Retailing in India | Verdict Strategic Report

Why has India's organised retail sector taken so long to develop, and what is continuing to hold it back?

How large is the retail opportunity in India, and which sectors are most amenable to entry by foreign retailers?

Which international players are operating in India and who do they partner with?OVERVIEWSummaryKEY FINDINGSIndia's retail market is booming due to increased consumer purchasing power The changing face of Indian consumers is shaping the future of retailing in IndiaTraditional retailers dominate Indian retail, although modern retail outlets are proliferatingIndia's untapped potential has put it on the radar of global retailersIncreased demand for luxury products is hampered by poor infrastructureRetailers are moving to tier II and III cities following saturation in metropolitan citiesRetailers look to secure revenue-sharing deals with real estate developers, due to the high price of rental space Confusion reigns over government FDI policyReassuring consumers about security is key to the growth of e-commerceACTION POINTSClothingAdopt a fast-fashion strategy to keep pace with the emerging fashion-conscious youthIntroduce fashion which is suited to a diverse base of Indian consumersLook to create new occasions and deliver relevant productsCapitalize on the increase in affluent consumersExecute a multi-channel strategy to target a wider audienceElectricalsCapitalize on the lower penetration of consumer electronics and appliances in rural areasExplore the option of getting into smaller cities through joint ventures and franchisesIntroduce private label products for price sensitive consumersPartner with financial institutions to facilitate the availability of consumer financeGroceryDevelop online services to attract urban professionalsRetailers need to be more attentive towards product categories that are more vulnerable to reduced customer spendingAlso introduce more variety of international productsUse promotional schemes like everyday low pricing and buy one get one free offersLook at opening more outlets in commercial areas or office complexesHomewaresInternational retailers should take into account the climate and seasonal behaviorTarget young professionalsLeverage the growing demand for contemporary yet affordable furnitureHealth and beautyPay close attention to consumers' changing usage patterns of personal care productsRepresent actual user opinion, which is emerging as a powerful marketing toolWhile focusing on driving sales volumes from middle income groups, retailers should encourage existing consumers to trade upConsider "masstige" positioning to cater for middle-class consumersCapitalize on the growing demand for male grooming products in IndiaLaunch smaller stock keeping units to induce greater consumptionMARKET CONTEXT AND OUTLOOKIndia's retail market is forecast to grow by 8.7% to 2015Food and grocery makes up 65% of the retail sector in IndiaIndia's expanding middle class is the key driver of economic growthRapid urbanization is spreading to lower tier citiesAccelerated investment is required for infrastructure development in IndiaHighlights of India's 11th Five Year Plan for the development of infrastructureInflation remains a key macroeconomic concern for IndiaMonetary and liquidity conditionsThe Indian retail sector is dominated by local "mom-and-pop" storesOrganized retail represents only 5–7% of the total retail market in IndiaThe evolution of organized retailing in IndiaKEY STRATEGIC ISSUESChanging mindsets and increased wealth have opened opportunities for modern retailIndia's middle class are embracing new retail formatsLarge-scale urban migration is ushering in a new wave of consumerismThe growing middle class has raised standards of living and increased consumptionEducation and demographics are leading to an acceptance of modernityA young, brand-conscious population offers major retail opportunitiesThe adoption of Western lifestyles is leading consumers to modern retail outletsAccess to modern media is influencing consumersIndian women are becoming more involved in purchasing decisionsIncreased use of credit and debit cards and the availability of credit is fueling consumer spendingForeign direct investment is the key legislative issue affecting the growth of organized retailThe role of foreign direct investment in the Indian retail marketApproval of FDI in multi-brand retailing would result in major changes to the retail landscapeThe Indian government is struggling to further relax FDI rulesDue to restricted FDI policy, franchising and joint ventures are key routes for entrantsTier II and III cities are emerging as new growth centersOnline retail is expanding, but many consumers are still skepticalDemand for luxury products is increasingThe rising number of wealthy individuals is driving demand for luxury productsRetailers are facing difficulties in India due to weak infrastructure and high import dutiesAirport retailing is growing in importanceLoyalty cards are popular with consumersLoyalty cards are the most commonly used loyalty program in India and have been adopted by almost all major retailers in the country. By having loyalty cards, customers feel associated with the brand and in addition get some preference over other customers in the form of discounts and reward points. Over 75% of Shoppers Stop's sales are recorded through its First Citizen loyalty program, while Pantaloons' Green Cards are presented by customers in 55% of the retailer's total sales.The lack of professionally trained skilled labor remains a key challenge for retailersRETAIL