Comprehensive Pack

Retail

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• Industry Overview :3

• Growth Drivers : 17

• Corporate’s entry into Retail : 31

• Challenges : 36

• Critical Success Factors : 41

• FDI in Retail : 50

• Future Trends : 53

• Company Analysis : 56

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 Industry
Overview

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 Size of Retail industry was Rs. 93 tn in 2024 and
expected to reach Rs. 137-139 tn by FY 28.

RETAIL INDUSTRY MARKET SIZE

Source: Crisil Research

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 ORP in India was about 10.8% in FY 23

ORGANIZED RETAIL PENETRATION (ORP)

Source: Crisil Research

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Supermarkets

• As compared to convenience stores, supermarkets provide consumers a wider range of food

and household merchandise.
• They are generally spread over 2,000-10,000 sq. ft., primarily catering to a cluster of
residential units.
• They have a self-service format and their offerings focus mainly on the food and grocery
segment.
• Besides residential areas, they are also located in malls, which attract footfalls.

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Major players in the supermarket segment

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Hypermarkets

• These are large stores with retail spaces, ranging from 75,000 sq ft to 150,000 sq ft or
more.
• In addition to a wide range of products, including food and grocery items available at
supermarkets, hypermarkets also sell apparel, electronics, household items and furniture.
• Unlike in the US where hypermarkets are located in the periphery of a city, in India, they
are typically located in malls as anchor tenants that drive footfalls.
• Apart from offering a wide range of products, hypermarkets also offer value-for-money to
consumers.
• Owing to their diverse product offerings, hypermarkets earn higher margins than
supermarkets.
• Margins depend on the product mix, volumes and efficiency at supply chain management.
• A higher share of food and grocery or household appliances would mean lower margins.
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Hypermarkets

• On the other hand, a favourable product mix in apparel and furniture could increase
margins.
• In order to improve their margins, hypermarkets sell captive brands.
• Hypermarkets are also expanding presence in tier-I and tier-II cities by setting up stores
over an average 30,000 - 50,000 sq ft area, which will help players reduce their operating
costs and increase profitability.

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Lifestyle retailing - aims at high-end buyers

• Although the 'lifestyle retailing' concept targets the high-end consumer, advent of
organised retailing has facilitated its reach across different markets and geographies.
• Changing consumption patterns have also led to a rise in number of players operating in
this segment.
• Typically, departmental stores and exclusive brand outlets have been channels for retailing
apparel, footwear and accessories.
• Shoppers Stop has been the pioneer in this segment, among organised players.
• Subsequently, department stores and exclusive brand outlets like Lifestyle, Provogue,
Wills Lifestyle, Biba, etc. have also joined the bandwagon.

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Department stores

• Department stores offer a wide variety of products across categories, such as clothing,
home decor, furniture, appliances, toys, accessories and cosmetics, to facilitate easy visual
display under a single roof. They cater primarily to higher income households (where the
ticket size of transactions are larger).
• These stores are gradually gaining popularity, as they offer novelty, variety, an
international ambience, entertainment and convenience, all at a single location.
• Three different models for procurement are followed by department stores:
• 1. Outright sale: Retailers purchase merchandise for sale to customers, thus bearing the
risk of carrying inventories.
• However, gross margins are the highest for this model.

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Department stores

2. Consignment: Retailers order and purchase goods from a vendor. In case the goods are not
sold, the vendor bears the inventory risk.
Many department stores have this arrangement with apparel brands.
Gross margins in this model are lower than in the outright sale model as the risk is also
lower.
3. Concessionaire: Retailers operating this model rent out store space to smaller vendors. The
concessionaire model is generally used for selling perfumes, jewellery and cosmetic brands.
The Future Group's mall format 'Central', operates under this model, wherein space is let out
to various apparel and accessory brands.

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Specialty stores

• In this retail format, the focus is on one specific vertical, with one or many brands offered
under the same roof i.e., an EBO (exclusive brand outlet) or an MBO (multi-brand outlet).
• These stores provide greater choice to consumers and also enable product comparisons.
• These stores typically require an area of 1,000-5,000 sq. ft.

