Description
The objective of the study is to gain a general understanding of the Indian Retail Industry. The report aims to understand the various retailers present in India and the performance of these retailers in the past years especially during the recessionary times. The report also discusses the strategies which will help retailer in order to do business effectively and cope with the recessionary times.
Competitive Analysis of Indian Retail Industry and Future Outlook
COE Marketing Live Project
MBA program Batch 2008-2010 Semester IV
Acknowledgements
I would begin by acknowledging to Mrs. Pratima Sheorey, COE Marketing and Ms. Anita Gupta Assistant Professor COE Marketing for giving me an opportunity to work on this Winter Project. I would also like to extend my thanks to Mr. Asgar Ali Sanwarwalla, Consultant Avalon Consulting for his extensive help and guidance at every stage during the course of this Winter Project. I am extremely grateful to Mr. Abhijit Nag, Visiting Faculty SCMHRD for his valuable insights into Supply Chain Practices and evaluation processes. Finally we thank all those who have directly or indirectly helped me in the successful completion of the project.
Contents
Executive Summary ...................................................................................................................................... 4 Objective of the Study .................................................................................................................................. 5 Introduction ................................................................................................................................................... 6 Indian Retail Industry ................................................................................................................................... 6 Retail Companies in India ............................................................................................................................. 7 Retailer Profiles ............................................................................................................................................ 7 Financial Snapshot ...................................................................................................................................... 10 Analysis and Findings ................................................................................................................................. 11 Problems faced by the Indian Retail Industry ......................................................................................... 11 Liquidity under pressure ..................................................................................................................... 11 Margin contraction- Interest burden adversely impacts profits .......................................................... 12 Funding constraints ............................................................................................................................. 13 Roll out delays to compound problems............................................................................................... 13 Supply Chain Analysis ............................................................................................................................ 15 Supply Chain Rating ............................................................................................................................... 18 Rentals – skyrocketing to all time high ............................................................................................... 19 Mistakes by retailers ........................................................................................................................... 19 Strategies to Help Retailers Cope with the Slowdown ........................................................................... 21 Toughen internal efficiencies .............................................................................................................. 21 Decode consumer behavior ................................................................................................................. 22 Entering into alliances and leveraging expertise ................................................................................. 22 Private Labels...................................................................................................................................... 22 Build a competent supply chain management system......................................................................... 23 Venture into under penetrated markets: Rural Retailing..................................................................... 24 Innovate: categories, services, business models ................................................................................. 24 Future Outlook ............................................................................................................................................ 25 References ................................................................................................................................................... 25
Executive Summary
The objective of the study is to gain a general understanding of the Indian Retail Industry. The report aims to understand the various retailers present in India and the performance of these retailers in the past years especially during the recessionary times. The report starts with introduction of players present in the organized retail scenario in India and discusses in brief about the financial about these players. Largely, the profit figures of these players are in pressure on account of the multiple problems compounded with the recent recessionary slowdown. Some of the major problems faced by the retailer are Liquidity pressure, margin contraction, funding constraints; roll out delays and rising rentals. Supply Chain management which is a critical activity of retailing business has been discussed in the light of how well the supply chain is managed by the retail companies and an attempt has been made them to rate these companies in the light of three parameters viz. Inventory turnover, asset turnover and cash to cash cycle. A detailed analysis put Shopper‘s Stop in the fore front of the efficient supply chain practices. The report also discusses the strategies which will help retailer in order to do business effectively and cope with the recessionary times. Some of the area retailer needs to work across are efficient internal operations, private labels, efficient supply chain management, innovation and penetration in to under penetrated market. Finally the report concludes with the future outlook for the Indian retail industry.
Objective of the Study
The objective of the study is to gain a general understanding of the Indian Retail Industry. The report aims to understand the various retailers present in India and the performance of these retailers in the past years especially during the recessionary times. As the primary activities of these retailers revolve around supply chain management, the report also wishes to understand the effectiveness of the supply chain management processes of the Indian retailers and rate them according to industry standards. The report also wishes to understand the problems faced by the Indian retailers and come up with strategies that may help retailer to cope with the existing problems and remain effective in the competitive retail Industry.
Introduction
Retailing includes all activities involved in selling goods or services directly to final consumers for personal, nonbusiness use. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing. Any organization selling to final consumers – whether a manufacturer, wholesaler or retailer? is doing retailing. It does not matter how the goods or services are sold (by person, mail, telephone, vending machine or internet) or where they are sold (in store, on the street, or in consumer's home).
Indian Retail Industry
The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually.
Growth of Indian Retail
According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry is the most promising emerging market for investment. In 2007, the retail trade in India had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2010. According to a report by Northbride Capita, the India retail industry is expected to grow to US$ 700 billion by 2010. By the same time, the organized sector will be 20% of the total market share. It can be mentioned here that, the share of organized sector in 2007 was 7.5% of the total retail market.
Retail Companies in India
? ? ? ? ? ? ? ? ? Pantaloon Retail Shoppers Stop Reliance Retail Aditya Birla Retail Kouton Retail Trent Provogue ITC Pyramid Retail
Retailer Profiles
Pantaloon Retail:
Pantaloon Retail (India) Limited, is a large Indian retailer, which is part of the Future Group, and operates multiple retail formats in both the value and lifestyle segment of the Indian consumer market. Headquartered in Mumbai, the company has over 1,000 stores across 71 cities in India and employs over 30,000 people [1], and as of 2010, it was the country's largest listed retailer by market capitalization and revenue. The company‘s brands include Pantaloons, a chain of fashion outlets, Big Bazaar, a hypermarket chain and Food Bazaar, a supermarket chain. Some of the company's other regional brands include, Depot, Shoe Factory, Brand Factory, Blue Sky, aLL, Top 10 and Star and Sitara.
Shopper Stop:
Shoppers Stop is one of the leading retail stores in India. Shoppers Stop began by operating a chain of department stores under the name ?Shoppers‘ Stop? in India. Currently Shoppers Stop has twenty seven (27) stores across the country and three stores under the name HomeStop. Shoppers Stop has also begun operating a number of speciality stores, namelyCrossword Bookstores, Mothercare, Brio, Desi Café, Arcelia. Shoppers Stop retails a range of branded apparel and private label under the
following categories of apparel, footwear, fashion jewellery, leather products, accessories and home products. These are complemented by cafe, food, entertainment, personal care and various beauty related services.
Reliance Retail
Reliance Retail Limited (RRL), a subsidiary of the Indian conglomerate Retail Industries Limited, launched its first convenience store in November 2006. RRL has grown rapidly and operates over 900 stores across 80 cities in 14 States, which include over 750 Reliance Fresh stores. Reliance Fresh is the convenience store format which forms part of the retail business of Reliance Industries of India. It is positioned as a pure play super market focusing on categories like food, FMCG, home, consumer durables, IT and wellness, with food accounting for the bulk of the business.
Aditya Birla Retail
Aditya Birla Retail Limited is the retail arm of Aditya Birla Group, a USD 28 billion Corporation. The Company ventured into food and grocery retail sector in 2007 with the acquisition of a south based supermarket chain. Subsequently Aditya Birla Retail Ltd. expanded its presence across the country under the brand "more." with 2 formats - Supermarket & Hypermarket.
Kouton Retail
Koutons Retail India Ltd. is the leading retailer of readymade and fashion wear brand in the country today. With more than 1400 outlets across India, it has a wide range of apparel designs suited for all segments including corporate, formal and casual dressings. It has presence in 505 cities with primary presence in north India which was later expanded to southern India.
