overview of the indian retal market

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2006 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan.No part of it may be circulated, quoted, copied or otherwise reproduced without the prior written approval and consent of Frost & Sullivan.

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Overview of the Indian Retail MarketOverview of the Indian Retail Market


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Confidential to Tyco/Sensormatic Confidential to Tyco/Sensormatic 22

Retailer Interviewee Distribution

Research MethodologyResearch Methodology

Others23.5%

HomeCentre2.0%

Hypermarkets,3.9 %

Specialtyapparel33.3%

Dept.Stores29.4%

Hard Goods-Electronics

2.0%GroceryStores5.9%

16Supplier

67TOTAL

51Retailer

Number Interviewee Type

Source: Frost & Sullivan

Interviewee Distribution


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Retail Market Overview in IndiaRetail Market Overview in India

1995

2003

2006

2006-2007: Maintaining its #1 position as the market with the most opportunity forretail growth, Indias retail market grew to $330.00 billion

2005-2006 : Retail Boom : The beginning of the Indian retail boom, India is alsoranked as the #1 market for global retailers to enter according to Global RetailDevelopment Indices

2003-2004: Growth: Standing at $230.00 billion, Indias retail market enters theGrowth phase, characterized by the entry of new domestic and international

participants and expansion by existing retailers in India

1995 : Emerging: The Indian retail market is classified as an Emerging market

PHASED GROWTH OF INDIAN RETAIL MARKET

2007

2008 2008 : The Indian retail boom is at its peak and this phase has beentermed the high retail gold rush

2010 2010 : Continued growth expected to grow retail market to $427.00 billion by 2010


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Retail Market Overview in India (Contd.)Retail Market Overview in India (Contd.)EXPECTED RETAIL EXPANSIONS

One of the largest grocery store chains in India: 1,000 stores by the end of2008.

Belonging to Future Group, one of Indias top retailers, Pantaloon Retailoperates department stores predominantly and it has forayed intohypermarkets, electronics and other formats: Expecting to invest $260.0million to expand to 10 million. Sq. ft of retail space by 2010.

One of the largest department store chains, Lifestyle is Expecting to make aninvestment of around $95 million. in MAX Hypermarket and HomeCenters.

Reliance retail has forayed into multiple formats like hypermarkets, apparel,electronics and grocery stores: Expecting to invest $5.50 billion. By 2012creating 100 mill sq. ft of retail space.

WalMart, one of Americas largest hypermarkets is expecting to enter India incollaboration with Bharti : Expecting to invest $2.5 billion to create 10.0mill. sq.ft of retail space by 2015.

German cash and carry store: Investing $400.0 million to set up nearly18 stores in India by 2012.


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INDIAN RETAIL MARKET GROWTH (2006-07 TO 2011-12 (E))

0.00

100.00

200.00

300.00

400.00

500.00

600.00

2006-07 2007-08 2008-09 2009-10 (E) 2010-11 (E) 2011-12 (E)

Year

R e t a i

l S a l e s

( i n

$ B n

Retail Market Overview in India (Contd.)Retail Market Overview in India (Contd.)

Source: Frost & Sullivan

PROJECTED GROWTH FOR INDIAN RETAIL BY 2015:

US $600 billion

GROWTH DRIVERS

The share of organized retail is only 4%. Market share is easily available for new players to enter. Market saturation is low.

Risk and market attractiveness of Indian retail are moderate.Increased spending power and disposable incomes are expected to penetrate the retail sector.

Expectant relaxation of FDI norms beyond single brand retailers.

From a labor perspective, availability of cheap labor with no stringent hiring and firing norms, Indian retailing is conducive for growth.

Multiple investment routes in retail available to International retailers: Via master or regional franchisees, cash and carry wholesaletrading, licensing agreements with national retailers and setting up a manufacturing base in India allowing sales in India as well as a100.0% foreign equity.

2009-2011 are estimates.Source: CSO, NSSO, and Technopak Advisers

Pvt. Ltd.


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68%

Sales Performance by Retail Sector Sales Performance by Retail Sector

Food & Grocery

Beverages

Clothing & Footwear

Furniture, furnishing, appliances & servicesNon-institutional healthcare

Sports goods, entertainment, equipment & books

Personal care

Jewelry, watches, etc.

