This document looks critically at shoppers stop and organized retail companies of india and predicts that investors will get very low returns buying shares of these companies. Organized retail currently at around 6% of total retail will reach 15-20% of total retail only after around 15-20 yrs and not in 2-5 years. I have backed up all thsis with logic .

1. Shopper’s Stop Analysis and Future Expected Returns (Investors Stop???)

2. Shopper’s Stop Analysis and Future Expected Returns (Investors Stop???) ............................................................1
Shopper’s Stop Analysis and Future Expected Returns (Investors Stop???) ............................................................5
Shopper’s Stop ...........................................................................................................................................................7
Investors Returns in Shopper’s Stop in last 7 years since IPO- .............................................................................8
Madness of Investors and Liquidity Sloshing Around makes investors pay 70+ P/E for Shoppers Stop ...............9
Shopper’s Stop Future Returns over Next Decade-Prediction ...............................................................................9
Organized Retail Industry in India ........................................................................................................................... 11
India Retail Landscape-Predictions and Reality .................................................................................................. 12
How Much Cash Investment needed for Organized Retail to Become 20% of total Retail ................................. 15
Investors and Shopper’s Stop ................................................................................................................................. 17
Indian Household Monthly Per Capita Expenditure (2009-10) ............................................................................ 18
Basic Analysis of Retail Buying and Limits of its Growth ........................................................................................ 19
People living in Homes ........................................................................................................................................ 19
Average Size of a House in USA, UK, India & Per Square Feet per person comparison .............................. 19
The top spending youngest of the crowds do not live in their own homes ...................................................... 21
Size of Fridge India .......................................................................................................................................... 21
Money with the People ............................................................................................................................................ 22
Ignore the nearby Local/Mom-n-Pop/Kirana Shops in favor of Shoppers Stop ...................................................... 22
Advantage of Kirana/Mom-n-Pop Stores over Organized Retail/Shoppers Stop ................................................ 22
Basic Disadvantage/Advantage of Any retail remains same for Organized or Kiranas ................................... 23
People travel to Retail Shop/Shoppers Stop or Buy Online .................................................................................... 24
Going to Mall ........................................................................................................................................................ 25
Number of Cars per Person & Relation to Organized Retail ............................................................................... 25
Buying Online ....................................................................................................................................................... 27
CD/DVD ............................................................................................................................................................ 27
Books Retailing Online and Shoppers Stop Failure ......................................................................................... 28
Electronics Sales Online .................................................................................................................................. 30
People Choose the Stuff/Goods they Buy ........................................................................................................... 31
Food Expenditure comprises 50% of total spending by Indians ...................................................................... 31
Cereals and Pulses- 22% of total Expenditure ................................................................................................ 32
Milk and Products – 10.88 % of total Expenditure ........................................................................................... 33
Vegetables - 7.3% ........................................................................................................................................... 33
Sugar and Salt – 5.52% ................................................................................................................................... 34
Beverages – 7.5% ............................................................................................................................................ 34
Egg, fish & meat and edible oil – 8.6% ........................................................................................................... 35
Fruits and Nuts – 2.29 % . ................................................................................................................................ 36
Summary of Food Market Capturing Possibility ................................................................................................... 36
Shoppers Stop low Food Sales as a % of Total Revenues ............................................................................. 37
Non-Food Expenses ............................................................................................................................................ 38

3. Durable goods- 7.03% ...................................................................................................................................... 38
On Electronics Category Mr. Biyani’s Thoughts. .............................................................................................. 38
Mobile phones .................................................................................................................................................. 40
Clothing & bedding and Footwear– 7.56% ....................................................................................................... 40
2.46% of Expenditure on Tobacco Products can never be tapped by Shoppers Stop .................................... 41
Miscellaneous Goods & Services – 28.33% ........................................................................................................ 41
Personal care and effects - 3.8% .................................................................................................................... 42
Household requisites – 5.6%............................................................................................................................ 42
Organized Retail Industry Market Penetration level in 2025-2030 ...................................................................... 43
Overall Summary (Food + Non-Food) Market Penetration in 2025-2030 ........................................................ 43
Overall Summary Food Items Market Penetration in 2025-2030 ..................................................................... 44
Overall Summary Non-Food Items Market Penetration in 2025-2030 ............................................................. 44
Shoppers Stop and Walmart Sales Mix Contrast ............................................................................................. 46
People Buy the Stuff with Cash/Credit/Debit Cards ............................................................................................. 46
Limit to Credit Card Penetration in India .......................................................................................................... 47
Consequence of Low Credit Card Penetration for Wal-Mart/Tesco/Reliance Retail and Indian Retailers in
coming Decades ............................................................................................................................................... 47
Advantage Kirana ............................................................................................................................................. 47
People take goods purchased back to their Homes ............................................................................................ 49
The Curse of Expansion- Low Return, Zero Free Cash Flow ................................................................................. 49
Charlie Munger on why Heavy Investments in Efficiency in Capital Intensive Business Don’t Reward Company
............................................................................................................................................................................. 50
Shoppers Stop/Organized Retailers on Inflation – Funny Read ............................................................................. 50
Pantaloons comments on Inflation-“it will increase trading density” .................................................................... 50
Shoppers Stop comments on Inflation-“Magins and Inflation has no relationship on us” ................................... 51
Shoppers Stop remarkable turning around of how Q4 will be better than Q3 ..................................................... 52
Some Fun commentary from Annual Reports ......................................................................................................... 53
2006-07 Annual Report ....................................................................................................................................... 53
Misleading view on Depreciation ...................................................................................................................... 53
Projections in Annual Report ............................................................................................................................ 53
2007-08 Annual Report ........................................................................................................................................ 54
“Real estate costs for the Indian modern retailers are 8-20% of sales compared with 3-4% for retailers in
other countries. “............................................................................................................................................... 55
Annual Report 2008-09 ....................................................................................................................................... 56
Annual Report 2009-10 ....................................................................................................................................... 57
Annual Report 2010-11 ....................................................................................................................................... 57
On margins in cosmetics .................................................................................................................................. 58
In May 2012 Concall on High Interest Charges ............................................................................................... 58
Conclusion ............................................................................................................................................................... 59

5. Shopper’s Stop Analysis and Future Expected Returns (Investors Stop???)
Here is kind of analysis which I guarantee that you would have never read or heard anywhere else on
Shoppers Stop (Organized Retail), its future growth potential limits and the expected return from point
of view of equity investor in Shoppers Stop or Pantaloons or Trent (Westside).
Please read the below analysis and always keep in mind the following 4 simple facts:
Indians on an average spend close to 60% of their expenditure on FOOD.
Organized Retail have just 1% or even less share of FOOD sales in India.
Indians spend around 10%-11% only on clothes, beauty products and footwear.
Almost 80%-90% of sales of Shoppers Stop or Pantaloons or Trent (Westside) are clothes ,
beauty , accessories and footwear products and less than 10%-15% comes from food sales and
that too comes from great brands of food (Nestle-Maggi , Cold Drinks , Biscuits ,Milk products
,etc which are razor thin margin business)or commodities which are again almost zero margin
products.
With the above thoughts firmly in mind here goes my analysis.
With Organized Retail currently being around 6-7% of total retail sales I am predicting that in next
decade or two it will not reach even close to 18-20% of total retail sales and I‟ll back it up with logic.
This prediction is completely opposite (downright negative if you want to say) compared to every single
projection available in India and abroad by any institution on future of Organized Retail. The prevailing
wisdom is Organized Retail will soon by 2015 or so (add 1-2 years more if you like) capture almost
15%-18% of total retail sales in India and in the process the companies like Shoppers Stop or
Pantaloons or Trent (Westside) are great buys even at P/E of 35+. Again I have not seen sell ratings on
any of these companies except one by Nirmal Bang. Rest all are positive on this sector as a whole
factoring in years of future growth at a return on capital which is at least twice of what these companies
have shown in last decade of phenomenal growth when in fact for 4-6 years credit was as cheap as air.
The consultants , analysts , investment bankers and investors may have got it all wrong in trying to
figure out how much expansion can the Organized Retail logically have in India given India‟s unique
expenditure pattern , infrastructure , real estate and electricity situation which is completely different
from anywhere in the world .
This happens because a typical person who is consultant/analyst working in a company which brings out
studies on growth potential of Indian retail may have say a package of minimum 12/15 lakhs per annum
and his spending is less than 10% on food but he buys jeans at Rs. 4000, shirts at 2000 ,shoes at Rs.
5000 , perfumes at 3000 , LED TV at 50000 and some furniture at 25000 from the mall and he just
cannot connect with how real India spends money on even though the data is right infront of his eyes.
These guys‟ brains just short circuit and use System 1 (part of type of thinking of brain which uses
shortcuts to make things easy) as opposed to System 2 (which is purely rational and calculative) as
explained brilliantly by Daniel Kahneman in his amazing book http://www.amazon.com/Thinking-Fast-
Slow-Daniel-Kahneman/dp/0374275637

6. Infact there would actually be a complete limit on how much Organized Retail can ever grow and
capture the total retail expenditure in India (My guess is around from 6-7% today to 18-22% in coming 2
decades and that‟s being too positive)
Having written a blog entry on Organized retailing in India which now features on top page of Google
search results when anybody searches terms like “Organized Retailing Critical Analysis India” I decided
I would now look at a particular company and give a broad overview on why Shopper‟s Stop(and you
can safely extrapolate to other retail players) may not become what almost everybody thinks even in
next decade both for stock investors and for company .
Try this search and you will see my earlier blog which details about Retail Industry as a whole
https://www.google.com/search?q=Organized+Retailing+in+India+critical+analysis&ie=utf-8&oe=utf-
8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
Most importantly the return expected by investors in the retail companies like Shopper‟s Stop ,
Pantaloons , etc are not going to be something to brag about if bought at current valuations >35 P/E .
Nifty, in my opinion will outperform these retail stocks handsomely in next decade just as NIFTY has
already outperformed over last 5 years when these retail stocks were going through exponential growth
in revenues/stores.
Here is a comparison on Shopper‟s Stop, Pantaloons, Trent (Westside) with NIFTY. As you can see you
would have been better off closing your eyes to retail stocks and just picking up NIFTY.

