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Page 1: Pwc indian retail sector 2012

Winning in India’s retail sectorFactors for success

www.pwc.com/india

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ForewordWe are delighted to launch our new thought leadership report, Winning in India’s retail sector: Factors for success. PwC research indicates that although the Indian retail sector is worth US$ 350 billion, it has a low organised retail penetration of 8%. Modern trade is growing between 15 and 20% per annum. India is becoming an exciting and dynamic retail destination due to the following:• Alargemarketsize• Loworganisedretailpenetration• StrongGDPgrowth• Increasingpersonalincomes• Largenumberofaspirationalconsumers(middle-class,youngIndians,ruralpopulation,etc.)

TheIndianretailmarketisevolvingrapidlyandweobservethefollowingfeatures:• Previously,shoppingwasviewedasafunctionalactivity.Itmeantbuyingonlytheessentials.

Infact,unnecessaryshoppingorself-indulgencewasfrownedupon.However,liberalisationinthe90s,increasingincomesandforeigntrips,exposuretotheinternet,growingconfidenceinone’spersonalsuccess,etc.aremakingitacceptabletonotonlybuynon-essentialproductsbutalso to splurge on luxury goods.

• India’sretailsectorisdevelopingquicklyandbecomingmorecompetitive.Retailersunderstand the importance of meeting consumer demands.

• Supplychainmasterywillbeadriverofcompetitiveadvantage.Astheretailsectorbecomesmore crowded, the use of supply chain and logistics will enable retailers to become agile and cost-competitive.

In this report, we present the following:• Anin-depthlookatthemaindrivers,trendsandissuesinIndia’sretailsector• Anoverviewofthekeytaxandregulatoryissues• Adiscussiononthebenefitsofmoderntrade• ThreefactorsforsucceedingintheIndianmarket

Wealsopresentthreekeyexamplesofretailersinvaluefashion,fashionjewelleryandonlineretail,whohavebeenabletoachievedoubledigitgrowth.

WehopethatthisreportwillprovideyouwithadetailedviewoftheIndianretailsector.

Bharti Gupta RamolaExecutiveDirectorandLeaderMarketsandIndustries

Rohit BhasinPartnerandLeaderRetailandConsumerPractice

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ContentsExecutivesummary 6

1.India:Economicgrowthanddemographicdividends 10

2.Regulatoryframework 22

3.Thebenefitsofmoderntrade 32

4. Critical success factors 38

Lookingahead 52

Case example 1

E-commerceFlipkart: Pioneering India’s online commerce marketCustomer service will be a critical success factor for online retailers.

Case example 3

Fashion jewellerySwarovski: Providing Indian consumers with stylish jewelleryOffering the best value proposition is key to long-term success.

Case example 2

Value fashionMax Retail: Offering value fashion at keen pricesSucceeding at value fashion is a combination of

Fashion and pricing

The customer experience

Freshness Long-term business model

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Strong GDP growth

Business and consumer confidence

Capital markets buoyancy

Executive summary

India is one of the most desirable retail destinations in the world. India’s twin growth engines of economic growthanddemographicprofilesetitapartfrom other nations and present a compelling businesscaseforglobalretailerslookingtoenterthemarket.

#1• Indiahasalargeandaspirational

middle-classof75millionhouseholdsor300millionindividuals.Middle-classconsumers want products which are value-driven.

• Indiaalsohas500millionIndiansunder the age of 25. Young Indians aredrivingpurchasesinmobilephones, fashion, accessories, food and beverages,quickservicerestaurants,etc.YoungIndianshaveaccesstomoremoney than before and with this has come independence, aspirations and a demand for products.

• Accordingtothe2010WorldWealthReportbyCapgeminiandMerrillLynchWealth Management, the rise in the totalnumberofmillionaires(orIndianswithinvestibleassets,excludingmainresidence and consumer durables, of morethanUS$1million)grewalmost51%,thesecondfastestintheAsia-Pacificregion.

• The700millionIndiansresidinginrural India are an opportunity that retailandconsumer(R&C)companiescannotignore.Penetrationlevelsforseveralproducts,suchaspersonalcare,haircare,skincare,consumerdurablesand electronics are low in rural India. Retailandconsumercompanieswholocalisetheirproductsforthismarket,withregardtopricepoints,packaging,stock-keepingunits(SKU)size,promotion, will succeed.

Since2005-06,IndiahasbeengrowingatanaverageGDPof8.6%.Foreigninvestmentinto India is increasing, Indian companies are stepping outside their national borders toacquirecompaniesoverseas,incomesareincreasingandcapitalmarketsarebuoyantreflectingthestrengthofthecompany.StudieshavealsorankedIndianconsumersassomeofthemostconfidentintheworld.Themoreconfidentconsumersareaboutthe strength of the economy, their personal finances,theircareergrowth,etc.,themore they will increase their consumption, purchasenon-essentialproducts,experiment with products, brands, categories, etc.

Strong and stable economic growth

Indian consumers are driving purchases in:• Two-wheelers• Skin care• Hair care• Apparel• Accessories• Mobile phones

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Source: Prime Minister’s Economic Advisory Council, Government of India

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Executive summary

Understanding the tax and regulatory framework is essential to starting or operating a retail business in India.

FDI in the retail sector will benefit several constituencies and stakeholders.

#2

#3

We discuss the following aspects of India’s taxandregulatoryframework,whichisrelevanttoretailerseitheroperatingorsetting up presence in India:

• FDIpolicyframework

• Directtaxframework

• Transferpricingframework

• Indirecttaxframework

• Taxissuesfacedbyretailersoperatingin India

ThebenefitsofmoderntradetoIndiawillpositivelyimpactseveralconstituencies.

What are the benefits of FDI?

Consumers

Modern trade allows for an explosion of choice. Consumers can access products that improvethequalityoflife.Moderntradewillbenefitconsumersinseveralways:

• Availrationalisedpricesthatbetterreflectmarketvalueduetocompetition

• Accessbetterqualityfoodproductsresultingfromknowledgetransferregarding best practices in grading, sortingandprocessingtechniques,theestablishment of a robust cold chain system, etc.

Governmentexchequer

Moderntradeplayersaretax-compliantandarelargetax-payers.Theorganisedretail sector also facilitates the generation ofsignificanttaxrevenuesthroughthebuilding of a sophisticated supply chain. This impacts the logistics, transportation, warehousing, freight forwarding and othersimilarservicesectors,allofwhichcontributetotheexchequerthroughpayment of indirect taxes, primarily the servicetax.

Farmers/producers

Establishinganefficientsupplychainthatlinksfarmersandsmallmanufacturersdirectlywithretailers,willmaximisevalueforstakeholders.Togetherwithback-endinfrastructure, this will minimise wastage (especiallyoffreshfoodsandvegetables),increase farmers’ realisations, encourage best practices in crop management and improvefoodsafetyandhygiene.Whileinefficienciesincreaseconsumerprices,farmers suffer from extremely low realisations.

Unorganised trade

Kiranas(i.e.,mom-and-popstores)canexistalongside modern trade players and can explorepartnershipmodels(e.g.,sourcing,franchisepartners)inarapidlychangingretailenvironment.

MostmajorglobalbrandsandretailerswhoarenotyetinIndiaareassessingthemarketwithkeeninterest,recognisingitsstrengthsas a retail destination. India’s retail sector is not yet fully liberalised. That said, the entry ofsinglebrandretailin2006isviewedasamajorstepforwardtowardsliberalisingthesector.AnotherdevelopmentistheCommittee of Secretaries’ recommendation, inJuly2011,ofallowingFDIinmulti-brandretail,subjecttoconditions.

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Why should the retail sector be liberalised?

ReducewastageacrossIndia’sfoodsupplychain

Whenenteringnewcountries,mostmajorfoodandgroceryretailersengageandworkwith local farmers. Empirical studies in emergingmarketeconomieshaveshownthat the growth of organised retail results in severaleventualities:

• Technologytransfer

• Improvementstothequalityofproducelocallyavailable

• Booststolocaleconomysincelocalsuppliers are engaged and integrated into global retailers’ food and grocery procurement practices

• Morecompetitivelypricedproducts

Increase employment

FDIinretailwillgenerateemploymentsince new entrants will need to hire staff. Current employees of unorganised retail playersdonotreceivehealthcareorotherbenefits.Onceindividualsbecomeabsorbedin retailer operations, they can access more equitablewagesandbenefits.Moderntrade’s effect will be most apparent at the bottom of the population pyramid, as it willunleashopportunitiessuchasnon-agricultural employment for rural youth andabetterqualityoflivingfortheexistingagricultural society.

Strengthen India’s position as a sourcing hub

GlobalretailershavebeensourcingfromIndia for years and their retail presence intheIndianmarketwillenhanceexportsfromIndia,astheydevelopandleveragerelationships with local suppliers. Most globalretailerswhohaveenteredIndiahaveexpressed their intentions to source and export a range of products from the country. The extent of sourcing from India will increase when global retailers are allowed tooperateintheIndianmarket.

FDI creates better retail infrastructure, which helps to support overall sector growth.

Accesstofunds

Bestpracticestransfer

Supply chain mastery

Reducedwastageinthefoodsupply chain

More products, better prices

Boosttoemployment

Higherlevelsofsourcingandexports

Highertaxrevenues

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Key success factors are finding the right real estate, localising products and mastering the supply chain.

#4SucceedinginIndia’sretailmarketisnoteasygiventhefollowing:

• Thereisalargeheterogeneousgroupofconsumerswhohavesignificantlyvaryingbuyingpower.

• ThemajorityofIndianconsumersarevalue-conscious.

• India-basedretailerswithafirst-moveradvantagehaveaggressiveandambitious expansion plans.

• NewbrandsareenteringtheIndianmarket

Succeeding in India’s retail sector is a combination of the following factors:

#1Securing the right retail real estate

Whenitcomestotheretailsector,itislocation,location,location!Afundamentalaspectofretailersoperationsistheavailabilityofgoodqualityretailrealestate.

Afewyearsago,therewerenotenoughretailrealestateoptionsandmanyretailerswereforcedtorent(high-priced)spacethatskewedtheirprofitabilitymetrics.Today,thescenarioisdifferentinthattherearemoreretailrealestateoptionstochoosefrom.Positivemarketandconsumersentiments, the entry of new foreign brands, incumbents’ expansion plans and increasing hiring needsarehelpingdrivedemandforretailspaceinTierIcities.IndustrialgrowthandexpansionisalsoensuringthatseveralretailersareplanningtoexpandoperationstoTierIIandTierIIIcitiesgiventhatthereareaspirationalconsumersearningincreasedincomeswhowouldlikebetteraccessto products.

#2Localising products to delight and excite Indian consumers

R&D,innovationandnewproductdevelopmentareemergingaskeydriversofsuccess.Aspartofthiseffort,productlocalisationhasemergedasadriverofsales,customerexcitement,customerinterest,etc.Indianconsumers,whiletheywantaccesstoproductsavailableoverseas,alsowanttofeel that a product has been created especially for them.

Localisationcantakeseveralformswhichincludebutarenotlimitedtothefollowing:• CreatingandlaunchingproductsspecificallyforIndianconsumers• MakingchangestostorelayouttoappealtoIndianconsumers• Customisingproductionorfoodpreparationpracticesforculturalsensitivitiesandlocalpalettes

#3Mastering the supply chain as a driver of competitive advantage

Mastery of supply chain dynamics is a critical enabler for the growth of modern trade. India is a largeandfragmentedcountryandtheabsenceofstronginfrastructureandlogisticssystemsmakeitchallengingtoreachconsumerslocatedacrossvastdistances.WiththeIndiangovernmentmakinginvestmentsintostatehighways,anoveralldeclineoflogisticscostsisboundtooccur.Studiessuggestthatlogisticscostsarebetween10to12%oftotalGDP.

Creatingefficientsupplychainsandachievingcompetitiveadvantageforretailersisafunctionof the following:• Integratingvendor-managedinventoryprogrammeswithplanningandforecastingprocesses• Integratingcomponentsofthevaluechain• Usingamultimodaltransportnetwork• Encouragingskilldevelopment• Usinginnovativetechniquessuchasuseofvoice-basedsolutionsinretaillogistics• Leveragingtechnology

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1The Indian economy was liberalised in the 1990s and since then, the country has seen boomingcapitalmarkets,theemergenceofnewindustries,anevolutioninconsumershopping habits, the entry of global companies,etc.Indiaisavibranteconomyandsince2005-06,hasbeengrowingatanaveragegrossdomesticproduct(GDP)of 8.6%. The six core industries of crude oil,petroleumrefineryproducts,coal,electricity,cementandfinishedcarbonsteelgrew by 6.8% in February 2011 as compared to 4.2 % in February 20101.Accordingtothe Centre for Monitoring Indian Economy, privatefinalconsumptionexpenditureisprojectedtogrowby7.5%2.

Whiletheinfluxofforeigncapitalisincreasing, Indian companies are also acquiringassetsoverseas.Also,thestrength

The Indian retail sector is one of the most exciting and underpenetrated markets in the world

Economy and demographics make India the envy of many nations.

ofthecountryisreflectedinitsgrowingpersonalincome.TheIndiangovernmentis supporting this growth through reforms andbyimprovingthestateofinfrastructure(roads,highways,ports,airports,specialeconomiczones,etc.).

Powered by strong internal demand, the country has displayed robust growth which islikelytobesustainedinthecomingyears.Alargeandeducatedmiddle-classandyoungconsumersarehelpingdrivedemandacrosscategories.StudieshavealsorankedIndianconsumersassomeofthemostconfidentconsumersintheworld.Thisis based on the strength of the economy, personalfinances,careergrowth,increaseinconsumption,purchaseofnon-essentialproducts, brand awareness, etc.

Indian economy displays resilience in the midst of global crisis (GDP, %)

India—macro-economic details

Source: Prime Minister’s Economic Advisory Council, Government of India

Source: Datamonitor Country Insight, 2011

1 http://www.ibef.org/india/economy/economyoverview.aspx

2 http://www.ibef.org/india/economy/economyoverview.aspx

Indicator Unit 2010 2011 2012 2013 2014

GDP,purchasingpowerparity(percapita)

International dollars

3453.826 3777.925 4103.794 4434.577 4819.58

GDP,purchasingpowerparity(percapitagrowth)

% 12.013 9.3838 8.6256 8.0604 8.6819

Grossdisposableincomeperhousehold,USD(absolute)

USD 5295.26 6151.04 6867.1 7627.55 8447.77

Grossdisposableincomeperhousehold,USD(growth)

% 16.3786 16.1612 11.6413 11.0738 10.7534

Ruralpopulationas%oftotalpopulation(absolute)

% 70.2085 69.9835 69.7581 69.5317 69.3049

Urban population as % of totalpopulation(absolute)

% 29.7915 30.0165 30.2419 30.4683 30.6951

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1India’s two decades of growth GDP per capita (PPP basis) Middle-class consumers (million people)

Foreign investment (USD million) Forex reserves (USD billion)

Literacy (%) People below the poverty line (%)

Average age of house-owner (years) Cellphone subscribers (million people)

Also,India’suniquedemographymakesitanattractivemarketforcompaniesoperating across categories. These include apparel, footwear, accessories, mobile phones,personalcare,foodandbeverages,hair care, etc.

• Indiahasalargeandaspirationalmiddle-classof75millionhouseholdsor300millionindividuals.Oftenreferred to as the growth engine of theIndianeconomy,themiddle-classwantsproductswhichprovidevalueformoney.

