Retail Industry

Amit Rai Ankit Surana Anish Pandey Abhishek Tiwari Anubhav Srivastava

Retail Industry

Evolution of Indian Retail Industry

Barter system was known as the first form of Retail Followed by Kirana Stores and Mom & Pop Stores Finally Manufacturing era necessitated the small stores and specialty stores It was a sellers market till this point of time with limited number of brands

available 1980s experienced slow change as India began to open up economy. The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Retailers. Post 1995 onwards saw an emergence of shopping centers Emergence of hyper and super markets trying to provide customer with 3 Vs - Value, Variety and Volume Expanding target consumer segment

Overview

Industry Description
Indian retail Industry is Fifth
2000 1800 1600 1400 1200 1000 800 600 400 200 0

largest in the world.

The

1729 1380 1200 1213

1842

current penetration pegged at 5-7 per cent. for 24% of countrys GDP and 8% of the total employment. is the largest segment in terms of its.

GDP(in Billion $) Retails Sales(In Billion $)

Accounts

Food

2008 2009 2010 2011 2012

Tax Impacts and Regulatory Environment

The retail sector has not been conferred an industry status till now. Hence, there are no specific rules and regulations governing the sector. However, there are certain laws pertaining to the establishment of stores and conduct of activities, which retailers need to follow: The Shop and Establishments Act The Standards of Weights and Measures Act The Provisions of the Contract Labor(Regulations and Abolition) Act The Income Tax Act The Customs Act The Companies Act In addition to the above law: Retail companies have to follow certain regional rules and regulations on the basis of their stores location; different states have different laws to regulate the retail trade.
6

Tax Impacts
Presently, there are multiple indirect taxes:
Customs

duty Central Value Added Tax (CENVAT) Service tax Central Sales Tax (CST) State value added tax Central value added tax Entry tax

GST implementation :-In order to integrate all of these taxes into a single unified tax system and bring about broad-based reforms in the indirect tax regime, the government of India has envisaged The introduction of a uniform Goods and Services Tax (GST) across the country.
7

Regulatory Environment
FDI Policy with regard to Retailing in India: FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route. FDI up to 100 % with prior Government approval (i.e. FIPB) for retail trade of Single Brand products. India allowed FDI of up to 51% in multi-brand sector. Single brand retailers such as Apple and Ikea, can own 100% of their Indian stores, up from previous cap of 51%. The retailers (both single and multi-brand) will have to source at least 30% of their goods from small and medium sized Indian suppliers.

Regulatory Environment Contd..

Multi-brand retailers must bring minimum investment of US$ 100

million. Half of this must be invested in back-end infrastructure facilities such as cold chains, refrigeration, transportation, packaging etc. to reduce post-harvest with 3 years of setup. Losses and provide remunerative prices to farmers. The opening of retail competition (policy) will be within parameters of state laws and regulations. Overseas companies must put half of their investment in infrastructure such as processing, manufacturing, storage, warehouses and packaging

Structure & Phase of The Industry

Retail formats in India: Hyper marts/supermarkets Mom-and-pop stores Departmental stores Convenience stores Shopping malls E-trailers Discount stores Vending Specialty stores

Stage
The retail Industry is still in its nascent stage of growth The foreign direct investment (FDI) inflows in single-brand retail

trading during April 2000 to June 2012 stood at US$ 42.70 million
Cash and carry represents an opportunity worth around Rs 8,250

billion (US$ 149.19 billion) of the Rs 27,500 billion (US$ 497.29 billion) annual retail business in India
India's e-retail industry is likely to touch Rs 7,000 crore (US$ 1.26

billion) by 2015, up from Rs 2,000 crore (US$ 361.66 million)

Focus on rural sector increasing

Size
The Indian retail market is currently estimated at USD 450 billion. Food segment contributes largest part of total value of retail market,

followed by fashion, leisure & entertainment and fashion accessories. India's organized retail space is evolving fast and achieve penetration level of 7%, which signifies huge potential growth. Indian luxury market currently stands at USD 3.5 billion and expected to grow to make India the twelfth-largest luxury retail market in the world by 2016. Retail has become largest source of employment and has deep penetration into rural India. Retailing contributes to 22% of GDP and around 8% of the employment.

