•FDI in Retail – Policy Perspectives.•Retail Sector – An Overview.•FDI Policy in Retail - Opportunities & Challenges.•Emerging Human Resource Challenges.•What lies ahead ? Issues for Discussion
The commitment of money orcapital to purchase financialinstruments or assets in order togain profitable returns.
ForeignInvestment done by citizens and Investment government of one country (home through country) invest in industries of another country (host country). Foreign Foreign Direct Institutional Investments Investors
• 1991- FDI allowed selectively up to 51% in priority sectors.• 1997-FDI allowed up to 100% in sectors like mining, manufacturing.
• 2000-06 FDI allowed up to 100% in specified sectors. FDI limits increased. Procedures further simplified• The top 3 Indian Regions attracting the highest FDI. Mumbai, Delhi and Karnataka. Account for nearly 62% of the total FDI.
• Mergers and Acquisitions By • Horizontal FDI • Vertical FDI.Target *Backward Vertical FDI *Forward Vertical FDI • Resource-Seeking By • Market-Seeking • Efficiency-SeekingMotive • Strategic-Asset-Seeking
Super Government markets Kirana Stores Stores Hyper markets Weekly Conveni ence Malls market store Brand Village outletsBarter melassystem
Single Brand Retailing • 51% Cash andCarry Model • 100%
Incentives attract FDI.Market size and potential are sufficient inducers. Tax breaks, import duty exemptions, land and power subsidies, and other enticements.
FDI inflows fromFDI inflows from August 1991 to2000-10 crossed April2010 were $300 billion $134.6 billion.
GRDI Position : 3rdSize : $ 400 billionGrowth Rate : 13%GDP contribution : 12%Major sector : Food and GroceryEmployment : 2nd largest industry (35.06 million)Types: Organized ( 5%) Unorganized ( 95%)
• Corporates are increasingly coming into this sector.• Demand of branded goods on a large scale.• Demand of new and varied products.• High quality product is preferred .• Varied window display.• E-tailers increase the presence.
Format Description RetailersHypermarkets Offering basket of product Spencers, Big bazaarCash and Carry Bulk-buying requirement Bharti-wal-martDepartmental stores Large layout, Wide merchandise Lifestyle , Globus mixSupermarkets Household product as well as food Apna bazaar , food as integral part of the service bazaarShop-in-shop Shops located in shopping malls Navras ( big bazaar)Specialty stores Focus on individual product type Brand FactoryCategory killers Particular segment The LOFTDiscount stores Branded product at discounted Subhiksha, levi’s prices outletConvenience stores Small Retail stores In and out
Retail Segment Percentage holding Major retailers in sectorFood and grocery 63% Reliance fresh, Café brio, food bazaarClothing, textile and 9% Westside, shoppersfashion stop, globusjewellery 5% TanishqCatering services 5% IRCTCConsumer durable 4% Viveks, vijay sales, Cromapharmaceuticals 4% Piramal groupEntertainment 3% Bowling co.,Furnishing, utensils 3% Hometown, Tangent ConceptMobile handsets 2% The mobile store,
• One of the worlds largest industries exceeding US$ 9 trillion.• Dominated by developed countries.• 47 global fortune companies & 25 of Asias top 200 companies are retailers.• US, EU & Japan constitute 80% of world retail sales.
• Retail trade in Europe employs 15% of the Europeanworkforce (3 million firms and 13 million workers).• The world’s population is poised to expand 50% by 2050.The world currently comprises of 78% poor, 11% middleincome and 11% rich.
Contribution Respective to GDP 12% India 6% Brazil 14% Japan 8% China20% USA
US Taiwan Malaysia Thailand Organised Indonesia Unorganised China India 0 20 40 60 80 100 US Taiwan Malaysia Thailand Indonesia China IndiaUnorganised 15% 19% 45% 60% 70% 80% 95%Organised 85% 81% 55% 40% 30% 20% 5%
India ChinaFocus on Services Focus on IndustryHigh labor cost Low Labor CostHome grown Capital FDIOld technology Adaptability to Latest technologyDemocratic Government Communist Government
INDIA•A large emerging market . Increase in disposable income of a family. 70 mn Indians – salary of $18,000. Rise to 140 mn by 2011. Consumer spending power increased by 75% in last 3 years. The per capita income in 2009–2010 has more than doubled to US$ 849 from US$ 348 in 2000–01.