7. Most probably even when I will take chart in 2017 almost similar results would be there. Retail stocks
comparison with Nifty
Having made such a bold, contrary (someone might call stupid) prediction of future of retail stocks of
India I have to back it up with some logic. (I would have made same predictions even in 2005-07
because almost 99% of facts presented in analysis below would not differ materially at all from 2005 to
2012 .So it is not just looking in rear view mirror and having a 20/20 hindsight)
Shopper’s Stop
One of the leading Organized Retailing players in India Shopper‟s Stop is almost synonymous with
India‟s organized retail and has a great brand. It has had phenomenal growth in last decade and looks
poised to grow to even bigger levels in coming decade.
Shopper‟s Stop was started in 1991 and in 2004-05 it got to sales of Rs. 500 Crores and PAT of Rs. 19
Crores.
2010-11 it had close to Rs. 2000 Crores of sales and Rs. 75 Crores of profit.

8. Here is a brief Snapshot of Shopper‟s Stop in last 5 years which will give you an idea of its growth. I
have attached the excel sheet which has all the financial data I have collected from various sources
whose link is here .
Investors Returns in Shopper’s Stop in last 7 years since IPO-
Let me start by looking into the rear view mirror because it‟s a fact and vision is 20/20.
After its IPO the returns got by investors by holding SS till December 31st 2011 would have been this
with:
A 100 rupee invested in Shopper‟s Stop for last 7 years would have grown to about 151.
A 100 rupee invested in NIFTY for last 7 years would have grown to about 230.
So NIFTY has beaten Shopper‟s Stop handsomely over 7 long years.
Or someone really conservative would have easily beaten returns of Shoppers Stop by putting
money in FD with ZERO downside risk.

9. Madness of Investors and Liquidity Sloshing Around makes investors pay 70+ P/E
for Shoppers Stop
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
No. of shares 27421875 34382930 34382930 34,862,330 34,865,823 34,914,344 82166836 82166836
Average Market
Price 459 650 611 283 304 336 260
Average Market
Cap Rs. Crore 0 1577 2233 2131 987 1061 2764 2136
PAT (Rs. Crores) 12.02 19.03 27.11 26.2 6.97 -63.72 50.23 75.18
Price to Earning(P/E) 83 82 81 142 -17 55 28
what were investors thinking ??
Shopper’s Stop Future Returns over Next Decade-Prediction
Now as Yogi Berra said “It's tough to make predictions, especially about the future” but I would like to
stick my neck out and say that in next 5-10 years in between a buy and hold of Shopper‟s Stop and Nifty
starting 2012 values the second option Nifty will beat Shopper‟s Stop handsomely. Maybe a Fixed
Deposit (some are giving 9.75% for 5-10 years) and its pre-tax return can almost match what Shopper‟s
Stop will give to investors in next decade with zero volatility and zero risk of loss of principal.
(Inflation, government money printing notwithstanding).
How on earth can somebody make a decade long prediction of such a fast growing company when the
95% of unorganized retail in India is there for the taking?
Below I will mention my analysis for the low returns which people are going to get if they invest in
Shopper‟s Stop at current valuations (P/E >35) . My analysis is NOT about the revenues/profits/number
of stores/great shopping experience/low prices for customers of Shopper‟s Stop but it‟s about the returns
to be expected by investors if he invests in Shopper‟s Stop starting Jan-Feb 2012 valuation.
As Warren Buffet has said – "The key to investing is not assessing how much an industry is going to
affect society, or how much it will grow, but rather determining the competitive advantage of any given
company and, above all, the durability of that advantage‖
I would add Howard Marks words to it “For a value investor, price has to be the starting point. It has
been demonstrated time and time again that no asset is so good that it can‟t become a bad investment if
bought at too high a price. And there are few assets so bad that they can‟t be a good investment when
bought cheap enough.”
You may buy a great company but pay a wrong price. Shopper‟s Stop I believe is not at an attractive
price with P/E greater than 35 and same goes for Pantaloons or Trent (Westside). It would be a good
buy if P/E became close to high single digit which it was during late 2008-and early 2009.
Just have a look at the return on asset (return on capital) and Return on Equity for Shoppers Stop and
Pantaloons . They are even lower than a meagre than even a 7% return which any tom , dick or harry can
get post tax on his Fixed Deposit/Savings account .

10. Shoppers
Stop
Average for Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
10 years '11 '10 '09 '08 '07 '06 '05 '04 '03 '02
ROA 5% 10% 10% -14% 1% 6% 8% 10% 9% 9% 0%
ROE(Pre-
Tax) 11% 19% 23% -25% 4% 17% 15% 22% 17% 16% 1%
Debt/Equity 0.61 0.25 0.62 0.89 0.58 0.38 0.22 0.92 0.75 0.76 0.69
Pantaloons
Returns
over Years
Pantaloons
Average for
10 years Jun-11 Jun-10 Jun-09 Jun-08 Jun-07 Jun-06 Jun-05 Jun-04 Jun-03 Jun-02
ROA 5% 4% 5% 6% 7% 6% 5% 3% 3% 4% 2%
ROE(Pre-
Tax) 16% 14% 21% 26% 24% 17% 17% 11% 10% 11% 9%
Debt/Equity 1.54 2.03 2.15 2.49 1.29 1.14 1.19 1.19 1.25 1.04 1.60
“Leaving the question of price aside, the best business to own is one that over an extended period can employ
large amounts of incremental capital at very high rates of return.” – Warren Buffett, 1992 Berkshire Hathaway
Shareholder Letter
Brilliant interpretation of which are bad businesses and how to not get happy because the EPS has increased
sharply without looking at how much capital has been employed to generate that EPS .
http://www.gurufocus.com/news/146358/warren-buffett-earning-with-capital-employed-in-good-
business
“When returns on capital are ordinary an earn by more by putting up more record is no greate managerial
achievement .You can get the same result while operating from your rocking chair .Just quadruple the capital you
commit to savings account and you will quadruple your earnings… A savings account in which interest was
reinvested would achieve the same year-by-year increase in earnings – and at only 8% interest, would quadruple
its annual earnings in 18 years” Buffet in annual shareholder letters .
To sum up there are 3 types of savings account. The great one pays extraordinary high interest rate that will rise
as years pass. The good one pays an attractive rates of interest that will be earned on deposits that are added .
Finally the gruesome account pays and inadequate rate of interest and requires you to keep adding
money at those disappointing returns.”
rd
I am afraid Organized retail in India is the 3 type of savings account looking at the meager return on the capital
employed . It says something about what returns investors can expect in future from these companies which are
just low quality and below 6%.
I guess if managerial brilliance is shown in Shoppers stop or Pantaloons based on EPS or profit increase only
then sitting in my arm chair and doing Fixed Deposit for next 10 years are 9.5% today (in March 2012) should also
entitle me to the same praise heaped on Mr. Biyani and Rahejas .

11. If anybody wants to do some kind of DCF analysis to persuade himself to buy Shoppers Stop or Pantaloons or
Westside with any kind of goodie good assumptions –they are free to do that . But remember you must account
for everything keeping in mind of the return on total capital of 5% for any retail company and cost of capital can
never be 5% . And please don’t even talk about EBIDTA . (Do you think tooth fairy pays for depreciation/capex
??)
I have NOT done DCF because I don’t believe these companies need to be considered for investment by any
rational investor who understand a basic thing as mentioned below by Charlie Munger –
"If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to
make much different than a 6% return even if you originally buy it at a huge discount. Conversely, if a
business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll
end up with a fine result." - Charlie Munger at USC Business School in 1994
Organized Retail Industry in India
I have not come across any article which even remotely says that Organized Retail in India will NOT
really be that successful as it is generally predicted to be from point of view of investors (they just say
there are challenges as if there are some businesses which don‟t have challenges). In fact after FDI in
multiband retail has been increased (later pulled back) to 51% not one article came in any prominent
newspaper which said that the Walmarts, Tescos of the world may not succeed in India. Everyone just
automatically does following conclusion based on some facts -
India Growing country ( 7-8% + GDP growth)
Has young population and a huge middle class who are earning a lot
Organized retail is just about 5-6%
o Directly implying that when Organized Retail becomes at least 15% there will be so
many players who will make tons of money.
But I doubt anybody really has thought that may be India‟s Organized retail will at least for coming 2
decades NOT have a penetration level as it is made out to be . Even if penetration level does go up
considerably still it will NOT be profitable enough for the players in the market and most importantly
the investors in Retail Stocks will not have earned high enough risk adjusted returns as compared to just
holding the benchmark NIFTY.
Business Consultants if they read this post are not going to like my thoughts at all. But I am writing this
mainly warning to the prospective foreign retailers who plan to be entering India in coming months and
years in the hope of growing profitably based on one sided ppts/docs given by retail experts/consultants
and analyst of brokerage houses from India where all graphs go one way - up. I hope I am proven wrong
in coming decade or two.
All of the following explanations are based on mainly on following important assumptions which I feel
are true –
There is NO easy money to be made by anybody on this planet earth be it Shoppers Stop, Wal-
Mart or any company.
Nothing magical, revolutionary, amazing thing happens in this world (especially India) except
mainly in technology areas (like internet, Telecom and medicine) which are almost completely
free from government dependence on great infrastructure. The moment something needs to