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 Other formats

• In addition to formats mentioned above, organised retailers have ventured into formats
catering to a specific set of customers.
• Cash and Carry (Wholesale clubs) These are wholesale formats that operate across an area
of 85,000-125,000 sq. ft, targetting retailers (mom & pop stores), hotels, restaurants,
caterers and institutions.
• These stores stock a wide array of brands and private labels across verticals, including
food and grocery, apparel, household appliances, household items etc,.
• made available at wholesale rates. This concept is quite popular in the US and UK.
• India permits foreign direct investments (FDI) of up to 100% in this format, via the
automatic route, which has attracted international players such as Metro and Carrefour.

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 Luxury retailing

• Luxury retailing involves sale of high-end luxury brands to the affluent class.
• These brands carry a unique appeal and cater to aspirational needs of consumers, such as
esteem, status and pride in owning expensive items.
• The average space occupied by luxury retail shops range between 1,500 sq ft and 4,000 sq
ft, and major catchment areas are likely to be premium areas in major metros such as South
Mumbai, South Delhi, Central Business District regions (CBD) of Chennai and Bangalore.

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 Luxury retailing

• The FDI policy currently permits 100% investment in single brand retailing.
• Many international luxury brands are therefore planning to foray into the country on their
own or via agreements with domestic partners.
• Luxury retailers initially confined their presence to five-star hotels, where footfalls were
limited.
• They have now begun operating out of luxury malls being developed in India.
• For instance, DLF has developed the 'Emporio Mall' , spread over a retail space of 320,000
sq ft, in Delhi. Luxury brand retailers such as Louis Vuitton, Dior, Fendi, Armani,Gucci,
Alfred Dunhill, Versace, Hugo Boss, Ermenegildo Zegna, Tod's and Paul Smith are present
in this mall .

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 Growth
Drivers

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Favourable demographics and rising income levels to drive retail growth
• Growth of the Indian retail industry is driven by favourable demographics, rising
disposable income, nuclearisation of Indian households, improving credit facilities and
increasing urbanization levels, among others.
• Rising income levels to drive consumption over the years, disposable incomes of Indian
consumers and share of households falling in higher income brackets, have both risen
significantly and thus, driven up the overall spending power of consumers.
• These trends have in turn altered consumption patterns, thereby driving growth of the retail
industry.

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Desire for better standard of living to drive non-food consumption growth
• As income levels of Indian consumers increase, demand for products beyond food and
clothing also sees a rise.
• This has led to an increase in non-food expenses, which comprises expenditure on
footwear, clothing, home furnishing, fuel and light, consumer durables, etc.

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Favourable working age population to influence consumer spending
• Population in the working age group of 15-54 years are the largest consumers/spenders as
far as the retailing industry is concerned.
• As per Census 2011, more than 50% of India's total population falls under this group,
indicating the significant influence wielded by this segment on consumer spending.
• Moreover, literacy levels in the country have also increased significantly, to 74% in 2011,
from 64% in 2001.

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Age-wise classification of population

Source; Census, 2011

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Age-wise classification of population

• According to the United Nations, while US, Europe, Russia and China will see the share
of their prime 15-60 (working) age population shrink between 2005 and 2050, India will
see an increase in the share of this population, due to its high birth rate.

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Nuclearisation of families to drive consumption

• Increasing nuclearisation of families is driving up consumption expenditure.

• In the recent past, the number of nuclear families, as a percentage of total household
population, has increased.
• The average household size of the country has come down to 4.91 in 2011, from 5.57 in
1991.

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Decline in size of households to drive overall growth in consumption

Source; Crisil Research

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Growing urban population holds the key to future spending

• Urbanisation has been increasing at the rate of 2.7% over the last decade.
• According to Census 2011, urban population - as a percentage of total population - stood at
31.2%.

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India - Increasing urbanisation

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Change in consumer needs, attitudes and behaviour to determine
consumption pattern
• Growth of retail is linked to consumer needs, attitudes and behaviour.
• Rising income levels, education and global exposure have contributed to evolution of the
middle class.
• As a result, there has been a gradual shift in the consumption pattern of Indians.
• Demand for better quality, convenience and higher value for money have increased demand
for branded goods.
• People are willing to experiment with new products and look different.
• This has further augmented spends on health and beauty products, apart from apparels,
food and grocery items.

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Better credit availability, increasing penetration of plastic money to aid
spending
• With the easy availability of credit, the market for personal loans has seen significant
growth in India, pushing up spends on housing and consumer durables.
• The ease of making payments with credit and debit cards has led to a sharp increase in
consumer spending in recent years.