Retail Growth In India

Organized Retail Growth In India

Key Success Factors for the industry

Effective forecasting Strong balance sheet Stock control Market position Proximity to market Creating Systems In Retail Hiring the Right Employees Marketing Buying The Right Merchandise Customer Service

Risks for Retail Sector

Low-growth consumer markets Regulation and compliance Inability to control costs/rising input prices Inability to benefit from e-commerce Wrong price image Supply chain disruptions Inability to penetrate emerging markets Failure to respond to shifting consumer behavior Sourcing Volatility in commercial real estate markets

Opportunities for Retail Sector

Rising emerging market demand and rise of global middle class New marketing channels and social media Competitive differentiation via CSR and green branding Multichannel approach Demographic change Private label Launching new products and services Global urbanization Competitive differentiation via local branding Enhancing efficiency in the supply chain

Porters Five Force Model

Threat of New Entrants

Power of Suppliers

Historically, retailers have tried to 95% of the market is made up of exploit relationships with supplier. small, uncomputerised family run stores. In retail industry suppliers tend to The ability to establish favorable have very little power. supply contracts, leases and be competitive is becoming virtually impossible. Following examples explain the same. The vertical structure and centralized buying gives chain Sears in 1970 set very high stores a competitive advantage standards for quality; suppliers that over independent retailers. did not meet these standards were dropped from the Sears line. On the whole threat from new entrants in retail industry is high. Walmart places strict control on its suppliers.

Power of Buyers

Availability of Substitutes

The tendency in retail is not to Customers have comparatively specialize in one good or service, high bargaining power in but to deal in wide range of unorganized sector than in products and services. organized sector. What one store offers is likely to As the customer will demand be same as that offered by another products from organized units he store. will be more focused towards quality aspect The threat from substitutes is high.

Competitive Rivalry
Retailers always face stiff competition and must fight with each other for market share and also with unorganized sector. They have tried to reduce cut throat pricing competition by offering frequent flier points, memberships and other special services to try and gain the customers loyalty. Thus retailers give each other stiff but healthy competition which is evident from their aggressive marketing strategies and segment policies.

SWOT Analysis Strengths

Major contribution to GDP: the retail sector in India is hovering around 33-35% of GDP as compared to around 20% in USA. High Growth Rate: High Potential: since the organized portion of retail sector is only 2-3%, thereby creating lot of potential for future players. High Employment Generator Low Labor Cost Technology intensive industry Rising disposable income Urbanization Shopping convenience Changing consumer habits and lifestyles High availability of quality retail space

Weakness
Policy related issues

Lack of industry status for retail. Numerous license, permits and registration requirement. Limited consumer insight Lack of detailed region specific customer data. Lack of Skilled Labor Taxation hurdle Inconsistent octori, entry tax structure, vat and multiple taxation issues. large grey market presence. Underdeveloped supply chain Underdeveloped logistics infrastructure &absence of national cold chain networks. Lack of adequate utilities Lack of basic infrastructure like power, transport and communication.

Opportunities
Potential for investment. Locational advantage. Sectors with high growth potential. Fastest growing formats. Rural retail. Create transparency in the system Healthy Competition will be boosted and there will be a check on the

prices (inflation) Intermediaries and mandi system will be evicted, hence directly benefiting the farmers and producers Quality Control and Control over Leakage and Wastage Heavy flow of capital will help in building up the infrastructure for the growing population

Threats
Political issues. Social issues. Inflation. Nostalgia Lack of differentiation among the malls that are coming. Poor inventory turns and stock availability measures. Big players can knock-out competition Current Independent Stores will be compelled to close India does not need foreign retailers Remember East India Company it entered India as trader and then

took over politically. The government hasnt able to build consensus.

Demand-Supply Dynamics, Demand Trends

The global demand has been falling consistently due to crisis in US

and Europe.
On the supply side, retailers are slowing down their expansion plans

and many real estate developers are falling behind schedules in their shopping mall projects, considering the credit crunch.
However in Future Indian retail is expected to grow 25 per cent

annually. Modern retail in India could be worth US$ 175-200 billion by 2016. The Food Retail Industry in India dominates the shopping basket. The Mobile phone Retail Industry in India is already a US$ 16.7 billion business, growing at over 20 per cent per year.
The Retail sector in the small towns and cities will increase by 50%

to 60% pertaining to easy and inexpensive availability of land and demand among consumers.

