RETAIL - IBEF

RETAILORGANISED RETAIL IN NASCENT STAGE (2/2)The Indian retail market is in its nascent stage; unorganisedplayers accounted for 92 per cent of the market during 2013Significant scope for expansion in organised retailThere are over 15 million mom-and-pop storesBetween FY09-13, organised retail in India witnessed aCAGR of 19-20 per cent76%92%Organised retail is expected to account for 24 per cent ofthe overall retail market by 202024%8%2015Organised trade2020Unorganised tradeSource: BCG ,KPMG- indiaretailing.com, Deloitte Report,Winning in India’s Retail Sector, TechSci ResearchNotes: ‘Mom-and-pop’ stores are small stores that are typically ownedand run by members of a familyJANUARY 2016For updated information, please visit www.ibef.org17

RETAILORGANISED RETAIL (GROWTH ACROSS CATEGORIES)Organised retail penetration and key trends across categoriesCategory share asa % of total market2014-15ORP (%)Approx. grossmargin (%)Key trendsFood & beverage69-702-33-14Large market and low ORP presentsrobust opportunitiesClothing & textile11-1317-2035-50High margins, increased preference forbranded apparel4-515-2010-20Wide range of price points and good-aftersales service are key differentiators35-640-50Housing boom and increasing aspirationlevels are driving demand8-116-1020-40Growth driven by new product launches,consumers’ aspirations and expansionplans of organised players216-1725-35Lifestyle brands are increasing theirproduct offerings and formats3-49-3010-15Pharmacy retail, stationery retailers, etcRetail categoryConsumer durablesHome décor & furnishingBeauty, personal careFootwearOthersSource: Ministry of Statistics and Programme Implementation, A Report on ‘Retail reforms in India’ by PwC, TechSci ResearchNote: ORP - Organised Retail PenetrationJANUARY 2016For updated information, please visit www.ibef.org18

RETAILGROWTH EXPECTED ACROSS PRODUCT CATEGORIES AND FORMATS (1/2)City- Wise Share in Upcoming Mall Supply: 20152018Online Grocery Market Size Across Countries2015(USD derbadPune710%321KolkataMumbai0.614%Online grocery market is in its nascent stage and in 2015, theonline grocery market stood at USD0.6 billion which shows thatthere is a lot of scope for improvement in the coming years for theonline grocery market to grow.AhmedabadSource: Technopak Advisors Pvt Ltd,Knightfrank, Cushman & Wakefield ResearchNotes: - NCR, Mumbai, Kolkata and Chennai,Bangalore, Pune and HyderabadGrowing e-commerce sector is augmenting the growth of onlinegrocery marketJANUARY 2016For updated information, please visit www.ibef.org19

RETAILGROWTH EXPECTED ACROSS PRODUCT CATEGORIES AND FORMATS (2/2)Break-up of all mall space by format (FY15)India’s ‘grocery’ retail segment is the world’s most attractiveApparelsApparels would be the largest retail segment, accounting for22 per cent of total retail space by 2014–156%Grocery retailers recorded healthy growth during 2014 andis expected to become world’s third largest grocery marketwith an estimated revenue of USD 566bn by 2016.Departmental Store5% 3%Food & Beverages22%Home & icsWatches & Jewellery8%9%13%Personel CareOthersFootwareSource: Knightfrank, Technopak Advisors Pvt Ltd,Cushman & Wakefield Research, Euromonitor InternationalJANUARY 2016For updated information, please visit www.ibef.org20

RETAILSIGNIFICANT GLOBAL POSITIONING OF INDIAN RETAIL SECTORIn 2015, deepest mall penetration has been witnessed by Delhi-NCR with 22.7msf, total 213 malls are operational in IndiaIn August 2015, India’s second largest e-commerce firm Snapdeal raised USD500 million by Chinese e-commerce firmAlibaba Group, Foxconn Technology Group and existing investor Softbank Group.India is among the highest in the world in terms of per capita retail store availability. India’s strong growth fundamentals,along with increased urbanisation and consumerism, offer immense scope for retail expansion for foreign playersWith the allowance of 100 per cent FDI in single brand retail investor sentiment will get further pushRapid emergence of organised retail outlets, such as mega malls and hypermarkets, are augmenting the growth oforganised retail in the country. Retailers have made dynamic changes in supply chain and logistics for competitiveadvantage and meeting consumer demandsSource: Dun and Bradsheet, AT Kearney, Indian Retail MarketSeptember 2011, Times of India, TechSci AnalysisJANUARY 2016For updated information, please visit www.ibef.org21