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Differentiation is the key to profitability in the crowded retail space
• Organised retail penetration in India is very low at present, implying the huge untapped
potential for organised retail players.
• However, despite the underlying potential demand, competition has been intense among
players leading to shrinking catchment areas.
• It is imperative for retailers to differentiate themselves among the crowd. Success depends
upon factors such as location, vertical, geography, marketing and technology.
• The genesis of organised retailing in India can be traced back to the 1990s when regional
players like Shoppers Stop, Akbarally's, Spencer's - Foodworld, Vivek's, etc. set up shop.
• In 1999, India's first mall, 'Crossroads' was set up in Mumbai, Maharashtra, following
which the retail sector has consistently gained momentum.

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Differentiation is the key to profitability in the crowded retail space

• Low penetration of organised retail and potential growth opportunities prompted several
domestic industrial houses such as Reliance Industries, Tata Group, Aditya Birla Group and
Bharti Group, as well as global majors such as Metro, Carrefour, etc.
• To set up retail operations in India. Spread of the mall culture has also contributed to the
growth of organised retailing in India.

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 Corporate’s Entry
into Retail

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hy many corporates entered the Retail sector?

• Market Size : Rs. 20 tn (in 2005) Rs. 83 tn (in 2023)

• Long-term Growth Potential : High

• Demand Supply Equation Demand > Supply

:

• Profitability Decent
:
•Opportunity in the Food and Grocery High
:

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hy many corporates entered the Retail sector?

• Stage in the industry life cycle Introduction Stage

• Intensity of Competition Low

• International Examples Positive

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 Exercise

A trader buy an item for Rs. 100 in the morning and sell it

for Rs. 101 in the evening. He repeat this process every

day of the year. Calculate the following:

• Annual Sales

•Net profit and profit margins

•Return on Capital Employed

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 Exercise

Annual Sales = Rs. 101 * 365 = Rs. 36865

Annual Profit = Rs. 1 * 365 = Rs. 365

Profit Margin = Profit / Sales = (365/36865) *100% = 1%

Return of Capital Employed (ROCE) = Profit / Capital

Employed = ( 365/100)*

100%
35 = 365%
 Why many Retail players were
making huge losses till
recently?

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 •Why many players in the Retail sector are doing
badly?

•Faster expansion
Debt
Huge operational losses
•High Rental costs

•Terms of agreement between the mall owners and the retailers

•Not able to achieve the break even sales at store level (Low
Footfalls, Low Conversions, Low Ticket size)
Local Saturation
Wrong merchandise mix
Competition from kirana stores
Wrong location
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• Store Space = 50000 Sq. ft
• Gross Margin = 20%
• Rental Cost = Rs. 100 per sft per month
• Other Operating Cost = Rs. 150 per sft per month
What is the break even sales for the store?
Solution

• Total Monthly Cost = Rs. 250* 50000 =Rs. 1.25 crs

• For breaking even, Gross margin should be equal to Rs.

1.25 crs

• Breakeven Sales = Rs. 6.25 crores per month (Rs. 1250 per
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 US / Europe India

Retailer Retailer

Pay part Fully Fixed

Fixed and Rentals
part
Variable
Rentals
Mall Developer Mall Developer

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 •Why many players in the Retail sector are doing
badly?
•Operational inefficiencies
• High Inventory
• Expiries
• Stock-outs
• Shrinkages
•Lack of bargaining power with suppliers
•Manpower issues
•Regulatory Challenges

•No industry Status

•CST
•APMC act
•ULCRA
•[Link] licences to open a store (28 licences to
open a store whereas one need only 13 licences to
•Venturing
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buyRetail
into a gun)without Proper Business Model
 Critical Success
Factors

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Key success factors in organised retailing

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Location and purchasing power
• Location is the most important determinant of success and driver of footfalls for a retail
store.
• A retailer should identify the appropriate location where he can set up shop, based of the
type of households in the catchment.
• Identifying the 'purchasing power/behavior' of households will help retailers decide on the
type of format or vertical.
• This will help him gauge prospective conversions at his store.

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Format and vertical
• Once the location is identified, the next step is to identify the choice of vertical and retail
format.
• Setting up shop in one vertical would expose the retailer to the risk of cyclicality. Hence,
retailers would benefit from presence across verticals.
• Selecting the right format for a particular location is also a key success factor for the store.
• In India, retailers primarily operate under the 'value' and 'lifestyle' formats.
• Retailers such as Pantaloons, Shoppers Stop and Tata Trent operate in both formats, so as
to safeguard themselves from the risk of slowdown in any particular segment.