GROUPSReliance RetailReliance Retail operates franchise stores through partnerships with international retailersTurnover from the Reliance Fresh subsidiary account for almost two thirds of sales from all retail divisionsReliance Retail's store network is continuing to growTata Group – Trent & Infiniti RetailTrent has partnered with leading global players, such as Tesco and InditexWestside is Trent's largest chain with 57 outletsInfiniti Retail focuses on the electronics retailing sectorCroma's private label range generates about 7% of total salesFuture GroupFuture Group has created numerous joint ventures to distribute international brands in IndiaThe group is present in over 73 major areas and now aims to extend its reach to smaller locationsPantaloon Retail's loyalty program has over 3 million membersPantaloon Retail's turnover growth slowed in FY2011Grocery stores make up the bulk of Pantaloon Retail's store portfolioAditya Birla RetailThe company launched its retail business through the acquisition of 167 Trinethra storesThe group missed its sales target for the year ending March 2011The group had to severely downscale its More store network in 2009CLOTHINGExpenditureDistribution/channelsChanging circumstances are creating new consumer trendsWith changes in lifestyles, consumers clothing needs are broadeningThe entry of international apparel brands is intensifying competitionRetailers are capitalizing on the trend towards value fashion by introducing their own brandsGrowing importance of branded lingerie in Indian female wardrobesKey national playersShoppers Stop is one of the oldest players in the modern apparel retailing market in IndiaPantaloons' strength lies in its young and trendy image portrayed through private label brandsWestside is a lifestyle chain owned and managed by TrentMadura Garments is Aditya Birla's lifestyle retail ventureLifestyle International is positioned as a stylish and vibrant brand targeted at younger consumersReliance Trends is the apparel and accessories division of Reliance RetailVishal Mega Mart has a widespread presence in 110 cities across the countryKoutons Retail India has downsized considerably since 2008Globus Stores is the retailing company of Rajan Raheja GroupNew market entrantsGlobal clothing leader Inditex entered the market in 2010, with the launch of its flagship brand ZaraMarks & Spencer collaborates with Reliance RetailGerman fashion brand s.Oliver entered the Indian market through a joint venture with Orient CraftBurberry is set to expand its presence in India by introducing more storesYishion ventured into the Indian market by partnering with local distribution firm Upmarket GroupDebenhams has collaborated with Planet Retail to expand its Indian operationsDKNY is partnered with DLF Brands, which will help the retailer to penetrate the Indian marketGROCERYDistribution/channelsConsumer trendsThe surge in demand for convenience products is directing consumers to modern retail outletsConsumers prefer a hassle-free and pleasant shopping environmentRetailers are attracting customers by offering appealing deals and promotional offersConsumers' changing lifestyle are prompting retailers to widen their product portfoliosKey national playersReliance Retail operates grocery stores across multiple formatsFuture Value Retail operates Big Bazaar and Food Bazaar, part of the Future GroupSpencer's is a mid-market grocery player in IndiaMore is the only retail format of Aditya Birla Retail GroupHypercity is an upmarket hypermarket player in IndiaChildrenswear will form a stronger part of Hypercity's private label offering in the futureNew market entrants Carrefour, the world's second largest retailer, only operates one store in IndiaTesco has partnered with Trent and is currently supplying the Star Bazaar hypermarketsMetro operates independently and continues to make headway in IndiaWalmart's partnership with Bharti Retail has helped it to expand its Easyday formatDIY AND HOMEWARESExpenditure Distribution/channelsConsumer trendsDIY has future potential in specific target marketsYoung professionals live in rented flats which are different to traditional Indian housesKey domestic playersFuture Group runs multiple homewares and electricals specialty retailers through its Pantaloon Retail armGodrej Interio has ambitious plans to further develop its home furniture businessBombay Dyeing & ManufacturingInternational playersIkea has expressed interest in entering IndiaELECTRICALSExpenditureChannelsConsumer trendsDespite the increased proliferation of modern electronics outlets, traditional retailers continue to dominate the marketThe growing desire to own branded products is driving consumers towards private label brandsIndian consumer purchases are often occasion linkedAlthough consumer choice is evolving, demand for high-end products remains lowKey domestic playersNext is the largest consumer electronics retailer in IndiaConsumer electronics chain Croma is owned by Tata GroupEzone currently belongs to Pantaloon Retail but may be spun off as a separate businessAnother Indian conglomerate is expanding into the consumer electronics sectorInternational playersLG Electronics is the largest international consumer electronics player in IndiaSamsung is an established retailer and wholesaler of consumer products in IndiaSony will have benefited from TV sales during the Cricket World Cup Panasonic Jumbo Electronics has eight stores in India and is poised for further expansionMetro is to open 50 wholesale outlets by 2015HEALTH AND BEAUTYExpenditureDistribution/channelsConsumer trendsThere is a growing emphasis on health and