an increasing demand of branded apparel segment in the domestic retail market for the same features that are valued in demanding export markets. These shifts are due to the rise of younger class of middle-class consumers, spawned by the booming BPO and IT sector that has led to the spending in retail being driven by the youth segment in large and mid-sized metros. Geetika Sharma7 draws attention to the challenges faced by the organized retail industry in India in her article Organized Retail-Challenges Ahead For India's Organized Retailers. She points outs the advantages the unorganized retail sector has over the organized and is of the opinion that Government intervention in availability and cost of retail space, liberalizing policy guidelines for FDI, proper training facilities for meeting the increasing requirements of workers in the sector will prove to be of much needed help to the retail industry. Aggressive Expansion, Poor Supply Chain Management, Employee training and retention, Managing working capital, Diversifying into untapped rural areas, Backward Integration are some of the major challenges facing the organized retail industry in India. With a view to improving sales, Steven Lipschitz8 suggests that any Retail Sales Training system of appraisal and reporting should make sales people

accountable for their time by measuring their performance according to key KPIs, against each other, and against the store average. Unless measurements are taken on a regular basis and compared with the rest of the people on the shift it would be impossible to know the area in which to train because today, most POS software programs generate KPIs such as average sale, items per sale, sales per hour. However, they do not allow store managers to set sales goals and divide them up proportionally between salespeople. Nahshon Roberts9 has written about Monitoring Foot Traffic. It is important to business owners and managers and hence, CCTV systems and Cameras map store traffic. They show patterns of movement from department to department and from floor to floor.

Monika Verma10 makes the following suggestions to increase foot falls: 1. Overall promotion of the mall to increase footfalls should be done. 2. The mall should have proper projection to outside in terms of outstore visual merchandising , large hoardings, signage, posters to create awareness about the Reliance trends among the customers, as it has been seen from the analysis that a large number of customers (60%) were coming first time to reliance trends. 3. As most of the customers coming to the mall got to know about Reliance trends through friends/family and word of mouth(70%) and media played a very less role (altogether 30%) could be the possible reason of such low awareness. Therefore to increase the awareness proper promotional activities should be led more in media like newspapers, radio, magazines etc. Ravi Narayan11 has used the following method for determining conversion ratio Ratio of walk-ins to number of bills: Conversion ratio= Number of bills/walk-ins. E.g.: Number of walk-ins = 100 Number of bills Conversion Ratio = 40 = (40/100)% = 40 %

References
Theoretical Data:
1) Indian Organized Retail Industry (2005-2007) RNCOS E-Services Private Limited, March 2006, Pages: 60 2) Indian Retail Industry 2011 Credit Analysis & Research Limited, March 2011, Pages: 139 3) www.indiaretailing.com 4) www.cci.in 5) www.imgaesretail.com

Empirical Data:
1) Pirakatheeswari, P. Retailing in India http://www.fibre2fashion.com/industry-article/27/2623/retailing-inindia1.asp [accessed on 25/08/2011] 2) http://www.ibef.org/artdisplay.aspx?tdy=1&art_id=20343&cat_id=60 [accessed on 25/08/2011] 3) http://www.atkearney.com/index.php/Publications/global-retaildevelopment-index.html 4) D. Loganathan Indian Retail Industry-An Exploratory Study http://www.fibre2fashion.com/industry-article/22/2120/indian-retailindustry-an-exploratory-study1.asp [accessed on 27/08/2011] 5) Himanshu Talwar Retailing: A Buzz of Flourishing Business http://www.fibre2fashion.com/industry-article/21/2086/retailing-a-buzzof-flourishing-business1.asp [accessed on 29/08/2011] 6) Dr. M. Dhanabhakyam and A. Shanthi Indian Retail Industry- Its Growth, Challenges and Opportunities http://www.fibre2fashion.com/industryarticle/free-retail-industry-article/indian-retail-industry-its-growthchallenges-and-opportunities/indian-retail-industry-its-growth-challengesand-opportunities1.asp [accessed on 29/08/2011] 7) Sharma, G. Organized Retail-Challenges Ahead For India's Organized Retailers http://www.fibre2fashion.com/industryarticle/23/2277/organized-retail-challenges-ahead-for-indias-organizedretailers1.asp [accessed on 25/08/2011] 8) Lipschitz, S. Retail sales training essential to increase retail sales performance http://www.fibre2fashion.com/industry-article/4/312/retailsales-training1.asp [accessed on 25/08/2011] 9) Roberts, N. Retail Intelligence: Improving Sales through CCTV Systems http://www.fibre2fashion.com/industry-article/free-retail-industry-

article/retail-intelligence-improving-sales-through-cctv-systems/retailintelligence-improving-sales-through-cctv-systems1.asp [accessed on [25/08/2011] 10)Verma,Monika.(2010) Post graduate research on Customer communication for Pureza to enhance brand loyalty and maximize sales per square foot and a study on the consumer need-gaps in performance wears and suggesting measures for the launch of private label techno formals at Reliance Trends Ltd.,: Nift Bengaluru. 11)Narayan, Ravi. (2008) Post graduate research on Strategies for increasing retail sales in Pantaloon Retail India Pvt. Ltd.,: Nift Bengaluru.