• Indiahasapopulationof500millionunder the age of 25. These young Indiansareindependent,havehighaspirations and access to money. Therefore,theydrivepurchasesinmobile phones, fashion, accessories, foodandbeverages,quickservicerestaurants, etc.

• Accordingtothe2010WorldWealthReportbyCapgeminiandMerrillLynchWealth Management, the rise in the total number of Indian millionaires withinvestibleassets,excludingmainresidence and consumer durables of more than US$ 1 million, grew almost 51%. This is the second fastest in the Asia-PacificregionafterHongKong.

• India’sruralpopulationof700million presents an opportunity for R&Ccompanies,whichtheycannotignore. The agriculture sector has been witnessing record foodgrain output, givingaboosttoagro-industriesandruralincomes.But,penetrationlevelsforseveralproducts,suchaspersonalcare,haircare,skincare,consumerdurables and electronics are low in ruralIndia.However,R&Ccompanies,who are localising products for the Indianmarket(pricepoints, packaging,SKUsize,promotion,etc.),will succeed.

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Number of Indians with investible assets of over US$ 1 million

Source: Capgemini, Merrill Lynch Wealth Management

Ownership of consumer durables by households in rural India

*Estimated households (000s) 157,454. Source: IRS, 2009 R1, Hansa Research, The Marketing Whitebook 2010-2011 (Businessworld)

All states* DVD player

Electric iron

Computer TV Fridge Washing machine

Digital camera

Penetration %

3 12.7 0.3 34.9 5.4 0.8 0.1

The power of India’s consumer groups

Rural Indian consumers

EquivalenttoalmosthalfthesizeofChinese population (1.3billionpeople)

Largerthanthe combined populations of Brazil,Russia,GermanyandtheUK(484million)

Equivalenttoalmostthesizeofthe US population (312million)

Young Indian consumers

Middle-class consumers

USD millionaires

• Shampoo,toothpaste

• Someelectronicproducts

• Foodandbeverages • Two-wheelers

• Mobilephones

• Apparelandaccessories • Apparel

• Consumerelectronics

• Personalcare

• Luxurycars

• Luxuryproducts

• Homesandapartments

Major demographic groups are driving purchases across categories

Sources: PwC analysis * Capgemini, Merrill Lynch Wealth Management **Income levels for middle-class consumers, according to the NCAER, range from INR140,000 to 780,00o, which using a conversion rate of USD1 equivalent to INR45, is IUSD3,111 to 17,333.

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India’s retail fundamentals

Market size US$ 350 billion

CAGR 15-20%

Unorganised retail 12millionmom- and-popstores

Organised retail penetration

5-8%

Retail density 6%

Contribution to GDP 14%

Demand drivers

Demandingconsumers:Indian consumers are demandingaccesstoproductsandservicesthatdelightandexcitethem,areofgoodquality,andprovidevalueformoney.

Increasing incomes: StrongGDPperformance,capitalmarketgrowthandtheemergenceofnew industries are creating new millionaires andboostingincomelevels.Thisactsasanincentiveforconsumerstospendmoreonproducts. They are also experimenting with brands, trying new products, etc.

Evolvingconsumptionpatterns:Traditionally, the focus of Indian consumers was on saving.However,positivemacro-economicfundamentals,anevolvingretailmarket,lifestyleinfluencers,etc.areensuringthatconsumersspendmoreacrosscategories.Otheraspects,liketheemergenceofdouble-incomehouseholds, easier access to credit and society’s acceptanceofself-indulgence,arechangingpurchasing habits.

Supply drivers

Expansion: The growth of modern trade and expansion plans are enabling consumers to easilyaccessretailproductsandservicesacrossurban, Tier II and Tier III cities and towns.

Newentrants:Some of the world’s largest and mostprestigiousbrandsandretailershaveapresenceinIndia.Mostglobalretailersbelievethatthenextwaveofgrowthwillcomefromtheemergingmarketeconomies.ThosewhohavenotyetenteredIndiaareassessingthemarketwithinterest.

Growthopportunities:Some high growth categories in the retail sector include the following:• Children’swear• Accessories• Consumerdurables• Leisure• Apparel• Footwear

India’s evolving retail sector is exciting and dynamic.PwC research indicates that India’s retail sector is worth US$ 350 billion and has a loworganisedretailpenetration(ORP)of5 to 8%. Modern trade emerged during the 90s, primarily in the food and grocery sector,andisnowgrowingataCAGRof15to 20%.

AlargemarketpotentialforarangeofcategoriesisindicatedbylowORP,increasing urbanisation, growing incomes, increasingconsumerconfidence,etc.

India’s retail sector comprises organised andunorganisedparticipants.Giventhesizeofthecountry’sretailmarket,PwCresearch and other reports suggest that the 12millionmom-and-popstorescomprisingIndia’sunorganisedmarketcanco-existwith modern trade players.

Recognisingthelong-termgrowthpotentialofIndia’sretailmarket,someofthecountry’slargestconglomerateshaveallocated billions of dollars to launch large scaleretailinitiativesthatspancash-and-carry,foodandgrocery,books,musicandleisure,gemsandjewellery,footwear,apparel,accessories,etc.India-basedretailincumbents are expanding their presence across a range of categories, experimenting withformats,launchingprivatelabels,strengthening supply chain systems and more.

GlobalretailersarealsoassessingtheIndianmarketwithkeeninterest.Theyhaverecognisedthatthenextwaveofgrowthintermsofgeneratingrevenues,reachingnewcustomers(includingthelargenumberofmiddle-classconsumers)andharnessingresearchanddevelopment(R&D)andinnovativeskillswillcomefromemergingmarkets.PwC’s14th Annual Global CEO Surveyindicatedthat93%ofretailCEOsbelievedthattheywillexpandtheirAsianoperationsoverthenext12months.

Whether global or domestic, retailers want to capitalise on the India growth story.Anaspiringmiddle-classof300millionconsumers,alargedemand-drivenpopulation of 500 million young consumers andarelativelyuntappedruralpopulationof700millionpeopleconstitutethegrowthstory.Besides,astrongGDPgrowth,risingconsumerconfidence,consumption-basedbehaviour,increasingincomesandalargepoolofconsumershavemadeIndiaoneoftheworld’smostattractiveretaildestinations.

Driversfuellingthegrowthoftheretailsector are below:

India’s retail sector is an evolving market. The sector will grow and develop over the next four to six decades, since consumers will earn more, those below the poverty line will cross over, the gains from economic growth will be felt more inclusively, etc. As more retailers enter the market and expand operations, consumers’ buying patterns and shopping habits will also evolve. Retailers currently operating in the market, and those who plan to enter the market, will have enough time to understand local market dynamics, develop robust supply chains, establish formats and choose the right product assortment to meet the needs of diverse Indian consumers.

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Opportunities exist across retail categories in India.

Selected high demand categories

Apparel

Demand for:

• Brandedapparel• Children’swear• Clubwear Privatelabelapparel• Uniforms• Women’sprofessionalattire

Demand in Asia

TheAsianfashionmarketwillwitnessahealthyaverageannualdemandgrowthofapproximately5% through 2014.

Amongglobalfashionretailers,Chinaevokesconfidence.

TheIndianapparelmarketisrelativelyuntappedacross categories.

Demand in India

ComparedtootherAsiancountries,theIndianapparelmarketissignificantlysmaller.However,overthepastfewyears,clothingsaleshavebeen increasing steadily. This is supported by agrowingmarketofyoungconsumersandanincreasing interest in western fashion.

Consumer durables and electronics

Demand for:

• Air-conditioners• Cameras• Laptops• Mediatablets• Mobilephones• Refrigerators• TVs

Demand in Asia

In2010,Asiancountrieswitnessedanincreaseinsales of consumer durables.

China,IndiaandHongKongwilldrivegrowthinAsiaintheapplianceandhousewarecategory.

Demand in India

Most consumer durables sold in India are manufactured in the country.

Cost is an important factor that determines the sales of consumer goods. Production capabilities forbudgetmodelsarealsowelldeveloped.

Food, beverage and tobacco

Demand for:

• Cooking• Energydrinks• Frozenfoods• Noodles• Ready-to-eatfoods• Value-addeddairy• Non-carbonatedbeverages

Demand in Asia

Demandforfood,beverageandtobaccoinAsiaisexpected to increase in the next two to four years. Invalueterms,foodsalesaresettoalmostdoublefromUS$2.7trillionin2010toUS$4.6trillionin2014. The growth in demand will be the strongest inChina,withanaverageof5.7%intheforecastperiod of 2010 to 2014. India will witness a 3.2% averageannualdemandgrowth.

Demand in India

Beer,processedfoods,fastfoodandcoffeewillbestrong sellers during the forecast period.

Groceriesaccountfortwo-thirdsofIndia’stotalretailsalesandwereadriverofgrowthin2009.

Innovationsinpackagingaremakingproductsmore affordable.

Source: PwC analysis. Strong and Steady 2011 Outlook for the Retail and Consumer Products Sector in Asia

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India’s modern trade category comprises global and domestic participants

Food and grocery ApparelConsumer electronics/durables

Global CarrefourMaxHypermarket-SPARMetro Tata Tesco

Indian Bharti-WalmartFoodBazaarMoreNature’sBasketRelianceFreshSpencer’s

Global DieselEspritLevi’sMangoMarks&Spencer

Indian ChemistryDolphinLilliputMustard SeedProvogueWillsLifestyle

Footwear

Global AldoBataCharles&KeithHushPuppiesNikeNineWest

Indian CatwalkInc. 5RelianceFootprintWoodland

Global BangandOlufsenBoseLGSamsungSony Whirlpool

Indian CromaeZonePai ElectronicsRelianceDigitalThe Electronics Store Vivek’s

Luxury products

Global ChanelChristianDiorL’ladroLVMHMontBlanc

Indian AmrapaliManishAroraRohitBalRituKumarTarun TahilianiTitanNebula

Watches

Global Baume&MercierCartierChopardCitizenLonginesOmega

Indian EthosFastrackHeliosTitanWatches and More

Sincethemid-tolate2000s,someofIndia’slargest conglomerates set aside billions of dollarstolaunchlarge-scaleretailinitiativesspanningfoodandgrocery,cash-and-carry,apparel,footwear,gemsandjewellery,etc.

Reliance Retail Bharti Retail AV Birla Retail

ProjectedinvestmentofUS$5.5billioninfoodand grocery, leisure, apparel, accessories, gems andjewellery,hypermarkets,homeandliving,eyewear, etc.

ProjectedinvestmentofUS$2.5billionin cash-and-carryandfoodandgrocery.

ProjectedinvestmentofUS$2.5billioninfoodandgrocery.Marketrumorssuggestthattheretailer may launch an offering in specialty retail.

Retailersuseamixofformatsthatincludethe following:• Cash-and-carry• Conveniencestores• Departmentstores• Discountorvalue• E-commerce

• Hypermarkets• Malls• Shop-in-shop• Specialtyretail• Supermarkets• Ruralretail

Sector snippets

Retailers are using a mix of formats which consider availability of the right real estate, fundamentals relating to the catchment area, value propositions, etc.

A relatively new but rapidly growing retail format is the online channel, which offers consumersconvenience,pricebenefitsandthe ability to shop 24 hours a day.

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Category: Online commerce Flipkart:PioneeringIndia’sonlinecommercemarket

Sector snapshot

Company profileFlipkart:Offeringnewcategories,reachingmorecustomers,expandingoperations

Online retail is nascent in India and will over time, evolve and more closely…

PwC’s thought leadership report Strong and Steady - 2011 Outlook for the Retail and Consumer Products Sector in Asia predictsonlinecommercetobethenextmajorareaforretailgrowthinAsia.Thoughnascent,India’sonlineretailmarketisgrowingatdouble-digitratesandislikelytobethenextformatthatretailerswill incorporate into their array of channels.

Growthdriversincludethefollowing:

• Internetpenetration,theuseofbroadband,etc.aremakingiteasy(andquick!)forconsumerstoshoponlineathome,attheoffice,etc.

• GlobalandlocalE-commerceparticipantshavelaunchedwebsites that offer Indian consumers a range of products (apparel,babyproducts,electronics,etc.).

• Themarkethasseentheemergenceofarangeofbuyingpropositions, such as group buying sites, direct sales sites, etc.

• Consumersaremorewillingtoexperimentwithnewformsofretailpurchaseandfeelconfidenttosearchforandbuygoodsonline.

• Convenience,speedand24-houraccessibilityinpurchasingproductsisbeingvaluedincreasingly.

India’s E-commerce market is growing at 20 to 30% CAGR and…

Flipkartoffersarangeofgoodsonline,includingbooks,music,consumerelectronics,etc.SeveralfactorsaredrivingthegrowthofIndia’sonlineretailmarket,includinginternetpenetration,theconvenienceofpurchasingproductsonline,etc.SeniormanagementatFlipkartbelievesthatconsumerbehaviourischangingandinafewyears,“Everyonewillbebuyingeverythingonline,justliketheybuyonlytheirticketsonlinetoday.”Asthemarketevolves,sowillthe consumer.

…online retail players have aggressive growth plans.

By2013-14,Flipkartplansto:

• Offernewcategoriesonitswebsite

• Increaseitsfootprintofwarehouses

• Expandoperationsintonewcities

• Increasestaffsizefrom2000toover10,000

• Growrevenues10 to 30 times over

…resemble E-commerce markets in mature retail environments.

Since2007,PwChasbeenconductingsurveysononlineshopping,intheUK,examiningnewandemergingretaildevelopmentsinthedigitalspace.Sincethen,thevalueofonlineretailhasincreasedtoalmosteightpercentofthetotalretailmarket,withgrowthexpectationsof10%peryear.Interviewswithmorethan1,000consumersinthelastquarterof2010revealedthatwearewitnessinganewpatterninconsumerbehaviour.WhenPwCbeganthisseriesin2007,only63%ofthepeoplewespoketowereactuallyusing the internet regularly to shop. In 2010, things had changed.

• Nearly20%ofrespondentswerespendingmorethanhalftheirdisposable income online.

• Fourteenpercentwerebuyingonthewebeveryweek.

• Fourteenpercentweredoingitmoreoften—afigurethatwasfour percent only two years ago.

Customer insights

Indianconsumersaregenerallyperceivedasprice-drivenandvalue-conscious.Whilethatmaybetrue,seniormanagement atFlipkartbelievesthattheironlineconsumerisdrivenbybothpriceaswellasaminimumlevelofquality(intermsoftheend-to-endexperience).Astheeconomygrows,incomesriseandaspirationsincrease,theIndianconsumerwillevolveintoamorequality-consciousconsumer.

Source: Pick ‘n’ Mix - Meeting the Demands of the New Multi-channel Shopper, PwC

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Customerservicewillbeacriticalsuccessfactorforonlineretailers.

Customer service and satisfaction

Flipkartmaintainscustomerserviceteamstomanagecustomerqueries,trackthemovementofgoodsordered,ensuretimelydelivery,etc.ProvidinggoodcustomerserviceenablesFlipkarttoenjoyhighlevelsofcustomersatisfaction,generaterepeatbusinessandensurepositiveword-of-mouth.

Seniormanagementbelievesthatastheretailsectorevolves,customersatisfactionwillbeakeydriverofsuccessformost brands and organisations.