RETAILSECTOR’S HIGH GROWTH POTENTIAL IS ATTRACTING INVESTORS . (1/2)India has occupied a remarkable position in global retailrankings; the country has high market potential, loweconomic risk, and moderate political riskIn market potential, India ranks eleventh (after UnitedStates, China, Canada, UK, Brazil ,Germany, Austria andMexico)India’s net retail sales are quite significant among emergingand developed nations; the country is ranked third (afterChina and Brazil)Overall, given its high growth potential, India comparesfavourably with global peers among foreign investorsFDI Confidence Index 2015United State2.1China2United 9Australia1.79Singapore1.73Source: AT Kearney 2015 FDI Confidence Index, TechSci AnalysisNotes: FDI - Foreign Direct InvestmentJANUARY 2016For updated information, please visit www.ibef.org22

RETAILRISING PROMINENCE OF ONLINE RETAIL (1/2)Online retail business is the next generation format which has high potential for growth in the near future. After conqueringphysical stores, retailers are now foraying into the domain of e-retailingE-commerce is expected to be the next major area for retail growth in India. The industry is projected to touch USD100billion by 2020 from USD22 billion in 2015.With growth in the e-commerce industry, online retail is estimated to reach USD70 billion by 2020 from USD 3 billion in 2014E-commerce industry in India (USD billion)Online retail in India (USD rce: MasterCard Worldwide Insights 4Q 2010, PWC e commerce in India report,TechSci ResearchNotes: APMEA - Asia/ Pacific, Middle East and Africa, E- Estimated, F- ForecastJANUARY 2016For updated information, please visit www.ibef.org23

RETAILRISING PROMINENCE OF ONLINE RETAIL (2/2)The key drivers of online retail are a young population aidedby easier access to credit and payment options, increasinginternet penetration and speed, 24-hour accessibility, andconvenient and secured transactionsOnline retailers continue promotional prices in the market,offering a significant boost to e-retailing in consumerdurable sectorOptions like cash-on-delivery and manufacturers’ warrantyadd fuel to this rage. Cash-on-delivery is the most preferredpayment option with over 30 per cent of buyers opting for itin IndiaYouth Population Age 10 to 24 in million (201415)Brazil51US65Indonesia67ChinaIndia269356The computer peripherals, cameras and mobiles, andlifestyle segments account for a majority of total purchasesSource: UN Report 'The power of 1.8 billion'JANUARY 2016For updated information, please visit www.ibef.org24

RETAILPORTERS FIVE FORCES ANALYSISJANUARY 2016

RETAILPORTER’S FIVE FORCES ANALYSISCompetitive Rivalry Entry of foreign players in the market and e-retailers have intensifiedcompetitionCustomers’ low switching cost increases competitionThe Indian retail sector is highly fragmented, which increasescompetitionThreat of New Entrants Entry as a retailer is quitesimple. However, players needto establish strong distributionchannelsandachieveeconomies of scale to competeBargaining Power of Suppliers Retailers have low switchingcosts, which make the supplierpower low. Larger retailers caneasily switch to differentsuppliers.Threat of NewEntrants(High)Substitute Products Threat of substitute products islow. However, customers maypurchase products from a localstore instead of purchasingfrom a retailerBargainingPower hreat ofSubstituteProducts(Low)Bargaining Power of Customers The consumers are pricesensitive, and have informationabout the product and its priceLow switching cost givescustomers high bargainingpowerBargainingPower ofSuppliers(Low)Source: TechSci ResearchJANUARY 2016For updated information, please visit www.ibef.org26