Markets for the Products

India has emerged as the fifth most favourable destination for

international retailers.
Rural marketing through direct channel contributes about 23 per cent

of the firm's total sales, which it expects to increase to more than 35 per cent in the next three years.
India's franchise market is growing at a healthy pace with tier II and

tier III cities gradually getting attracted to the network of retailers and franchisers.
Indian apparel retailers are increasing their brand presence overseas

in developed markets. While most have identified a gap in countries in West Asia and Africa, some majors also looking at US and Europe.
India will be a high potential market with accelerated retail growth of

15-20 per cent expected over the next five years according to a report.

Company Name
Walmart Carrefour Tesco

Net Sales(Billion $)
$421,849.00 $120,297 $94,185

Country
USA French UK

Metro AG
The Kroger Company Schwarz Unternehmens Treuhand KG Costco Wholesale Home Depot Target Aldi GmbH & Company oHG

$89,081
$82,189

German
USA

$77,220.00 $77,946 $67,997 $67,390 $58,000

German USA USA USA German

Company Name
Pantaloon Ret Shoppers Stop Trent Brandhouse REI Six Ten Provogue

Net Sales(Billion $)
0.79 0.37 0.16 0.14 0.11 0.11

Koutons Retail
Kewal Kiran Cantabil Retail Arunjyoti Enter Prozone Capital

0.10
0.05 0.03 0.01 0.00

Major Players
Provogue 6% Others 12% Trent 7% Brandhouse 8% Shoppers Stop 18% Koutons Retail 6% Pantaloon Ret 43%

Pantaloons Retail India Ltd. is market leader with 43% of the market share in terms of turnover Followed by Shoppers stop, Brandhouse, Trent, Provogue
Source Moneycontrol.com

Cost Structure
2.22 0
Raw Materials Power & Fuel Cost Employee Cost

17.06

3.82 4.56 1.45

Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses

70.9

Less: Pre-operative Expenses Capitalised

Profit Trend
5.00%

4.37%
4.00%

3.76%
3.00%

4.05%

3.80%

3.06%

2.00%

1.83% 1.03% 1.34%

Net Profit Margin Linear (Net Profit Margin)

1.00%

0.00% 1 2 3 4 5 6 7 8 9 10

-0.60%
-1.00%

-1.19%

-2.00%

ROCE

18 16

17.1 14.92

14
12 10 8 6 4 2 0 2006

10.27 9.96
6.79 6.23 ROCE (%) 7.57 Linear (ROCE (%))

2007

2008

2009

2010

2011

2012

Trent
The Companys operations consist of Westside stores, Star Bazaar and Landmark stores.

The Westside stores include a private label fashion apparel format. During fiscal year ended March 31, 2012 (fiscal 2012), 13 stores were opened, including the Bhopal (DB City Mall), Pune (Phoenix Market City), Mumbai (Infinity Mall), Varanasi (Dhanushree Complex ), New Delhi (Moments Mall), Mumbai (R-City Mall), Bilaspur (City Mall), Udaipur (Rkay Mall) and Bangalore (Orion Mall).
The Star Bazaar is the discount hypermarket format. As of March 31, 2012, there were 15 operational stores (three in Mumbai (Andheri, Dahisar and Thane), four in Bangalore, two in Ahmedabad and Pune, one each in Aurangabad, Surat, Chennai and Kolhapur). The Landmark stores include the format retailing inter-alia books, music, toys and

gaming, which are managed by a subsidiary of the Company, Landmark Limited. The company disclosed rise of 24.70% in standalone net profit on y-o-y basis to Rs 127.64 million, while total income rose 12.65% y-o-y basis to Rs 2.20 billion for the quarter ended June 2012.