Trent
Trent is a retail operations company that owns and manages a number of retail chains in India. Established in 1998, Trent runs lifestyle chain Westside, one of India‘s largest and fastest growing chains of lifestyle retail stores, Star Bazaar, a hypermarket chain, Landmark, a books and music chain, and Fashion Yatra, a
complete family fashion store. It has its retail stores by the names of Westside, Star Bazaar, Landmark and Fashion Yatra
Provogue
Provogue (India) Limited, together with its subsidiaries, engages in the manufacture, distribution, and sale of fashion apparel for men and women under the ?Provogue‘ brand name in India. . In addition, the company exports a range of textile products, including fabrics, fabric designs, dyestuffs, and textile machinery. Provogue sells its products through selective stores and malls, as well as company-operated outlets under ?Provogue Studio‘ brand throughout the country. As of March 31, 2006, it had 64 Provogue Studio outlets. The company was founded in 1997. It was formerly known as Acme Clothing Private Limited and changed its name to Provogue (India) Limited in 2005.
ITC
ITC Lifestyle retailing is a part of 23000 crores ITC group which has presence in diversifies business areas such as FMCG, Hotel, Paperboards and packaging, Agri-business and Information Technology. ITC‘s Lifestyle Retailing Business Division has established a nationwide retailing presence through its Wills Lifestyle chain of exclusive specialty stores and John Players range of brand store apparel products.
Piramyd Retail
Piramyd Retail Ltd is a part of the Piramal Group that specializes in textiles, real estate, engineering, family entertainment and retail sectors. It deals in lifestyle and food, home and personal care (FHPC) products. The lifestyle retail business is operated under the brand, Piramyd Megastore. Its FHPC business is operational as TruMart. The company has 13 stores across 5 cities in India. It has plans to open 17 mega stores and 69 TruMart stores by 2008.
Financial Snapshot
All figures are in Rs. Crores
Analysis and Findings Problems faced by the Indian Retail Industry
A large number of retailers have experienced a drop in footfalls which is mirrored by slowing Same Store Sales (SSS) growth figures. This also adversely impacts the time taken to break-even for new stores. SSS at some of India‘s biggest retail groups have become negative for the first time in six years. Although retailers are trying their best to combat this slowdown through constant promotional offers and deep discounts, consumers are expected to cut down on their discretionary spending. With the global recession having no clear end in sight, consumers see sense in saving for a rainy day. Year-on-Year Net Sales Growth
70 60 50 % 40 30 20 10 0 Dec 05 Dec 06 Dec 07 Dec 08 11 39 35 62
Double Impact > Falling footfalls and poor conversion ratios
Liquidity under pressure
The slowing sales are resulting in lower inventory turnover and increasing working capital requirements for retailers. This in turn has resulted in liquidity pressures for many retailers. To free the cash that has been locked, a large number of companies have been trying to reduce the inventory on their books and shorten working capital cycles.
Working Capital on the Rise 200 150 100 50 0 2005 2006 2007 2008 USD Million 5 4 3 2 1 0
Decline in Inventory Turnover
2005
2006
2007
2008
Margin contraction- Interest burden adversely impacts profits
On their part, retailers have been trying to compensate for falling sales by curtailing expenses. This has countered the effect of the top line on operating margins leaving it largely unaffected. However, with working capital requirements and expansion capital being financed through sizeable debt, interest costs have significantly dented the bottom-line.
Operatin Profit Margin
12 10 8 9.6 8 8.4 7.6 7.9 Player Average
Cost Control to maintain margin proved successful
% 6
4 2 0
200712 200803 200806 200809 200812
Net Profit Margin
5
But high leverage and fixed finance cost led to PAT margin contraction
4 3 2 1 0 200712 200803 200806 200809 200812 3.9 2.6 1.7 0.7 0.3 Player Average
Funding constraints
A large number of retailers are highly leveraged and rely on fresh equity funding for growth, which is difficult to come by in the current market. Banks are increasingly hesitant to finance retailers in the context of falling demand and low profitability.
Roll out delays to compound problems
The organized retail space was expected to receive investments to the tune of USD 25 billion over the next 4-5 years5. However significant delays in retail real estate development and opposition to organized retail have resulted in delays in investment. A large number of retailers have not been able to meet their stated expansion plans. Currently, with higher cost of funds and a slowdown in demand, developers are likely to delay more projects in the near future.
Source: Avalon Retail Study 2009
Besides the weak economy and the feeble consumer sentiments, the disappointing retail growth is also attributed to • Poor infrastructure – Underdeveloped supply chains, lack of strong cold chains, poor warehousing facilities, bad roads, etc. have been contributing to increased logistic costs for the retailers. Globally, the logistics cost component to the total retail price is around 5 percent, while in India it is as high as 10 percent.
• Absence of a mature Third Party Logistics (3PL) industry –
Poor infrastructure (roads, communication and power) makes logistics and transportation in India extremely difficult. Further, internal operations of retailers, such as warehouse processes and distribution, are usually fairly ad hoc and inefficient. Retailers are keen to outsource their logistics to 3PL. But there is an absence of a mature 3PL player providing high service levels at competitive prices. • Fragmented supply base – The supply base is highly fragmented with a large number of intermediaries squeezing the margins of all involved, which also includes the retailer. This not only has an adverse affect on the margins but also results in cases of mishandling, theft and increased instances of shrinkage.
Supply Chain Analysis
In the supply Chain analysis, I have used a proprietary model developed by I2 Technologies which is leading player in the supply chain consulting business which was recently acquired by JDA Software Company. The process of supply chain rating is based on three parameters 1. Inventory Turn Over Ratio 2. Cash to Cash Cycle Days 3. Asset Turnover Ratio
Inventory Turnover Ratio It is defined as the ratio of Cost of Goods Sold to average inventory. It indicates how many times a company's inventory is sold and replaced over a period. Higher the ratio, better is the performance of the company. Cash to cash Cycle Cash to cash cycle is defined as the sum of inventory holding period and the debtors turnover period with the supplier payment period subtracted from the sum. More negative is the cash to cash cycle days, better is the performance of the company as negative value indicates that company is able to recover the cash it has invested in debtors and inventory before it makes payment to its suppliers. Asset Turnover Analysis: It is defined as the ratio of revenues to total assets. This ratio is useful to determine the amount of sales that are generated from each dollar of assets. As noted above, companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. Methodology: The above three parameters are ranked on a rating of 1 to 5 where 1 indicates the minimum rating and 5 indicates the maximum rating for the parameter. However, in cash of cash cycle days, lower cash to cash cycle days are desirable and hence higher rating for lower cash to cash cycle days. However for asset turnover and inventory turnover ratios, higher value attracts higher rating as higher rating is desirable for both the parameters. The ratings are calculated by the comparing the performance of the company with the industry average (Industry average is the average of the values of the top 5 companies in that sector) for that particular parameter.
The overall rating is calculated by adding the individual rating to arrive at the supply chain performance of the company and then appropriate conclusions can be drawn regarding the performance of the company. The results of the supply chain rating process are indicated as below.
Inventory Turnover Days
Reliance Retail Aditya Birla Retail Pantaloon
397 318
432 236
477
0 0
149 132 50 2006
26 0
144 159 67
36
149 75 0 2008
238 158 153 147 62
2007
2009
Cash to Cash Cycle Days
Reliance Retail Aditya Birla Retail Pantaloon
325 195 111 106 0 0 7 2006 -223 0 113 147
335
375 207 113 0 15 2008
401 314 104
434
208
15 2007
-9 2009
Asset Turn Over Ratios
Reliance Retail Shopper's Stop Aditya Birla Retail Vishal Mega Mart Pantaloon Kouton Retail
1.81 1.75 1.40 1.16
1.69 1.39 1.21 0.79 0.06 0.00 2007
1.78 1.11 1.04 0.85 0.23 0.00 2008
2.03 1.08 0.12 0.10 2009 1.24 0.86
0.00 0.00 2006
Supply Chain Rating
Reasons behind higher supply chain rating for Shopper‘s Stop is due to its focus On Systems and Processes • Shopper‘s Stop sets great store in its systems and processes and has attempted to adopt some of the best global practices. • At the heart of the IT system is the JDA-MMS ERP system. For merchandise planning, the company uses Arthur Planning and Business Objects, an analytical and decisionsupport application. • Shopper‘s is implementing world class tools like the Intactix (space and categorymanagement application) and E3 (an advanced merchandise-replenishment application). It is a member of the Intercontinental Group of Department Stores (IGDS).
