The document discusses the opportunities and challenges facing the retail business in India. It notes that while India presents a large opportunity due to its growing middle class, retail has not yet reached critical mass to unlock economies of scale. Cost structures are also high compared to revenues. Consumer behavior also differs from other markets as Indians tend to shop for occasions and make purchases from multiple channels. Infrastructure and regulatory frameworks need further development to better support the retail sector. Success will require a long term view and flexibility, with an approach tailored specifically for the Indian market.

1. My journey of four years setting up a “Retail Business” in India Parinjay, Chennai, May 2010 Random thoughts on Retail in India

2. The great opportunity…. Burgeoning Middle Class, increasing numbers of HNIs, increasing disposable incomes The international Indian, exposure to international trends, brands and Retail Urbanization and availability of credit

3. 1. The Opportunity is still not material enough…. Retailers are not reaching critical mass required to unlock economies of scale and hence are not able to offer the “every day low prices” India is not one homogenous markets rather a conglomeration of many markets with widely varied buying preferences and behaviours In short we spend/customer is low and this lower spend is further split between multiple channels i.e. bit of a journey before Retailers can reach critical mass in revenues to establish economies of scales and price competitiveness

4. 2. First World Costs in a developing economy... Cost structures that are right there with the rest of the world Real estate rentals are right there with the most expensive and continue to remain so even after the correction this year and last Project Management, we may be cheap but we take longer and last shorter, in short we are not cheap! Higher costs allied with absence of economies of scale make for poor profitability numbers in the short and medium term.

5. 3. We buy differently, Consumer behaviour challenges... It is important to provide value, simply put value drives sales Buying patterns different, Retail visits are family outings “Best way to spend time with the family” Large % of purchases around festivals & family occasions Total purchases still split across two or more channels, usually organized retail + a local mom & pop (India has one of the highest Retail densities in the world) Location should be convenient, preferably high street, not receptive to suburban / on the highway locations

6. We buy differently & frugally… Arising Challenges for Retailers… With ever decreasing product differentiation, increasingly value is coming through pricing. Not sustainable over the long term, have to find other differentiators that provide value, Customer Experience? Credit? Private Labels? With Retail visits being family outings and preference for high street, basic format and low rent formats not feasible. Should we be with the customer and create formats that provide the opportunity for a family outing? An opportunity for a very Indian retail format? Supply chain is key… Collaborative Supply chains across Retailers? Retailer supply chains also service other channels?

7. 4. Infrastructure & Regulatory challenges... Un-evolved Regulatory and Legal frameworks to support Retail and Franchising Social/ Political challenges to organized Retail e.g. FDI in Retail Telecommunication infrastructure doesn’t support cheaper IT architecture Art and Science of Indianised Retail infrastructure & planning still in infancy Where are the people, serious crunch of qualified retail resources. Dedicated Manpower programs to build bench strength, Self checkout counters?

8. Retail in India is an opportunity, however… the opportunity is in an horizon that is longer than many of us have forecasted, be prepared to invest more and be more flexible with timing and scale of returns it will have to be done in an “Indian” way, Retail as it exists abroad is not “Plug & Play” ready for India, yet Finally, watch the “Cash Flow” and “Expense” line like a hawk, expenditure explained away as building for the future is the surest way of not having one! In this low margin war a rupee saved is a rupee earned!

9. Could the evolution of the airline business be a good predicator for the Retail sector? Air India Indian Airlines Air India Indian Airlines Damania ModiLuft EastWest Sahara NEPC Airlines Jagson Airlines 1990 & Before Liberalization 1990-1995 “ Open Sky Policy” The Shakedown – 1 The New order The Shakedown – 2 The Steady State? Air India Jet Airways Air Deccan Spice Jet Paramount Sahara Kingfisher Go Airways Air India Jet Airways Kingfisher Spice Jet Indigo Deep Structural changes initiated LCC Business Model Privatized Airports Price optimization Mergers & acquisitions High ATF & input costs Recession & Price wars Poor Infrastructure Flawed Business Model Based on overly Optimistic forecasts Players with deep Pockets survive Some changes to operating model No major Structural changes Which stage is Retail at today? ? ?