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Attaining geographical reach and size
• In order to grow, a retailer needs to think beyond his region of operation and expand across
geographies, where potential opportunities are high.
• These initiatives will yield long-term benefits in the form of economies of scale and lower
cost of sourcing from suppliers, in addition to customer loyalty.

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Adapting to regional customers' tastes and preferences
• A retailer can decide on size of the store and merchandise, based on tastes and preferences
of customers in a particular location.
• The consumption pattern of consumers can help retailers adopt a suitable product mix
strategy and also offer services, so as to generate brand loyalty and thereby counter
competition.
• Improving efficiency in supply chain management Supply chain is considered the backbone
of an organised retail chain.
• As a retailer increases his scale of operations by penetrating into different geographies,
those initiatives must be backed by improving efficiency in supply chain management.
• The organised retailer integrates backwards to procure directly from the farmer or
manufacturer, thus shortening the supply chain.
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Adapting to regional customers' tastes and preferences
• This shortened chain brings about efficiency in procurement, reduction in wastages,
improved margins for participants in the chain and low prices for the final consumer.
• As players integrate backwards, sourcing/logistics costs come down, thus improving
profitability for the retailer.

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Using technology for sharing information and managing inventory

• Technology plays a very crucial role in enhancing efficiency in the chain.

• Players with deep pockets should always consider benefits of various technologies.
• Information technology solutions help in timely dissemination of information across all
levels, besides aiding sound inventory management.
• This enables a retailer to deal with stock-out, seasonality of demand, transfer of stocks from
one store to another and ensure lower levels of slow-moving or dead stock.

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Marketing via different channels to increase brand awareness and drive
loyalty
• Marketing is essential to create brand awareness and customer loyalty.
• Players should incorporate various modes such as direct marketing, social marketing
through sites such as Facebook, Twitter and telemarketing.
• They should train their employees to engage customers in conversations that help build
rapport and trust, and increase brand awareness and loyalty.
• This enhances the customer's shopping experience, which will in turn motivate them to
shop with the same retailer more often and spend more on each visit.
• Retailers also need to focus on customer loyalty programmes to ensure repeat purchases
from their stores.

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 FDI in Retail

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FDI Norms

FDI Limit
Before 2012 After 2012
Single Brand Retail 51% 100%
Cash and Carry 100% 100%

Retail Supply chain 100% 100%

Multi-brand Retail 0% 51%

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Why no FDI in multi-brand retail so far?

• Political uncertanities

•Requirement of State-level approvals

•50% investment in back-end infrastructure

•30% procurement through SMEs

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 Future Trends

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 Organized retail to grow at a CAGR of 17%-19% in the
next t5 years and ORP to reach 14-17% by FY 27

Source: CRISIL Research

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 TRENDS OVER THE NEXT 3-5 YEARS

• Retail players in the last few years have focussed on

operational improvements, same store sales to reduce the
losses. This trend is expected to continue
• D-mart, Reliance Retail, Future Group, V-Mart, Trent have
already become profitable.
• Some more players like Spencers may achieve break-even in
the next 2-3 years.

•FDI may come if the political uncertainty reduces and

if the FDI norms are relaxed

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 Avenue Super-
Markets

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 COMPANY INTRODUCTION

•Avenues Supermarts Ltd (ASL) which runs D’mart brand of stores opened
it’s first store in 2002.
•Most profitable mass retalier in India.
•The company got listed in March 2017. On the listing day, the shares
closed at Rs. 640.75 compared to the issue price of Rs. 299 per share.
•The listing made Radhakishan Damani, Founder Chairman of the
company richer than Anil Ambani, Rahul Bajaj
•Market Capitalization increased from Rs. 48,500 crore as on April
11,2017 to Rs. 3,45,000 crores as on 8th September 2024.
• One of world’s most expensive retail stock in terms of P/E ratio at 130 as
on 8th September 2024

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 D-Mart operates only one type of store format unlike
other Indian Retailers.

FOCUS ON SINGLE FORMAT AND STANDARDIZED STORE

• Most retailers in India have multiple formats –

•Future Retail has presence in Hypermart, Convenience stores,
Home and Electronics, apparel stores etc
•Trent has presence in Departmental stores, Hypermarts,
Convenience Stores etc
•Reliance Retail is also present in multiple formats
• Unlike other retailers D’Mart has focused on only one store format –
Hypermarket

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 Single format standardized stores helped D-mart in
operational efficiency and cut costs.