Key Financials (Trent)

Period & months Net Operating Income 2012/03 8698.8 2011/03 6861.5 2010/03 5633.3 2009/03 5117.3 2008/03 5141.6

Cost of Sales Reported PBDIT Other Recuring Income Adjusted PBDIT Depreciation
Other Write-offs Adjusted PBIT Finanical Expenses Adjusted PBT Tax Charges Adjusted PAT Non-recurring Items Other Non-cash Adjustments REPORTED PAT

8827.3 -128.5 902.5 774 159.5

0 614.5 77.1 537.4 100.7 436.7 -91.6 127.6 472.7

6789.3 72.2 695.8 768 136.3

0 631.7 123 508.7 172.3 336.5 94.7 -0.8 430.4

5479.1 154.2 430.7 584.9 118.5

0 466.4 95.1 371.4 105.7 265.7 122 14.5 402.2

5029.7 87.6 259.7 347.3 92.3

0 255 43.3 211.7 30.7 181 66.1 20.5 252.1

4958.6 183 42.9 419 88.5

0 330.5 42.9 287.6 47.4 240.2 85.6 2.9 325.8

Shoppers Stop
Incorporated as a private limited company on June 16, 1997 The foundation was made by K Raheja Corp

Shopper's Stop Limited (SSL) is engaged in the business of retailing

variety of household and consumer products and books through departmental stores. As of March 31, 2012, SSL operated through 51 departmental stores. As of March 31, 2012, it opened 13 departmental stores, which includes two stores in Chennai and Pune and one each at Indore, Vijayawada, New Delhi, Mysore, Latur, Ahmedabad, Mumbai, Bengaluru and Gurgaon. During the fiscal year ended March 31, 2012, the Company also opened seven HomeStop one each at Lucknow, Vijayawada, Pune, Bengaluru, Ahmedabad, Mumbai, hydrebad taking its tally to 11 stores. In May 2012, it opened Shoppers Stop store at Jalandhar.

Key Financials (Shoppers Stop)

Period & months Net Operating Income Cost of Sales 2012/03 20,347.60 17,134.20 2011/03 19,290.00 16,264.90 2010/03 15,683.70 13,122.20 2009/03 13,275.10 11,478.70 2008/03 11,460.10 9874.2

Reported PBDIT
Other Recuring Income Adjusted PBDIT Depreciation Other Write-offs Adjusted PBIT Finanical Expenses Adjusted PBT Tax Charges Adjusted PAT

3213.3
186.9 3400.2 377.2 0 3023 2039.1 983.9 335.5 648.4

3025.2
90.8 3116 310 0 2806 1668.3 1137.7 386.5 751.2

2561.5
43.2 2604.7 310.3 0 2294.4 1601.1 693.4 211.3 482.1

1796.4
79.5 1875.9 631.3 0 1244.6 1556.4 -311.8 58.9 -370.7

1585.9
1131.1 1669.4 392.7 0 1276.7 1131.1 145.6 62.8 82.8

Non-recurring Items
Other Non-cash Adjustments

-5.8
0

0.5
0

38.6
-18.4

-266.5
0

-0.5
-12.7

REPORTED PAT

642.6

751.8

502.3

-637.2

69.7

Provogue
Provogue (India) Limited (PIL) was incorporated on 17th November

1997 as Acme Clothing Private Limited. Divisions of the company include accessories, women's wear and men's wear. The EPS of company has dropped from 12.56 in 2012 to 2.17 currently. The sales and Net worth have also dropped significantly. PAT has come down to -25.08 crores from 17.85 crores from last year. The tactical marketing policies, aggressive promotional campaigns, and unique distribution techniques through malls, stores have helped Provogue grow to become a leader in the garments segment in India. This concept of being different has carved out a definite niche in the hearts of the buyers. Overall the outlook looks very strong and positive and is the best bet in the companies among retail.

Key Financials (Provogue)

Period & months Net Operating Income Cost of Sales Reported PBDIT Other Recuring Income Adjusted PBDIT Depreciation Other Write-offs Adjusted PBIT Finanical Expenses Adjusted PBT Tax Charges Adjusted PAT Non-recurring Items Other Non-cash Adjustments 2012/03 6095.9 5499 596.9 152.7 749.6 118.1 0 631.5 322.1 309.4 45.8 263.6 -13.3 0 2011/03 5622.6 4921.6 701 151 852 119.3 0 732.7 260.4 472.3 85.6 386.8 -48.3 -4.4 2010/03 4806.7 4287.1 519.6 187.4 707 122.8 0 584.2 199.5 384.7 119.4 265.3 13 5.3 2009/03 3567.6 3211.6 356 231.7 587.8 95.1 0 492.7 149.7 343 109.5 233.5 60.1 1 2008/03 3361.4 2885.4 476 164.2 565.5 81.1 0 484.4 164.2 320.2 63.5 256.7 7.5 -6.1