12. become magical or amazing and it requires a lot of back and forth dealings with government
approvals, land acquisition, power/electricity, real estate, roads, railways, ports believe me it
does not happen.
If the underlying business does not have high enough return on equity/capital employed then the
stock investors over a long period (say a decade) cannot expect to earn returns which are greater
than what the business itself can earn on the invested capital.
The 5 year or 10 year projections on excel sheets and ppts by Consultants, Analysts, and MBAs
are far away from what happens in real world.
Some business can completely change the way people go about doing things but that does not
make the business a rewarding one for investors. E.g.: Airlines industry-lesser said the better it
is.
India Retail Landscape-Predictions and Reality
It‟s estimated that the total retail sales in India will grow from US$ 395.96 billion in 2011 to US$
785.12 billion by 2015, according to the Business Monitor International (BMI) India Retail Report for
the second-quarter of 2011. i
In 2008 organized retail constituted around 5% of total retail market.ii Three years later it probably is
around 6.5%iii with the rest around 94-95% being run by unorganized sector with almost 35 million or
7.3% of India‟s workforce being engaged in it.iv
Back in 2006-07 when stock markets were up and everything seemed hunky dory everyone predicted
that the organized retail market share will grow from 4-5%(then in 2006-07) to almost 12-15% in 2011
predicting almost 30%+ compounded growth rate . v
Unfortunately reality is almost always different from fancy projections on excel sheets/ppts.
The real growth rate from 2006-2010 has been 13.3% (according to CARE)vi.
Here are various projections about organized retail in India (mind you the earlier the projections rosier
the picture).
Of course nobody had seen the 2008-2009 worldwide recessions coming (ask Bernanke vii or may be
John Paulson or Michael Burry or read ―The Big Short‖ about how many knew about this recession or
best listen to Prem Watsa viii Ben Graham Centre for Value Investing speech in 2007 on you tube and
check out how much money he spent to buy protection against mortgages defaulting, or read
outstanding memos written by Howard Marks of Oakland capital warning about coming debacle of
2008-09 and race to bottom) much less the Consulting companies and Retail Analysts.
But it begs to question as to how can almost everybody be on the same side of predictions and
everybody go wrong by at least 50% in their predictions??
When the last time was anyone saw a 30%+ actual real life growth of any industry for 5-10 years
which is fraught with so many government approvals and dependence on great infrastructure
(exceptions being tech and telecom)?
Should we trust all the rosy predictions about growth of retail which has started to gradually
appear back in newspapers and TV again as of today (if you feel like déjà 2007 you are not
alone)??

13. Rosy Predictions about future of Retail Vs Reality – Current
share of Organized Retail is only around 5%-6.5%1
•Organized Retail is projected to grow at the rate of 25% -30% p.a.
2004-05 Shopper's and is estimated to touch Rs. 1000 bn by 2010, contributing to 9% of
Stop Annual Report the total retail sales. (Source: Images Retail Report, 2005)
http://corporate.shoppersstop.com/uploaded_files/efcffca-f239.pdf
•Pantaloons put this projection for its IPO - KSA Technopak estimates
organised retail in India to reach 12% to 13% of the total retail market by
2005 Technopak 2010with sales of Rs. 1700-1800 bn, aided by improved real estate
infrastructure and easier access to capital
http://www.sebi.gov.in/dp/pantaloon.pdf
•Organised retail, which is currently estimated to be Rs 1.0 lakh crore (5
per cent share), is projected to reach Rs 3.0 lakh crore (11 per cent
Same Technopak share) by 2015. This means a tripling of the current size and scale of
Sometime in 2010 organised retail in the next 5 years.
http://www.technopak.com/Perspective/vol4/An%20overview%20of%20India's%20consumerand%20retail
%20sectors.pdf
•The game has just begun , with organized retail accounting for less
McKinsey-August than 5% market and likely to expand to anywhere between 14% and
18% by 2015.
2008 http://csi.mckinsey.com/~/media/Extranets/Consumer%20Shopper%20Insights/Reports/THE_
GREAT_INDIAN_BAZAAR_SECURE.ashx
•“Organized retail, which constituted a low four per cent of total
ICRIER-September retail in 2006-07, is estimated to grow at 45-50 per cent per annum
and attain a 16 per cent share of total retail by 2011-12.”
2008 http://www.icrier.org/pdf/Working_Paper222.pdf
• As per various literature, the projected annual growth rate of
this segment of the retail market till 2013 is slated to be over
KnightFrank-Q1-2010 30 per cent. As a result, its share in total retail market is
expected to be around 11 per cent by 2013.
http://online.wsj.com/public/resources/documents/indiaretail_q12010.pdf
•May 29th 2008-But “organised retail”, such as hypermarkets, supermarkets and
department stores, is still rare in India, accounting for just 4% of the country's $322
billion market. http://www.economist.com/node/11465586
The Economist •Mar 3rd 2011- Estimates put the retail industry's size at just $450m of which only a
tiny fraction, 5%, is organized.
http://www.economist.com/blogs/freeexchange/2011/03/retail_india

14. Here are some of the projections made by listed entities. Read carefully about them as it would clearly
show how different reality is from predictions and hope for Reliance Retail, Pantaloons and Trent.
Reliance Retail
Fancy Predictions Real Reality
2006- August- CLSA Asia-Pacific Markets, the Reliance's total turnover from its retail business for
brokerage, predicted that Reliance Retail could FY 10 was around Rs 5310 crore or just about $1
achieve sales of $20bn and profits of $1bn within Billion and had losses of around Rs.244 crore. I
six or seven years. hope someone didn’t confuse revenue with profits.
http://www.telegraph.co.uk/finance/2945340/Indi http://www.deccanherald.com/content/100404/relia
as-Wal-Mart.html nce-retail-open-4000-stores.html
http://www.livemint.com/2010/09/21215639/Relian
ce-Retail-mulls-opening.html
2006-Reliance Retail will be setting up close to 5 years later in till Jan-2011 they have 1050 stores.
1,000 stores, most of them 2,000-5,000 sq ft, http://www.livemint.com/2011/01/07143220/Relian
spread across major cities in 10 states by March ce-Retail-to-open-150-st.html
2007 . In all, the company will roll out 4,000
stores in 1,500 cities by the year 2010.
http://www.fnbnews.com/article/detnews.asp?arti
cleid=19214&sectionid=25
2010 September-We are looking at a rapid At the time of the 2nd prediction there were 1050
expansion and will be opening about 3,000-4,000 stores generating about Rs. 4500 crore revenue.
stores over the next 3-4 years.
But double of 1050 will be around 2100 stores
http://www.deccanherald.com/content/100404/reli which is contradicted by the earlier statement of
ance-retail-open-4000-stores.html opening 3000-4000 stores.
January 2011 - Reliance Retail...is set to open Someone please convince me that how can you
150 stores by March-end and double the number double your store counts but at the same time
of stores across the country in all formats within increase your revenue by 10 times. Are you going to
five years. The target of clocking revenues up to sell Apple products or maybe Louis Vuitton.
Rs 45,000 crore can be achieved only with
doubling the number of stores over the next five
years.
http://www.business-
standard.com/india/news/reliance-retailto-open-
150-stores-by-march-end/421149/