RETAILSTRATEGIES ADOPTEDJANUARY 2016

RETAILSTRATEGIES ADOPTED It is imperative for a retailer to have a strong distribution and logistic network to succeed inthis sector. Players follow a distribution network that suits them the best. For example,Shoppers Stop follows a “hub-and-spoke” model for its distribution network to increaseefficiency and productivity Companies are now adopting innovative marketing strategies for their business. Forexample, Shoppers Stop is the first Indian large-format retailer to have created anAUGMENTED REALITY (AR) set-up Certain players in this sector are focused on a particular segment. For example, FutureRetail (FRL) exclusively operates hypermarkets and home retailing businesses. FRLfocuses on maintaining its competitive advantage and gaining benefits of scale throughfocusing on efficiency and productivity Retailers are opting for many channel to maximise sales, provide convenience and forenhanced productivity. Omni-channel retailing is being adopted by many retailers in India.For example, Shoppers Stop is making efforts to be an omni-channel retailer. Ezone haslaunched an online platform, which has led to increase in sales Retailers benefit if consumers perceive their store brands to have consistent andcomparable quality and availability in relation to branded products. For this, retailers areproviding more assortments for private level brands to compete with supplier's brand. Newproduct development, aggressive retail mix and everyday low pricing strategy help to getedge over supplier's brandStrong distribution andlogistic networkMarketing innovationFocusOmni-channel retailingChanging theperceptionSource: Company websites, TechSci ResearchNotes: R&D – Research and DevelopmentJANUARY 2016For updated information, please visit www.ibef.org28

RETAILGROWTH DRIVERSJANUARY 2016

RETAILGROWTH DRIVERS FOR RETAIL IN INDIAFavourabledemographicsEasy consumercredit and increasein quality productsBrandconsciousnessRise in income andpurchasing powerChange inconsumer mindsetSource: TechSci ResearchJANUARY 2016For updated information, please visit www.ibef.org30

RETAILFAVOURABLE FDI POLICY ENCOURAGING INVESTMENTGovernment proposedintroducing FDI in multibrand retail (2008); followsup in 2012 by approving aplan to raise the FDI limitto 51 per centFDI of upto 100 per centallowed under theautomatic route in Cash &Carry (wholesale)199120061997Liberalisation: FDI of upto51 per cent allowed underthe automatic route inselect priority sectorsWith a view to improve theease of doing business,the government hasaligned the foreign directinvestment policy with NICcode201220152008FDI of upto 51 per centallowed with priorgovernment approval insingle-brand retailGovernment approved 51per cent FDI in multibrand retail and increasedFDI limit to 100 per cent(from 51 per cent) insingle brand retailSource: TechSci ResearchNote: NIC - National Industrial Classification CodeJANUARY 2016For updated information, please visit www.ibef.org31

RETAILINDIAN RETAIL IS SET TO BENEFIT FROM FDI POLICYBenefits of FDI in Indian retailIncrease middlemenBenefiting IndianmanufacturersTechnologicaladvancementEntry routeFDI limitWholesale cash andcarry tradingAutomatic100%Single brand productretailingForeign Investmentand Promotion Board100%Multi-brand, front-endretailForeign Investmentand Promotion Board51%JANUARY 2016For updated information, please visit www.ibef.org32

RETAILFDI POLICY DETAILS ON SINGLE AND MULTI-BRAND RETAIL IN INDIA Minimum investment cap is USD100 million 30 per cent procurement of manufactured or processed products must be from SMEs Minimum 50 per cent of total FDI must be invested in backend infrastructure (logistics, coldstorage, soil testing labs, seed farming and agro-processing units) Removes middlemen and provides better price to farmers51% FDI in multi brand retailStatus: Policy passed Development in retail supply chain system 50 per cent of jobs in retail outlet could be reserved for rural youth and a certain amount of farmproduce could be required to be procured from poor farmers To ensure the Public Distribution System (PDS) and Food Security System (FSS), thegovernment reserves the right to procure a certain amount of food grains Multi-brand retail would keep food and commodity prices under control Will cut agricultural waste as mega retailers would develop backend infrastructure Consumers will receive higher quality products at lower prices and with better service Products to be sold under the same brand internationally Sale of multi-brand goods is not allowed, even if produced by the same manufacturer100% FDI in singlebrand retailStatus: Policy passed For FDI above 51 per cent, 30 per cent sourcing must be from SMEs Consumerism of retail market Any additional product categories to be sold under single brand retail must first receivegovernment approvalJANUARY 2016For updated information, please visit www.ibef.org33