Customerserviceisimportantforonlinecustomerssinceitbuildstrustandcomfort.WhenonlinecustomershaveapositiveexperiencewithFlipkart’scustomerservice,theyconveythistotheirfriends(word-of-mouth).

Social media

Aspartofitseffortstoenhancethecustomerexperience,Flipkartmanagesitssocialmediapresencecarefully.ApartofFlipkart’scustomer support team manages the company’s presence on FacebookandTwitter.Onlyfiveorsixofthe200tweetseachdayarenegative.Thegroup’sSLAforrespondingtonegativefeedbackonsocialmediasitesisonehourbutonanaverage,customersareresponded to within 15 minutes.

Source: Discussions with senior management at Flipkart, PwC analysis

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Retailers are expanding operations.

Key trends

Growthofprivatelabels

Most retailers in India are bullish about thesuccessoftheirprivatelabelproductsacrossfoodandnon-foodcategories.PwC’sStrategic Issues for Retail CEOs indicates thatretailersarelaunchingnewprivatelabelofferings,enhancingtheirprivatelabel portfolios and will be launching robustpromotionalofferstoquicklymovetheirownbrands.India’smajorretailersareexpectedtoembarkuponthefollowingstrategiesfortheirprivatelabelproducts:• Increasetherangeofofferings• Increaseshareofrevenuefromprivate

label sales• Embarkuponpromotionaloffersand

sales• Increasethevisibilityofproductsin

store outlets• Offerselectedproductsthroughother

retailers’ outlets

Experimenting with formats

Most of the large modern trade players are experimenting with formats and launching hypermarkets,supermarkets,electronickiosks,shop-in-shops,etc.Retailersarealsoexperimentingwithsizeevenwithinthe same format category. For example, insteadofhavingonestandardsizeforhypermarkets,someretailersarevaryingthesizeaccordingtoconsiderationslikerealestaterentals,thesizeofthecatchmentarea,etc.Thehypermarketisapopularformat especially for many of India’s foodandgroceryoperators.AccordingtoPwC’s thought leadership report Strong and Steady 2011 Outlook for the Retail and Consumer Products Sector in Asia, “HypermarketexpansionissweepingacrossAsia,withChinainthelead.”

Increasingconsumerconfidence

ReportssuggestthatIndianconsumersaresomeofthemostconfidentintheworld.Buoyedbyasenseofconfidenceintheeconomy,theirjobprospects,industrialgrowth,capitalmarkets,etc.,theyaremorewillingtospendacrossnon-essentialproduct categories. The increasing use of credit cards has enabled consumers to buy products that may be out of their reach.

Key issues to address

Infrastructure and supply chain

Theabsenceofworld-classroads,highways,ports,etc.isamajorchallengeforretailerswhoarelookingtomovegoodsefficientlyfrom point of source or procurement totheshelf.Relatedtothisistheideaof supply chain, logistics, warehousing and distribution. Indian retailers are experiencinghighlevelsofdemandandneedtodeliverontimebymanagingstockkeepingunits(SKUs),maintaininginventory,guardingagainststock-outs,etc. The use of IT optimisation systems and overallsynchronisationfrombothsuppliersand retailers will enable the latter to use supplychainefficiencyasaleverforsuccess.

Aheterogeneousmarket

• Indianconsumersvaryintermsofsocio-economicgrouping,educationlevels,attitudes,purchasedrivers,buyingpreferences,behaviours,etc.Asaresult,itbecomesimperativeforstorestostockamixofmerchandise.

• Indianconsumersareoftenreferredtoasvalue-conscious.Thisdoesnotnecessarily imply that consumers ‘want asteal.’Instead,theywantawell-madeproduct that is priced fairly, and that meets its stated promises.

• Indianconsumersaredemandingaccesstomore,improvedandbetterpriced products.

Workforcemanagement

• Retailisarespectablecareerpaththatprovidesopportunitiesforadvancementformenandwomeninrural,semi-urbanandurbanIndia.

• Theretailsectorisrelativelynewin India considering modern trade emerged in the 90s. Therefore, there is an absence of retail training academies. Some large modern trade players are either establishing their own retail academies or are partnering with businessschoolstodevelopretailaccreditationprogrammestodevelopretail talent.

India’s retail sector is a study in evolution.

WeoutlinethefiveforcesshapingtheIndianretail sector:

1. Splurging is pleasurable.

Prior to the liberalisation policy, shopping wasviewedasafunctionalnecessityi.e. buying only the essentials and not purchasing extra or unnecessary products. Infact,unnecessaryshoppingorself-indulgencewasfrownedupon.However,increasingincomes,frequentoverseastravel,exposuretotheinternet,growingconfidenceinone’spersonaldrivers,etc.aremakingitacceptableto:

• Buymorenon-essentialproductsthanbefore

• Switchbetweenproductsandbrands,oftenmakingfirstpurchasesinnewcategories

• Splurgeonluxuryproductslikefinewineandscotch,expensivehandbags,brandedjewellery,etc.

2.Innovationisimperative.

Today,thefocusoninnovationandR&Disgreaterthanbefore.R&Ccompanieswhowant to assume leadership positions will use R&Dandinnovationasaleverforgrowth.

Sector snippets

Indian consumers are value- conscious. Private labels offer consumers the twin benefitsofqualityandvalueformoney.

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• Newproductsarebeinglaunchedacross a range of categories that include privatelabels,apparel,footwear,consumer durables and electronics, personal care and grooming, hair care, skincare,etc.

• Competitorsareestablishinginnovationcentres in order to prepare for future growth, capture new target consumers, etc.HiringR&Dtalentiscriticalindevelopingworld-classcentresofexcellence. Most global companies recognisethatthenextwaveofgrowthwill come from India and China. These brands are committed in increasing theirR&Dexpenditureandinnovatingproductstocatertothesemarkets.

• Companiesareincreasingtheirefforts to hire senior staff and support teams. They are entrusted with role ofinnovatingnewproducts,productdevelopment,R&D,understandingconsumerbehaviour,etc.

• Asthemarketbecomesmorecrowded,product differentiation will be critical and will separate today’s leaders from tomorrow’sgame-changers.

3. Shopping with family is fun!

Toenjoytheirincreasedspendingpower,Indians typically prefer to shop in the companyoftheirfamiliesbyvisitingmalls,lookingatbrands,experimentingbetweencategories, etc. Some retailers and brands havelaunchedfamilystorestocatertomen,women and children.

Realestatedevelopersarealsocreatingspaces where retail and entertainment converge,makingitafunexperienceforthe whole family. Modern trade has made shoppingenjoyable,withmallsofferingmultiplexes, restaurants and food courts, a range of shops, arcades for children, etc.

Innovate Create Dominate

Winning the game of innovation

Lifecycleleadership

Rapidlyevolvingcustomerdemands, technology, competitor actions, etc. are ensuring that product lifecycles shrink.

Companies that continually innovateandlaunchnewproducts will extend the longevityoftheirproductsandproduct categories.

Localmarketneeds

EstablishingR&Dandinnovationcentresinregionalareas enables global companies to create products that meet localmarketneeds.Whileproducts may be similar in termsoftheavailabilityofproduct lines around the world, localmarketnuancesexistintermsofproductsize,pricing,fragrance,look-and-feel,etc.

Game-changingideas

R&Dandinnovationlabscanhelpcompaniesidentifygame-changing products.

Discontinuousinnature,theseproductscanredefinea category, create new opportunitiesforgrowth,makeproducts obsolete and help companies establish leadership positions in the minds of consumers.

4.Theconsumerisking.

India’sretailsectorisdevelopingquicklyandbecomingmorecompetitive.R&Ccompanies understand the importance of meeting the demands of Indian consumers. Non-performancewillresultinconsumersmigrating their preferences and purchases tootherbrands.Retailersneedtodevelopand offer products which meet consumer demands and also delight and excite them.Tomeetconsumerdemands,R&CcompaniesareusingR&Dasameanstolaunch new products.

• Privatelabels:Consumerswantqualityproductspricedcompetitively.Priceisthe primary determinant of purchase for many Indian consumers.

• Premiumpersonalcare:Withaccesstotheinternet,frequentforeigntravel,increasingdesiretoexperimentwithproducts,apre-occupationwith celebrity culture, etc., Indian consumerswanttolook,feelandsmellgood.

• Non-carbonatedbeverages:Consumersare focussed on health and wellness andwanttoconsumehealthyjuice-based,energyorfortifiedbeverages.

• Ready-to-eatmeals:Consumersleadbusylifestylesandwantconvenienceinthekitchen,theabilitytopreparemealseasily, etc.

5.Customerservicecanbeimproved.

AstheIndianmarketplacebecomesincreasingly crowded with new entrants, customerservicewillbeakeyfactorindeterminingprofitabilityandsurvival.Today,Indianconsumersarefloodedwithdiverseproductsandservices.Therefore,it is important for retailers in India to providegoodcustomerserviceasameanstoencourage repeat purchases and build brand loyalty.Retailersinmaturemarketshaveusedcustomerserviceasatooltogeneratefootfallsandcreateapositivebrandimage.Theyhavedevelopedconsumer-friendlypolicies in terms of return and exchange, loyalty programmes, customer appreciation days,etc.Customerserviceaimsatthefollowing:

• Tohelpconsumersdifferentiatebetween retailers

• Togeneratecustomerloyalty

• Toincreasepurchases

• Tocreateapositivebrandimage

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Category: Value fashion MaxRetail:Offeringvaluefashionatkeenprices

Sector snapshot

Company profileMaxRetail:Fashionneednotbeexpensive!

Growth opportunities exist in India’s apparel market…

PwC’s thought leadership report Strong and Steady - 2011 Outlook for the Retail and Consumer Products Sector in Asia indicatesthattheIndianapparelmarketisrelativelyuntappedacrossallcategories.Clothingsaleshavebeenrisingsteadilyinrecentyears,supportedbyalargemarketofyoungconsumersandanincreasinginterestinWesternfashion.Apparelcompaniesareusingmarketingstrategiestobuildtheirbrand,increaseawarenessandcreateafashionable,lifestyle-orientedimage.

Efforts to raise funds from PEs are enabling apparel brands to grow theirstorenetworks,boostproductioncapacity,offernewstyles,hiredesigntalent,developlargerformatstores,establishshop-in-shops, etc.

Max’s focus on providing “fashion at keen prices” is generating strong current growth…

Keenlypricedapparelispricedlesserthanaffordablypricedappareleven!Keenlypricedapparelisespeciallyimportantindevelopingmarketssincecustomersneedtobeeducatedaboutfashion,beforemakingthepurchase.Maxusesitsdesignstrengthtoproducesharply-pricedapparelthathasahighfashioncomponent.DesignersintheMiddleEastalongwiththoseinIndiacreateandlocalisefashionforglobalandlocalmarkets,respectively.

… and presents long-term potential for its parent company, Landmark Group.

ByMarch2013,Maxwilloperate100stores,doublingoperationsfrom the current 51 stores.

MaxistheLandmarkGroup’sfastestgrowingofferingin India,acrossitsformats(foodandgrocery,departmentstores,apparel,etc.).

Tier2citieslikeCoimbatore,Indore,Bhopal,etc.areshowingstrong growth. Consumers in these locations are aspirational and viewMaxasastrongfashionbrand.

…across men, women, children, value, premium, plus-size, etc.

FormanyIndians,lowpricesareakeypurchasedriver.

Thefollowingfactorsdrivethegrowthofvaluefashionretail:

• IncreasingincomesareenablingIndianconsumerstospendmore and experiment across products, brands and categories.

• Apparelisnolongerafunctionalcategorybutonethatconveysappearance, prestige and image. Consumers want to buy apparel that is both affordable and fashionable.

• Thegrowthofmoderntradehashelpedincreasethedemandforbothbrandedandvalueapparel.This,coupledwiththeemergenceofnewsectorsandprofessionaljobopportunities,hasalsohelpeddrivedemandforofficewear.

• Over50%ofIndia’spopulationisunder25.YoungIndiansareaspirational, demanding and focussed on apparel that is both fashionable and affordable.

• Currentpenetrationofapparelintheorganisedretailcategoryis 10%. This is expected to increase to 30 to 35% by 2015.

Clothing: Market demand growth (% real change) pa

Source: Strong and Steady—2011 Outlook for the Retail and Consumer Products Sector in Asia, PwC, 2010-14 are forecasts

Country 2010 2011 2012 2013 2014

China 10.9 10.8 10.3 10.9 11.4

India 6.1 7.6 8.4 8.3 8

Japan 1.6 1.2 1 0.9 0.8

Taiwan 3.9 4.8 4.2 3.4 3.8

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FourcriticalsuccessfactorshelpdefinethewinnersinIndia’sapparelmarket.

Source: Discussions with senior management at Max Retail, PwC analysis

Fashion and pricing

ProvidingfashionatverycompetitivepricesisamajordriverofsuccessforMax.Maxdoesnotcompromisefashionforpriceorviceversa.ProvidingapparelthatisbeyondnormalpricinglevelshasenabledthechaintogrowrapidlybothwithintheLandmarkGroupandwithinIndia.Partofofferinggoodfashionislocalisingthestyling(necklines,hemlines,colours,embroidery,etc.).Maxlocalisesone-thirdofitsproductrangesourcedfromitsglobalheadquarters,enablingitto“beglobalandconnectlocal.”

The customer experience

Customerneedsandexpectationsevolvegiventheirexposuretointernationaltravel,media,theInternet,etc.Today,theIndianconsumerexpectsabetterexperienceoverall:

• Availabilityofapparel:Theconsumerwantssharplypriced,fashionableappareltoexpandtheirwardrobebothattheworkplaceandathome.Customersnolongerwanttodressupjustforwork,theyalsowanttolookgoodathome,implyingaccesstochoiceandrange.

• Storeexperience:Fromthetimeacustomerentersthestoretowhenshe/heleaves,she/hemusthaveagoodexperienceacrossseveraltouchpointsthatinclude:

Trialroom|Interactingwithstaff|After-salesexperience|BillingatthePOS|Storeambience

Freshness of category

Freshnesstakesintoaccountnewproductpromotions,newdesigns,newcolours,newstyling,etc.Keepingfashionexcitinghelpsengageandretaincustomers,resultsinsales,generatesrepeattraffic,etc.

Long-term business model

Participantsneedtobuildasustainablebusinessmodelgiventhatthegestationperiodforsuccessintheretailsectorislong.Sustainableproductpricing,offeringproductsthatimplylongevity,expandingoperationsinacalibratedbutdeterminedmanner,etc.aresomeofthewaysinwhichretailerscanconveytheircommitmenttobuildingalong-termpresence.

applicable for all retailers

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2MostmajorglobalbrandsandretailerswhoarenotyetinIndiaareassessingthemarketwithkeeninterest,recognisingitsstrengthsas a retail destination. India’s retail sector is not yet fully liberalised. That said, the entry ofsinglebrandretailin2006isviewedasamajorstepforwardtowardsliberalisingthesector.AnotherdevelopmentistheCommittee of Secretaries’ recommendation, inJuly2011,ofallowingFDIinmulti-brandretail,subjecttoconditionalities.

FDI policy framework

Indiahasanopen-armpolicyforregulatingFDIintothecountry.Underthecurrentpolicy,foreigninvestmentispermittedinvirtuallyallsectorswithoutgovernmentapproval,exceptforafewsectorsofstrategicimportance(suchasbanking,defence,media,telecom)wherepolicyprescribesequitycapsorcertainconditionsforobtainingpriorapprovalfromthegovernment.