15. Pantaloon Retail
Fancy Predictions Real Reality
2006 December-We are, therefore, gearing up to open 75 5 Years Later just 185 Food Bazaars and 123 KB Fair Price is
more Food Bazaars across the country by the end of next operational.
year (i.e. by 2007up from 60). http://www.pantaloonretail.in/annual_report_2009_2010.pdf
http://www.retailangle.com/Newsdetail.asp?Newsid=462&Ne
wstitle=Pantaloon_to_open_250_KB's_stores_in_NCR
2006 December- Our ambition is to reach a turnover of Rs 2009-10 Total Revenues around Rs.6000 Crores. (miss by
30,000 crore by 2010. "just" Rs. 24000 Crores)
http://www.retailangle.com/Newsdetail.asp?Newsid=462&Ne http://www.pantaloonretail.in/annual_report_2009_2010.pdf
wstitle=Pantaloon_to_open_250_KB's_stores_in_NCR
Sometime in 2005-06-Over 200 million footfalls are Instead of achieving over 200 million in 2007 it will achieve
expected in our stores by 2006-07. around 270 million four years later i.e. 2011. (a miss by “just” 4
http://www.fibre2fashion.com/face2face/pantaloon/kishorebi years)
yani.asp http://www.pantaloonretail.in/PRIL%20Q2%20FY11%20Result
s%20Presentation.pdf
Sometime in 2005-06 -In India, organized retail constitutes 2011- Organized retail is around 5-6%.
about 3% of total retail and is poised to reach 15-20% in the (I guess a few years means may be a decade)
next few years, which translates into a 40% CAGR. Kishore
Biyani.
http://www.fibre2fashion.com/face2face/pantaloon/kishorebi
yani.asp
Infiniti Retail(Tata Group)
Fancy Predictions Real Reality
June 2007- Infinity to open 100 retail stores. Currently has about 63 Croma stores(will need to
Nov-2007- Infiniti Retail to open 100 stores open 74 stores within next year to meet target set in
June 2009- Infiniti Retail plans to have over 100 May2010)
Croma stores by '11. http://www.cromaretail.com/news/newsnmedia.html
May 2010-Infiniti Retail to open 100 Croma Aug’11- Total Number of Exclusive Landmark
stores in two years (then store count 47). Stores- 16
July 2007- Trent plans 15 Landmark stores in 1 Apart from this Landmark has around 15 Hotel and
year. airport Bookstores.
http://www.landmarkonthenet.com/Business/aboutus
http://www.financialexpress.com/news/infiniti- .aspx
retail-plans-to-open-100-croma-stores-in-two-
years/615570/
http://www.cromaretail.com/news/newsnmedia.ht
ml
How Much Cash Investment needed for Organized Retail to Become 20% of total
Retail
Assumptions:
The per square feet paid by shopper‟s stop will be more or less same for other retailers(if not
please give logical reason if anybody in India can really buy land/building/mall cheaper than
Rahejas )

16. For sake of easy calculation I assume 0 growth in the total retail sales itself .(I know it‟s wrong
but you can easily add a 10% per annum growth rate for total retail and re-calculate using my
logic)
I assume a linear relationship between sales growth and retail space because people are not going
to open Louis Vuitton or Apple stores rather most probably they will open stores selling real
apple and vegetables/cereals.
From Con Call 2011 of Shoppers Stop on CapEx per square feet
Govind Shrikhande No, basically this has been constant and if you look at departmental store space
and HyperCITY space, one is in the region of 1700 per square feet and the other is in the region of 2000
per square feet overall including working capital.
Amnish Agarwal: And excluding working capital purely CapEx?
Govind Shrikhande: If you look at department store about 1400 and 1500 for Hyper.
Amnish Agarwal: Okay and does it include any spend which you do on the back end or IT.
Govind Shrikhande: It includes all that.
So you can take 1800 rupees per square feet on an average expense for a retailer including
working capital and back end expense.
Current Total Sq feet available as Organized Retail approximately 75 million sq feet.
Current organized retail market is approximately 6% of total retail.
So 75 million square feet is approximately equal to 6% of organized retail.
Hence to reach a retail penetration of 20% it would need approximately need another 250 million square
feet of retail space.
To put the number 250 mn of extra retail space in perspective India will have to almost triple the number
of malls it has currently on offer .
At Rs. 1800 per square feet of capital expenditure for 250 million square feet it India will need
approximately Rs. 400 billion or around Rs.40000 Crores or $8 billion investments. Is that easy?
To answer whether Rs.40k crores of investment is easy or tough using a bit of logic we have here is
small summary of Total Investments (Equity Debt) i.e. Assets in top 3 largest listed retail companies in
India:
Shoppers Stop – 746 Crores
Pantaloons – 5000 Crores
Westside (Trent) – 1356 Crores
Total coming is around Rs. 7000 crore and we can double it for rest of players so a total of Rs. 14000
Crores have been invested in India till date in total organized retail.
So to invest another Rs. 40000 Crores of additional money would mean simply that India will have to
almost triple investments what it has done over last decade in retail (and all this investment was when
cheap credit was available from US and Europe courtesy of mortgage mess with FIIs falling over each
other to invest and Indian banks were not far behind notwithstanding spectacular failures of Vishal
Retail , Subhiksha , Kuotons , and even Lilliput now with all those court cases etc ).

17. It‟s anybody‟s guess to how many years it‟s going to take to triple investments in a business which is not
priority sector (hence bankers don‟t really love it now) and which has very low return on capital
invested.
Here‟s my guess to get Rs.40k crore and 20% penetration – another 20 years. You can have yours and
be positive.
Investors and Shopper’s Stop
I will start off this analysis by quoting the real Guru (Benjamin Graham) who laid down rules of
investment around 80 years ago which are:
You may take it as an axiom that you cannot profit on Wall Street (or Dalal Street) by continuously
doing the obvious or the popular thing.
―What seems to be obvious and simple to the people in Wall Street, as well as to their customers, is not
really Obvious and simple at all. You are not going to get good results in security analysis by doing the
simple, obvious thing of picking out the companies that apparently have good prospects -- whether it
be the automobile industry, or the building industry, or any such combination of companies which
almost everybody can tell you are going to enjoy good business for a number of years to come. That
method is just too simple and too obvious -- and the main fact about it is that it does not work well.‖
Out of 3-4 main listed entities which are pure play organized retail (Pantaloons, Trent, etc) available for
investors - some would pick Shoppers Stop for whatever reason they can justify. Everybody “knows”
this:
1. India is going to grow at least 7%+ per annum for next decade.
2. Organized retail is around 6% of total retail which gives a huge opportunity to players to expand.
3. India has one of the youngest populations of world and huge growing middle class with
increasing income.
4. Malls are the best place to take a huge share of consumer wallet by providing great shopping
experience.
5. Shoppers Stop is one of top 3 retailers in India with strong presence in most big cities and it‟s a
strong brand as well.
6. 5-10 years from now (2012 to 2020) Shoppers Stop is going to be earning much more than today
and hence you can buy its share as management has already shown that it can grow and scale
company competitively.
The problem with the above simple argument-conclusion is that what is told above by Ben Graham that
it‟s too well known, popular, simple, and “logical” that the price of it almost always incorporates years
of good future growth with no margin of safety for investors.
As Howard Marks would say ―Everybody knows it’s a great investment, so you should buy it”
inevitably implies that the price has been bid up really high to an extent that you will earn only
meager returns from it. To quote him ―Warren Buffett constantly stresses ―margin of safety.‖ In other

18. words, you shouldn’t pay prices so high that they presuppose (and are reliant on) things going right.
Instead, prices should be so low that you can profit – or at least avoid loss – even if things go wrong.‖
The above 6 point argument is reliant upon too many good things to happen continuously so that a 40
P/E investment in Shoppers Stop could give you higher return than holding a NIFTY at a P/E of 14-18.
Before reading this analysis please keep in mind the following table and always think in terms of where
do Indians(and not YOU) actually spend money on whenever you read anything remotely related to
great opportunity?
Here is how Indians MPCE is (household monthly per capita expenditure) for 2009-10 ix
Indian Household Monthly Per Capita Expenditure (2009-10)
% Expenditure by
Indian Household
Items for 2009-10
cereals 13.56%
gram 0.17%
cereal substitutes 0.07%
pulses & Products 3.39%
milk & products 8.35%
edible oil 3.36%
egg, fish & meat 3.25%
vegetables 5.60%
fruits & nuts 1.76%
sugar 2.12%
salt 2.12%
beverages 5.82%
Food Total 49.55%
pan, tobacco, intoxi 1.89%
fuel & light 9.03%
clothing & bedding 4.84%
footwear 0.97%
misc. goods & services 28.33%
durable goods 5.40%
non-food total 50.45%
total 100.00%
Share of Modern and Traditional Retail

19. Basic Analysis of Retail Buying and Limits of its Growth
A lot of my analysis will try to compare India with US/UK where retail is almost completely organized
and almost everybody in India keeps on giving examples of how Walmart or Tesco or Sainsbury are the
way Pantaloons, Shoppers Stop will shape up. I know it‟s not a apple to apple comparison but I am
doing it so that it clarifies how completely different the perception begins to appear when you stop
extrapolating performance of Shoppers Stop with a developed countries‟ retail chain.
How do people buy what Shoppers Stop sells? Let‟s start with 1st step.
People living in Homes
This is the most important part of Organized Retail often ignored almost completely which limits the
amount of growth any organized player can hope to achieve in India .
Average Size of a House in USA, UK, India & Per Square Feet per person comparison
For retail in India to flourish there has to be a comparison made between type and size of houses in
India, US and UK because that is where people will store what they buy.

