Retailing in IndiaCase study: A passage to India –major retailers and potentialnew entrantsFind out which global retail pl...
Retailing in India Case study: Major retailers in the country and potential new entrantsThe Indian retail market growth sp...
Retailing in India Case study: Major retailers in the country and potential new entrantsThere are still some major restric...
Retailing in India Case study: Major retailers in the country and potential new entrantsEntry into India: Grocery makes up...
Retailing in India Case study: Major retailers in the country and potential new entrantsSome of the UK’s national retail t...
Retailing in India Case study: Major retailers in the country and potential new entrantsRetailers partnering with local pr...
Retailing in India Case study: Major retailers in the country and potential new entrantsThis case study was taken from Ret...
Retailing in India Case study: Major retailers in the country and potential new entrantsAbout VerdictVerdict is a retail i...
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Retailing in India - Case Study

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The Indian retail market has grown at a double-digit compound annual growth rate over the last five years and was worth an estimated $554bn in 2011. The Indian economy grew throughout the global downturn, with increasing consumer purchasing power bolstering the retail sector. Retailing is now the second highest contributor to India’s gross domestic product.

Confusion reigns over India's FDI policy. Currently international food and grocery retailers are prohibited from entering the Indian market, except through cash and carry wholesale trading, but the government announced plans to lift restrictions in 2011, but then committed an embarrassing u-turn just weeks later.

The emergence of modern retail started in the major cities of Delhi, Mumbai, and Bangalore, and the satellite towns which have developed around them due to the huge influx of young professionals. Modern retail is concentrated in just a few cities, and premium locations there have already become saturated.

Employing 8% of the total work force, retail is the second largest employer in the country. The majority of these workers are self-employed, as India has a huge base of traditional retail outlets which are often family-owned. At present, modern retail represents only 5–7% of total retail in India.

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Retailing in India - Case Study