TheFDIpolicyisframedbytheDepartmentofIndustrialPolicyandPromotion(DIPP),the Ministry of Commerce and Industry and implementedbytheReserveBankofIndia(RBI)forcasesfallingundertheautomaticroute(i.e.notrequiringpriorgovernmentapproval).Forcasesunderthegovernmentroute,approvalisgrantedbytheForeignInvestmentPromotionBoard(FIPB),whichincludesrepresentativesofvariouscentralgovernmentministriesandgrantsapprovalonacase-by-casebasis.

Apartfromthesectorswhichareofstrategicimportancethatrequiregovernmentapproval,thereisasmalllistofsectorsinwhichFDIiscurrentlyprohibited.Presently,thislistincludesretailtrading(exceptfor‘singlebrand’retailtrading).

WeprovideanoverviewoftheFDIpolicyframeworkprevalentforthetradingsectorin India:

Selecting the right investment and transaction structure is key to developing a presence in India’s retail market

Understanding India’s tax and regulatory framework is important.

A. Wholesaletrading

Forwholesaletradingorcash-and-carrywholesaletrading,100%FDIispermitted,withoutgovernmentapproval.However,thegovernmenthasprescribedcertainoperational guidelines for companies in the wholesale trading sector.

Someofthekeyprinciplesemergingfromthis operational guideline are set out below:

• Wholesaletradingisdefinedasthesaleof goods or merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinatedserviceproviders.

• Theyardstickfordeterminingwhethera sale is wholesale or not is the type of customer to whom the sale is made, andnotthesizeand/orvolumeofsales.

• Licences/registrations/permits,asspecifiedundertheacts,regulations,rules,ordersofthegovernment,arerequiredforwholesaletradingoperations.

• Salesunderwholesaletradingcanonly be made to customers holding the following registrations/licences:

- Entitiesholdingsalestax,VAT,servicetax,excisedutyregistration

- Entitiesholdingtradelicences

- Entitiesholdingpermits/licences,etc.forundertakingretailtrade(likelicencesforhawkers)fromgovernmentauthorities/localselfgovernmentbodies

- Institutionswithcertificatesofincorporation or registration as a society or registration as public trustsforself-consumption

• Fullrecordsofsalesneedtobemaintained by the wholesale trading company on a day to day basis

• Wholesaletradingofgoodstocompanies within the same group should not exceed 25% of the total turnoverofthewholesaleventure.

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B. E-commerceactivities

E-commerceactivitiesarealsogovernedbytheprinciplesmentionedabovei.e.companiescanengageonlyinBusinesstoBusiness(“B2B”)E-commercetradingandnot in retail trading.

C. Testmarketing

Withpriorgovernmentapproval,100%FDIispermittedforthetestmarketingofitemsforwhichacompanyhasapprovalfor manufacture, for a period of two years. Thisistrueprovidedinvestmentinsettingup a manufacturing facility commences simultaneouslywiththetestmarketing.

D. Retailtrading

FDIupto51%ispermittedwithpriorgovernmentapproval,fortheretailtradingof‘SingleBrand’products,subjecttothefollowing conditions:

• Productssoldshouldbe‘singlebrand’only.

• Productsshouldbesoldunderthesamebrand internationally.

• ‘Singlebrand’product-retailingwillcoveronlyproductswhicharebrandedduring manufacturing.

• Theforeigninvestorshouldbetheowner of the brand.

ApplicationsseekinggovernmentpermissionforFDIintheretailtradeof‘single brand’ products are to be made to theDIPP.Theapplicationshouldspecificallyindicate the product or product categories proposed to be sold under the ‘single brand’. Anysubsequentadditiontotheproductsor product categories to be sold under the ‘singlebrand’wouldrequirefreshapprovalfromtheGovernment.

E. Recentdevelopments—ThepossibilityofFDIinmultibrandretailtrading

InJuly2010,theDIPPreleasedadiscussionpaperinvitingpubliccommentsonissuesconcerningFDIinmulti-brandretailtrading. This discussion paper included an analysis of the following:

• Thecontributionoforganisedandunorganised retail to the Indian economy

• TheneedforFDItofillthegapsthatexist in the Indian system in terms of weakback-endinfrastructure

• TheimpactofFDIpermissibilityonthe retail sectors in China, Thailand, Russia,ChileandIndonesia.

TheviewsofstakeholderswereinvitedonissuessuchastheproposedFDIcaptobeimposed,mandatoryinvestmentindevelopingback-endinfrastructure,minimum employment opportunities for rural youth, minimum percentage of sourcing from the small and medium enterprises(SME)sector,theintegrationofsmall retailers in the upgraded supply chain, etc.

Morethan250responseswerereceivedand a panel, including members from variousministries,wassetuptoanalysethe responses and formulate the policy on thegovernmentpermittingFDIinmulti-brand retail trading. The matter is currently underconsiderationbythegovernment.IfitisdecidedtoallowFDIinmulti-brand retail trading, it is expected that the policy will impose certain obligations onforeigninvestorssuchasaminimumcapital infusion and the use of funds for the developmentofanorganisedtradingretailinfrastructure.

AnotherdevelopmentistheCommitteeofSecretaries’ recommendation, in July 2011, ofallowingFDIinmulti-brandretail,subjectto conditionalities.

Property/real estate

FDIupto100%ispermittedundertheautomaticrouteforconstruction-developmentprojects(includingshoppingmalls),subjecttocompliancewithcertainminimum area and capitalisation conditions being met.

Inmostcities,itisdifficulttofindsuitableproperties in central and downtown

locations for large format retail stores, primarilyduetofragmentedprivateholdingsandtheinfrequentauctioningoflargegovernment-ownedvacantlands.Thishas led to a shift in preference towards the suburbs of cities.

Agriculture procurements

StatesandunionterritorieshaveenactedtheAgricultureProduceMarketingCommittee(APMC)Actregulatingtheprocurementofagriculturalandfisheriesproduce, including fresh fruits and vegetables.AfewStatespermitdirectprocurementfromfarmers.Othersrequirethe agricultural produce to be brought into designatedmarketyardsandsoldthroughan auction mechanism.

Withaviewtostreamliningtheprocurementsystem,thegovernmenthasaskedstategovernmentstoreviewtheirAPMCActsandenabledirectprocurementfrom farmers, besides simplifying the procedures.

Thegovernmenthasalsotakenmeasurestoimprovetheexistingsupplychainandfacilitatingfarm-to-forkintegration.Forexample,taxbenefitshavebeenprovidedand foreign currency loans are permissible for establishing cold chain storage facilities.

Other important considerations

Someoftheothersignificantpolicyconsiderationsthataforeigninvestorshouldkeepinmindforsettingup/carryingoutretail operations in India are highlighted below:

• Highstampdutiesontransferofproperties,varyingbystate

• Rigidlanduseandzoningpoliciesthatmaketheconversionoflanduserightstime-consumingandcomplex

• Legalprocessesfordeterminingcleartitleofownershiptoavoidpropertydisputes

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• Foreigntradepolicytoregulatethephysical import of goods and the issue of licences for it

• Arobustcontractlawfortradeactivities

• Withaviewtoensuringfairtrade,thegovernmenthasputinplaceaCompetitionActwhichdealswithanti-competitiveagreementssuchasprice-fixing,bid-rigging,jointboycotts,etc.,aswellasabusivepracticesundertakenby dominant entities such as predatory pricing,abusiveconditionsofsupplyand the regulation of combinations.

• Trademarkandcopyrightregistrationsare an important aspect for protecting intellectualpropertyrights(IPRs)inthecountry.RegistrationundertheTrademarksAct1999andCopyrightAct1957canbeusedbyretailerstoprotecttheirIPRsinIndia.

Entity options for doing business

Entrants to the retail sector also need to decide on the model they intend to use for operating in India. For example, whether to enterintoajointventurearrangementwithanexistingcompanyinIndiawithequityparticipation, whether to enter into a plain franchise arrangement with an existing Indian company, etc.

Typically in these arrangements, tax and regulatory issues need to be addressed upfront–the manner of funding the operations, the repatriation options, the characterisation of receipts from and payablestoforeigninvestors.Moreover,tax authorities generally scrutinise the commercial terms of arrangements to determine whether the foreign company is carrying on business in India through a permanent establishment.

Such issues would also depend on the entity vehiclechosen.ThefollowingentityoptionsareavailabletoretailinvestorsasanIndiaentry strategy:

• Liaisonoffice:Canonlyactasacommunication channel for the overseasgroup.

• Branchoffice:Canundertakelimitedactivitiessuchasimport/exporttrading,consultancyservices,etc.

• InvestmentinanIndiancompany:WillbesubjecttoactivitiespermittedundertheFDIpolicyofthegovernmentofIndia. In context of the trading sector, pleaserefertothesectionentitledFDIpolicyframework.

• Limitedliabilitypartnerships(LLP):AnLLPisaveryeffectiveandtax-efficientoption for cash mobilisation purposes. ForeigncompaniescansetuporinvestinLLPsengagedinactivitiespermittedfor100%FDIundertheautomaticroute.

Direct tax framework

IncometaxisacentralsubjectinIndia.Therearenostate-levelincometaxesprovidedforundertheIndianfiscalsystem.TheincometaxprovisionsarecodifiedintheIndianIncomeTaxAct,1961(the“Act”)andtheIncomeTaxRules,1962(the“Rules”).TheActisamendedfromtimetotime, including through annual Finance BillsthatarerequiredtoberatifiedbybothHousesofParliament.TheCentralBoardofDirectTaxesisempoweredtoissuecircularsandnotificationswhichaidintheinterpretation of the law. The tax year in Indiarunsfrom1Aprilto31Marchofthesucceeding year.

AcorporateentityincorporatedinIndia(referredtoasacompany)issubjecttotaxataneffectiverateof32.45%.Theincomefrom business operations is computed by following the generally acceptable principles of accounting regarding the recognitionofrevenue.However,thededuction of certain expenses is admissible inaccordancewiththeprovisionscodifiedintheAct(e.g.deductionsforthepaymentof taxes, employee dues, etc. are allowed on apaymentbasis).Further,anyexpenditure

subjecttowithholdingtaxisallowedasadeduction only in the year in which taxes aredeposited.Anyexpenditureincurredincontraventionofthelawornotforbusinesspurposesisnottax-deductible.Thereis no concept of a group scheme of taxation in India.

Acompanyisalsosubjecttotheminimumalternatetaxprovisionswherebyacompanyisliabletopaytaxataneffectiverateof20.01%ofthebookprofits(computedinaprescribedmanner)ifthistaxishigherthanthetaxpayableunderthenormalprovisionsoftheAct.

TheActdoesnothaveanyspecifictaxationregime for companies engaged in retail operations.Therearesomesector-specificincentivesforcoldchains,warehousingfacilities for storage of agricultural produce, etc.

Businesslossescanbecarriedforwardfor a period of eight tax years and offset onlyagainstbusinessprofits,whereastax depreciation can be carried forward indefinitely.Carry-backisnotpermitted.

• DirectTaxCode(DTC):ontheanvil

On12August2009,theIndiangovernmentreleasedthedraftDTCforpublicdebate.Theobjectivewastomoderatethetaxratesandsimplifytaxlaws.Alldirecttaxesincluding wealth tax and income tax will be brought under one code. Public and stakeholderfeedbackontheproposalswasanalysedbythegovernment,andsuggestionsforamendmentsreceivedfromthe public, business associations and other bodiesweretakenintoaccount.

AreviseddiscussionpaperaddressingthemajorissueswasreleasedinJune2010.Furtherfeedbackwasreceivedonit.TheDirectTaxesCodeBill2010wastabledinParliamenton30August2010asanoutcome of this process.

AsummaryofthesignificantproposalsoftheDTCisasfollows:

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- CompanieshavingaplaceofeffectivemanagementinIndiaat any time in the year will be considered to be resident in India.

- ControlledForeignCorporation(CFC)provisionsareproposedtobeintroducedasanantiavoidancemeasure.

- TheprovisionsoftheDTCortheDoubleTaxAvoidanceAgreement,whicheverismorebeneficialtothe taxpayer shall apply, except in the following circumstances:

• WhenGeneralAntiAvoidanceRules(GAAR)provisionsareinvoked

• WhenCFCprovisionsareinvoked

• Whenbranchprofittaxislevied

- TheDTCcontainstheprovisionsofGAAR,underwhichtheincometaxauthoritieshavebeen empowered to declare an arrangement as impermissible if it has been entered into with the objectiveofobtainingataxbenefitandlackscommercialsubstance.

Transfer pricing framework

With the introduction of formal transfer pricing(TP)regulationsin2001,inlinewithsimilarregulationsprevalentinotherdevelopedcountries,TPhasemergedasthe single largest source of tax litigation for multinationalcorporations(MNCs)inIndia.TheprovisionsofIndianTPregulationsapply to ’international transactions’ entered intobyMNCswiththeiroverseasassociateenterprises(AEs).Theyprescribethatintragroup transactions should meet with the arm’s length standard and prescribed documents in this regard should be maintained.

Aninternationaltransactionisatransactionbetweentwo(ormore)AEsinvolvingthefollowing:

• Thesale,purchaseorleaseoftangibleor intangible property

• Theprovisionofservices

• Costsharingarrangements

• Thelendingandborrowingofmoney

• Anyothertransactionhavingabearingontheprofits,income,lossesorassetsof such enterprises

TheAErelationshipisdeterminedbasedonthe participation by one enterprise, directly or indirectly, in the management, control or capital of the other enterprise. Some of the situations where two enterprises can becomeAEsareasfollows:

• Directorindirectholdingof26%ormorevotingpowerofanenterpriseby the other enterprise or by the same person in both the enterprises

• Guaranteeingbyanenterpriseof10%or more of total borrowing of the other enterprise

• Appointmentbyanenterpriseofmorethan 50% of the board of directors or oneormoreexecutivedirectorsofanenterprise,orappointmentofspecifieddirectorships of both enterprises by the same person

• Completedependenceofanenterprise(forcarryingonitsbusiness)ontheintellectual property licensed to it by the other enterprise, etc.

Where a transaction is entered into with an unrelated party and there exists a prior agreement in relation to this transaction betweentheunrelatedpartyandtheAEs,eventransactionswithunrelatedpartiescanfall into the ambit of TP regulations.

TheTPregulationsrequireanyenterprisethat has entered into any international transaction(withanAE)duringafinancialyear to maintain prescribed information/documents,obtainandfurnishareport(tothetaxauthorities)fromanaccountantonorbeforethedateoffilingofthecorporateincometaxreturn(forcompanies,onthe

lastdayofNovemberfollowingtherelevantfinancialyear).