Rentals – skyrocketing to all time high
As real estate prices skyrocketed, retail rentals also touched unsustainable levels eating directly into the profit margins of retailers. Until a few months back, store rentals were 300 to 400 basis points higher than even international levels. Retail rentals in Linking Road in Mumbai, South Extension in Delhi and Brigade Road in Bangalore have risen about 50 percent in the past 3 years
Rentals eating in to profit margins
2003 2005 2008 0 20 52 68 80 40 Rentals 60 80 48 32 20 100 120
Profit Margin
Mistakes by retailers
Crowding in unattractive locations Another reason for slow growth in organized retail is poor choice of locations. Clustering is a common theme in retail in India and retail malls appear wherever real estate is available rather than where they are actually needed. This has resulted in attractive city centers being devoid of malls and newly developed areas having too many. Inability to compete with traditional retail Organized retailers have not been successful to provide services that match those of kirana stores. The true reason of their troubles is that the business capacity of the kirana shop owners and buyers is high in India. Mom and Pop stores already have a model that is preferred by consumers and is also cost efficient. The big stores are still trying to get their model right in providing an alternative to neighborhood retailers who offer convenience, credit and personalized service.
Over reliance on debt funding The rapid expansion in retail space in recent years was largely debt funded. This has resulted in substantial leverage, which has added to retailers financing risks in the recent scenario. The
declining interest coverage clearly indicated that a large number of retailers are highly leveraged and are battling high interest payments.
Interest Coverage declining across Players
16 14 12 10 8 6 4 2 0 Shopper Stop Pantaloon Retail Vishal Retail Trent 2005 2006 2007 2008
Strategies to Help Retailers Cope with the Slowdown
Toughen internal efficiencies
Managing Costs
? ? ? ? ? ? ?
Cost Cutting Resource Optimization Improving labor Productivity Manpower retention and training Inventory Management Bringing down Real estate costs: Entering into revenue sharing model as against fixed rental model
In order to conserve resources, Vishal Retail too has decided to look at centralizing some of its operations. It has already closed its large distribution centers in Mumbai and Kolkata and opened a centralized warehouse in Gurgaon, near Delhi
Leveraging Information Technology
Retailers can make use Information Technology in diverse areas such as: ? ? ? ? ? Manpower training Real Estate Management Supply chain visibility Store operations Logistics management
Fifteen percent of Shopper‘s Stop‘s net worth is invested in IT. The company has reaped its benefits through reduction in shrinkage levels and enhancing customer‘s experience. Shopper‘s Stop has one of the lowest shrinkage levels in the industry (0.4 percent)
Reevaluating store viability and expansion plans
With catchments turning unviable, rampant store closures and format rationalization is on the cards. Rationalization is likely to intensify in coming quarters. Retailers may need to shut down unviable stores to conserve cash and inventory. Given high debt levels and dormant equity market, capital for growth has become scarce. Expansion plans need to be re-looked because of capital scarcity and catchment reassessment.
Efficient store management
Even after setting up stores, retailers may face issues in running stores efficiently. There are currently no streamlined and defined processes for allocation of products/categories, inventory management (both on shelf and in back room), workforce management and store infrastructure management. Some of issues that retailers are facing are ? New Customers ? Loyalty and Spend ? Costs
Decode consumer behavior
Retailers have to recognize the fact that a strategy that holds true for a particular region and set of people may not hold true for others. While India has a great market potential, most retailers tend to ignore the basic fact about the diversity of its customer base. Any retailer who does not do his ground work in terms of understanding his customer needs stands a great risk of failing even with one of the best models at hand. The strategies currently followed by the retailer are: ? ? ? ? Offering Discounts Lowering Prices Offering Value Added Services Leveraging Partnerships
Entering into alliances and leveraging expertise
In the current scenario retailers should be on lookout for opportunities to partner with foreign retailers as it could possibly bring in the much needed capital and expertise Alliances enable retailers in entering new markets, categories, expanding value proposition and capturing new consumer segments. While globally, it‘s a common trend, Indian retailers are slowly recognizing the importance of such partnerships and therefore actively seeking for opportunities to unlock value
Private Labels
Private Label Penetration %
%
World Europe Asia Pacific Latin America North America Emerging Market 17 23
4 2 16 6
Private labels enable retailers to offer quality products and earn higher margins. The retailer also derives many advantages of using private labels. In-store labels are at least 5-20 percent cheaper across various categories. This is because they cut out middlemen costs and pass on the benefit to the consumer. Private
labels enhance the bargaining power of the retailer while negotiating with manufacturer (national/ international) brands. In the long run, the retailer can use the Private Labels to attract customers to his outlet. Thus, many retailers are considering increasing their private label offerings significantly. This strategy has been aggressively followed by Aditya Birla Retail which plans to increase the total share of private label sales in its total kitty from existing 4% to 12% in the coming years.
Build a competent supply chain management system
The next strategy would be to build competent supply chain management systems through building up support infrastructure, warehouses, Cold Chain, 3 PL Players, backward integration and optimization of processes. With the large players like Reliance, Bharti - Wal-Mart, Tata‘s entering into in retail market, there is likely to be enhanced focus on improvements in logistics and supply chain infrastructure. To gain cost leadership in the market, big players may have to minimize costs by developing supply chain infrastructure. Warehouses, distribution centers and transportation are likely to see modernization In terms of warehouses, the existing scale of the warehouses is not enough to tap large scale economies to justify investment in higher standards. Hence building up of large warehouses wil help in consolidation and enjoy better economies. In terms of cold chain, there is an untapped potential of USD 2.6 billion for providing efficient cold storage facilities. In case of 3 PL, switching to 3 PL players will retailers to increase potential for scale economies. Backward Integration will help to allow accelerated technological transfer, capital inflows and assured market for crop production. This is likely to eliminate the intermediaries sucking away a large chunk of the margins Retailer optimize their processes in a lot of ways including improving forecasting accuracy, reducing stock-outs, increasing sourcing efficiency, increasing product movement visibility, reducing lead time and optimizing transportation. Starting from sensor based inventory management to RFID based control over inventory, IT can help in maintaining optimal inventory resulting in reduced input costs.
Venture into under penetrated markets: Rural Retailing
India has witnessed a rapid increase in incomes with per capita incomes soaring to USD 1000 in 2008 from miniscule USD 418 in 1998. The growth has not been restricted to urban India, as the per capita income in rural India has grown by 50 percent in past 10 years. Among key reasons for the latter are rising commodity prices, improving productivity and higher production. The increasing availability of basic infrastructure, improving access to funding, employment guarantee schemes, better information systems and growing literacy are together helping bring prosperity to rural households. With additional fiscal incentive provided by the government, rural India is set to witness further boost in overall farm incomes. Overall, there is a huge market which is waiting to be served, ready to splurge, willing to explore new products and services. Retailers can tap on their wallets given they do their homework well.
Innovate: categories, services, business models
In today‘s world of internet technology, retailers have to ensure that they continuously understand the pulse of their customers and design their offerings accordingly. This requires not only in-depth understanding customer requirements but also thinking laterally to come up with innovative solutions which would make the retailers stand out of the crowd. The current environment is a good time for generating trials; the consumers are actively looking for the best value and may therefore be more than willing to experiment. McDonald's has a perfect opportunity to prove that their Premium Roast coffee—a step up in price for McDonald's, but still cheaper than Starbucks —is a pretty tasty brew.