20. There is almost no comparison for the per square feet space in house per person between US, UK and
India at all.
This is a huge factor in determining the success of organized retail/Shoppers Stop because for India 50%
expenditure occurs on food and if Indians can‟t store 1 week or 2 week worth of food items in their
house they will buy very less amount of it if they go to Retail outlets.
Square Feet Per Person
1000
888
900
800
Square Feet Per Person
700
600
500
Square Feet Per Person
400 344
300
200
93
100
0
USA UK India
Sources: USA x Table number 2-3. Though for US the data the median per person square feet available
is 750 xiAverage home sizes is 2300 sq feet. And average household size is 2.59. xii So it gives a value of
888
UK xiii . I used the Table SST1.1 where average floor area is 91 square metres and multiplied it with
22335,000 which is the count of the number of houses and then divided by total population of UK which
is around 62 million.
India - xiv
People in US/UK load up a week or two of food supply and put it back in their houses but for India this
is just not possible because
Size of House(and thereby kitchen) is very small
Number of people living per house in India(4.8)xvis double compared to US(2.59)xvi/UK(2.21)xvii
No matter how much supply chain is improved by Shoppers Stop for food there just isn’t enough
space in Indian homes to stock up even 1 week’s supply as people do in developed world.
Indians even in next couple of decades will keep on buying food JIT way i.e. buy when you need else
don‟t buy because there just isn’t enough space to store it in homes .
This directly implies that lot of food and almost all of grocery will be bought only when needed from the
nearby (within 1-2 kms) kirana shops and NOT from 10 km- one hour drive to malls.

21. The top spending youngest of the crowds do not live in their own homes
A lof the recent 10lakhs per year of really high disposable income people in IT and BPO just out of
college(and with 1-3 years job experience) live in PG(paying guest though it‟s not what people normally
thinks so) , a concept which would be unthinkable for US . Here you have 1 Almirah/wardrobe per
person and 1 fridge to be shared by 4-6 people. Mind you these are the most likely customers you can
expect to visit malls, shop and splurge. Even if they don‟t live in PG 3-5 of them share 1-2 BHK home
with 1 refrigerator and 1 wardrobe per person(some times a suitcase does the job) . And go ask a
bachelor girl living in a PG how she dreams of two big shoe racks where she can put her 45th pair of
shoes but just cant because the Flat or PG is not big enough .
Unfortunately they have a huge limit on what they are going to buy particularly clothes because you
have just 1 Almirah. Indians do not like to throw their clothes away or sell them back. Have you ever
taken a 1-2 year cloth and thrown or exchanged?
And of course all these young bachelors eat tiffin or use services of baai (maids) and do NOT go to
Organized Retail to shop for Grocery or food at all. Even if they have to they will just go and buy from
Kirana . And these are the most precious targets of Organized Retail .How many bachelors under 27 line
up at Hypercity on Saturday weekend to buy a week of grocery, cereals,milk,juice, etc??
And if they want to buy booze there is always the nearby kirana booze shop with grills in front like a jail
selling the most premium liquor wrapped up in newspaper and put in black/brown non-transparent
polythene and takes less than 3 min in total to buy and by 4/5 min it would be gulped down . Compare
that to at least a 25 min line at billing counter at Hypercity (the drive/travel to that being the biggest
pain) on Saturday evening to buy booze. By that time other guy will actually have been done with his
beer.
So you have a peculiar double whammy that Organized Retail which wants to target the young people
with cash to spend sells low margin (loss making may be) food items which the bachelors don‟t buy at
all . And boy India is a really young country and average age is like below 30 . And the bachelors with
money in pocket do not have enough place to store clothes, shoes , etc .
Hence again this is a very important factor which most people completely ignore because people writing
the reports are most probably rich enough to not live in PG or are married.
Size of Fridge India
I could not get any official document on average/median size of fridge/refrigerators in India but I am
sure it will be like 75-80% households have ONE Refrigerator at 165-180 Litres.
But if you see the average size of Refrigerator in USxviii is approximately 500 Litres which is like 2.5
times that of India. On top of that size of household in US is 2.6 vs almost 5 for India. And I have not
even considered the population equation of almost 90%+ households having Refrigerators in US vs less
than 7 crore people in India having Refrigerator even in next decade . I am just talking about even if
Indians have Refrigerators still Shoppers Stop will not be as successful as thought out to be in food
sales which are 50% of total retail spend .

22. Per Person
Fridge/Refrigerator
Volume in litres
US 192
India 38
With this kind of per person volume available for Indians the dream of selling high priced(high margin)
frozen contents , meat/fish , milk products or booze or whatever item that requires fridge just goes out of
the window.
http://apps1.eere.energy.gov/states/pdfs/ref_market_profile.pdf
Money with the People
I will not go into much detail with this as there are way too many obvious data points which show
Indians are going to be earning much more in the near future than last decade.
Ignore the nearby Local/Mom-n-Pop/Kirana Shops in favor of Shoppers Stop
Advantage of Kirana/Mom-n-Pop Stores over Organized Retail/Shoppers Stop
In US and other developed countries almost every store which is selling anything needs to have AC ,
electricity for 12 hours at least , comply with regulations like fire safety , labour laws , taxes (you cannot
evade as easily ) , maintain overheads like receipts ,CCTVs, credit card machines etc and of course pay
a minimum wage rate of around $10 per hour (boy that‟s like Rs. 80000 per month in India) even .
Hence the small US kirana store is actually a very high cost operation vis-à-vis a Walmarts.
The Kiranas have following advantages over the Organized Retailers and Shoppers Stop:
Most Kiranas and Vegetable Sellers Don’t pay taxes and never will because either their income
is less than minimum taxable income or the big kiranas pay bribes to income tax officials to
make sure they don‟t file income taxes. This will remain true in foreseeable future. (India is a
country with almost 1.2 billion people with almost 200 million households but less than 40
million pay taxes.)Don‟t tell me if income tax officials will go after kiranas .
Almost all Indians prefer fresh food to canned/packed/treated food. Indians mostly will keep on
buying fresh vegetables and fruits in near future with a miniscule (negligible) percentage shifting
to canned food. Even if a lot shift to canned food the refrigerators are not large enough to hold
even 1 week of supply for family of 5.
There is such a huge market for out of home small snacks ( aloo paratha, pani puri, vada pav,
idli , dosa , rajma chawal , sandwich, etc) and majority of them exist right on the road . They will
keep doing business even for next 100 years and keep on beating the Organized Retailers hands
down.
Most Kiranas do not have and don’t need power for 12 hours a day or for even 1 hour (if they
do not have fridge).

23. Most do not need to pay rent (opportunity cost is really nothing as they could not have just rented
out a 10-10 feet room and got gobbles of money)
No need for receipt machines or printers.
No CCTVs.
No labour laws to adhere to.
No Credit/Debit Card Machines hence save on 1-3% of what VISA and MasterCard get from
Shoppers Stop.
No need to adhere to various laws like fire safety, multiplicity of taxes and compliance,
accounting, etc .
No Need to hire MBAs, consultants, pay some directors lakhs of rupees for doing nothing and
sitting in meeting, etc .
No need to buy even a single computer or pay for internet.
Easy home delivery.
Proximity to customers.
High margin liquor business is almost completely dominated by kirana due to above benefits of
quick service and availability.
The vegetable/Food sellers offer credit for time varying from 1 day to 1 month to whatever
depending on the relationship they have with the customer for amounts which can be even as low
as 20-30 rupees. Organized retailers will NOT EVEN TRY TO beat this.
India can never be free from roadside stalls because it is convenient for customers, good for
sellers and a huge source of bribery to Policeman and consequently to government through
corruption. (E.g.- Ask any vegetable/fruit seller on the road and he will say that he has to pay at
least 100-200 per day to policeman/municipality people depending on what he sells OR just sit at
his stall one day and you will see it right in front of you when policeman will come and take
money) This directly implies Kirana/Vegetable sellers will always (even in next 100 years) will
be close to where people live and hence beat the Organized retailers on lot of above points of
ease , convenience and cost of operation.
Basic Disadvantage/Advantage of Any retail remains same for Organized or Kiranas
Pathetic roads/traffic conditions ensure that people will keep on shopping for food/grocery just near to
their homes rather than go and waste 1 hour minimum to buy from organized retailer.
The usual rhetoric of Supply Chain efficiency boils down to following facts which just cannot be taken
care by Private Players. For e.g.:
o Cold Storages- Even the dumbest person on planet knows for last 100 years that cold
storages should be there to avoid wastage of perishable goods – so why isn‟t it becoming a
reality whereby thousands of cold storages are opened throughout India and reduce wastage
by 30-40-50%?? (India is the second highest producer of fruits and vegetables in the world,
but only has cold-storage capacity for 10 per cent of the total production).
 For a private sector the cost-benefit analysis does not warrant making a cold
storage else we would have seen hundreds of cold storages by Pantaloons, Shopper‟s
Stop , Reliance Retail, etc . If it hasn‟t been beneficial for last 10 years since
Shopper‟s Stop and Pantaloons started their exponential growth(and taking globs of