Thefollowingpenaltieshavebeenprescribed for default in compliance with theprovisionsoftheTPcode:

• Forfailuretomaintainprescribedinformation or documents: 2% of transactionvalue

• Forfailuretofurnishinformationor documents during audit: 2% of transactionvalue

• Foradjustmentstothetaxpayer’sincome: 100% to 300% of tax on adjustmentamount

Some important transfer pricing considerationstokeepinmindwhilefinalisingbusinessmodelsaresetoutbelow:

A. Franchiseemodel

There are many corporations that prefer to operate in India through a franchisee model wherebyathirdpartyinIndiaisgiventhelicence to use the brand or intellectual propertyandisprovidedvaluableservicesin lieu of payment of a franchisee fee to theoverseasIPownerorserviceprovider.Money can be repatriated to the franchisor from India through two mechanisms:

• Theimportpriceofproductsimportedby the franchisee from the franchisor

• Thepaymentoffranchiseefees

Theaboveoptionisdefinitelyworkableinthe Indian context, but has its own share ofchallenges.Oneofthembeingtheapplicability of TP on transactions between franchisorsandfranchisees(whicharerankthirdparties)onthepretextthatthefranchiseehascompletedependence(forcarryingonitsbusiness)ontheintellectualproperty licensed to it by the franchisor and this dependence may result in the non arm’s length pricing of transactions.

This challenge can be appropriately addressed by conducting a robust TP studytobenchmarktheabovementionedinternational transactions. In fact, such an

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analysis can also be helpful for negotiations between the franchisor and franchisee regarding appropriate franchisee fees and the prices of imported products.

B. Distributionmodel

Forsinglebrandretail,MNCscaninvestupto51%tosetupajointventurewithanIndianpartnerhaving49%stake.TheoverseaspartnermaychoosetosetupthejointventurewithanactiveorpassiveIndianpartnerdependinguponlong-termobjectives.Moneycanberepatriatedtothefranchisor from India through the following mechanisms:

• Importpricesofproductsimportedbythe franchisee from the franchisor

• Paymentofroyaltiesfortheuseofbrands or intellectual property

• Paymentforservices

AlloftheabovetransactionsaresubjecttoTPandarobustTPstudytobenchmarktheabovementionedinternationaltransactionsis critical to limiting TP exposure. It is imperativethattaxpayershaveaproactiveapproachtoavoidTPauditissuesatalaterstage.

Indirect tax framework

Presently, there are multiple indirect taxes eitherleviedbythecentralgovernmentasfederaltaxesorbythestategovernmentsonsales,purchasesormovementsofgoodsintheirrespectivejurisdictions.Typically,anycompany in the Indian retail industry has to deal with all of these taxes at some point in time during the entire supply chain.

TheConstitutionofIndiaenvisagesthegovernanceofthecountryasafederal structure, comprising the Union GovernmentattheCentre,andtheStateGovernmentsinthedifferentIndianStates.Under the Indian Constitution, the central governmentisempoweredtoimposetaxesin the form of excise duty on the production or manufacture of goods, as well as taxes ontheprovisionofservices.Thecentralgovernmentcanalsoauthoriseandregulatetheimpositionoftaxesoninter-statesalesorpurchases of goods, although they may be leviedandcollectedbythestates.

Thestatesthemselvesareempoweredtoimposetaxesonintra-statetransactionsconcerning the sales or purchases of goods. The states are also authorised to impose certain other local taxes such as entry tax. Finally, local authorities and municipalities impose local taxes.

Inadditiontoalloftheabove,thecentralgovernmentisalsoempoweredtoimposecustoms duties on the import of goods into the country.

To summarise, the following regulations/indirecttaxesexistinrelationtothefieldofcommodity/servicetaxes,commonlyknowncollectivelyasconsumptiontaxes.

• Customsduty:CustomsdutiesorimportdutiesareleviedbythecentralgovernmentundertheCustomsAct,1962(CA)andtheCustomsTariffAct,1975(CTA).ThesedutiesareimposedongoodsimportedintoIndia.At

present,thepeakrateofcustomsdutyis10%.Inaddition,thereisalevyofeducationcess(EC)at2%andseniorandhighereducationcess(SHEC)of1%.Theoverallrateofcustomsdutywith all components of custom duties (i.e.basiccustomduty,counter-veilingdutyandadditionaldutyofcustoms)isapproximately27%.

• CentralValueAddedTax(CENVAT):Atax on the manufacture or production of goods in India is imposed by the centralgovernment.Itisalsoreferredtoasexciseduty.Atpresent,thepeakrateofCENVATdutyis10.3%(includingECandSHEC).

• Servicetax:Ataxonidentifiedservicesrenderedbypersonsdefinedinthestatute is imposed by the central government.Presentrateofservicetaxis10.3%(includingECandSHEC).

• CentralSalesTax(CST):Ataxontheinter-statesalesorpurchasesofgoodsisimposedbytheoriginatingstate.Rateof CST in case of transactions between twoVATregisteredassesseesis2%1.

• StatesValueAddedTax(VAT):Ataxontheintra-statesalesorpurchasesofgoods is imposed by the states. There aretwomajorslabsofVATrateacrossthe states–5% and 12.5% to 15%. In addition, there are some goods exempt fromVAT.

• Entrytax:Ataxontheentryofgoodsinto the state is imposed by the states.

Inaddition,locallevies,suchasoctroior local area taxes, can be imposed by municipal or local authorities.

Inviewoftheevolvingnatureofallofthesemultipleindirecttaxes,itisimperativeforcompanies operating in India to not only understand the present indirect tax regime inIndiabutalsotokeeppacewithchangesin these areas.

1 A rate of 2% is applicable on the fulfillment of prescribed conditions.

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• GoodsandServicesTax(GST):Ontheanvil

Currently, India has multiple indirect taxes withvariancesinseveralaspectssuchastaxrates,taxableevents,thetaxablebase,eligible input credits, the point of eligibility ofinputcredits,etc.Thismakestheindirecttaxregimequitecomplex.Therecontinuesto be a distinction between the taxes on goodsandthetaxesonservices.Inorderto integrate all of these taxes into a single unifiedtaxsystemandbringaboutbroad-based reforms in the indirect tax regime, thegovernmentofIndiahasenvisagedtheintroductionofauniformGoodsandServicesTax(GST)acrossthecountry.The date of introduction has not yet been announced.

AsIndiaisafederalcountry,inthefirstdiscussionpaperonGSTinIndia,thegovernmentrecommendedadualGSTmodel,consistingofacentralGST(CGST)tobeleviedbythecentralgovernmentandastateGST(SGST)tobeleviedbythestategovernments.WiththeintroductionofGSTin India, a number of central as well as state taxeswouldbesubsumedintotheGST.

Basedonthepresentinformation,therateofGSTonservicesislikelytobe16%,comprisingbothCGSTaswellasSGST.Ontheotherhand,therateofGSTongoodsisproposedtobeat20%(10%eachforCGSTandSGST).ThemajorchangeintheproposedGSTregimewillbethatcreditofinputGSTwillbeavailableforbothgoodsandservices.

GSTislikelytobeabigboonfortheretailsectorsinceitwillallowretailerstomakeuse of a seamless credit on all input taxes andpassonthebenefitofthesetaxsavingstoconsumers.Itwillbeawin-winsituationfor both retailers and consumers.

TheproposedGSTisaninflexionpointinIndia’sfiscallandscapeandmarksatransitionfromtheexistingorigin-basedtoadestination-basedtaxationregime.TheintroductionofthedualGSTisexpected

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toremovethepresentproblemoftaxcascadingbymovingtoacommontaxbaseandbysubsumingvariouscentralandstatetaxesandleviesintotheCGSTandSGSTrespectively.

OneofthekeychallengesrelatingtotheGSTiswithregardtosupplychains.Atpresent, the supply chains are impacted byseveralforces,someintrinsictotheorganisation,somemarket-specificandsomefiscalinnature.Fiscalconsiderationshavehistoricallybeenakeydeterminantof supply chain structuring in India with manufacturing bases and distribution networksengineeredprimarilytoharnessfiscalbenefits.Theavailabilityoftaxexemptions/benefitsandtheprevalenceof differential taxes based on geographical locationshaveinfluencedthestructuringof supply chains, procurement patterns and distributionnetworks.TheproposedGSTwillsignificantlyimpactsupplychainsfromprocurement through manufacturing to distribution.Inessence,GSTpresentsbothchallenges and opportunities in this regard.

The existing indirect tax regime has severalcharacteristicswhichnegativelyimpact supply chains. These range from irrecoverabletaxessuchastheCST,complexdocumentationofinter-statemovementof goods, entry barriers at state borders resulting in long transportation times and impositionoflocalleviessuchasentrytaxesand octroi upon physical entry of goods into designated areas. These characteristics add to the cost of doing business in India.

GSTmovesawayfromorigin-basedtaxationtoadestination-basedconsumptiontax.This means that all taxation will be based on whereconsumptionofagoodoraservicetakesplace.Also,thetaxablesuppliesundertheGSTwillextendtoallinter-statemovementofgoods,includingonbranchorconsignment transfers not resulting in a sale ofgoods.Thishasmajorimplicationsforsupply chains of most companies.

These changes pose challenges for companies as to how they might engineer theirsupplychainssoastobeGST-efficient.It is probably fair to suggest that the longer the supply chain, the more the tax points intheGSTschemeofthingsandhenceincreased compliance costs. The challenge and opportunity is to thus compress supply chainsforGSTefficiencywhileensuringthatthebusinessobjectivesinandaroundsupply chains are also met. The dual GSTconsequentlyaffordscompaniessignificantopportunitiesforre-alignmentof procurement, manufacturing and distribution/sales patterns and to engineer their supply chains on purely economic considerationsasopposedtofiscalconsiderations.

The time is therefore opportune for companies to gear up to face the challenges andalsotoseizetheopportunitiesthatthetransition from the present tax system to the GSThasprovided.

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Tax issues faced by retailers operating in India

We present below some of the common business issues faced by players in the retail sector:

A. AcomplextaxstructurewithvaryingVATrates

SinceeachstatehasitsownVATlegislation,itisverydifficultforaretailcompanyoperatingonapan-Indianbasistoconfiguredifferent tax rates for a product. In addition, due to different tax rates, companies either havevaryingmarginsordifferentpricingfor each state. In addition, compliance requirementsunderthestateVATlegislation are not uniform, adding to the costofundertakingallcomplianceactivitiesbetween states.

TheVATsystemalsofacesachallengeinkeepingpacewiththevarietyandcomplexityofthenumberofjudicialpronouncements passed by the state governmentandtheSupremeCourt.

B. Withholdingtaximplicationsonmanagement/intercompany charges

Indian companies often enter into arrangements with their associated enterprisesoutsideIndiatoavailofcertaincommonsharedorpooledserviceswithinitsgroupsuchasHR,IT,finance,legal,trainingservices,etc.Thepurposeofenteringintosucharrangementsistoachieveeconomiesofscaleandavoidduplicationofworkforthegroupasawhole.Insucharrangements, each participant bears its proportionate share of the combined cost foravailingsuchcommonsharedorpooledservices.Typically,theunderstandingamong independent parties in such cases isthatthecost-sharingarrangementhasbeenenteredintoformutualbenefitandhence,eachparticipantisrequiredtomakea contribution only at actual cost. The tax authorities generally scrutinise such transactions to examine the withholding tax compliance on the payer of charges. Furthermore, tax authorities also examine

the taxability of these charges in the hands of recipient.

C. Withholding tax implications of discountsgiventodistributors

Largegroupsoperatingintheretailsectorgenerally enter into an arrangement with variousdistributorsforthedistributionoftheir products. The mechanism generally followed is that goods are transferred by the company to the distributors, who sell themtothefinalconsumer.Attimes,thecompanies offer special discounts to their distributorstobecompetitiveinthemarketandincreasetheirmarketshare.

Thekeytaxissueunderthesearrangements is whether the discounts giventodistributorsbythecompaniesisacommissionbynature,andsubjecttowithholdingtaxundertheprovisionsoftheAct.Animportantfactorindeterminingthe characterisation of the discounts giventodistributorsbycompaniesistherelationship between the distributor and the company, i.e. whether the distributor is operatingasanagent(anextendedarmofthecompany)orasanindependententityactinginhis/herownindividualcapacity.The terms of arrangement between the distributor and the company generally determine the relationship between the two. In cases where a relationship of agency is established between the distributor and the company, Indian tax authorities generallycharacterisethediscountsgiventodistributorsascommissionsubjecttowithholdingtaxundertheprovisionsoftheAct.Theclassificationofthepaymentstodistributors as a discount or commission is also important for computing the tax liabilityrelatingtonon-compliancewiththewithholdingtaxprovisions,leadingtothedisallowalofexpenditure.Also,therecouldbe tax, interest and penalty exposure.

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D. Withholdingtaximplicationsonthedistribution of gifts

In order to promote the business and increase sales, companies in the retail sectoroftenprovidetheiragentswithscratch cards, promotional offers or gifts. Theseagentsinturnprovidescratchcards,promotionaloffersorgiftstothefinalconsumer. What needs to be analysed in these arrangements is whether liability to withhold tax arises on the distribution of gifts, promotional offers or gifts under the provisionsofAct.

E. Obsolescenceofstock

Typically companies in the retail sector havetomaintainoptimumstocksofgoodsin order to run their business smoothly and meetthedemandforproductsinvariousgeographical regions across the country. Furthermore, the maintenance of optimum stocklevelsoffinishedgoodsissubjecttoqualitystandards.Ifthequalitystandardsare not met for any reason, e.g. the expiry of shelflifeoffinishedgoods,damageofgoodsintransit,etc.,thesefinishedgoodsneedtobe destroyed physically and written off. The taxauthoritieshaveinthepastdisallowedobsoletestockwrittenoffinthebooks,contendingthatobsolescenceofstockisnotan allowable business expenditure or loss.

F. Prepayment of sales tax deferral

VATlawsforvariousstatesprovidefordeferralandpackageschemesofincentives.Under these, an eligible company collects theapplicableVATfromitscustomersbutpaysittothegovernmentattheendofthedeferral period without interest, as part ofanincentivescheme.Thustheamountof tax collected by the eligible company servesasaninterest-freeloanuptotheperiodofdeferment.Thegovernmenthasalso introduced schemes in the past for the advancepaymentofVATonthebasisofthenetpresentvalueofVATpayableafterthedeferment period. Thus a difference arises

betweentheamountofVATcollectedbythecompanyandtheVATpaidbythecompanytothegovernment.

The tax issue arising on the payment of thepresentvalueofVATiswhetherthedifferencebetweentheVATpayableafteradefermentperiodandthepresentvalueofVATisacapitalreceiptnotsubjecttotax, or whether there is any remission or cessionoftradingliabilitybyvirtueofwhichthe difference becomes taxable under the provisionsoftheAct.

G. Taxdeductibilityofadvertisement,marketingandsalespromotionexpenses

Largecompaniesoperatingintheretailsectorincursignificantexpenditureontheadvertisingandmarketingoftheirproductsin order to create awareness among their potential customers. These expenses are incurred in order to promote sales, makeproductsmorecompetitiveandtofurtherpenetratethemarket.Companiesgenerally promote their products through advertisementsinprintortheelectronicmedia, by incurring expenditure on the sponsorshipofevents,andthroughdisplaymaterials and promotional schemes such as buy-one-get-one-free,etc.

Thetaxauthoritieshaveintherecentpastdisallowedexpenditureonadvertising,marketingandsalespromotionactivitieson the basis that it is capital expenditure, andtheyarenotmerelyactsofprovidinginformation about products, but also brand-buildingexercisesofenduringbenefittocompanies.Taxauthoritiesalsocontendthattheentireaimofbrand-buildingistosecurealargermarketshareand extract a premium from the customer. Thereforebyadvertising,companiesarebuilding intangible assets such as goodwill, reputation and credibility, which cannot be allowedasrevenueexpenditure.