Future Outlook
In light of the effects of the slowdown, we expect an increased focus on value retail in the coming months and a shift away from lifestyle goods. • The focus is likely to shift towards food retailing and FMCG products as this segment is largely insulated from the slowdown. • Retailers may start focusing on cost reduction by closing the unprofitable stores and rationalization of capital expenditure. • Churn in malls is likely to increase in the short term when some retailers may find it difficult to sustain in the current economic situation, instead opting for low rent premises. • As Tier I cities become saturated, retailers are likely to move to Tier II, Tier III cities where profits are higher due to lower rentals and operating costs. • There are going to be increased investments in shortening of supply chain. This is mainly due to the incentives offered by the government and the potential for higher profit margins. • The frequency with which retailers liquidate slow moving goods by offering discounts to reduce inventory are expected to increase
References
? ? ? ? ? ? ? Prowess, CMIE Client. Indian Business Journal Annual Report of the Retailing Companies in India Avalon India Retail study, Retail in India, Mathew Joseph, Nirupama Soundararajan, (Academic Foundation) Retail Strategy, Johnson Reynolds, Christine Cuthbertson (Elsevier Publication) Retail Management Levy and Weitz
SUPPLY CHAIN RATING
2007 1.81 0 17.44 19.25 273.84 151.29 -15.70 2.41 -23.25 14.23 25.66 2.30 158.43 158.43 0.76% 48.16% 9.45% 10.60% 2.48 147.31 147.19 2.46 148.59 2.53 144.04 2.45 148.83 5.91 61.81 65.76 4.84 75.44 5.46 66.87 7.25 50.33 1.53 238.37 210.92 1.55 235.63 2.30 158.57 2.77 131.66 6.89 -151.54 2.85 0.40 144.06 3.09 0.72 144.78 4.21 1.86 137.97 5.81 1.99 141.03 --61.81 --75.44 --66.87 --50.33 7.57 2.58 228.22 6.60 4.28 224.76 8.75 4.84 144.99 5.03 12.61 114.02 36.72 122.24 317.74 0.77 476.70 431.52 8.07% 52.96 -2.41 127.96 920.99 2.53 118.14 506.08 2.52 86.71 195.90 2.65 62.80 183.13 2.59 --5.91 --4.84 --5.46 --7.25 48.20 141.48 1.60 55.32 85.33 1.62 41.74 75.36 2.52 72.49 28.94 3.20 9.94 2.99 1.15 9.07 2.86 1.38 40.24 127.71 263.84 0.85 431.79 4.67 2.37 2.21 78.19 154.24 164.94 0.92 397.38 3.04 0 66.84 69.88 160.99 34.62 4.81 1748.41 1787.84 4429.95 29.73 6.94 1393.17 1429.84 3512.19 25.89 11.46 848.61 885.96 2245.05 19.8 6.79 480.43 507.02 1243.43 0 0 144.98 144.98 856.16 0 0 169.88 169.88 821.92 0 0 115.24 115.24 628.98 0 0 65.84 65.84 477.51 21.19 7.22 638.66 667.07 1021.45 15.61 10.12 531.74 557.47 863.54 13.74 7.61 227.79 249.14 573.46 2.99 7.49 67.71 78.19 216.76 57.6 191.75 498.41 747.76 572.54 50.73 161 332.61 544.34 460.14 73.56 145.1 155.17 373.83 343.37 27.03 32.48 38.22 97.73 112.09 4.15 3.45 2.93 88.02 105.77 124.46 1.15 318.24 Aditya Birla Retail 2009 2009 2006 2009 2006 2009 2006 2009 2006 Pantaloon 2008 2007 Shopper's Stop 2008 2007 Vishal Mega Mart 2008 2007 Kouton Retail 2008 2007
Reliance Retail 2009 2008 0 0 115.93 115.93 1180.27 --10.18 --35.85 10.18 35.85
INVENTORY TURN OVER RATIO Raw Materials, Stores & Spares Work In Progress Finished Goods Total Inventory Cost of Goods Sold
0 0 137.76 137.76 328.28
Raw Material Turn-Over Work-In -Progress Turn Over Finished Goods Turn Over
--2.38
Raw Material Days Work-In -Progress Days Finished Goods Days
--153.17
ITR ITR days Average ITR
2.38 153.17 92.81
Market Share Weights INDUSTRY ITR 2.684416605 2.848715 Higher than Industry Average Higher than Industry Average 4.038841 Leading 1.917337 Laggard
4.73% 171.0513
ITR Rating
3.643514 Leading
0 Poor
CASH TO CASH CYCLE RATIO Average Debtors Average Creditors 1420.05 553.98 470.91 171.32 335.44 313.87 109.3561 4.63103 -223.25 313.87 104.07 113.33 113.15 110.99 -8.93 14.81 15.06 1.93 250.84 164.69 9.25 8.01 51.25 6.18 41.44 4.48 35.37 2.85 40.69 2.57 73.31 2.36 62.99 2.54 54.35 2.09 44.94 7.48 1.37 188.19 44.96 66.47 146.19 622.01 89.67 398.75 41.64 217.55 15.32 138.62 10.12 171.96 7.90 141.84 6.46 93.66 4.15 58.79
1436.51 534.88
1.41 86.17 0.37 30.79 207.95 185.4677
0.06 66.74 0.02 28.21 207.44
0.10 17.59 0.06 11.20 147.44
0.06 15.48 0.08 26.07 105.68
50.36 93.80 17.56 59.80 434.46 370.7931
27.54 87.29 12.67 69.24 375.22
14.35 80.56 13.02 85.64 324.76
0.00 41.33 11.23 134.58 194.89
Debtor Turnover Period Creditor Turnover Period
842.55 594.71
CASH TO CASH CYCLE
401.01
Average CTCC Industry CTCC 0 Poor 3.106476 Higher than Industry Average 4.919813 Leading
275.1086 144.38
CTCC Rating
0.236436 Laggard
1.788588 Laggard
0 Poor
ASSET TURNOVER RATIO Asset Turnover Ratio 0.22707 0.060994 1100.68 4847.32 60.68 22.1 4328.87 435.67 0.097133944 0.76% 1.147375 48.16% 4231.37 745.52 365.18 3068.38 52.29 1025.8 148.48 716.6 159.11 1.61 6153.53 1913.99 954.03 3277.19 5.55 4771.1 1528.81 586.52 2598.2 30.38 2809.18 805.73 252.01 1702.64 46.8 258.09 99.64 6661.42 5295.88 3392.79 0.097133944
0.116817
1.082536 1.109991 1.207751 1.398126 1962.06 1403.35 395.49 161.67 820.88 23.61
2.033392 1.779781 1.689456 1.753587 1437.71 707.05 258.75 97.4 333.24 17.66 1.860541 9.45% 1221.09 686.09 240.37 80.73 328.22 36.36 928.66 549.68 152.17 48.91 335.78 12.02 724.74 413.29 122.52 35.06 251.83 3.59
1.24114 1.044418 1.391047 1.814431 1395.29 1124.2 276.74 0.26 797.83 0.06 1.269434 10.60% 1007.08 964.25 229.45 0.13 732.48 0 603.77 434.04 108.24 0 325.53 0 288.93 159.24 40.05 0 119.14 0
0.857878 0.853945 0.794143 1.163751 1046.68 1220.08 124.25 2.02 1089.83 0.4 0.874538 8.07% 793.46 929.17 72.26 40.52 813.75 0.15 402.4 506.71 50.03 0 451.09 0 158.34 136.06 10.64 0 125.38 0
Total Revenue
622.31
Total Assets Net fixed assets Investments Current assets Loans & advances
5327.24 132.23 118.28 352.51 4724.22
AVERAGE ATR
0.144264
Market Share Weights INDUSTRY ATR
4.73% 1.151028
ATR Rating
0.313337 Laggard
0.210972221 2.492066 Laggard Along With Industry
4.041043 Leading
2.757175 Higher With Industry
1.899473 Laggard
SCM Rating
4.193
2.89538883
8.447
13
6.463
1.899
doc_463122896.docx
The objective of the study is to gain a general understanding of the Indian Retail Industry. The report aims to understand the various retailers present in India and the performance of these retailers in the past years especially during the recessionary times. The report also discusses the strategies which will help retailer in order to do business effectively and cope with the recessionary times.