24. money from investors and ever willing banks) I doubt how it would suddenly become
beneficial in near future and I cannot see a logical reason for Wal-Mart to suddenly
start making cold storages when almost nobody has been building it in India. Capital
is not limitation but it‟s the return on capital which is the limitation for corporates
which makes sure no one will open cold storage . Does anybody seriously think that
Reliance or Bharti Airtel or Pantaloons have no money to invest in cold storage or big
warehouses and they need generosity of Walmart or Tesco to give money to them so
that they can open cold storage chain?
 Power- There just isn‟t enough electricity in India to support the hundreds of cold
storages dreamed by retailers and the situation is not going to improve in a jiffy.
Please go through our track record of adding power capacities over last 20 years and
only then hope for a miracle in the next 20(But planning commission surely solves
lots of problems of power on paper!!) .
o Roads- The pathetic condition of Indian roads means the big Volvos and Trucks of Wal-Mart
which zip around on great roads of US cannot do the same in India- you have to use small
tempos which go at 20-30 kmph in Indian traffic. And of course Shopper‟s Stop/Wal-Mart
cannot build roads, bridges, train tracks and flyovers.
Even if I assume that magically the above 3 points somehow are taken care and improved then it will be
beneficial in almost same degree to the Kirana as is to Shoppers Stop. The truck which carries
goods(fresh or preserved from Cold Storage built by government) for Shoppers Stop on great
roads/flyovers will not say –Well you are Kirana I will not come to you but I will go to the Shoppers
Stop which is just behind you. Either the truck will have goods for e.g. HUL beauty products or freeze
dried fresh fruits for both Shoppers Stop and Kiranas or 10 kiranas will have 1 truck to bring them the
goods.
Sourcing Directly from Farmers –Except the brilliant ITC (its e-choupal initiative) there has been just
talk , talk and talk about sourcing directly from farmers and removing middlemen . Everybody knows
that middlemen need to be removed but almost nobody has taken enough initiative to do that because
it‟s just not easy and benefits may not be worth the investments needed. Ask ITC how from early 2000
onwards it has been in that field with huge management effort and huge investment in getting the e-
choupal going. If some player thinks they can just come and do quickly what ITC took almost a decade
to accomplish with brilliant people on board (look at how ITC goes to top MBA colleges and hires the
best of the breed, sends them across to rural India and check out how many hires were done by
Pantaloons, Shopper‟s Stop from IIMs or other top B-Schools –though this doesn’t directly guarantee
success but at least you have some brilliant young minds working on solving problems). Even then, ITC
which is arguably the best agri sourcer in India decided to exit fresh food retail businessxix.When ITC
leaves a business completely where it already has real know how it should ring a bell to competitors
waiting to come in that biz.
People travel to Retail Shop/Shoppers Stop or Buy Online
After deciding they have to buy something from Shoppers Stop the big question arises: You have to
either travel to the mall/Hypercity or buy online and get products delivered at your home.
Keep in mind monthly per capita expenditure for Indian household implies almost 55+% to food and
around than 5%-8% for apparels.

25. Going to Mall
Here are the problems faced by almost everybody when deciding to go to a Mall
Except Mumbai NO City in India has auto which ply honestly with meter. Auto Rickshaws will
o Not be found near to your house
o Plainly refuse to go
o Charge something like Rs. 40 for every 2-5 kms when actual should be less than 20.
o If it‟s raining you might as well pray to God to get an auto.
o Even if you get an auto a family of 5 (avg family size is 4.7) cannot sit in 1 auto and
bring stuff from Shoppers Stop.
o Most importantly- this pathetic Situation of Autowallahs will continue indefinitely in
future though someone reading this can sit in your chauffeur driven car and be optimistic
that situation will improve in future.
I do not know anybody who takes Meru Cabs, call taxis for going to buy grocery/food to a Mall
because the cost will be just too expensive compared to saving you may get.
Public transport using buses, shared auto is nothing short of pathetic and every single Indian
would like to avoid it given an option and public transport just cannot be improved, EVER to an
extent people start using it for buying grocery from Shoppers Stop.
Traffic situation cannot even be described in words in top 10 cities in Indian (Ahmedabad,
Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai,NCR, Pune, Chandigarh and Kochi) cities
which have 85% of organized retail space . Even next 10-20 years the traffic is NOT going to
improve at ALL .In fact traffic is going to worsen and I can bet my life on it unless Apple can do
something to change the way we travel – Magically!!! .
People can and do use bikes to go to organized retail to buy stuff but then they can never buy
enough groceries which they can comfortably with their family and safely load on a bike and
come back home .
o Also almost whole India has harsh summer (temp north of 35 degrees) and harsh winter
(temperature close to 5-13 degrees and for Indians it is harsh) and of course rains . All
these directly dissuade people from travelling on bike to go to a Organized retail outlet
for at least 4-5 months in a year when they would rather just walk to closest Kirana store
even if it means less choice of goods and less discounts.
If you have a car then you have to drive through the pathetic traffic, park in congested parking spot, pay
exorbitant parking fees and then buy stuff. If anyone wants to base his growth of Shoppers Stop on
increased car sales in India please read below.
Number of Cars per Person & Relation to Organized Retail
There is no point in even comparing the data of number of cars per 1000 people across USA, UK and
India. One look at below mentioned Chart and you will agree. The basic assumption is that people shop
more of grocery , food and other items and load it up in cars to get back home and it contributes
tremendously to the success of Retailers in developed countries. If a country like India does not have
good enough car penetration level then the Organized Retail should not expect magic to happen (unless
they think Organized Retail=Clothes and Electronics only and completely ignore the consumer‟s wallet
).

26. Number of Cars per 1000 people
900
779
800
700
Cars Per 1000 people
600
500 458
Number of Cars per 1000
400
people
300
200
100
12
0
USA UK India
Let‟s say there comes a time when in India the car penetration becomes around 500 per thousand people.
But here is a small math (compound interest example and infact I have ignored the population growth
completely) about growth needed by car industry in India to reach the car ownership level of UK (I
believe India will NEVER have a car penetration level of USA):
Estimate of Cars per 1000 people with
different CAGR rates
600
500
Cars Per 1000 people
Different
CAGR rates
400 assumed
45%
300
20%
200
13.24%
100
10.00%
0
2012 2022 2032 2042 2052
Year
Years
CAGR in Cars 2012 2022 2032 2042 2052
45% 12 493
20% 12 74 460
13.24% 12 42 144 500
10.00% 12 31 81 209 543

27. SIAM has forecasted an 3%-5 % growth rate in automobiles in India this year. So you do the math and
estimate how many years realistically India will take to reach Car penetration level to that of US/UK and
when millions of Indians will start using cars to go to Wal-Mart or Big Bazaar and load up on retail
offerings.(I cannot imagine the road condition during that time) By the way Indian population will also
be growing on base of 1.2 billion by >1% per annum .
With 30% (+/- 5% depending on whom you talk to ) of Indians living below $1 in abject poverty and
another 20% just living above poverty line I am optimistic but will not want to invest in Shoppers Stop
basing my assumption on this remarkably rosy prediction of future .
Buying Online
Instead of going to store Shoppers Stop people can buy stuff online and get them delivered to their
homes. It‟s a great concept and it‟s remarkably successful in US with Amazon being the leader and
customers the winner.
But Here is a problem with online buying in India w.r.t. Shoppers Stop:
60% sales of Shoppers Stop are Apparels and people like to try and then buy and this behavior is
not going to change no matter what you do.
Furniture , Shoes , Handbags , Watches , etc almost all things which Shoppers Stop sells(counted
under non-apparels) are items which people buy only when they see it , feel it , try it if possible
and then buy it . It‟s not going to change.
Only stuff which Shoppers Stop can sell successfully in large quantity is Books , CD/DVD and
Electronics.
CD/DVD
If anybody really believes that there exists a viable business proposition for CD/DVD sales in India
then he ought to think again.
SOPA/PIPA notwithstanding Indians do not buy CD/DVD for music or movies in a quantity which
would cover the cost of having high rent Crossword financially a rewarding experience. Music is going
to be pirated no matter what anyone on the planet does. It‟s too simple, easy and free to download songs
from internet.
Movie DVDs just are not going to sell enough but pirated/shared via Bit Torrent or DVD rental
companies(BigFlix and Seventymm are good and have good collections) will be preferable over buying
a DVD outright. I mean does anyone really think that a reasonable number of Indians will walk up and
buy a Rs. 300 priced DVD of films from Crossword instead of just downloading or renting it out from
BigFlix or Seventymm or better yet walk on street and buy a pirated one at Rs. 30-50? (Best of luck for
people who think DVD piracy will stop someday –this does not mean I condone it) Just as a sidenote –
Apple is now shipping its Macbook Air without DVD drive and of course as of now a lot of people will
say its stupid and you have got to give but wait for next 2-4 years and check out how many laptops are
going to come with DVD drives .

28. Broadband is so pathetic in India that it can only go up and become better. Watch out for entrepreneurs
who would replicate Netflix and Hulu in India. 5 years from now when the broadband is hopefully
“broad” watch out for the Landmark/Crossword to be replaced with clothes, teddies, home furnishing
items, accessories, knickknacks - the only thing which retailers seem to be selling and making some
money(or closed completely).
Books Retailing Online and Shoppers Stop Failure
What to say about Book retailing online.
See the comment on management sometime in mid- 2008 (AR – 2008)
―The Company is also actively progressing towards setting up an e-commerce portal to be able to offer
Its products for sale through the internet. ―
Finally they did launch.
―Your company launched its online shopping site in July 2008. Currently the site also offers books from
Crossword in addition to Shopper’s Stop merchandise and has a country wide delivery foot print.‖ Note
the word also as if it isn‟t really a side business rather than THE business .
See comments of Westside on Landmark (AR 07-08 July 2008) :
―It is the ―small-box‖ book retailing formats that get most impacted by the challenge posed by internet
offerings. The ―larger box‖ book retailers, offering a substantial number of titles in a store for browsing
at leisure and the proposition of a coupled coffee shop in many cases, tend to be far less impacted by
the online retailing of books. The play out in developed markets like the United States is consistent with
the above view.‖
Are you kidding me ? With Amazon starting 10 years earlier(1997-98) and brick and mortar retailers
completely decimated even till July 2008 the management still thought in 2008 that having some coffee
shops in Landmark and more books to browse will actually make sure they are not affected by online
retailing of books . I mean they (Westside and Landmark and Shoppers Stop) had all the money in the
world , access to capital markets which was awash with liquidity(till 2008 at least) and they could have
made sure that they can build a real e-commerce behemoth the way Flipkart with 2 guys below 28 years
were doing from one room almost at that point of time in 2008 .
I mean Landmark/Westside is somehow related to Tatas and they have a company called TCS which
even in 2008 would have had at least 1 lakh employees. Similarly the whole of BPO and IT boom with
young guys and girls remain on internet for 8+ hours a day. And even then managements just could not
think that may be these guys will buy lot of books at click of mouse but still they may want to pay by
cash on delivery and would want a great NOW service where no excuses can be made for late delivery.
So lets go aggressively online and target these customers. Its just so simple and apparent to me .
The management just could not think that online retailing of books can be made viable, profitable and
initiative which can be loved by customers. They just thought that may be if they could get another big
20000+ sq feet of swanky (read prohibitively expensive) real estate at a prime location they would be
able to sell a lot of books. Or better yet get people in for lure of books and sell them some gift items
(read high margin).