H. CascadingeffectofindirecttaxespaidoninputservicesnotallowedtobesetoffagainsttheVATliabilityarisingfromsales of goods

Companies not engaged in the manufacture ofexcisablegoodsorprovidingtaxableservicesarenoteligibletooffsetanyinputservicetax.Thisinputtaxisusuallyasignificantcostforretailcompanies.

I. Customsvaluationsincasesofimportsfrom related parties

Cross-bordertransactionsbetweengroupcompanies are treated as transactions between related parties and closely scrutinisedbythespecialvaluationbranch(SVB)ofthecustomsdepartmenttodeterminewhetherthevaluedeclaredbythe importer is arm’s length. The entire processofdeterminationofvaluesbytheSVBistime-consuming,andduringtheinterim period the importer has to pay extra dutyonaprovisionalbasis.

J. Continuation of the Central Sales Tax

Underthepresentsystemoflevyingtaxesoninter-statesalesorpurchasesofgoods,the buyer is not eligible to credit input central sales tax charged by the seller in the originating state. This adds to the cost of procurements of the buyer. CST is intended to be phased out before the introduction of theGSTregimeinIndia,currentlyexpectedin2012-13.Intheinterim,CSTcontinuestocoexistwithstateVAT.

K. StrictcompliancerequirementsunderstateVATlegislation

TherearevaryingcompliancelevelsundervariousstateVATlegislationsandmostofthesearepaper-driven.Lately,stateshavestartedtomovetowardstheelectronicpaymentoftaxesandfilingofreturns.Anydefaultincomplianceresultsinthelevyingof interest and penalties.

Anotherimportantchallengeisthedocumentationrequirementinthecaseofinter-statemovementofgoods.Indiaisalargecountrywith28statesandseven

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unionterritories.ThevariousstateVATlegislationsprescribevarioustypesofdocumentation for bringing goods into the respectivestates.Complyingwiththeserequirementsisgenerallyachallengeforretail companies. In the absence of complete documentation,thereareprovisionsforlevyingpenaltiesandthedetentionofgoods.

L. Litigation

Since formal TP legislation was enacted in India, it has become the single largest sourceoftaxlitigationforMNCsinIndia.Incidentally, India contributes more than 70%ofglobalTPdisputesattribunallevelandabove.Wehavediscussedbelowacoupleofissuesthathavebeenfrequentlyraised by Indian TP authorities and are relevantforMNCsengagedintheretailbusiness.

OneofthemajorTPdisputesontransactions between principals and Indian distributorsistheissueofmarketingintangibles--whoshouldbeartheexpensesandenjoythefruitsofcreatingmarketingintangibles in the country of operation of thedistributors.Marketingintangiblestypicallyrefertobenefitsemanating from selling or distribution functions, e.g.trademarks,distributionor dealershipnetworks,customerlistsandrelationships, etc.

Oneofthekeyconceptshereisthatofthe‘bright line’, which is the general threshold limitofadvertisingandmarketing(A&M)expenses,reflectedasapercentageofturnover.Thisiswhatadistributorgenerallyincurs while selling products belonging to theprincipalmanufacturer.Thetrademarkrelating to the product is legally owned by the manufacturer and the distributor obtains a licence to sell the branded products in the designated territory. TaxadministrationshaveinvestigatedcaseswherethedistributorincursA&Mexpenses,generallyabovetheindustryaverageor‘brightline’.Theyaskwhetherthe distributor is actually carrying out

significantadditionalfunctionscomparedto other comparable distributors, and whethertheyshouldbeexpectedtoreceiveadditional rewards and remuneration, through any of the following:

• ReimbursementoftheexcessiveA&Mexpenditure by the principal, being the legal owner of the brand: In a casewherethesignificantpersonnelfunctionsrelatingtoA&Mactivitiesarecarried out by the principal and the distributormerelydevelopsthebrandandcreatesthemarketingintangiblesin its territory for and on behalf of the principal

• Profitsplitmechanism:Where significantpersonnelfunctionsrelatingtoA&MareperformedbyIndiandistributorsandmarketingintangiblesare created by these distributors on their own account. In this case, the distributor goes out of the realm ofbenchmarkingagainstnormaldistributors,havingcontributedsignificantnon-routineintangibles.

The tax administrator’s concern in such a situation is understandable, as there remainopportunitiesforthepassing-onofentrepreneurialprofitsrelatedtomarketingintangiblesbythedistributortothe principal, by loading on to the prices of imported goods and payment of brand royalties.However,theconceptisbeingappliedbytaxauthoritiesatlowerlevelsina mechanical manner without considering thefunctions,assetsandriskprofilesofthetransactingentities.Atthisstage,severalcases on the issue are pending before the tribunals and the outcome of this matter is difficulttopredict.

Inordertotacklethisissue,itiscriticalforcompaniestohaveawell-definedTPpolicythat clearly spells out the functions, assets andriskprofilesoftransactingentitiesandhavewell-draftedinter-companyagreements that echo the group TP policy.

AnotherissuefacedbyMNCsisinrelationto the disallowing by the tax authorities of royalty or franchisee fee payments. The taxpayerisrequiredtojustifythepaymentof royalty or franchisee fees, demonstrate theeconomicbenefitrealisedandprovethatservicesreceivedfromoverseasAEsarenotin the nature of shareholder or stewardship services.Theeconomicbenefithastobedemonstrated by submitting documentary evidenceforallservicesreceived,andtheirutility for the Indian business.

ApartfromaTPanalysisthatbenchmarkspaymentsforservices,itiscriticalfortaxpayers to set up processes to ensure that documentaryevidencetodemonstrateeconomicbenefitisreadilyavailableatthetime of the TP audits. This is critical for defending payments of royalty or franchisee fees before the tax authorities.

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3The PwC thought leadership report titled TheRisingElephant-BenefitsofModernTrade to Indian Economy indicates that liberalising the retail sector will result in threemajormacro-economicbenefits:

#1Reducing wastage

Managing wastage in India’s food supply chainisimperative.

Empiricalstudiesinemergingmarketeconomieshaveshownthatthegrowthoforganised retail results in the following:

• Technologytransfertoreducewastagein the food supply chain

• Improvementstothequalityofproduceavailableinlocalmarketssinceitcreates local distribution channels for produce

• Benefitstolocaleconomysincelocalsuppliers are engaged in it

• Morecompetitivelypricedproductsforall consumers

• Fresherproducewithhigherlevelsofhygieneandquality

• Producewithalongershelf-life

Likeotherdevelopingeconomies,India’ssupplychainisfairlyone-dimensionalandthereisverylittlevalue-addedactivity,since distribution remains fragmented and unorganised. India is a fragmented country with70%ofthepopulationresidinginruralareas. The ability to reach consumers and transportgoodstothemischallenginggiventhe absence of robust infrastructure and logistics.Duetothepresenceoflargelocaland multinational companies, India has a well-developednon-foodmanufacturingsupply chain.

Oneoftheargumentsinfavourofforeigndirectinvestment(FDI)isthatitwillusherintechnologiesandexpertiserequiredto build robust food supply chains. In the Indian food chain, from farm to

Moderntradebenefitsseveralstakeholdersandhelps create a more robust retail ecosystem

Liberalising the Indian retail sector benefits multiple stakeholders.

fridge,distributioninvolvesmultipleintermediaries and wastage during transportation and storage. The current foodsupplychainsituationinIndiaisweak:

• Existingintermediariescausedelaysand eat up a large portion of the earnings that essentially belong to the farmer, resulting in a chain replete with inefficiencies.

• Increasedwastagelevelsarebetween24 and 40%.

• Severalsmallstakeholders(farmers,wholesalers, food manufacturers, retailers)workinsilos.

• Alargeportionoffruitsandvegetablesarelostduetoinadequatepost-harvesthandling, cold storage, processing facilitiesandconvenientmarketingchannels.

• Hugequantitiesofgrainsarewastedbecause of improper handling and storage, pest infestation and poor logistics management.

India’s food supply chain is among the least developedintheworld.Itisachallengetounlockoperationalefficiencies,facilitategrowth,reducecostsandimprovethetimeittakesforfoodtomovefromthepointofmanufacture to the point of consumption. Tosolvetheseissues,robustandscalablesupply chains need to be built and the governmentneedstomakeappropriatelegislativechangestocatalysethistransitionin the food supply chain.

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#2Employment

RetailcanboostemploymentinIndia.

Modern trade emerged in the 1990s and is a relativelynewsectorinIndia.GivenIndia’sattractivenessasaretaildestination,foreignbrands,ifnotalreadyhere,plantoarrivesoon. In addition to global retailers, Indian incumbentshaveaggressiveexpansionplansintermsofgrowingtheirstorenetworks,launching new formats, entering Tier II and Tier III cities, etc. To staff their operations, retailerswillhiremillionsforfront-andback-officefunctions.Retailersarealsoinvestingintrainingandcreatingcaptivetrainingacademies.Othersarepartneringwith local business schools to create retail certificationcourses,wherestudentsareabsorbed into retailers’ operations after graduation.

FDIinretailwillgenerateemploymentsince new entrants will need to hire staff foroperations.Mostindividualscurrentlyemployed by unorganised retail players do notreceivehealthcare,educationalorotherbenefits.Onceindividualsareabsorbedinretailer operations, they can access more equitablewagesandbenefits.Theeffectof modern trade will be most apparent at the bottom of the population pyramid, as it willunleashopportunitiessuchasnon-agricultural employment for rural youth andbetterqualityoflivingfortheexistingagriculturalsociety.Retailcanbeanenablerfortheunemployedinurban,semi-urbanand rural India.

#3Sourcing

RetailcanstrengthenIndia’spositionasasourcing hub to the world.

Globalretailershavealreadybeensourcingproducts from India. Their presence in theIndianmarketwillenhanceexports

fromIndia,astheydevelopandleveragerelationships with local suppliers. The extent of sourcing from India will increase when global retailers are allowed to operateintheIndianmarket.PwC’sresearch indicates that China is the most important sourcing destination for many R&Ccompanies.Havingsaidthat,sincefactorslikequalitycontrol,riskprofiles,innovationcapabilities,logisticsandexisting relationships are also important, countriesliketheUS,Germany,China,India,andBrazilareconsideredsomeofthemost important future suppliers1.

Wal-Martplanstosource’hundredsofmillions of dollars’ from India2. In India, Wal-MartanditsIndianpartnerplanto locally source a range of agricultural products.“Wearealreadymakingacontribution to India’s agricultural sector byworkingwithalargenumberoffarmersinPunjab.IampleasedtoannouncethatBhartiWal-Martwillbedirectlysourcingfrom 35,000 small and medium farmers by 2015,”saidMikeTDuke,CEO,Wal-MartStores Inc.3

Retailerswhosourcelocally-madeproductscanavoidimportdutiesandpassonbetterpricestoconsumers.Globalretailersarenot the only winners in the sourcing game. Domesticretailerswhosourcelocally-madeproductscanmeetmarketneedsandremaincompetitive.

Some global food and grocery retailers aresourcinglocally-procuredfooditemsthatincludefruits,vegetables,poultry,fishand lamb, as outlined in the case example below.Theseparticipantsareworkingwithlocal suppliers and farming communities to improvequalityandhygienelevels,farmingand processing practices, etc.

Sector snippets

Products that can be sourced from India include but are not limited to the following:

• Accessories

• Apparel

• Babyproducts

• Foodandgroceryitems

• Footwear

• Furniture

• Textiles

• Toiletries

• Toys

1 PwC’s R&C Worlds Express, ‘Growth re-imagined-Succeeding on the world stage’ (May 2011)

2http://www.reuters.com/article/2010/04/14/us-walmart-india-idUSTRE63D04320100414

3http://articles.economictimes.indiatimes.com/2010-10-26/news/27615345_1_bharti-wal-mart-retail-sector-rajan-bharti-mittal

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ThebenefitsofmoderntradetoIndiaaremanifoldandwillpositivelyimpactseveralconstituencies, as outlined below:

#1Consumers

Choice,improvedqualityoflife,betterpricesmeanmoresatisfiedconsumers.

Thegrowthanddevelopmentofmoderntradeushersinseveralbenefitsforconsumers, some of which include better prices, increased product choice and an improvedqualityoflife.Consumersareexperimenting with products, brands and categories, and are trading up in their purchases, wanting to use products of good quality.Moderntraderetailers,ontheirpart, will also help consumers understand howtouseproducts(e.g.,skincreams,consumerdurablesandelectronics,etc.).This ongoing ‘education’ from retailers to consumerswillenablebuyerstoimprovetheirknowledgeandunderstandingofproductsandproductbenefits.

Modern trade will enable consumers to benefitfromthefollowing:

• Pricerationalisation:Greatersupplyof products, increased competition, new product launches, etc., increase theflowofproductsintothemarket.Asa result, prices tend to fall and become morecompetitive.Locallysourcedproducts(leather,footwear,apparel,accessories,etc.)arecompetitivelypricedandpricebenefitscanbepassedontoIndianconsumers.Asmoderntradedevelops,retailerswillbeabletosourceingreatervolumesandwillbenefitfrommoreagileandcost-competitivesupplychains.Thiswill enable them to pass on price efficienciestoconsumers.

Modern trade benefits several constituencies.

• Azerotolerancepolicyfordefectiveproducts: The growth of modern trade enables the entire retail ecosystem to evolveanddevelop.Here,bettercustomerservicepoliciesarecreated,staffistrained to focus on customer satisfaction, companiesofferingqualityproductswithvaluesucceed,etc.Weobservethatasthemarketevolvesandbecomesmorecompetitive,consumersbecomemoreawareoftheirrightsandarevocalwhen products do not meet their stated objectivesorvaluepropositions.Thisushersinnewtolerancelevelsforbothefficienciesandinefficiencies.This,inturn,enhancestheoveralleffectivenessof the retail industry in terms of new business practices, the pace of innovation,theavailabilityofproductsandservices,etc.

• Betterquality: Modern trade helps improvethequalityofproductssuppliedby retailers, due to competition, new entrants,etc.Whenlookingatthefoodsupplychain,weobserveseveralbenefitswhen modern trade participants are able to interact directly with farmers. Modern trade players transfer best practices in grading, sorting and processing techniques,helpreducethenumberof intermediaries, stabilise wages for farmers,reducefinalpricespaidbyconsumers,etc.Thus,hygieneandqualityoffoodimprove.

• ‘Lifestyleparity’:Liberalisationinthe 90s, globalisation, exposure to the Internet and increasing incomes havefueledconsumeraspirationsandthedesireforbest-in-classproducts.Consumers in India now want access to thesameproductsandservicesavailableoverseas.This’me-too’attitudehasresulted in consumers demanding better products,thishelpingequalisestandardsoflivingbetweencountries.Thisparityinproduct choice boosts consumption and helpsleveltheplayingfield.

#2Government exchequer

Moderntradeplayersaretax-compliantandlarge tax payers.

The organised and unorganised retail sectorsdiffernotonlyintheirsizeandinfrastructure but also in terms of their contributiontothegovernmentexchequer.Collectingrevenuefromtheunorganisedretail sector is a challenge for authorities:

• Kiranastoresandkiosksarelocatedacross urban and rural India.

• Streetvendorsandruraloutletsdonothaveapostaladdress.

• Mostpeoplewhoownandoperatethesestoresorkiosksdonothavebasiceducation.