Competitive Analysis of Indian Retail Industry and Future Outlook
COE Marketing Live Project
MBA program Batch 2008-2010 Semester IV
Acknowledgements
I would begin by acknowledging to Mrs. Pratima Sheorey, COE Marketing and Ms. Anita Gupta Assistant Professor COE Marketing for giving me an opportunity to work on this Winter Project. I would also like to extend my thanks to Mr. Asgar Ali Sanwarwalla, Consultant Avalon Consulting for his extensive help and guidance at every stage during the course of this Winter Project. I am extremely grateful to Mr. Abhijit Nag, Visiting Faculty SCMHRD for his valuable insights into Supply Chain Practices and evaluation processes. Finally we thank all those who have directly or indirectly helped me in the successful completion of the project.
Contents
Executive Summary ...................................................................................................................................... 4 Objective of the Study .................................................................................................................................. 5 Introduction ................................................................................................................................................... 6 Indian Retail Industry ................................................................................................................................... 6 Retail Companies in India ............................................................................................................................. 7 Retailer Profiles ............................................................................................................................................ 7 Financial Snapshot ...................................................................................................................................... 10 Analysis and Findings ................................................................................................................................. 11 Problems faced by the Indian Retail Industry ......................................................................................... 11 Liquidity under pressure ..................................................................................................................... 11 Margin contraction- Interest burden adversely impacts profits .......................................................... 12 Funding constraints ............................................................................................................................. 13 Roll out delays to compound problems............................................................................................... 13 Supply Chain Analysis ............................................................................................................................ 15 Supply Chain Rating ............................................................................................................................... 18 Rentals – skyrocketing to all time high ............................................................................................... 19 Mistakes by retailers ........................................................................................................................... 19 Strategies to Help Retailers Cope with the Slowdown ........................................................................... 21 Toughen internal efficiencies .............................................................................................................. 21 Decode consumer behavior ................................................................................................................. 22 Entering into alliances and leveraging expertise ................................................................................. 22 Private Labels...................................................................................................................................... 22 Build a competent supply chain management system......................................................................... 23 Venture into under penetrated markets: Rural Retailing..................................................................... 24 Innovate: categories, services, business models ................................................................................. 24 Future Outlook ............................................................................................................................................ 25 References ................................................................................................................................................... 25
Executive Summary
The objective of the study is to gain a general understanding of the Indian Retail Industry. The report aims to understand the various retailers present in India and the performance of these retailers in the past years especially during the recessionary times. The report starts with introduction of players present in the organized retail scenario in India and discusses in brief about the financial about these players. Largely, the profit figures of these players are in pressure on account of the multiple problems compounded with the recent recessionary slowdown. Some of the major problems faced by the retailer are Liquidity pressure, margin contraction, funding constraints; roll out delays and rising rentals. Supply Chain management which is a critical activity of retailing business has been discussed in the light of how well the supply chain is managed by the retail companies and an attempt has been made them to rate these companies in the light of three parameters viz. Inventory turnover, asset turnover and cash to cash cycle. A detailed analysis put Shopper‘s Stop in the fore front of the efficient supply chain practices. The report also discusses the strategies which will help retailer in order to do business effectively and cope with the recessionary times. Some of the area retailer needs to work across are efficient internal operations, private labels, efficient supply chain management, innovation and penetration in to under penetrated market. Finally the report concludes with the future outlook for the Indian retail industry.
Objective of the Study
The objective of the study is to gain a general understanding of the Indian Retail Industry. The report aims to understand the various retailers present in India and the performance of these retailers in the past years especially during the recessionary times. As the primary activities of these retailers revolve around supply chain management, the report also wishes to understand the effectiveness of the supply chain management processes of the Indian retailers and rate them according to industry standards. The report also wishes to understand the problems faced by the Indian retailers and come up with strategies that may help retailer to cope with the existing problems and remain effective in the competitive retail Industry.
Introduction
Retailing includes all activities involved in selling goods or services directly to final consumers for personal, nonbusiness use. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing. Any organization selling to final consumers – whether a manufacturer, wholesaler or retailer? is doing retailing. It does not matter how the goods or services are sold (by person, mail, telephone, vending machine or internet) or where they are sold (in store, on the street, or in consumer's home).
Indian Retail Industry
The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually.
Growth of Indian Retail
According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry is the most promising emerging market for investment. In 2007, the retail trade in India had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2010. According to a report by Northbride Capita, the India retail industry is expected to grow to US$ 700 billion by 2010. By the same time, the organized sector will be 20% of the total market share. It can be mentioned here that, the share of organized sector in 2007 was 7.5% of the total retail market.
Retail Companies in India
? ? ? ? ? ? ? ? ? Pantaloon Retail Shoppers Stop Reliance Retail Aditya Birla Retail Kouton Retail Trent Provogue ITC Pyramid Retail
Retailer Profiles
Pantaloon Retail:
Pantaloon Retail (India) Limited, is a large Indian retailer, which is part of the Future Group, and operates multiple retail formats in both the value and lifestyle segment of the Indian consumer market. Headquartered in Mumbai, the company has over 1,000 stores across 71 cities in India and employs over 30,000 people [1], and as of 2010, it was the country's largest listed retailer by market capitalization and revenue. The company‘s brands include Pantaloons, a chain of fashion outlets, Big Bazaar, a hypermarket chain and Food Bazaar, a supermarket chain. Some of the company's other regional brands include, Depot, Shoe Factory, Brand Factory, Blue Sky, aLL, Top 10 and Star and Sitara.
Shopper Stop:
Shoppers Stop is one of the leading retail stores in India. Shoppers Stop began by operating a chain of department stores under the name ?Shoppers‘ Stop? in India. Currently Shoppers Stop has twenty seven (27) stores across the country and three stores under the name HomeStop. Shoppers Stop has also begun operating a number of speciality stores, namelyCrossword Bookstores, Mothercare, Brio, Desi Café, Arcelia. Shoppers Stop retails a range of branded apparel and private label under the
following categories of apparel, footwear, fashion jewellery, leather products, accessories and home products. These are complemented by cafe, food, entertainment, personal care and various beauty related services.
Reliance Retail
Reliance Retail Limited (RRL), a subsidiary of the Indian conglomerate Retail Industries Limited, launched its first convenience store in November 2006. RRL has grown rapidly and operates over 900 stores across 80 cities in 14 States, which include over 750 Reliance Fresh stores. Reliance Fresh is the convenience store format which forms part of the retail business of Reliance Industries of India. It is positioned as a pure play super market focusing on categories like food, FMCG, home, consumer durables, IT and wellness, with food accounting for the bulk of the business.
Aditya Birla Retail
Aditya Birla Retail Limited is the retail arm of Aditya Birla Group, a USD 28 billion Corporation. The Company ventured into food and grocery retail sector in 2007 with the acquisition of a south based supermarket chain. Subsequently Aditya Birla Retail Ltd. expanded its presence across the country under the brand "more." with 2 formats - Supermarket & Hypermarket.
Kouton Retail
Koutons Retail India Ltd. is the leading retailer of readymade and fashion wear brand in the country today. With more than 1400 outlets across India, it has a wide range of apparel designs suited for all segments including corporate, formal and casual dressings. It has presence in 505 cities with primary presence in north India which was later expanded to southern India.