Characteristics of Indian Market Source: McKinsey&Company
•Increase in consumer class. Consumer class will grow Upper class from 50 million at present to 583 million by 2025. Middle class With more than 23 million Lower class people taking their place among the world’s wealthiest citizens.
•Wide demographics -- average age of 25 yrs.•Brand consciousness. 60 % of population below age of 30. Awareness through World Wide Web.•Changing consumer mindset. Focus shifting from low price to convenience, value and a superior shopping experience.•Small Basket Size Shaping of Consumption
•Easy consumer credit. Upper class EMI & loan via credit cards -- easy for Indian consumers to Middle class afford expensive products. For instance, Casas Bahia’s- Lower class Brazil. Note: BOP C.K.Prahalad.
•Employment generation. Second-largest employer after agriculture. Additional 1.6 mn Retail trade employing 35.06 million. jobs . Wholesale trade generating an additional employment of 5.48 million.
•Technology Better use of resources andgoods. Wastage and Storage problems will be resolved. Efficient logistics, production, and distribution channels. Digital records.
•Rural market. Robust Consumption. 70% Indian households. 2/5 of the country’s total consumption pie. Accounts to 45% of GDP.
•FDI in Retail sector will resolve problemsregarding foreign exchange in India. •The life-long basic needs will keep on driving the Retail Industry.
Let the liberalisation be insteps rather than being a leap.
SKILLED WORKERS INFLATION COMPETITION REALTAXATION ESTATEPOLICIES PROBLEM PROBLEM IN MARKET RAISING POWER FUNDS SUPPLY CHAIN MANAGEMENT
• Major challenge faced by Organized retail sector: In Retail, over 70 per cent of the labor force in both sectors combined (organized and unorganized) is either illiterate or educated below the primary level.• Labor Laws
• A strong competition from mom and pop shops:- Easily accessible & approachable. Provide services like Free home delivery and goods on credit. They change consumer focus.
• Pantaloons GLOBAL • TescoINDIAN • Reliance • Walmart • Bharti retail • Metro • RPG • Carrefour • Lifestyle • B&Q • K raheja • Target • Subhiksha • Piramyd • Trent • Vishal group
Clustering of outlets.Highest Stamp Duty.
FORMAT AVERAGE SIZEConvenience Stores 800 sq. feetDiscount Stores 1000 sq. feetCategory Killers 8000 sq. feetSpecialty Stores Single-categoryShop-in-Shop Within Large malls
FORMAT AVERAGE SIZESupermarket Large in Size Typical in layoutDepartment Stores 10,000 – 60,000 sq. feetCash and Carry 75,000 Sq. feetHypermarkets 50,000 – 1,00,000 sq. feet
• Market power is in hands of unorganized retail. Unorganized •95% Organized •5%• Potential of Indian Market is US$ 200 billion whereas India is just earning its 3%.
Shrinkage Lack of logistic Infra. CorruptionAdditional Intermediaries Technology Hurdles
In India every year there is pilferage of US$ 65 billionwhereas in USA it is just 1-2%. Due to lack of proper storage infrastructure post- harvest losses of farm produce is Rs. 1 trillion cr. annually.
In terms of corruption India stands at 85th position.Because of paper work, corruption is present along theentire supply chain. In India, there are additional 2-3 intermediaries as compared to USA. i. They dominate the value chain. ii. They flout mandi norms & their pricing lacks transparency.
India is still in developing stage in installing andmanaging an effective IT system especially in rural areaswhich hampers the overall growth of organized retailsector.
Banks are reluctant to finance retailers because of fallingdemand of organized retailers in India as it has witnessedfailure of many stores like Spencers, Subhiksha, etc.