beauty in IndiaPersonal care product adoption among Indians follows a tiered structure, with society starting to accept the male grooming trendManufacturers are using micro-segmentation to target consumers' evolving usage patternsDemand for personal care products with natural ingredients is surging, owing to growing health and wellness concernsThe growth of modern media has helped to negate the taboo associated with male groomingIndians across all age groups attach importance to a product's tangible benefitsThere is growing acceptance of direct selling in personal care productsKey national playersNew U, a domestic player, launched in 2008 has introduced franchised storesBare Body Essentials is positioned as a luxury retailer which exclusively stocks international brandsReliance Wellness is owned by Reliance Retail, which is looking to expand the formatForest Essentials aims to increase revenues from retail operations by increasing store numbersNew market entrantsHealth & Glow is a southern Indian chain with just one retail formatThe Body Shop adapted its pricing structure to appeal to Indian consumersL'Occitane has diversified into the Indian market to open spa resortsKiehl's is a small player in the Indian health and beauty marketLush operates primarily in malls in India, with 13 stores in totalSephora has been looking to enter the Indian market since 2007Boots left the Indian market in 2005 but is looking to re-enterIndia's foreign direct investment policy has dissuaded A.S. Watson from entering the marketSHOPPING MALLSShopping malls have had a huge impact on the Indian retail marketThe number of malls has increased dramatically in the past 10 years and continues to growDLF has a portfolio of 11 malls covering northern IndiaThe Phoenix Mills operates four mall formats in IndiaInorbit Malls plans to build new malls and increase the size of existing mallsAmbuja Realty owns City Centre Malls and currently has three shopping centersPrestige Group operates in Bangalore and has partnered with CapitaLandDEPARTMENT STORES(Untitled section)Department stores have changed the way Indian consumers shopShoppers Stop was an early entrant to India's modern retailing sectorLifestyle operates 25 department stores in India along with 12 standalone homewares storesWestside predominantly offers private label brands, but is introducing designer brands to drive salesDebenhams entered India in partnership with Planet Retail HoldingsMarks & Spencer has aggressive expansion plans for the Indian marketAPPENDIXFurther readingAsk the analystGlobal Retail FreeViewVerdict consultingDisclaimerTABLESTable: Retailing market size ($bn), 2006–15fTable: International retail partnerships in IndiaTable: Reliance Fresh: trading record ($m), 2009–11Table: Reliance Hypermart: trading record ($m), 2009–11Table: Reliance Digital: trading record ($m), 2009–11Table: Reliance Footprint: trading record ($m), 2009–11Table: Reliance Trends: trading record ($m), 2009–11Table: Reliance Retail store portfolio, 2007–11Table: Trent: trading record ($m) 2006–11Table: Trent: estimated store portfolio by fascia, 2006–11Table: Pantaloon Retail: trading record ($m), 2006–11Table: Pantaloon Retail: core store portfolio, 2010 and 2011Table: Aditya Birla Retail: estimated trading record ($m), 2008–11Table: Aditya Birla Retail: estimated store portfolio by fascia, 2008–11Table: Clothing market size ($bn), 2010–15fTable: Food and grocery market ($bn), 2010–15fTable: DIY and homewares market size ($bn), 2010e–15fTable: Electricals and electronics market size ($bn), 2010e–15fTable: Health and beauty market size ($bn), 2010–15fFIGURESFigure: Retailing market contribution to overall organized retailFigure: Percentage of households in different annual income brackets ($), 2009Figure: Indian households' net disposable income (INRm), 1999–2013fFigure: Average infrastructure investment as a percentage of GDP, 2002–17Figure: Organized retail evolution in IndiaFigure: Factors contributing to the growth of organized retail in IndiaFigure: Attributes influencing retail format choiceFigure: Population in India (millions), by age group and median age, 2004–14eFigure: Average size of Indian household 1991-2015Figure: CentralPlaza, an upcoming shopping mall in Surat ThaniFigure: Retail brands present at Indian airportsFigure: Volkswagen display at Delhi Duty Free, Indira Gandhi International AirportFigure: Loyalty cards, gift vouchers, and other promotional offers by various retailersFigure: Private label sales as a percentage of total sales, by retailerFigure: Clothing market size ($bn), 2010–15fFigure: The clothing retail market in Hyderabad comprises a range of retail formatsFigure: Examples of multi-brand outlets in HyderabadFigure: Unorganized apparel retailing at Kukatpalli Main Market, HyderabadFigure: Shoppers Stop store in Andheri, MumbaiFigure: Store display at The CollectiveFigure: Globus store at Inorbit Mall, HyderabadFigure: M&S store at Inorbit Mall, HyderabadFigure: Food and grocery market ($bn), 2010–15fFigure: Unorganized and organized fresh produce retailingFigure: ITC Choupal Fresh retailing counter at Malaysian Township, HyderabadFigure: Grocery chains operated by Reliance RetailFigure: Grocery chains operated by Future Value Retail Figure: Spencer's convenience stores and hypermarketsFigure: A More Megastore in IndiaFigure: DIY and homewares market size ($bn), 2010e–15fFigure: Electricals and electronics market size ($bn), 2010e–15fFigure: Health and beauty market size ($bn), 2010–15fFigure: Health & Glow store at Inorbit Mall, Hyderabad

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