Sector snippets

The PwC study entitled TheBenefitsofModernTrade to Transitional Economies indicates that in a democracy, one of the fundamental tenets of progressive policy changes is that the main beneficiarymustbetheconsumer. It is essential that nations, as they embark upon more sophisticated economic policies, should notbeinfluencedbythepoliticisation of issues. The government can help serve as a catalyst towards providing consumers with access to products that improve the qualityoflife.

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TheBenefitsofModernTradetoTransitional Economies puts forth the following:

• Itischallengingtomakekirana owners aware of tax laws and unrealistic to expect them to come forward and comply with tax obligations. In addition,theavailabilityofexemptionor composition schemes enabling small retailerstoeffectivelynotpayVATofanysignificanceleadstoalargenumberof retailers not contributing much to theexchequer.Thereisalsotherelatedissue of such schemes facilitating possibletaxevasion.Organisedretailers, on the other hand, are both tax-compliantandlargetaxpayers.Giventheirsignificantlylargerturnover,thereistypicallynomeansbywhichtheywillbeabletoavoidtaxes.

• Theorganisedretailsectoralsofacilitatesthegenerationofsignificanttaxrevenuesbybuildingarobustand sophisticated supply chain which impacts the logistics, transportation, warehousing, freight forwarding and othersimilarservicesectors.Thesecontributetotheexchequerthroughthe payment of indirect taxes, primarily theservicetax.

#3Farmers and producers

Farmers will become integrated in the food supply chain.

AmajorchallengeinIndia’sfoodlandscapeisthefarm-to-forksupplychain,characterisedbyhighinflationlevels,severallevelsofintermediaries(eg.,agents,middlemen),highwastagelevels,etc.Totalfoodinflationremainsaconcernrevealingshortcomingsindistributionandmarketingsystems. Farmers are not being paid fair marketvalueandconsumersarepayinghighprices.SeveralstudieshaveindicatedthatIndiacanbecomethefoodbaskettothe world if it addresses fundamental issues in its food supply chain. These include high inflation,inadequatesupplyanddelayedfreshness.

ThemajorityoftheIndianpopulationresidesintheruralareas.Duetoissueslikelongdistances,inadequateinfrastructureand the absence of a robust supply chain andlogistics,thefreshnessandoverallqualityofthefoodisaffected.

Establishinganefficientsupplychainthatlinksfarmersandsmallmanufacturers(whohavelimitedinfrastructureordistributionstrength)directlywithretailerswillmaximisethevalueforallstakeholders.Togetherwithback-endinfrastructure,thiswillminimisewastage(especiallyforfreshfoodsandvegetables),increasefarmers’realisations, encourage best practices in cropmanagementandimprovefoodsafetyand hygiene.

Moderntradeplayerswillbeabletoworkmorecloselywithfarmerstoprovidetraining in terms of best practices related to harvesting,demandforecasting,weighing,cleaning,gradingandsorting,shelf-readypackagingandworktowardscuttingintermediaries and also automising and mechanisation. This will cut cost, increase shelf-life,preservefreshness,increasehygieneandquality.

Onrecognisingthatfoodinflation,qualityoffoodanditssupplyaremajorissues,India’sfinanceminister,throughtheunionbudget2011-12,putinaseriesofmeasuresaimedatimprovingthecountry’sfoodecosystem;some of which include the following:

• The state governments have been advised to review and enforce a reformed Agricultural Produce Market Committee Act (APMC Act): CreatingaunifiedagriculturemarketinIndiawillfacilitatefarm-to-forkintegrationandenhanceefficiencies.ReformingtheAPMCActwillenablethe following:

- Enabledirectinterplaybetweenfarmers and modern trade players

- Reducethelayersofintermediaries in the supply chain

- Reducewastagelevels

- Enablefarmerstogetafairprice

- Reducefinalpricespaidbyconsumers

• A series of allocations has been made for the agriculture sector which spans access to credit, interest subvention, encouragement ideas like the Green Revolution, production of palm oil and pulses and organic farming, etc.: Many of these allocations ought to increase farm production, enable farmers to access greater funds and raw materials,rewardthosewhopaybackloans in a timely manner with interest subvention,generatefurtherfoodprocessing gains with the establishment ofmegafoodparksandencouragethedevelopmentofstoragecapacityandcold chains.

• The government proposes to recognise cold chains and post-harvest storage as an infrastructure sub-sector: The placement of cold chain and post-harveststorageasasubsectorininfrastructure will enable companies to

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secure better loan terms from domestic banks.Thiswillresultincapitalinfusion which can be used to expand operations.

Partnership models that can be explored between farmers and modern trade include the following:

• Contract farming: Contract farming is likelytoimprovefoodsafetysincelargecorporates will partner with farmers to teach them best practices in crop management and food safety. This will helpdecreasethehazardsassociatedwithfreshfoodsandproduce.Also,cold chain facilities which refrigerate foods,robusttransportationnetworks,etc. will also help maintain the freshness of foods and reduce health risks.

• Cooperative models: Farmers, retailersandagri-universitiescanexplore partnership models. Through collaboration,stakeholderscansharebestpracticesinharvesting,cropmanagement,soilconservationandprotectingtheenvironment.

In addition to farmers, small and medium scaleindustrieswillbenefitfromthereachand distribution potential offered through organisedtrade.Oneofthemainchallengesfacedbysmallerentrepreneursistodevelopdistributionstrengthinthelocalmarket.Also,creatingapresenceinothercities,statesorregionsisachallenge.Localentrepreneurswillbenefitbysupplyinggoods to modern trade players who buy in bulkanddistributegoodstooutletsacrossIndia. Small and medium scale participants will be able to extend the reach and presence of their products, across India, relativelyquickly.

#4Unorganised mom-and-pop stores (i.e., kiranas)

Organisedandunorganisedparticipants canco-existpeacefully.

India’s retail sector is large enough to accommodate both organised and unorganisedparticipants.PwCbelievesthatkiranas can exist alongside modern trade players and can explore partnership models inarapidlychangingretailenvironment.Modern trade players, on the other hand, aresubjecttohighoperatingcostsintheform of renting land, employing people, payingforair-conditioningandbrightlighting,makingcapitalinvestmentsinITsuch as retail software,

Most kiranas are owned and managed by small business owners and their families. Kirana stores are typically located in good catchmentareas,andinadditiontohavinga detailed understanding into consumer behaviourinthatarea,havevirtuallynooperating costs. The operators often own the land their shop is located on and use household labour to operate the store.

CEOsofleadingretailcompanieswhoparticipated in TheBenefitsofModernTrade to Transitional Economies believethat as modern trade grows, kiranas will continuetobeamajorpartofIndianretail.Case studies of other transitional economies indicate that globally, both organised and unorganisedretailcanco-existgiventhedifferentvaluepropositionsthatareoffered.Participants in the Indian retail sector believethatthiswillalsooccurinIndia.

Toadapttothedevelopingretailsector,kiranascanexploreavarietyofoptionstoupgradethemselvesandinsomecases,partner with modern trade players:

• Limitedavailabilityofcreditisamajorconstraint for kiranaswhoarelookingto expand and upgrade operations. The governmentcanconsiderproviding

kiranas access to credit and other means through which they can grow inanenvironmentthatisincreasinglybecoming modernised.

• Kiranas,inordertoavailofcompetitivelypricedproducts,canenter into sourcing agreements with modern trade players for food and grocery items. This reduces costs and helpsthemoffercompetitivelypricedproducts to the customer base.

• Kiranas can also become franchisee partnerstoretailersandbenefitfromretailers’ supply chains, promotional assistance and offers to train and upgradestaffskills.Thismechanismallows kirana owners to become a part of a larger brand and this in turn, improvesbrandimageandbuilds brandequity.

Astheretailsectordevelops,operationsof unorganised players will become moreprofessionalastheyimprovetheirmerchandising.Theirsalespersquarefoot will also increase. With time, these mom-and-popstorescanalsoevolveintobecomingconveniencestoresandminisupermarkets,fromwheretheywillsource and procure their products from wholesalecash-and-carrystores.Theycanalsoorganisethemselvesintobuyingcooperatives,therebyimprovingnegotiationpowerswithsuppliers.Overtime,theiruniquesellingpropositionwillbeasfollows:

• Offeringatargetedassortmentofgoodsto meet the needs and preferences of consumers in the local catchment area

• Providingasuperiorlevelofpersonalisedcustomerservicewithdeepinsightsintolocalbehaviourswhich larger players may be unable to replicate

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#5Small vendors

Smallvendorscanalsobeintegratedintomodern trade.

Headloadvendorsareaparticularlyvulnerablegroupsincemanyaremiddle-aged widows or women with little family support.Theyearnsmallprofitmarginsandare impacted by sales from food and grocery stores,modernorunorganised.Amajorassetofheadloadvendorsistheirmobilitysincetheytraverseareasonfoot.

Mostheadloadandpushcartvendorsrequirecredittofundtheirworkingcapital.However,smallvendorsareoftenunableto access credit due to issues pertaining tohighinterestratesandlackofaccesstocreditsocieties.Creditisrequiredtofunddailyandlonger-termworkingcapitalneeds, smooth out sales and seasonal fluctuationsandalsofundfamilyneeds.Somecompaniesareembarkinguponthefollowinginitiativesthatinvolveworkingwithheadloadandpushcartvendors:

• Providingmarketingandbrandingassistance

• Providingback-endassistancetosmallvendors

• Offeringmicrofinanceasameanstoupgrade operations

Several constituencies are positively impacted by modern trade

Farmers/producers Consumers Government exchequer

Unorganised trade

InefficienciesinIndia’s food supply chain

• Severallayersofintermediaries

• Highwastagelevels(24-40%)

• Lowerthanfairmarketvaluepaidto farmers

• Highfinalpricesfor consumers

• Agentscontrollingprices

Modern trade improvesthequalityof life

• Greaterchoice• Morecompetitive

prices• Betterqualityof

food products for modern trade players to transfer best practices to local farmers

• ’Lifestyleparity’where Indian products are similar to those availableoverseas

Increasedtaxinflowsfor the government

• Organisedandunorganised trade that is different instructure,sizeand in terms of taxes paid to the exchequer

• Thechallengeofrevenuecollection from the unorganised retail sector

• Tax-compliantmodern trade players who are large taxpayers

Kiranas as a major part of India’s retail sector

• India’slargeretail sector that accommodates both organised and unorganised trade

Farmersbenefitfrommodern trade.

• Wastageisreduced.

• Incomeflowfor farmers is stabilised.

• Thequalityoffruits, produce, dairy, poultry, etc. isimproved.

• Farmersareintegrated into modern trade.

Consumersbenefitfrom modern trade

• Inademocracy,a fundamental tenet of progressivepolicy changes is that the main beneficiarymustbe the consumer.

• Aseconomiesevolve,governmentsshouldprovideforinclusivegrowthand minimal displacement.

The government benefitsfrommoderntrade.

• StateVATrevenuesincreaseas modern trade grows and develops.

• Moderntradehelpsdeveloprelated sectors (supplychain,logistics, cold chain,etc.).Companies in these sectors contribute to theexchequerinterms of indirect taxes.

Unorganised trade benefitfrommoderntrade.

• Kiranas can source food andnon-fooditems, essential for operations, fromcash-and-carryproviders,benefittingfrombulkdiscounts.

• Kiranas can become franchise partners for modern trade players’ neighbourhood format.

Source: PwC’s The Benefits of Modern Trade to Transitional Economies

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4#1Securing the right retail real estate

Retailersbelievethatthekeytosuccessliesin choosing the right real estate.

India’s real estate sector is witnessing high demand across categories such as hospitality,commercial,retail,etc.Severaldemandandsupplyfactorsinfluencethegrowth of real estate in India:

Succeeding in India’s retail sector is a combination of choosing the right retail real estate, localising products and mastering the supply chain

Retail is a long-term play in India and success is a combination of several factors.

Demand pull factors

• Robustandsustainedmacro-economic growth

• Surgeinindustrialandbusinessactivity

• Favourabledemographicparameters

• Significantriseinconsumerism• Rapidurbanisationand

nuclearisation• Availabilityofeasyfinancing

options

• Increasingnumberofoccupiers• Significantriseindemandfor

officeandindustrialspace• Demandfornewavenuesfor

entertainment, leisure and shopping

• Creationofdemandfornewhousing

Supply push factors

• Policyandregulatoryreforms• Positiveoutlookforglobal

investors• Fiscalandtaxincentivesto

developers• Simplificationofurban

development guidelines• Infrastructuresupportand

development initiatives from the government

• Entryofseveraldomesticandforeign players, increasing competition and consumer affordability

• Easyaccesstoproject-financingoptions

• Increaseddevelopers’riskappetiteand large-scale development

• Improvedqualityofrealestateassets

• Developmentofnewurbanareasand effective utilisation of prime land parcels in large cities

Factors impacting real estate in India

Impact Impact

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Good quality retail real estate is a fundamental aspect of retailer operations and important from several aspects:

Location • Developingcatchmentareasofferfavourableretailinfrastructure

• Easyaccesstoconsumers

• Wherethereisdemandforretailspaceandlimitedsupply

• Goodinfrastructurefaciliteslikeconnectivity,power,water,etc.

Features • Goodfrontage

• Sufficientparkingfacility

Government policies

• Governmentinitiativestoencourageorganisedretailsector

• Governmentregulationintermsofapprovals,projectdevelopmentstandards,etc.

• Supportfromlocalshopkeepersandkirana stores

Contracts and agreements

• Tie-upswithreputeddevelopers

• Contractswithefficientfacilityandpropertymanagementcompaniesformaintenance

Afewyearsago,therewerenotenoughretail real estate options and retailers were forcedtorent(high-priced)spacethatskewedtheirprofitabilitymetrics.Today,the scenario is different. Presently, there are many shopping malls in metros with little differentiation in terms of the brands present(giventhattheretailsectorisnotyetfullyliberalised).Todevelopastrongnational presence, one has to choose the right location. Your choice depends on the availabilityofland,consumerneeds,thetypeandavailabilityofproducts,etc.

Positivemarketandconsumersentiments,the entry of foreign brands, incumbents’ expansion plans and increasing hiring needs aredrivingthedemandforretailspaceinTier I cities. Consumer aspirations, higher incomesandbetterproductknowledgeagainstthebackdropofindustrialgrowthandexpansionensurethatseveralretailersare planning to expand operations to Tier II and Tier III cities as well.

Selectedmajorretailrealestateformatspresent in India include the following:

• Five-star hotels: These are most often used by luxury brands where accessing the ‘right’ customer is important (affluenttravelers,well-heeledIndianconsumers,etc.).Indiaalsohasa‘hotel culture’ where families gather at hotels for meals, wedding celebrations, festivals,fashionshows,soirees,etc.Luxurybrandshavecapitaliseduponthistotargetconsumerswhofrequenthotels for recreational and lifestyle pleasures.

• High streets:Highstreetsareamainpart of India’s retail landscape with someofthemostexpensiverentalsincitieslikeDelhiandMumbai.TheyarealsoamajorpartofthetraditionalIndianshoppingexperience.Highstreets that used to offer a range of India-madeproductslikeslippers(jootis), cloth bags (jholas), trinkets,etc.areslowlygivingway

tohighstreetsthathavestand-alonestores from premium Indian and global brands.

• Malls: Largeregionaldevelopersareexpanding their reach and launching malls in newer regions. For example, onelargewestIndia-basedmalldeveloper,accordingtomediareports,is planning to open new malls in south India.Malldevelopersarestartingtolaunch mall chains and are focusing on building their brand, ensuring strong anchor tenants are in place, etc.However,mostmallsinIndialackdifferentiation, an offshoot of the country’sregulatoryframework.