• Taxation laws in India favors only small retail businesses.• Implementation of non-uniform VAT across states.• Octroi and entry tax in some states.
• No Automatic Approval for FDI- Only 51% FDI is allowed to one brand shops in Indian retail sector.• Complications in issuance of licenses like a hypermarket in Mumbai must apply for 29 unique licenses & then when it has to come up with second store it has to apply for same 29 licenses all over again.
Disturbed economic status. Challenge to getmore customers at low cost.Liquidity pressure
• Indian retail sector : Employs 8% (35 million)of the working population. Could yield 12 to 15 million retail jobs in the coming five years.• Out of which organized segment is about 0.3 million.• Retail sector grew at 9.4% on real terms & 15.4% on nominal terms.
Front EndOperations Back End Operations Store Logistics & Procurement Corporate Merchandising MarketingOperations Distributions / Purchase Services
MBA Graduates with 5-10years of ExperienceGraduates with 2-5years ofExperienceGraduates/ 12th Pass/ 10thPassGraduates/ 12th Pass/ 10thPass
Level Skills Required Skills GapSenior Manager/ •Availability •Availability ofManager of merchandise. experienced Logistics •Maintenance personnel is a key •Design/modify the challenge logistic schemes. • Negotiation with warehouse owners.Marketing • Knowledge of data • Ability to understandManager/Sr. analysis. •CommunicationMarketing •Understand customerManger/ behavior.Marketing •Coordinate with mediaOfficer agencies.
Complexity/Technical Nature of Product Level of Store Customer Characteristics Nature of Supply Chain Involvement Changes in the Product Nature/ TypePrice Segment(Luxury, Mass market etc. Intensity of Skill Requirement
Demand • Communication Skills • Multi Tasking Supply• Limited Retail TrainingOpportunities• Higher Level Skills
• The Retailers Association of India (RAI) - Diploma and Degree Programs in Retailing - Bharti Retail and Vishal Retail - 5,000 trained persons
FDI can be a powerful catalyst to spur competition in the retail industry.It can bring about: Supply Chain Improvement Investment in Technology Manpower and Skill development Efficient Small and Medium Scale Industries Increase in exports
PantaloonLifestyle plans Shoppers Stop Timex India will has plans to Retail India open another to have more invest Rs250 (PRIL) plans to 52 stores bythan 50 stores Crore to open invest US$ March 2011across India by 15 new 77.88 million taking its total 2012–13. supermarkets to add up to store count to in the coming existing 2.4 120 three years. million sq ft retail space. .
• Investment into warehouse and cold storage chain will result in significant efficiency on supply chain.• Farmers benefited through direct marketing and contract farming programme.• Improves farm production through modern techniques.• Increasing availability of low interest credit for farmers.
Expected Growth • In the last four year, the CAGR 1.3 consumer spending in India1.4 10% climbed up to 75%.1.2 • By the year 2013, the 1 0.83 organized sector is also0.8 0.59 expected to grow at a CAGR of0.6 40%. 0.350.4 • The total number of shopping0.2 malls is expected to expand at 0 a CAGR of over 18.9 per cent 2008 2011 2013 2018 by 2015.
The initial cap on investment could be pegged at 49%. FDI should be leveraged to create back-end infrastructure. FDI will be a powerful driver to curb inflation.
????? To develop our rural sector ,should conditionality’s be put on the FDI funded chains relating to employment? For example, should we stipulate that at least 35% of the jobs in the retail outlets should be reserved for the rural youth?
Urban migration Opportunity to urban and rural unemployed Alternative incentive schemes
Industry experts predict that the next phase of growth in the retail sector will emerge from the rural markets. By 2012 the rural retail market is projected to have a total of more than 50 per cent market share. Apparel, along with food and grocery, will lead organised retailing in India.(RNCOS)
????? What additional steps should be taken to protect small retailers? Should an exclusive legal and regulatory framework be established to protect their interests?
National legal framework cannot be effective. Hamper growth in retail sector. Incentives directly to benefit small retailers.
Restrict the number of stores that can be operated in a city. Allow access to the small retailers to the stores through special windows.