RETAILNEW GOODS AND SERVICE TAX (GST) WOULD SIMPLIFY TAX STRUCTURESupply chain structure Pricing and profitabilityIntroduction of Goods and Service Tax (GST) as aunified tax regime would lead to a re-evaluation ofprocurement and distribution arrangements Elimination of tax cascading is expected to lower inputcosts and improve profitability Application of tax at all points of supply chain is likelyto require adjustments to profit margins, especially fordistributors and retailersRemoval of excise duty on products would result incash flow improvementsGoods and Service Tax(GST)System changes and transition managementCash flow Tax refunds on goods purchased for resale implies asignificant reduction in the inventory cost ofdistribution Distributors are also expected to experience cash flowfrom collection of GST in their sales, before remitting itto the government at the end of the tax-filing period Changes need to be made to accounting and ITsystems in order to record transactions in line withGST requirements Appropriate measures need to be taken to ensuresmooth transition to the GST regime throughemployee training, compliance under GST, customereducation and inventory credit trackingSource: TechSci ResearchJANUARY 2016For updated information, please visit www.ibef.org34

RETAILINCOME GROWTH TO DRIVE DEMAND FOR ORGANISED RETAILMultiple drivers are leading to strong growth in Indian retail through a consumption boomSignificant growth in discretionary income and changing lifestyles are among the major growth drivers of Indian retailEasy availability of credit and use of ‘plastic money’ have contributed to a strong and growing consumer culture in IndiaAcceptance and usage of e-retailers by consumers are increasing due to convenience and secured financial transactionsExpansion in the size of the upper middle class and advertisement has led to greater spending on luxury products and highbrand consciousnessRising per capita income in IndiaReal income growth 0%GDP constant prices, USD 2.515001430.21,80018.0%00.0%-2.0%-4.0%Annual growth rateGDP per capita, current pricesGrowth RateSource: TechSci Research, IMF,Notes: E- Estimate, F - ForecastsJANUARY 2016For updated information, please visit www.ibef.org35

RETAILOPPORTUNITIESJANUARY 2016

RETAILDemand FactorsGROWTH VALUE PROPOSITIONHigher brand consciousnessRising incomes and purchasing powerGrowing aspiration levels and appetite toexperimentCredit availabilityGrowing young populationand working womenChanging consumer preferences andgrowing urbanisationSupply FactorsIndian retail opportunityRapid real estate and infrastructuredevelopmentEasy availability of creditEmergence of newcategoriesExpansion plans ofexisting playersDevelopment of supply chain improvingefficiencyR&D, innovation and new productdevelopmentSource: KPMG International 2011, TechSci ResearchJANUARY 2016For updated information, please visit www.ibef.org37

RETAILAMPLE GROWTH OPPORTUNITIES IN INDIAN RETAIL INDUSTRYLarge number of retailoutlets India is the fifth largest preferred retail destination globallyThe sector is experiencing exponential growth, with retail development taking place notjust in major cities and metros, but also in Tier-II and Tier-III cities Rural markets offersignificant growthpotentialFMCG players are focusing on rural market as it constitutes over 33 per cent of FMCGconsumer base in India With increasing investment in infrastructure, retailers would be able to increase theiraccess to high-growth potential rural markets Private labelopportunitiesSourcing baseThe organised Indian retail industry has begun experiencing an increased level of activityin the private label space Private label strategy is likely to play a dominant role as its share in the US and the UKmarkets is 19 per cent and 39 per cent, respectively, while its share in India is just 6 percent. Stores like Shopper Stop, Lifestyle generates 15 to 25 per cent revenues fromprivate label brands. Growth of online retail is also augmenting the growth of private labelbrand in India India‘s price competitiveness attracts large retail players to use it as a sourcing baseGlobal retailers such as Walmart, GAP, Tesco and JC Penney are increasing theirsourcing from India and are moving from third-party buying offices to establishing theirown wholly-owned/wholly-managed sourcing and buying offices Luxury retailingLuxury retailing is gaining importance in India. This includes fragrances, gourmet retailing,accessories, and jewellery among many others. The Indian consumer is ready to splurgeon luxury items and is increasingly doing so. The Indian luxury market is estimated around USD1.16 billion, yearly growth rate of luxurymarket is 13 per cent . This will make India the 12th largest luxury retail market in the world by 2020Sou

Spencer’s Daily (134 stores) Reliance Fresh (700 stores) REI 6Ten (350 stores) Big Bazaar (512 franchisees stores) Titan Industries is a large player, with 430 World of Titan, 174 Tanishq, and 336 Titan Eye shops Vijay Sales, Croma, and E-Zone are into consumer el