Trent
Trent is a retail operations company that owns and manages a number of retail chains in India. Established in 1998, Trent runs lifestyle chain Westside, one of India‘s largest and fastest growing chains of lifestyle retail stores, Star Bazaar, a hypermarket chain, Landmark, a books and music chain, and Fashion Yatra, a
complete family fashion store. It has its retail stores by the names of Westside, Star Bazaar, Landmark and Fashion Yatra
Provogue
Provogue (India) Limited, together with its subsidiaries, engages in the manufacture, distribution, and sale of fashion apparel for men and women under the ?Provogue‘ brand name in India. . In addition, the company exports a range of textile products, including fabrics, fabric designs, dyestuffs, and textile machinery. Provogue sells its products through selective stores and malls, as well as company-operated outlets under ?Provogue Studio‘ brand throughout the country. As of March 31, 2006, it had 64 Provogue Studio outlets. The company was founded in 1997. It was formerly known as Acme Clothing Private Limited and changed its name to Provogue (India) Limited in 2005.
ITC
ITC Lifestyle retailing is a part of 23000 crores ITC group which has presence in diversifies business areas such as FMCG, Hotel, Paperboards and packaging, Agri-business and Information Technology. ITC‘s Lifestyle Retailing Business Division has established a nationwide retailing presence through its Wills Lifestyle chain of exclusive specialty stores and John Players range of brand store apparel products.
Piramyd Retail
Piramyd Retail Ltd is a part of the Piramal Group that specializes in textiles, real estate, engineering, family entertainment and retail sectors. It deals in lifestyle and food, home and personal care (FHPC) products. The lifestyle retail business is operated under the brand, Piramyd Megastore. Its FHPC business is operational as TruMart. The company has 13 stores across 5 cities in India. It has plans to open 17 mega stores and 69 TruMart stores by 2008.
Financial Snapshot
All figures are in Rs. Crores
Analysis and Findings Problems faced by the Indian Retail Industry
A large number of retailers have experienced a drop in footfalls which is mirrored by slowing Same Store Sales (SSS) growth figures. This also adversely impacts the time taken to break-even for new stores. SSS at some of India‘s biggest retail groups have become negative for the first time in six years. Although retailers are trying their best to combat this slowdown through constant promotional offers and deep discounts, consumers are expected to cut down on their discretionary spending. With the global recession having no clear end in sight, consumers see sense in saving for a rainy day. Year-on-Year Net Sales Growth
70 60 50 % 40 30 20 10 0 Dec 05 Dec 06 Dec 07 Dec 08 11 39 35 62
Double Impact > Falling footfalls and poor conversion ratios
Liquidity under pressure
The slowing sales are resulting in lower inventory turnover and increasing working capital requirements for retailers. This in turn has resulted in liquidity pressures for many retailers. To free the cash that has been locked, a large number of companies have been trying to reduce the inventory on their books and shorten working capital cycles.
Working Capital on the Rise 200 150 100 50 0 2005 2006 2007 2008 USD Million 5 4 3 2 1 0
Decline in Inventory Turnover
2005
2006
2007
2008
Margin contraction- Interest burden adversely impacts profits
On their part, retailers have been trying to compensate for falling sales by curtailing expenses. This has countered the effect of the top line on operating margins leaving it largely unaffected. However, with working capital requirements and expansion capital being financed through sizeable debt, interest costs have significantly dented the bottom-line.
Operatin Profit Margin
12 10 8 9.6 8 8.4 7.6 7.9 Player Average
Cost Control to maintain margin proved successful
% 6
4 2 0
200712 200803 200806 200809 200812
Net Profit Margin
5
But high leverage and fixed finance cost led to PAT margin contraction
4 3 2 1 0 200712 200803 200806 200809 200812 3.9 2.6 1.7 0.7 0.3 Player Average
Funding constraints
A large number of retailers are highly leveraged and rely on fresh equity funding for growth, which is difficult to come by in the current market. Banks are increasingly hesitant to finance retailers in the context of falling demand and low profitability.
Roll out delays to compound problems
The organized retail space was expected to receive investments to the tune of USD 25 billion over the next 4-5 years5. However significant delays in retail real estate development and opposition to organized retail have resulted in delays in investment. A large number of retailers have not been able to meet their stated expansion plans. Currently, with higher cost of funds and a slowdown in demand, developers are likely to delay more projects in the near future.
Source: Avalon Retail Study 2009
Besides the weak economy and the feeble consumer sentiments, the disappointing retail growth is also attributed to • Poor infrastructure – Underdeveloped supply chains, lack of strong cold chains, poor warehousing facilities, bad roads, etc. have been contributing to increased logistic costs for the retailers. Globally, the logistics cost component to the total retail price is around 5 percent, while in India it is as high as 10 percent.
• Absence of a mature Third Party Logistics (3PL) industry –
Poor infrastructure (roads, communication and power) makes logistics and transportation in India extremely difficult. Further, internal operations of retailers, such as warehouse processes and distribution, are usually fairly ad hoc and inefficient. Retailers are keen to outsource their logistics to 3PL. But there is an absence of a mature 3PL player providing high service levels at competitive prices. • Fragmented supply base – The supply base is highly fragmented with a large number of intermediaries squeezing the margins of all involved, which also includes the retailer. This not only has an adverse affect on the margins but also results in cases of mishandling, theft and increased instances of shrinkage.
Supply Chain Analysis
In the supply Chain analysis, I have used a proprietary model developed by I2 Technologies which is leading player in the supply chain consulting business which was recently acquired by JDA Software Company. The process of supply chain rating is based on three parameters 1. Inventory Turn Over Ratio 2. Cash to Cash Cycle Days 3. Asset Turnover Ratio
Inventory Turnover Ratio It is defined as the ratio of Cost of Goods Sold to average inventory. It indicates how many times a company's inventory is sold and replaced over a period. Higher the ratio, better is the performance of the company. Cash to cash Cycle Cash to cash cycle is defined as the sum of inventory holding period and the debtors turnover period with the supplier payment period subtracted from the sum. More negative is the cash to cash cycle days, better is the performance of the company as negative value indicates that company is able to recover the cash it has invested in debtors and inventory before it makes payment to its suppliers. Asset Turnover Analysis: It is defined as the ratio of revenues to total assets. This ratio is useful to determine the amount of sales that are generated from each dollar of assets. As noted above, companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. Methodology: The above three parameters are ranked on a rating of 1 to 5 where 1 indicates the minimum rating and 5 indicates the maximum rating for the parameter. However, in cash of cash cycle days, lower cash to cash cycle days are desirable and hence higher rating for lower cash to cash cycle days. However for asset turnover and inventory turnover ratios, higher value attracts higher rating as higher rating is desirable for both the parameters. The ratings are calculated by the comparing the performance of the company with the industry average (Industry average is the average of the values of the top 5 companies in that sector) for that particular parameter.
The overall rating is calculated by adding the individual rating to arrive at the supply chain performance of the company and then appropriate conclusions can be drawn regarding the performance of the company. The results of the supply chain rating process are indicated as below.
Inventory Turnover Days
Reliance Retail Aditya Birla Retail Pantaloon
397 318
432 236
477
0 0
149 132 50 2006
26 0
144 159 67
36
149 75 0 2008
238 158 153 147 62
2007
2009
Cash to Cash Cycle Days
Reliance Retail Aditya Birla Retail Pantaloon
325 195 111 106 0 0 7 2006 -223 0 113 147
335
375 207 113 0 15 2008
401 314 104
434
208
15 2007
-9 2009
Asset Turn Over Ratios
Reliance Retail Shopper's Stop Aditya Birla Retail Vishal Mega Mart Pantaloon Kouton Retail
1.81 1.75 1.40 1.16
1.69 1.39 1.21 0.79 0.06 0.00 2007
1.78 1.11 1.04 0.85 0.23 0.00 2008
2.03 1.08 0.12 0.10 2009 1.24 0.86
0.00 0.00 2006
Supply Chain Rating
Reasons behind higher supply chain rating for Shopper‘s Stop is due to its focus On Systems and Processes • Shopper‘s Stop sets great store in its systems and processes and has attempted to adopt some of the best global practices. • At the heart of the IT system is the JDA-MMS ERP system. For merchandise planning, the company uses Arthur Planning and Business Objects, an analytical and decisionsupport application. • Shopper‘s is implementing world class tools like the Intactix (space and categorymanagement application) and E3 (an advanced merchandise-replenishment application). It is a member of the Intercontinental Group of Department Stores (IGDS).