29. There has been plethora of crap online retailers in India through last decade like Rediff , Indiatimes , etc
which seem to have been in existence for 10 years minimum . But only one as of now has really stood
up and that is Flipkart.
Here is a company started in late 2008 with literally no money by two guys from their home below age
29 and have now a valuation almost twice that of Shoppers Stop (market values change and indeed I feel
online retailing a bubble but that‟s a different story) but just thinking about it makes me wonder what
was Shoppers Stop thinking. .
I think there are just 3 things to be really successful in Online retailing of books in India
Promise to sell what you have (don‟t say after user orders that it‟s gone out of stock or it will be
late).
Indians do not like to pay online with slow internet, crappy user interface, no trust and hence
retailers should offer cash on delivery.
Deliver the product on time to customer‟s address and then take money so have a courier system
which you can really depend on and not something like a crap local courier (whose name itself
rhymes with some politician and makes you forget how cash on delivery can be trusted with
those courier guys).
That‟s it!
And Shoppers Stop or Landmark or Pantaloons or Reliance Retail just could not do anything about
improving online book retailing at all. Flipkart blew right past Shoppers Stop when the whole market
was there for the taking. Shoppers Stop and others had tons of managers, money, senior leadership,
access to capital markets , consultants and maybe even some investment bankers but just could not
deliver a great customer experience when they had to sell books online .
Now people go to Shoppers Stop(Crossword) or Landmark browse books , come back home , order on
Flipkart and get the books to their home by saving at least 25% than buying in the shop .
Even today a search for one of my Favorite Books Chanakya's Chant(prices are almost same at around
135)
Crossword – Delivery days is 3-5 business days
Flipkart – 2-3 business days
Rediff – First page it shows price 197 and 7 business days delivery and then when you click its
unavailable. Great!!
Landmark – 3 business days with Cash on Delivery (Good unfortunately price of same book in
mall is Rs. 195.Anybody who comes to know about this will never buy from Landmark mall)
For cash on Delivery Shoppers Stop charges Rs. 30 extra irrespective of how much you bought but
Flipkart for orders over Rs 200 shipping is free.
This just is unacceptable and it goes show that even after investing more than Rs. 30 crore in physical
format of Crossword in 2005 Shoppers Stop can not match neither the delivery dates nor the delivery
price of a start up.
Funny things will happen in future just as Amazon is doing for customers in US where people go to Best
Buy , Walmart or any physical retailer , scan/enter barcodes and check prices directly from Amazon ,
buy online and get it delivered to home . (With Amazon already in India Shoppers Stop Crossword is
really at Cross Road !!)

30. http://www.iqmetrix.com/article/2011/12/daily-dose-iq-price-check-app-amazon-looks-undersell-brick-
and-mortar-retailers-yet .
Experience the product or read the book a bit at Crossword and order from Flipkart is going to be the
future sooner than later.
I can easily see in next 2-5 years Shoppers Stop closing/selling off Crossword (don‟t know how or why
anyone would buy it unless they want to change what they sell there).
Same closing of Landmark is also going to be sooner than later. If someone thinks that these brick and
mortar book retailers can adapt and may be offer coffee to customers and beat online book retailing and
become competitive look at this in US:
Borders Group Inc second-largest U.S. bookstore chain with 339 stores and more than 10000 employees
filed for bankruptcy last year.
(http://online.wsj.com/article/SB10001424052702303661904576454353768550280.html)
Amazon started to gain ground in early 2000-01 and the Borders Group would have obviously seen it
right in front of their eyes the growth of Amazon but they just could not do anything about it even when
they had 10 whole years to do something about it.
This is exactly what is going to happen in India as well.
With Flipkart and scores of other online retailers(and the Big Daddy Amazon already in) ready to bleed
themselves while selling books by directly putting them in the homes of customers
Crossword/Landmark book stores is bound to go down and close sooner than later .
Now of course Crossword itself can and indeed is doing what Flipkart/online retailers are doing i.e.
online shopping and selling of books . But still the fact remains that it‟s a terrible business where you
have book stores and e-retail of same books at same time and of course you cannot price same at
bookstore and online because then you would not cover up the atrocious rent you pay for a
Crossword/Landmark book store.
Don‟t you think why Amazon has ZERO physical presence has a logic to it?
Electronics Sales Online
As of now I didn‟t find Shoppers Stop selling electronic items online. Here is a snippet from their con
call :
Shopper‟s stop 2011 May Concall on electronics business ―The unfortunate thing that obviously is that
we get good top line sales from it just that why cannot as we earn a lot of margin on it. So you are right
to say that it is an area that we are not necessarily looking to grow. And as I say that it will reduce as a
percentage of sales going forward.‖
I am not sure they can ever start and pursue a plan whereby they can sell enough quantity of electronics
goods online.
Anybody who wants to know how to sell electronics online look no further than 3 year old Flipkart vs a
20+ year old Shoppers Stop.

31. Every guy who is buying from Flipkart etc is a sale lost for Landmark and Crossword.
These things happen all the time in business where an upstart just blows past a heavyweight completely
and they just cannot do anything. Ask Sears Roebuck ( how Sam Walton of Walmart started and beat the
hell out Sears right in front of their eyes and Sears just could not do anything .
It seems Shoppers Stop management spends most of the time in doing what they know best to do – Real
Estate. Spend time negotiating, getting clearances, talking to mall developers, talking/lobbying with
government and politicians for some land dealings and all things somehow related to Real Estate.
For online mega push - They just do not get it. (As Steve Jobs said -- Tablets Are Not PCs and Our
Competitors Just Don't Get It)Ask iPad‟s competitors now that iPad 3 has already launched and you
don‟t even have 1st tablet from Microsoft after almost 2 years of 1st iPad introduction.
Here is a small sales break up of Landmark which should be almost same as Crossword (have not seen
break up of Crossword in official documents but I guess it cannot be more different . Infact just remove
crossword/landmark from each shop and put a person there and I bet they cannot distinguish whether it‟s
a Landmark or it‟s a crossword).
Details on landmark mix of sales breakup:
Gifts, Toys & Stationery - 27%
Gaming & Technology - 12%
Music- 5%
Books – 27%
Home & Others – 18%
Music , Books and Gaming & Tech are losing proposition and will soon be closed(in their words it will
be „restructured‟).
People Choose the Stuff/Goods they Buy
I have not seen any analysis by anybody which shows what Indians spend on and what Shoppers
Stop/organized retailers actually sell . The common rhetoric which I see is Retail Trade in India is
almost close to $400 billion (varying amounts so I have just taken a round figure) and organized retailers
have around 6-7% market share . Hence there is a huge untapped market which the organized retailers
will storm in and make lots of money.
But when average Indian opens its wallet and takes out 100 rupees he spends Rs. 50+ on food and rest
Rs. 50 on non-food . So when anyone says that organized retail can jump from 6% to say 20% of retail
spending in India there has to be logical sense to it . You cannot capture consumer‟s wallet share by just
selling them apparels and beauty products only.
Let‟s see how Indians spend to understand how drastically limited organized retailers‟ real market is.
And to what extent there is mismatch with respect to what Indians spend on and what they (organized
retailers) actually sell.
Food Expenditure comprises 50% of total spending by Indians
Westside(Trent) puts Food and Grocery expenditure at 60% though I will take 50% but the fact is
organized retailers have 1% penetration in the largest category of expenditure by Indians.