Clothing &Footwear

Furniture,furnishing,

appliances &services

Sporting goods,entertainment,equipment &

books

Figures represent Different Organized Retail Formats and their percentages inthe Total Retail Sales in the respective format for the Years 2007/08 and2011/12.

The inner circle represents year 2007/08 and outer circle year 2011/12.

All figures (in percentages) are Frost & Sullivan estimates.

The clothing and footwear market is the most organizedsegment in the Indian retail market. In 2007/08, thisformat is estimated to capture 21% of the totalorganized retail market according to Frost & Sullivanprojections.

The sporting goods, books and music retail stores areexpected to foresee the next big retail expansion in the

next 4-5 years.The furniture and home dcor format is also gatheringmomentum in organized retailing with around 11% ofshare.

These three formats together currently account fornearly 68% of the total organized market.

Organized

R etail4%

The Pie-chart corresponds to year 2007/08

21.09

10.58

17.93

7.46

92.05

16.086.49

25.71

31.36

3.51

2.52

6.950.78

8.81

23.16

2.20

Note: Each figure isspecific to its retail format.Therefore, will not add upto 100%.


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Analysis of Operating IssuesAnalysis of Operating IssuesIndian PerspectiveIndian Perspective

1

Major Operating Issues in Indian RetailMajor Operating Issues in Indian Retail

One of the major concerns in retail is shoplifting. A significant portion of retail shrinkage (more than 50%) is attributableto retail fraud, theft and crime. The fear of theft comes both from the employees and the visitors to the store. The

increasing trends have made the loss prevention technologies inevitable for bigger retailers, however, these technologiesare way beyond the reach of the budget of small unorganized retailers.

RETAIL THEFTRETAIL THEFTRETAIL THEFT

SKILLED LABOR AVAILABILITY SKILLED LABOR AVAILABILITY SKILLED LABOR AVAILABILITY

SUPPLY CHAIN CHALLENGESSUPPLY CHAIN CHALLENGESSUPPLY CHAIN CHALLENGES

Supply chain challenges seems inevitable mostly for the departmental and hyper marts because of different retail outlets indifferent cities, multiple vendor contracts and high frequency of replenishment in these kind of stores.

2

3

4

5

Lack of trained personnel has emerged as a major area of concern for the Indian retail sector. This is mostly becausethere is hardly any proper training institution for retail technologies. The demand for better trained labor force has ledseveral players mulling over the possibility of setting up their own training institutions.

CHALLENGES DUE TO POWER SHORTAGECHALLENGES DUE TO POWER SHORTAGECHALLENGES DUE TO POWER SHORTAGEPower shortages is another important challenge, the small and unorganized retailers are the hard-hit. The big retailersusually have the power back-up and it is not a major challenge for them. Delhi and National Capital Region faced hugepower shortage of 500 MW. Even Maharashtra faced an acute power shortage of acute 6,700MW recently. Sinceshopping malls are the biggest power guzzlers, power tariff can more than double for Mumbai Malls and Multiplexes.

PRICE FOR RETAIL SPACEPRICE FOR RETAIL SPACEPRICE FOR RETAIL SPACE

High price for retail space is driving retailers opening up more stores in tier-II cities. Average rental values are around$2.33 per sq foot a month in the bigger cities. However, increasing demand for retail space has more than doubledrentals in tier-II cities as well.


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Impact of Legislation and Government PoliciesImpact of Legislation and Government Policies

Until 1996

The Governmentprohibited FDI intoIndian retailing

2005 saw the GOI

permitting FDI indomestic realestate

The Governmentof India (GOI)cleared the SEZ

Act and developedmill lands ensuringapt locations fororganized retail

1997-2005 2006 onwards

FDI Policy amended withpartial liberalization :

Foreign companies permitted toown up to 51.0 percent in singlebrand retail joint ventures. (As

approved by the ForeignInvestment Promotion Board)

100.0 percent equity throughthe automatic route is permittedin wholesale cash and carrybusiness and export trading.

Franchisee agreements are

permitted

2008

The GOI has commissioned astudy on multi brand retail:consequences of opening multibrand retail

Depending of the findings, the

GOI may permit FDI in multibrand retail in the future.