Rentals – skyrocketing to all time high
As real estate prices skyrocketed, retail rentals also touched unsustainable levels eating directly into the profit margins of retailers. Until a few months back, store rentals were 300 to 400 basis points higher than even international levels. Retail rentals in Linking Road in Mumbai, South Extension in Delhi and Brigade Road in Bangalore have risen about 50 percent in the past 3 years
Rentals eating in to profit margins
2003 2005 2008 0 20 52 68 80 40 Rentals 60 80 48 32 20 100 120
Profit Margin
Mistakes by retailers
Crowding in unattractive locations Another reason for slow growth in organized retail is poor choice of locations. Clustering is a common theme in retail in India and retail malls appear wherever real estate is available rather than where they are actually needed. This has resulted in attractive city centers being devoid of malls and newly developed areas having too many. Inability to compete with traditional retail Organized retailers have not been successful to provide services that match those of kirana stores. The true reason of their troubles is that the business capacity of the kirana shop owners and buyers is high in India. Mom and Pop stores already have a model that is preferred by consumers and is also cost efficient. The big stores are still trying to get their model right in providing an alternative to neighborhood retailers who offer convenience, credit and personalized service.
Over reliance on debt funding The rapid expansion in retail space in recent years was largely debt funded. This has resulted in substantial leverage, which has added to retailers financing risks in the recent scenario. The
declining interest coverage clearly indicated that a large number of retailers are highly leveraged and are battling high interest payments.
Interest Coverage declining across Players
16 14 12 10 8 6 4 2 0 Shopper Stop Pantaloon Retail Vishal Retail Trent 2005 2006 2007 2008
Strategies to Help Retailers Cope with the Slowdown
Toughen internal efficiencies
Managing Costs
? ? ? ? ? ? ?
Cost Cutting Resource Optimization Improving labor Productivity Manpower retention and training Inventory Management Bringing down Real estate costs: Entering into revenue sharing model as against fixed rental model
In order to conserve resources, Vishal Retail too has decided to look at centralizing some of its operations. It has already closed its large distribution centers in Mumbai and Kolkata and opened a centralized warehouse in Gurgaon, near Delhi
Leveraging Information Technology
Retailers can make use Information Technology in diverse areas such as: ? ? ? ? ? Manpower training Real Estate Management Supply chain visibility Store operations Logistics management
Fifteen percent of Shopper‘s Stop‘s net worth is invested in IT. The company has reaped its benefits through reduction in shrinkage levels and enhancing customer‘s experience. Shopper‘s Stop has one of the lowest shrinkage levels in the industry (0.4 percent)
Reevaluating store viability and expansion plans
With catchments turning unviable, rampant store closures and format rationalization is on the cards. Rationalization is likely to intensify in coming quarters. Retailers may need to shut down unviable stores to conserve cash and inventory. Given high debt levels and dormant equity market, capital for growth has become scarce. Expansion plans need to be re-looked because of capital scarcity and catchment reassessment.
Efficient store management
Even after setting up stores, retailers may face issues in running stores efficiently. There are currently no streamlined and defined processes for allocation of products/categories, inventory management (both on shelf and in back room), workforce management and store infrastructure management. Some of issues that retailers are facing are ? New Customers ? Loyalty and Spend ? Costs
Decode consumer behavior
Retailers have to recognize the fact that a strategy that holds true for a particular region and set of people may not hold true for others. While India has a great market potential, most retailers tend to ignore the basic fact about the diversity of its customer base. Any retailer who does not do his ground work in terms of understanding his customer needs stands a great risk of failing even with one of the best models at hand. The strategies currently followed by the retailer are: ? ? ? ? Offering Discounts Lowering Prices Offering Value Added Services Leveraging Partnerships
Entering into alliances and leveraging expertise
In the current scenario retailers should be on lookout for opportunities to partner with foreign retailers as it could possibly bring in the much needed capital and expertise Alliances enable retailers in entering new markets, categories, expanding value proposition and capturing new consumer segments. While globally, it‘s a common trend, Indian retailers are slowly recognizing the importance of such partnerships and therefore actively seeking for opportunities to unlock value
Private Labels
Private Label Penetration %
%
World Europe Asia Pacific Latin America North America Emerging Market 17 23
4 2 16 6
Private labels enable retailers to offer quality products and earn higher margins. The retailer also derives many advantages of using private labels. In-store labels are at least 5-20 percent cheaper across various categories. This is because they cut out middlemen costs and pass on the benefit to the consumer. Private
labels enhance the bargaining power of the retailer while negotiating with manufacturer (national/ international) brands. In the long run, the retailer can use the Private Labels to attract customers to his outlet. Thus, many retailers are considering increasing their private label offerings significantly. This strategy has been aggressively followed by Aditya Birla Retail which plans to increase the total share of private label sales in its total kitty from existing 4% to 12% in the coming years.
Build a competent supply chain management system
The next strategy would be to build competent supply chain management systems through building up support infrastructure, warehouses, Cold Chain, 3 PL Players, backward integration and optimization of processes. With the large players like Reliance, Bharti - Wal-Mart, Tata‘s entering into in retail market, there is likely to be enhanced focus on improvements in logistics and supply chain infrastructure. To gain cost leadership in the market, big players may have to minimize costs by developing supply chain infrastructure. Warehouses, distribution centers and transportation are likely to see modernization In terms of warehouses, the existing scale of the warehouses is not enough to tap large scale economies to justify investment in higher standards. Hence building up of large warehouses wil help in consolidation and enjoy better economies. In terms of cold chain, there is an untapped potential of USD 2.6 billion for providing efficient cold storage facilities. In case of 3 PL, switching to 3 PL players will retailers to increase potential for scale economies. Backward Integration will help to allow accelerated technological transfer, capital inflows and assured market for crop production. This is likely to eliminate the intermediaries sucking away a large chunk of the margins Retailer optimize their processes in a lot of ways including improving forecasting accuracy, reducing stock-outs, increasing sourcing efficiency, increasing product movement visibility, reducing lead time and optimizing transportation. Starting from sensor based inventory management to RFID based control over inventory, IT can help in maintaining optimal inventory resulting in reduced input costs.
Venture into under penetrated markets: Rural Retailing
India has witnessed a rapid increase in incomes with per capita incomes soaring to USD 1000 in 2008 from miniscule USD 418 in 1998. The growth has not been restricted to urban India, as the per capita income in rural India has grown by 50 percent in past 10 years. Among key reasons for the latter are rising commodity prices, improving productivity and higher production. The increasing availability of basic infrastructure, improving access to funding, employment guarantee schemes, better information systems and growing literacy are together helping bring prosperity to rural households. With additional fiscal incentive provided by the government, rural India is set to witness further boost in overall farm incomes. Overall, there is a huge market which is waiting to be served, ready to splurge, willing to explore new products and services. Retailers can tap on their wallets given they do their homework well.
Innovate: categories, services, business models
In today‘s world of internet technology, retailers have to ensure that they continuously understand the pulse of their customers and design their offerings accordingly. This requires not only in-depth understanding customer requirements but also thinking laterally to come up with innovative solutions which would make the retailers stand out of the crowd. The current environment is a good time for generating trials; the consumers are actively looking for the best value and may therefore be more than willing to experiment. McDonald's has a perfect opportunity to prove that their Premium Roast coffee—a step up in price for McDonald's, but still cheaper than Starbucks —is a pretty tasty brew.