32. There is a small adjustment to % amounts which Indians spend on food and non-food is done to make it
appropriate. The PCFE is collected by NSSO but includes items which is not targeted by Organized
Retail viz
Education
Transport and communication
Others
Fuel & light
Housing (rent and mortgage)
Hence I had to remove the above items which accounted for almost 24% of the total Personal
Consumption Final Expenditure. Hence the actual % of PCFE had to be increased by proportionate
values (100/76 * Value) i.e. by around 30% .
So a 16.95% for Cereal and Pulses in original PCFE becomes 22% in my analysis.
Let‟s put this fact into perspective in a bit more detailed manner for optimists.
Cereals and Pulses- 22% of total Expenditure
Rice , wheat , barley , corn , etc are the staple diet of India along with various pulses like Tur , Chana ,
and Masoor . Realistically speaking no matter what Shoppers Stop does it cannot really sell more
cereals/pulses to same top 10 cities of India (which have 85% of organized retailers presence) and hope
to capture even a meaningful bucket of this huge 16% expenditure profitably enough because local
Kirana wala will beat them hands down . On top of that selling these Cereals and Pulses requires NO
electricity at all and people do not really want a great ambience to buy Tur Daal or rice. 100 years later
also they will not require power but each organized retailers‟ shop which is trying to sell these items
needs complete power supply. Based on this cost only Kirana will always beat organized retailers.
Of course there can be some brand loyalty created by companies in even pulses (of course in Atta/Flour
and Rice we already have quiet a lot of brands in market ) . But then those companies like ITC
(Ashirvad) , Kohinoor (Rice) they themselves are working on a razor thin margin(and boy just go into
Rice section of Hypercity and there will be more brands there of rice than there are even the number of
private insurance companies in India) that till time it reaches the Shoppers Stop it can only use these
commodity items to lure customers in the mall and hope them to sell something on which there is
enough margins for Shoppers Stop .
There can never be a non-linear growth in this item.EVER. You cannot scale and get good enough
margins by selling this absolute commodity and make a decent return on capital EVER.
Does anyone really think organized retailers will open enough shop criss crossing whole of India and
sell Rice and Wheat at a cheaper price than your local kirana store?
My Prediction for Cereals and Pulses for organized retailers in Next 2 Decades- Out of 22% of total household
expenditure on Cereals and Pulses retailers they may crawl to 3.8% . So 18.2% of consumer’s wallet which goes
towards buying cereals/pulses will not be tapped by organized retailers/ Shoppers Stop even till 2030.

33. Milk and Products – 10.88 % of total Expenditure
Over 85% of milk industry is unorganized which means the local doodh wala is the guy who gives milk
everyday to people which they boil and consume on same day or at max one day later. Has anybody
bought pouched milk in US/UK which needs to be boiled before consuming?
No one seriously thinks that organize retailers can do what Mr. Kurien has done for Amul over last
decades. Its astonishing supply chain efficiency at most places where even electricity is not available for
many hours on end is unbelievable.
Consider this -- More than 13 million milk producers pour their milk in 1,28,799 dairy cooperative
societies across the country. Almost 12 million litres of their milk is processed in 176 District Co-
operative Unions and marketed by 22 State Marketing Federations, ensuring a better life for millions.
If someone really wants to tear his head apart in trying to make money in milk and milk products market
then he is welcome to come and compete with Amul , the grand Daddy of Milk in India .
Following is and will be a reality for at least 2 decades to come:
More than 95% of Indians will keep on preferring to buy pouched/fresh milk delivered to them
every morning which they will boil and consume same day.
Only the richest of rich actually go and buy the Nestle/Amul Tetra Pack(Pre boiled ready to
consume) milk which are priced at twice the pouched milk . On top of that you cannot buy more
than 5 to 10 litres of them because you don‟t have that big house to keep them.
Even the tetra pack sellers sell at a razor thin margin which will continue to be true in
foreseeable future because they are competing with the Amul/Mother Dairy/Mahananda pouched
milk which are just mind bogglingly cheap and at a margin almost unsustainable by any private
player forever.
No matter how much butter/cheese (so called high margin/value product) an organized retailer
decides to sell it will never be material to them at all.
Bottom line is when Amul has to operate on a margin at around 4%-5% or even less good luck to
Shoppers Stop/ organized retailers.
– They will not capture more
My prediction for Milk and Products for organized retailers for next 2 decades
than 1.3% of the market. So Shoppers Stop/ organized retailers will not be able to tap more than 9.58%
of consumer‟s wallet which goes towards buying Milk and Products.
Vegetables - 7.3%
Please read what benefits Kirana has over organized retailers here . On top of all these factors how will
you beat the vegetable vendor who comes on a cycle or a push cart right at your doorstep where you can
choose and buy and that too on credit? ( I bet even MBA‟s from IIMs hired by organized retailers cannot
answer this ) .
Vegetable selling is again a very low margin business as all organized retailers know and have explained
in their con call and Annual Reports. Infact they are again kept so that people come there and maybe get

34. attracted by that teddy and Vase kept at entrance and buy that (as some one said Loss Leaders. Only
problem is the whole food unbranded business seems like loss leaders).
Of course you cannot deliver Vegetables by internet because the quality issue will crop up always even
in next 100 years unless teleportation becomes reality.
My prediction for Vegetable for organized retailers for next 2 decades
- organized retailers/ Shoppers Stop
may capture 0.7% of vegetable market. So they will lose 6.5% of consumer‟s wallet.
Sugar and Salt – 5.52%
I don‟t even want to explain that no magic can be done by retailers/ Shoppers Stop EVER while retailing
sugar and salt which are another razor thin margin business. It‟s a thankless business and you cannot
make enough money at all unless you are Tata Salt or HUL (Annapurna) and both have really small
margin on selling salt. Of course you cannot force the high income earning people from top 5-10 cities
of India to consume more salt, or sell a Lou Vuitton salt to rich people ,can you?
Sugar might be sweet but you cannot charge a premium because it‟s completely brand proof. I cannot
imagine a situation where any company comes up with a great sugar in a way that people start to rush to
organized retailers to buy them (which the organized retailers are able to sell at a good enough margins)
EVER. And then if someone tries this it will turn sour for him. And you cannot force rich people to
consume more sugar and infact it would be completely opposite where most rich people have to avoid
sugar(and of course India is the diabetes capital of world).If someone is betting on selling sugar free you
must acknowledge that all kirana walas have that as well.
My prediction for Sugar and Salt for organized retailers for next 2 decades-Negligible market will be
captured by organized retailers. So Shoppers Stop/ organized retailers will lose 5.34% of consumer‟s
wallet.
Beverages – 7.5%
I am not sure what this category was assumed to consist because there is separate category for
pan/tobacco/intoxicants where I assume liquor comes in. Milk is other category which is separate. So
this should consist of fruit juice and cold drinks, tea and coffee.
First Indians do prefer fresh fruit juice though a lot of them are shifting to package fruit juice industry
which I feel is eating up the local roadside fruit juice seller and he is in pressure .
It is I believe a good enough margin business whereby organized retailers can and do make significant
money.
Regarding cold drinks it‟s a two company market in whole world. And both of them can bargain really
hard with organized retailers and they have tremendous distribution network in whole country
.Organized retailers just cannot force consumers to drink some premium coke/Pepsi priced at a high
margin item. Coke and Pepsi are kings and Organized Retailers dare not negotiate with them. It was a

35. nice try that Pantaloons is selling some Tasty Treat Cola in their Food Bazaar but the result is known by
everybody of what happens if someone competes with Coke/Pepsi on this planet at least .
Tea and coffee just cannot be privately branded and sold by any of Shoppers Stop/ organized retailers
because if they could they should really start a business and compete with Nestle/Bru(HUL) or Tata
tea,etc . Does this competition sound exciting or threatening? But yes these can have high margins and
organized retailers can sell some to real connoisseurs and make meager amount of money.
My prediction for Beverages for organized retailers for next 2 decades:
Because of margin and brands I
believe this is where organized retailers will capture more market than any other section of food . My
guess 2.6% of consumer‟s wallet which is spent on beverages can be captured by 2030. They lose 4.98%
.
Egg, fish & meat and edible oil – 8.6%
Eggs - The cheapest way on the planet to sell eggs is via kirana stores or on the road in a push cart.
Period. People who buy eggs cannot be expected to load up on eggs and buy something like 2-3 dozen at
once for a week of consumption from organized retailers because they do not have enough safe places in
home to store it .
How can organized retailers/ Shoppers Stop ever sell eggs without packing it in at least 6/12 packets ?
And if they have to pack it and sell how can they ever sell eggs at a cost cheaper than roadside vendor
who sells eggs without packing? Can you ever have a branded egg for which you can charge a premium
(you know the way Shoppers Stop says high margin items)? A lot of people actually consume eggs right
there on the road either as omelets, boiled or sandwich - will these customers buy eggs from organized
retailers?
If the answer to above questions is no everybody should stop thinking that Shoppers Stop/ organized
retailers will always be an even a miniscule component of egg market .Forever!
Fish -
Here is an item which in our area is sold on the road which is the case in whole of India. The area
where it is sold is called Fish Market where the complete infrastruture needs are –
One man/woman with one big basket of fish (with some ice thrown in some cases) (don‟t ask
what sophisticated supply chain put the fish in that big basket)
A place to sit (with umbrella doing the job of prevention from weather gods , sometimes not
even that)
Customers
And that‟s it . Don‟t assume that these Fish Market do not sell high value fishes (pomfret/Salmon) . You
just have to go to correct fish market to buy the fish you want. How can the Shoppers Stop/ organized
retailers ever compete with this kind of market?
Of course they can have big cold storages and brilliant looking fridges and sell fish with nice clean
dressed people. But it‟s highly expensive and you to have a really big area/enclosed to make sure the
vegetarians do not get offended by the smell of non veg items on sale.Hence they cannot sell fish in all
stores unless stores are really big enough to be segregrated .