Implications: WalMart,Carrefour and others couldenter as joint ventures withmulti brand stores

The ruling United Party Alliance (UPA) Govt. isperceived to be in favor oforganized retail

GOVERNMENT POLICIES TOWARDS RETAIL

The

regulatory

environment:

not conducive

to retail growth

33 Clearances

to open a retail store:

taxation, labor,

infrastructure, operational

and general clearances

Retail boom:

Commercial

real estate crunch

cumbersome land

conversion

processes

INDIAN RETAIL: POLICY RELATED GROWTH IMPEDIMENTS

No specificrestrictionsimposed on theentry of foreignplayers in Indianretail


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Loss and Prevention AnalysisLoss and Prevention Analysis-- Loss AnalysisLoss Analysis

INDIA THAILANDNORTH

AMERICA

2.9

1.65

1.52

S h r i n k a g e a s a p e r c e n t a g e o f s a l e s

India has the highest shrinkagerate in the world. In 2007, it wasclose to 2.9% of the total retailsales.

Thanks to the increasing trend ofnewer retail technologies, risingnumber of retailers are opting forthe Loss prevention systems CCTV and EAS; as a result ofwhich the overall shrinkage ratedeclined from 3.2% in 2006 to2.9% in 2007.

Hypermarket

Department Stores

Grocery stores

Specialty Apparel

Specialty Hard

Home Centers

Drug/Health/beauty

Others

3.26

3.40

2.70

2.80

2.50

2.40

3.00

3.15

The highestshrinkage rate is in

hypermarkets and indepartmental stores.

Total Retail Market: Average Shrinkage

Rate(%) by Retail

Sector (INDIA),2007

The Books & Musicformats are also

experiencing highshrinkage rate

because of the sizeof their products and

product value.

Source: The Global Retail Theft Barometer 2007


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Loss and Prevention AnalysisLoss and Prevention Analysis-- Loss Analysis (contd.)Loss Analysis (contd.)

Indian Retail Market: Sources of Shrinkage 2007

Shoplifting from customers is the prime cause ofshrinkage in the Indian Retail Market. This constitutedhalf of the total product loss in 2007.

Administrative error (such as pricing mistakes,accounting errors, and process failures) is the secondmost important cause of shrinkage after shoplifting inIndia, which accounted for 22% of the total shrinkagein 2007.

Employee theft in India was regarded as beingresponsible for around 20% of the shrinkage in 2007.This was a low figures compared to other parts of theworld. In North America and Australia dishonestemployees account for more than 40% of shrinkage.

Losses due to vendor fraud (including supply-chainlosses and theft by delivery employees) contributed tothe total shrinkage by 8.5% in 2007.

Shrinkage due to shoplifting, being the primary reasonbehind shrinkage, is the main driving factor behindincreasing importance of EAS systems in India.

Source: The Global Retail Theft Barometer 2007

50.2%

19.3%

8.5%

22.0%

Shoplifting

Employee Theft

Vendor Error

Administrat ive Error


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57.5%

77.5%

17.5%

7.5%

010203040

5060708090

Security ShrinkageReduction

Monitoring of Staff

PsychologicalFear

Current Benefits of EAS

P e r c e n

t a g e

o f P a r

t i c i p a n

t s

Current Benefits of EAS System Among UsersCurrent Benefits of EAS System Among Users

Majority of retailers have stated shrinkage reduction as the main benefit they are receiving from EAS.

Some retailers even stated psychological fear. They believe that the existence of the system is apsychological deterrent to the staff as well as to shoplifters because it would give them the feeling thatthey are being continuously monitored.

Monitoring of staff and security of products are other benefits of EAS systems.

Majority of retailers have stated shrinkage reduction as the main benefit they are receiving from EAS.

Some retailers even stated psychological fear. They believe that the existence of the system is apsychological deterrent to the staff as well as to shoplifters because it would give them the feeling thatthey are being continuously monitored.

Monitoring of staff and security of products are other benefits of EAS systems.

Note: Due to Multiple Responses the total percent will exceed 100%Source: Frost & Sullivan


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overview of the indian retal market

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