Future Outlook
In light of the effects of the slowdown, we expect an increased focus on value retail in the coming months and a shift away from lifestyle goods. • The focus is likely to shift towards food retailing and FMCG products as this segment is largely insulated from the slowdown. • Retailers may start focusing on cost reduction by closing the unprofitable stores and rationalization of capital expenditure. • Churn in malls is likely to increase in the short term when some retailers may find it difficult to sustain in the current economic situation, instead opting for low rent premises. • As Tier I cities become saturated, retailers are likely to move to Tier II, Tier III cities where profits are higher due to lower rentals and operating costs. • There are going to be increased investments in shortening of supply chain. This is mainly due to the incentives offered by the government and the potential for higher profit margins. • The frequency with which retailers liquidate slow moving goods by offering discounts to reduce inventory are expected to increase
References
? ? ? ? ? ? ? Prowess, CMIE Client. Indian Business Journal Annual Report of the Retailing Companies in India Avalon India Retail study, Retail in India, Mathew Joseph, Nirupama Soundararajan, (Academic Foundation) Retail Strategy, Johnson Reynolds, Christine Cuthbertson (Elsevier Publication) Retail Management Levy and Weitz
SUPPLY CHAIN RATING
2007 1.81 0 17.44 19.25 273.84 151.29 -15.70 2.41 -23.25 14.23 25.66 2.30 158.43 158.43 0.76% 48.16% 9.45% 10.60% 2.48 147.31 147.19 2.46 148.59 2.53 144.04 2.45 148.83 5.91 61.81 65.76 4.84 75.44 5.46 66.87 7.25 50.33 1.53 238.37 210.92 1.55 235.63 2.30 158.57 2.77 131.66 6.89 -151.54 2.85 0.40 144.06 3.09 0.72 144.78 4.21 1.86 137.97 5.81 1.99 141.03 --61.81 --75.44 --66.87 --50.33 7.57 2.58 228.22 6.60 4.28 224.76 8.75 4.84 144.99 5.03 12.61 114.02 36.72 122.24 317.74 0.77 476.70 431.52 8.07% 52.96 -2.41 127.96 920.99 2.53 118.14 506.08 2.52 86.71 195.90 2.65 62.80 183.13 2.59 --5.91 --4.84 --5.46 --7.25 48.20 141.48 1.60 55.32 85.33 1.62 41.74 75.36 2.52 72.49 28.94 3.20 9.94 2.99 1.15 9.07 2.86 1.38 40.24 127.71 263.84 0.85 431.79 4.67 2.37 2.21 78.19 154.24 164.94 0.92 397.38 3.04 0 66.84 69.88 160.99 34.62 4.81 1748.41 1787.84 4429.95 29.73 6.94 1393.17 1429.84 3512.19 25.89 11.46 848.61 885.96 2245.05 19.8 6.79 480.43 507.02 1243.43 0 0 144.98 144.98 856.16 0 0 169.88 169.88 821.92 0 0 115.24 115.24 628.98 0 0 65.84 65.84 477.51 21.19 7.22 638.66 667.07 1021.45 15.61 10.12 531.74 557.47 863.54 13.74 7.61 227.79 249.14 573.46 2.99 7.49 67.71 78.19 216.76 57.6 191.75 498.41 747.76 572.54 50.73 161 332.61 544.34 460.14 73.56 145.1 155.17 373.83 343.37 27.03 32.48 38.22 97.73 112.09 4.15 3.45 2.93 88.02 105.77 124.46 1.15 318.24 Aditya Birla Retail 2009 2009 2006 2009 2006 2009 2006 2009 2006 Pantaloon 2008 2007 Shopper's Stop 2008 2007 Vishal Mega Mart 2008 2007 Kouton Retail 2008 2007
Reliance Retail 2009 2008 0 0 115.93 115.93 1180.27 --10.18 --35.85 10.18 35.85
INVENTORY TURN OVER RATIO Raw Materials, Stores & Spares Work In Progress Finished Goods Total Inventory Cost of Goods Sold
0 0 137.76 137.76 328.28
Raw Material Turn-Over Work-In -Progress Turn Over Finished Goods Turn Over
--2.38
Raw Material Days Work-In -Progress Days Finished Goods Days
--153.17
ITR ITR days Average ITR
2.38 153.17 92.81
Market Share Weights INDUSTRY ITR 2.684416605 2.848715 Higher than Industry Average Higher than Industry Average 4.038841 Leading 1.917337 Laggard
4.73% 171.0513
ITR Rating
3.643514 Leading
0 Poor
CASH TO CASH CYCLE RATIO Average Debtors Average Creditors 1420.05 553.98 470.91 171.32 335.44 313.87 109.3561 4.63103 -223.25 313.87 104.07 113.33 113.15 110.99 -8.93 14.81 15.06 1.93 250.84 164.69 9.25 8.01 51.25 6.18 41.44 4.48 35.37 2.85 40.69 2.57 73.31 2.36 62.99 2.54 54.35 2.09 44.94 7.48 1.37 188.19 44.96 66.47 146.19 622.01 89.67 398.75 41.64 217.55 15.32 138.62 10.12 171.96 7.90 141.84 6.46 93.66 4.15 58.79
1436.51 534.88
1.41 86.17 0.37 30.79 207.95 185.4677
0.06 66.74 0.02 28.21 207.44
0.10 17.59 0.06 11.20 147.44
0.06 15.48 0.08 26.07 105.68
50.36 93.80 17.56 59.80 434.46 370.7931
27.54 87.29 12.67 69.24 375.22
14.35 80.56 13.02 85.64 324.76
0.00 41.33 11.23 134.58 194.89
Debtor Turnover Period Creditor Turnover Period
842.55 594.71
CASH TO CASH CYCLE
401.01
Average CTCC Industry CTCC 0 Poor 3.106476 Higher than Industry Average 4.919813 Leading
275.1086 144.38
CTCC Rating
0.236436 Laggard
1.788588 Laggard
0 Poor
ASSET TURNOVER RATIO Asset Turnover Ratio 0.22707 0.060994 1100.68 4847.32 60.68 22.1 4328.87 435.67 0.097133944 0.76% 1.147375 48.16% 4231.37 745.52 365.18 3068.38 52.29 1025.8 148.48 716.6 159.11 1.61 6153.53 1913.99 954.03 3277.19 5.55 4771.1 1528.81 586.52 2598.2 30.38 2809.18 805.73 252.01 1702.64 46.8 258.09 99.64 6661.42 5295.88 3392.79 0.097133944
0.116817
1.082536 1.109991 1.207751 1.398126 1962.06 1403.35 395.49 161.67 820.88 23.61
2.033392 1.779781 1.689456 1.753587 1437.71 707.05 258.75 97.4 333.24 17.66 1.860541 9.45% 1221.09 686.09 240.37 80.73 328.22 36.36 928.66 549.68 152.17 48.91 335.78 12.02 724.74 413.29 122.52 35.06 251.83 3.59
1.24114 1.044418 1.391047 1.814431 1395.29 1124.2 276.74 0.26 797.83 0.06 1.269434 10.60% 1007.08 964.25 229.45 0.13 732.48 0 603.77 434.04 108.24 0 325.53 0 288.93 159.24 40.05 0 119.14 0
0.857878 0.853945 0.794143 1.163751 1046.68 1220.08 124.25 2.02 1089.83 0.4 0.874538 8.07% 793.46 929.17 72.26 40.52 813.75 0.15 402.4 506.71 50.03 0 451.09 0 158.34 136.06 10.64 0 125.38 0
Total Revenue
622.31
Total Assets Net fixed assets Investments Current assets Loans & advances
5327.24 132.23 118.28 352.51 4724.22
AVERAGE ATR
0.144264
Market Share Weights INDUSTRY ATR
4.73% 1.151028
ATR Rating
0.313337 Laggard
0.210972221 2.492066 Laggard Along With Industry
4.041043 Leading
2.757175 Higher With Industry
1.899473 Laggard
SCM Rating
4.193
2.89538883
8.447
13
6.463
1.899
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