REPORTED PAT

250.3

334.1

283.5

294.6

259.7

Brand House Retail

Brandhouse

Retails was established as a pure play retail organization. As a company that caters to the entire spectrum of the socio-economic stratum in the Indian market BHRLs retail expertise extends from mid-price to the lifestyle and luxury segment. HRL is amongst the leading fashion retailers in India. It currently manages the retailing of the following brands through exclusive brand outlets across India Reid & Taylor, Belmonte, Carmichael House and dunhill. A network of 784 company-operated and franchise stores across the country of approximately 8.93 lac sq ft. each one focus on garments, fashion accessories and home furnishings offering international & domestic brands. 91 Cities, 784 Stores and 6.6 Sq. Ft of retail area covered.

Key Financials (Brand House Retail)

Period & months Net Operating Income 2012/03 7834.8 2011/03 7374.5 2010/03 6574.6 2009/03 5523.5 2008/03 3137.9

Cost of Sales
Reported PBDIT Other Recurring Income Adjusted PBDIT

7286.5
548.3 0.9 549.2

6777.8
596.6 2.7 599.4

6010.2
564.4 22.9 587.3

5108.2
415.3 0.6 415.9

2833.8
304.1 38.8 311.6

Depreciation
Other Write-offs Adjusted PBIT Finanical Expenses Adjusted PBT Tax Charges Adjusted PAT Non-recurring Items Other Non-cash Adjustments

97.4
0 451.8 297.7 154.1 54.3 99.7 0 -14.7

98.8
0 500.6 283.1 217.5 60.5 157 -0.2 44.4

85.6
0 501.7 191.6 310.1 113.8 196.4 0.1 -34.4

82.8
0 333.1 87.8 245.3 104 141.3 -4.1 -3.4

47.1
0 264.5 38.8 225.8 95.1 130.7 0.5 -0.1

REPORTED PAT

85

201.2

162.1

133.9

131.1

Pantaloon Retail (India) Ltd

Pantaloon Retail India Limited (PRIL), a retailer was incorporated in 12th

October of the year 1987, headquartered in Mumbai Company operates through primarily the Lifestyle' and Value' formats through multiple delivery mechanisms and lines of business, some of them being, fashion, food, general merchandise, home, leisure and entertainment, financial services, communications and wellness. The Company has stores in 51 cities across the country, constituting over 6 million square feet of retail space. Caters to the Lifestyle' segment through its 35 Pantaloons Stores and 5 Central Malls, as well as through 78 Big Bazaar hypermarkets, 113 Food Bazaars. In the year 1991, the company had launched BARE, the Indian jeans brand. Initial public offer (IPO) was made in May of the year 1992 Multiple retail formats including Collection i, Furniture Bazaar, Shoe Factory, EZone, Depot and futurebazaar.com are launched across the nation in the year 2006

Key Financials (Pantaloon Retail (India) Ltd)

Financial Year Ending 2012/06 2011/06 2010/06 2009/06 2008/06

Net Sales

4,326.79

4,840.96

5,630.21

7,026.81

5,941.22

Cost of Sales Reported PBDIT PBDT PBIT PBT PAT

3,966.22 785.56 486.99 593.1 294.53 285.05

4,385.83 455.13 261.66 308.76 115.29 76.67

4,953.65 676.56 375.52 514.68 213.64 179.56

6,346.09 680.72 356.28 540.67 216.23 140.58

5,449.77 491.45 279.01 408.06 195.62 125.97

Future Prospects

Future Prospects Cont.

Uncertain macroeconomic environment Prices of apparel also surged concomitantly with the increase in

cotton prices and the levy of excise duty on branded apparel Store expansion to drive revenue growth Retail consumption growth to remain strong The overall retail market is likely to grow at healthy compounded rate of 15 per cent from Rs 24 trillion in 2011-12 to Rs 47 trillion in 2016-17 Organized retail penetration to cross 10% by 2016-17 Food , Grocery & Beauty products to grow faster Slower growth expected in books, home dcor, and consumer durables. Focus on reducing store-level operating expenses