  1. 1. Retailing in IndiaCase study: A passage to India –major retailers and potentialnew entrantsFind out which global retail players are enteringthe fast-growing India retail market – and whichare tipped to be next November 2012 www.verdict.co.uk
  2. 2. Retailing in India Case study: Major retailers in the country and potential new entrantsThe Indian retail market growth spurt makesmore room for international playersRetail is now the second largest contributor to India’s GDP. The market is growing fast, with Verdictforecasting its value to more than double in 2015 from 2006, to hit more than $764.7 billion. This,along with the recent relaxation of investment rules for multi-brand retail, and changing consumerbehaviours, makes India an attractive prospect for many international players.Retailing market in India ($bn) 800 700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2011 2012(f) 2013(f) 2014(f) 2015(f) Source: Verdict ResearchTraditional retailing – mostly made up of family-owned small businesses – is still the dominantforce in India’s retail landscape. Modern retail is worth only between 5-7% of the total market, buta growing population of young, more affluent consumers, a gradual shift towards shopping mallculture and the wave of international players means modern outlets are growing, and consumersincreasingly want them.Despite this, conservatism will not be completely stamped out. Consumers will shop at a mixtureof traditional and modern outlets, gravitating more towards modern outlets for planned tripssuch as the monthly food shop. But they will still hold a candle for neighbourhood shops for morespontaneous buys, such as personal care products.The latest reforms in foreign direct investment mean that single brand retailers can own 100%of their Indian operations (up from a maximum of 51%), and multi-brand operators such assupermarkets, which were previously restricted to cash and carry and wholesaling, are now allowedto open their own stores and own up to 51% of the business.2 www.verdict.co.uk
  3. 3. Retailing in India Case study: Major retailers in the country and potential new entrantsThere are still some major restrictions for multi-brand retailers:• India’s individual state governments will decide if international retailers can come in• Retailers will only be allowed into cities with a population of more than 1 million. A state with no city this large will be able to choose where to let a foreign retailer open its doors• Almost a third of a retailer’s goods are to be sourced from small businesses• Retailers need to invest a minimum of $100m within three years of entry.The minimum investment rule insures only very large global retailers will make the jump, butperhaps even more difficult is the 30% local sourcing rule which will involve retailers having to finda large number of smaller businesses (defined as those with investment of less than $1m in plantand machinery) to supply goods. Having become a supplier to foreign retailers, if it then wantsto expand and invest more than $1m in plant and machinery, its sales will no longer count as partof its customers’ 30% quotas. This catch-22 situation does not seem to serve the longer interestsof small businesses in India, or the realities of global retailer sourcing strategies. The Indiangovernment has changed its mind many times before on FDI rules, and no doubt it will be underpressure to change this onerous rule.India’s major cities – such as Delhi, Mumbai and Bangalore – and those close to them have beenthe main stomping ground for modern retailers, but this concentration means that the areas arealready saturated. Emerging cities (known as tier II and tier III), such as Chandigarh, Nagpur, Kochiand Meerut, are being increasingly targeted as IT, telecoms and automotive businesses move in,and they are expected to see the highest growth levels over the next two decades.Some established international retailers have already taken advantage. Samsung embarks onroad shows to show case products in tier II cities. Meanwhile The Body Shop has branched outinto cities such as Ludhiana, Jaipur and Mangalore, while L’Occitane is considering moves intotier II cities.3 www.verdict.co.uk
  4. 4. Retailing in India Case study: Major retailers in the country and potential new entrantsEntry into India: Grocery makes upmajority of retail, but many sectors cantap into India’s potentialFood and grocery is India’s biggest segment for organised retail, with around a 65% slice of thetotal market. Behind that, clothing, accessories and luxury goods accounts for 13% of share.Electricals and electronics is forecast to see an annual compound growth rate of 13.1% between2010 and 2015, but clothing, accessories and luxuries is expected to accelerate fastest over thenext four years. The sector’s international brands are moving in faster than some others, andfashion houses are also becoming widespread, while luxuries are more in demand.ESTABLISHED CONSIDERING ENTRY Debenhams – 2 stores opened, Ikea – considering €1.5bn with plans for 30 in 13 cities investment for 25 stores Lush – 16 stores opened, Tesco – no physical presence mainly in shopping malls but runs infrastructure for joint venture partner Trent’s Star L’Occitane – 3 stores in Delhi Bazaar chain and 3 shop-in-shops (Shoppers Stop) outlets M&S – 25th store opened in April 2012, with plans for around 60 outlets by 2014 The Body Shop – 80+ stores in malls, airports and standalone outlets Walmart – 5 cash and carry stores with local joint venture partner Bharti Retail Zara – 8 outlets opened with parent Inditex keen to enter with more of its brands4 www.verdict.co.uk