BENEFITS OF SINGLE FORMAT AND STANDARDIZED STORE

•Standardization help in reducing costs.

• Capex costs for setting up stores of similar type are lower. It

becomes easier for the project teams to plan and execute projects

• Management time and energy is focused rather than looking after

too many formats, which results in better execution

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 D-mart’s model help them to save around 8% to 9%
in rental costs .

OWN PROPERTIES AND NOT RENT PROPERTIES

•D’mart has followed a conscious strategy of owning the property and

constructing the stores.
• Even if they go for leasing, it will be for a long lease of 30 to 60
years.
• This help them to customize the stores as per their requirement and
save on rental costs.
• Although D’mart spend huge capex on land and buildings, it has
been more than compensated as its rental cost is less than 1% of
sales as against the industry average of 8% to 10%.

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 The company avoid shopping malls as it has several
disadvantages.

AVOID SHOPPING MALLS

• Though hypermarts are anchor tenants in shopping malls and get

concessional rentals, D-mart generally do not open stores in malls
because:
• Many malls in India are not planned well.
•The lease period in shopping malls is ~10 years, if the lease is
not renewed, the retailer will have to exit. This can be a big
business disrupter.
•Steady increase in lease rent at 5% CAGR and bundled increase
when the lease is renewed.
•Steadily increasing mall maintenance and housekeeping charges.
• Standalone Hypermarts attract more serious shoppers which
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 The company follows the strategy of opening the
stores in the same clusters.

CLUSTER STRATEGY AND CONTIGOUS EXPANSION

•D’Mart has followed the strategy adopted by Walmart in USA by
opening stores in same cluster.
• The company categorized India into:
• Mature Clusters (5 states): Maharashtra, Gujarat, Karnataka,
Telangana and Andra Pradesh are mature clusters.
• All other states are Emerging Clusters (12 states)
• Of the total 324 stores at the end of FY 2023, 250 stores (77%) are
in mature clusters and the remaining 74 stores (23%) are in emerging
clusters.
•Also the company has a policy, where greater than 50% of the stores
will be opened in existing clusters where they already have their
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 The company follows the strategy of opening 50%
the new stores in the same clusters.

CLUSTER APPROACH TO EXPANSION

Source: Prahudas Lilladher

 D-Mart did not go for mindless expansion which
many players undertook in the initial pace

CAUTIOUS AND STEADY EXPANSION

• The company began operation in 2002.

• For the first 10 years, the company opened on an average only 5 to 5
new stores a year and ended 2012 with a total of 57 stores.
•The slow expansion helped them to perfect their business model
•Their new store openings picked up pace after 2012 to 15-16 new stores
per year.

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 PRODUCT

• Limited assortment

• Stocked only fastmoving branded products

• Large volume per SKU

• Restrained from offering luxury products, which require high

markdowns;

• Stayed away from investing in a private label brand

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 Sales per sft has regained it’s momentum after the
fall during covid.

SALES PER SQUARE FEET

Source: Prabhudas Lilladher

66
 Average Bill value has bounced back after the covid
slump.

BILLS CUT AND AVERAGE BILL VALUE

Source: Prabhudas Lilladher

67
D-MART’S PRODUCT MIX

Source: Prabhudas Lilladher

68
 D-Mart’s inventory management is the best in the
industry and almost double that of Walmart.

HIGH INVENTORY TURNOVER

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 D-mart ready has expanded to 23 cities

D-MART READY

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D-MART : KEY TAKEAWAYS

• D’Mart Ready is aiming for increasing order frequency by

consumers, higher ticket size and ensuring 100% delivery within 24
hours and aiming for rising delivery proportion in 12 hours.
• MMR region is doing better than any other region with majority of
revenue contribution. Hyderabad, Pune and Bengaluru are also
doing well.
• 2-year operation in Pune is doing better than the performance
which Mumbai operations had achieved in first 2 years.
• D’Mart ready has no impact on brick and mortar stores and many
customers are new to D’Mart family.
• They don’t have any plans to venture into quick commerce as of
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FUTURE CHALLENGES

• Heterogenous market
• Maintaining Operational efficiency
• Increasing competition from Store based, ecommerce and omni
channel retailers

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