  5. 5. Retailing in India Case study: Major retailers in the country and potential new entrantsSome of the UK’s national retail treasures have already made strong in-roads into the India market,and other global players are established presences.M&S marked a rite of passage to India with the opening of its 25th store in Bangalore in April 2012.M&S owns 51% of a joint venture with Indian brand Reliance Retail, and its brand, Marks & SpencerReliance India, offers clothing, home decor, kitchenware, toiletries and toys and books. Its storesare in most major cities, with one at Indira Gandhi International Airport.Zara’s parent company Inditex Group formed a joint venture with Trent, and now operates fourZara stores in Delhi and Mumbai. It plans to open around 8 to 10 stores a year, and introduce someof its other brands.Lush’s agreement with owner and operator Amaltas Retail has been in place since 2004. Meanwhilecompetitor The Body Shop entered into the market in 2006 in partnership with India’s Planet Retailsubsidiary Quest Retail. It plans to reach 150 stores by 2014, with one initiative being to reduceprices on 200 major lines permanently in the wake of the economic downturn in 2009.Strong electrical brands have made the push into retailing. Samsung’s revenue from India wasworth 3% of the company’s total in 2010, with the company expecting to reach 5% by 2013.Meanwhile Sony and Panasonic both have branded outlets in the triple digits across the country.But the latest big development comes from Ikea, which has long yo-yoed in its plans for entry intothe country amid the confusion surrounding foreign direct investment rules, but is one of the latestto have got on board. The Swedish home retailer has applied to the Indian government to set upits stores in the country, and is reported to be looking at a €1.5bn investment of 25 stores.Clothing retailers keen to make the leap include Topshop, Uniqlo and luxury brand Max Mara.5 www.verdict.co.uk
  6. 6. Retailing in India Case study: Major retailers in the country and potential new entrantsRetailers partnering with local presenceInternational retailers have entered India primarily in four ways:• Joint venture• Franchising• Strategic license agreement• Cash and carry wholesale trading.Clothing and health and beauty retailers have been the major takers of joint ventures with a localpartner. But Tesco’s partnership with Trent has meant that the UK’s biggest supermarket chain canintegrate its supply chain operations with its partner’s Star Bazaar brand, which buys more than 70% ofits products from Tesco’s wholesale arm. Perfect partners – retail joint ventures in india Local Partner International Partner Reliance Retail M&S, Diesel Planet Retail Debenhams*, The Body Shop (Through Quest Retail) Trent Tesco, Zara Beauty Concepts L’occitane Bharti Retail Walmart *Arvind Has Since Acquired Business Operations From Planet RetailCash and carry trading has been a main route for supermarket chains because it allows for 100% FDI.German grocery firm Metro was one of the first to set up in India using cash and carry stores, butWalmart, Carrefour and Tesco have followed suit. The developments around FDI means that theseretailers can set up shop in their own right, assuming individual states will allow it.6 www.verdict.co.uk
  7. 7. Retailing in India Case study: Major retailers in the country and potential new entrantsThis case study was taken from Retailing in India – a Verdict Channel Strategy ReportFor more information on this report please email information@verdict.co.uk, http://bit.ly/Prjcndor call +44 (0)20 7551 9664Retailing in IndiaIntroductionThe Indian retail market has grown at a double-digit compound annual growth rate over the lastfive years and was worth an estimated $554bn in 2011. The Indian economy grew throughoutthe global downturn, with increasing consumer purchasing power bolstering the retail sector.Retailing is now the second highest contributor to India’s gross domestic product.Features and benefits• Uncover the main opportunities available in the Indian retail market across Clothing, Grocery, Electricals, Health and Beauty and Homewares• Understand the size of the Indian market by sector and the growth forecasts to 2015• Understand the key financial, cultural, political and logistical reasons that has so far held back the development of modern retail in India• Discover which retailers are operating in India and with which local partners.HighlightsConfusion reigns over India’s FDI policy. Currently international food and grocery retailers areprohibited from entering the Indian market, except through cash and carry wholesale trading,but the government announced plans to lift restrictions in 2011, but then committed anembarrassing u-turn just weeks later.The emergence of modern retail started in the major cities of Delhi, Mumbai, and Bangalore,and the satellite towns which have developed around them due to the huge influx of youngprofessionals. Modern retail is concentrated in just a few cities, and premium locations therehave already become saturated.Employing 8% of the total work force, retail is the second largest employer in the country.The majority of these workers are self-employed, as India has a huge base of traditional retailoutlets which are often family-owned. At present, modern retail represents only 5–7% of totalretail in India.Your key questions answered• 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?7 www.verdict.co.uk
  8. 8. Retailing in India Case study: Major retailers in the country and potential new entrantsAbout VerdictVerdict is a retail information specialist within the Informa Group. With almost 30 years’experience, Verdict publishes unrivalled independent analysis. We provide a complete pictureof the UK and increasingly the international retail arena, helping retailers, manufacturers, servicesuppliers, analysts and consultants to fully exploit opportunities within the industry.www.verdict.co.uk8 www.verdict.co.uk

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