• Discount malls: Valuemallsarealso expanding their presence in the Indian retail real estate sector. Some valuemallsstraddleadouble-edgedpositioning of both premium and mass fashion brands. These malls offer large discounts throughout the year, thereby encouraging consumers to feel that any time is a good time to shop! These malls also hold a range of promotional activitiestoensurelargerfootfalls,especiallyaroundfestivals.Valuemallsthat offer the following are doubling footfalls,drivingsalesandincreasingrevenuesfromnon-shoppingareas:

- Vastfoodcourtsthatofferarangeof cuisines

- Largemultiplexeswithseveralscreens that offer tiered pricing structures

Source: ibef, Kinghtfrank report on retail

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- Familyentertainmentareasorkid-zoneswhichoffervideogamesandotheractivities

• Hypermarkets: This format is becomingpopularwithcash-and-carryoperators as well as those in food and grocery. Usually with a mix of40%foodand60%non-food,hypermarketsenableretailerstogenerate greater returns from the highermarginsonnon-foodcategorieslikeelectronics,houseware,homegoods,apparel,etc.TheImagesRetailReport2011indicatesthatwitha40-60mixoffoodtonon-food,retailersshould yield a blended gross margin of 18 to 19%. Most modern trade foodandgrocerymajorshavealreadystarted increasing their presence in the hypermarketarea.Onelargefoodandgroceryoperatorplanstoopenover20hypermarketsoverthenexttwotothreeyears,coveringmostlyTierIandTierIIcities.Anotherfoodandgroceryretailerplansto‘aggressively’increasebothitshypermarketandsupermarketpresence,aswellaspushitsprivatelabel products, planning to increase by50%theportionoftotalrevenuederivedfromprivatelabels.

• Luxury malls: India’s luxury malls includeDLFEmporio(Delhi),UBCity(Bangalore)andThePalladium(Mumbai).Whenthesemallsopenedtheir doors, many luxury brands quicklyassumedspaceinthem.Thesemulti-tieredmalls(frescoedceilingsandvaletparkingincluded)enableluxurybrandstoconveytherightimage, attributes and positioning. Yet, these malls face the following issues:

- Duetospaceconstraints,insomeluxury malls, premium brands and luxurybrandsvieforconsumerattention.

- Someluxurymallshaveopen-airentertainment, recreational areas and food courts. These food courts offer a range of dining options to attractconsumersotherthanjustpure-playluxuryconsumers.Thisoftenattractsnon-pureluxuryconsumers too.

Today,arangeofactivitiesareoccurringwith regards to the retail real estate scenario.

• The convergence of hospitality, residential, retail and commercial spaces: Developersarelaunchingmixed-usespacetodrawfootfalls,meetconsumerneeds,providearangeofconvenientofferings(e.g.,offices,multiplexes,shop,live),etc.Thesemixed-useareasarebeinglaunchedeitherasstand-alonepropertiesorwithforeignjointventurepartnerswhohavespecificareasofexpertise(e.g.,managingserviceapartments).Developersarepositioningtheseofferingsasworld-classintermsofconnectivity,infrastructure,shoppingand customer experience.

• Development of large gated communities: Thedevelopmentoflarge-scalegatedcommunitiesacrossIndia’s urban centres has led to the growth of retail real estate, mainly malls.Thesemallshaveestablishedoperations near gated communities in ordertoservethethousandsofpeopleresidingintheseareas.Also,thereisan absence of modern trade shopping formatsduetodifficultiesinfindinglarge enough spaces to accommodate these buildings.

• Large number of malls slated to become operationali: AttheendofQ32010,NCR-DelhiandMumbaihave70%ofthetotalretailspacecontributed by shopping centres in India.Thesecitieshouse127ofthe192shopping centres currently operated

inIndia.BangaloreandKolkatahavearetailstockof3.8to3.9millionsqftrespectively,followedbyHyderabad,Pune and Chennai. In addition to shopping centres, high streets with stand-aloneoutletsofestablishedbrandsareprevalentacrosscities. 65shoppingcentres(24millionsqft)are expected to become operational duringthenextfivequartersofthefourthquarteroffiscalyear2010to2011crossthetopsevenmetropolitancities.IncreasedconstructionactivityisoccurringinTierIImarkets,whicharerelativelyunderserved.

• Revenue sharing modelsii:Arecenttrendistheemergenceofrevenue-sharing where the retailer and developerdetermineaportionofrevenuethatwillbepaidasrent.Thishelpsminimisethedownsideriskandenablesbothpartiestoshareprofits.Manyretailerswereabletore-negotiaterental rates after a brief period of a slowdown,askingforrevenue-sharingmodels.

Anchor stores: Revenue share %

Category Revenue share

Hypermarket 3-4

Department stores 7-8

Source: Jones Lang LaSalle, ’Indian Real Estate: An Outlook on Industry Trends’. 2011

Vanilla stores: Revenue share %

Category Revenue share

Apparel 12-18

Footwear 15-18

Jewellery 2-2.5

Health and beauty 10-12

Food 15-20

Entertainment 8-10

Source: Jones Lang LaSalle, ’Indian Real Estate: An Outlook on Industry Trends’. 2011

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#2Localising products to delight and excite Indian consumers

R&D,innovationandnewproductdevelopmentareemergingaskeydrivers ofsuccessforR&Ccompanies.Asapartofthis effort, product localisation has emergedasadriverofsales,customerexcitement, customer interest, etc. Indian consumers, while they want access to the sameproductsavailableoverseas,alsowant to feel that a product has been created especially for them.

Localisationcantakeseveralformswhichinclude but are not limited to the following:

• Creating and launching products specificallyforIndianconsumers: Creating products that appeal to the localmarketandadheretoculturalsensitivities(e.g.,notservingbeefinrestaurants)canboostsales.

• Creating a store layout to appeal to Indian consumers: Some global food andgrocerycompanieshaveinstalledlarge open containers in their stores filledwithpulsesandgrains.Thisisbecause Indian consumers typically liketotouchandfeelproductsbeforescooping out the desired amount and placing it in a plastic bag.

Luxury

Accessories JudithLeiber LeiberandIndiandesignerSuneetVarmahavepartneredtocreatealineofminaudieresthatreflectIndia-inspiredmoods,motifsandpatterns.

Fashion and accessories

Aglobalfashionandaccessories brand

ThisglobalbrandintroducedalimitedcollectionofbagsandshoesfortheIndianmarket.

Consumer durables and electronics

Media tablets AnIndia-basedconsumerelectronics brand

Thecompanylaunchedanewrangeoftabletsinearly2011.PositionedasIndia’sfirsttabletwithlocalisedcontent,itwascreatedwiththeIndianuserinmind.Thecompanyalsostrengtheneditsback-end systems to support the product through its lifecycle.

Consumer durables and electronics

AnAsiaPacific-basedconsumer durables and electronics brand

The company’s website indicated that it has launched a range of products customised for India. The companyunderstandsthehabitsofthemodernIndianconsumerandhasdesignedproductskeepingthesespecificationsinmind.

Quick service restaurants

Menu items GlobalQSRbrands Increasing incomes, the growth of dual income households, the desire to experiment with different cuisines,busylifestyles,etc.drivethegrowthofIndia’sQSRmarket.GlobalparticipantsintheIndianmarketarewitnessingdouble-digitgrowthrates,astheyhavelocalisedtheirproductstosuitIndianconsumers.QSRbrandsdonotservebeef,haveincreasedtheirassortmentofvegetarianofferings,uselocalingredients(e.g.,cottagecheese)andflavours,launchedspicyranges(tocatertotheIndianpalate),etc.

Food and beverages

Savoury snacks, carbonated and non-carbonated beverages

GlobalF&Bbrands InordertoappealtotheIndianconsumer,twolargeF&Bcompanieshavecreatedofferingsinsavourysnacksandbeverageswithalocalappeal.TheyhaveevengivenIndianisednamestotheproducts.

• Making adjustments to certain production or food preparation practices: This is perhaps most appropriateforquickservicerestaurant(QSR)companies,whonotonlyavoidservingbeefproductsinIndiabuthavealsoestablishedseparatevegetarianandnon-vegetarianfoodpreparationlines in outlets.

Following are the examples of localisation forboththeR&Csectors,acrossarangeofbrands, categories and also price points.

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Localisation is closely related to the idea of R&D and innovation. Investing in future ideas and technologies will help create game-changing products which in turn change the dynamics of the marketplace. A range of R&C companies, especially those in the fast-moving consumer goods sector, plan to increase their R&D spend in the current and upcomingfiscalyears.CompanieswhohavesetupR&DandinnovationlabsleverageIndia’stechnicaltalentandensurethattheyproduceforlocal,Asia-Pacificandglobalmarkets.

Beauty care and cosmetics

Consumer electronics

FMCG The Hindustan Unilever Research Centre (HURC) was established in 1967 in Mumbai. It focusses on non-edible oil seeds, infant foods,perfumerychemicals,finechemicals, polymers and nickel catalyst. Over the years, HURC

Lenovo maintains a global marketing centre in Bangalore. Professionals from different backgrounds including marketing, creative, software, analytics and research work at the hub. The analytics team in Bangalore works on understanding the Lenovo customer

Quick service restaurants

Yum! Restaurants, the owner of brands like Kentucky Fried Chicken, Pizza Hut and Taco Bell, created the Food and Innovation Technology (FIT) Centre in Gurgaon, to invest in R&D and innovation. Yum! holds ‘innovation days’ twice a year where stakeholders and departments come together to create out-of-the-box ideas. Promising ideas are then tested to assess viability. From this point, new product meetings take the process forward where products selected on the innovation days are taken

i http://www.hul.co.in/careers-redesign/carreerschoices/researchanddevelopment/OverviewofResearchCentres/ii http://timesofindia.indiatimes.com/articleshow/7289240.cms?prtpage=1iii http://articles.economictimes.indiatimes.com/2011-04-06/news/29388975_1_innovation-centre-innovation-labs-innovation-process iv http://articles.economictimes.indiatimes.com/2011-04-06/news/29388975_1_innovation-centre-innovation-labs-innovation-process

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In January 2011, Jean-Paul Agon, CEO, L’Oreal indicated, “…India is really at the centre of strategy for L’Oreal for the next 20 years. After the crisis, we have redirected our strategy to certain key priorities such asrecruitingonebillionnewconsumersaroundtheworld.Definitely,wearegoingtofindmanyoftheminIndia.Numbertwopriorityisinnovation and India will play an important role here as well. We are going to create a new R&D centre in India to help the team accelerate

innovation for India and for the world. But the third very important aspect of our strategy is to accelerate our international expansion. For this, we need talent. India will be a great source of talent for L’Oreal, not only for India but also for the world… We are going about our innovation process to make and design products relevant for Indian consumers. Our ambition is to increase market share every year.” ii

hashelpedcreatenewbrandsandbuildnewbusinesses.Significantimprovements were made to manufacturing processes too. HURC’s breakthrough innovations include structured bar soap, fairness cream, zeroalcoholsoap,poly-coatedscouringdishwashingbar,fortifiedsalt, instant tea, critical components for a water-purifying device, andvalue-added(naturecare)tea.Manyofthesereceivedsignificantsuccess in the marketplace. At the same time, HURC became recognised

as one of the six global R&D centres of Unilever with the creation of Unilever Research India in Bangalore in 1997. Towards the end of 2006, with the construction of an additional set of laboratories, all the research programmes in India were integrated into a single research establishment of Unilever Research Bangalore.i

throughthestagegateprocessforfurtherfine-tuning.Testrunsare done in real-life situations to assess the viability from several perspectives(e.g.,flavour,servingportions,servicetimetaken).Vijay Sukumar, director R&D and QA at Yum! Restaurants India and head of FIT, elaborates, “It is the backbone of the innovation process and involves going through a stage gate process of approval and calibration… It also led to a few interesting learnings—the consumer still wants to share the pizza and keeping it an uncut big round pizza, as per the original plan, was not well received. Thus, the pizza was

cut and served in four pieces.” FIT has also enabled Yum! to identify market gaps. For example, KFC launched Sparklers (from the KFC’s Krushersrange)sincethiswasidentifiedasaproductthatcouldhelpget many vegetarians, traditionally not KFC-goers, into the brand’s fold. It was also introduced in India keeping climatic conditions in mindandthepricepointsforfirst-timeusers.Also,consumerpatternswere observed at pubs and bars to help hone in on new product offerings.iii

byassessingpurchasebehaviour,transactionhistory,frequencyof purchase, value of purchase, etc. The hub works closely with the company’screativeagencytofine-tunecommunicationforIndiaandglobal markets. “The traditional way of doing marketing was taking up precious dollars and the idea to decentralise the function took root… We will be launching a master brand campaign across the globe soon.

The guidelines for creative work, tactics for local adoption, brochures, direct mailers, microsites, websites--everything will be done from here. The local markets can then take the prototype and adapt it to the local market before rolling it out,” said Ajay Kaul, executive director, marketing services worldwide, Lenovo. The hub manages over 5,000 marketing jobs from all over the world. iv

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Category: Premium fashion jewellery Swarovski:ProvidingIndianconsumerswithstylishjewellery

Sector snapshot

Company profileSwarovski:EnablingIndianwomentoaccessmodern,fashionaccessories

India’s gems and jewellery sector is growing at a CAGR of 15 to 20% per annum…

India is one of the largest consumers of gold. Traditionally, Indians havealwaysbelievedgoldtobeasoundinvestment.Weddingsandfestivalssawgoldjewellerythatwasnotworneveryday,givenitsornate nature.

Indianscelebratenumerousfestivalsthroughtheyearandconsiderthemanauspicioustimetopurchasegoldandjewellery.Sincegoldandjewelleryarethemostpopularfestivalgifts,retailersinIndiaareembarkinguponpromotionalactivitiestomaximiserevenuesduring this time.

WhileformostconsumersjewelleryisconsideredaninvestmentIndianwomentodayaredemandingjewellerymadefromamixofmetals(silver,whitegold,platinum)andsemi-preciousstones. Theywanttowearlighterjewellery,everyday,whichisalsoeasieronthepocket!

Growth rates for Swarovski’s Indian operations…

Swarovskihastwobusinessunits:crystalfigurinesandpremiumfashionjewellery.Here,wefocusonSwarovski’sjewellerybusiness.

SwarovskienteredIndiain2000andtookafewyearstounderstandthemarketandhelpIndianconsumerslearnaboutitsfashion-focussedjewellery.From2008onwards,salespersquarefoothavebeen growing strongly and are at par with growth rates in selected AsiaPacificmarkets.Globalandregionalleadershiparefocussed ongrowingtheIndianmarket.

… are in excess of its global growth rates!.

GiventhattheIndianbusinessisgrowingatahealthyrate,Swarovskihastwomaingoals:

• Increaseitsstorenetwork(i.e.,distributionpresence)

• Buildbrandawareness(i.e.,becomethetop-of-mindchoiceforIndianwomenlookingforpremiumfashionjewellery)

…and is exhibiting strong growth potential in the premium and fashion jewellery segment.

Indianwomenwantjewellerytheycanweartoluncheons,dinners,soirees, etc. The emphasis is on style, modernity, global appeal, quality,andbrand.

SeveralfactorsareenablingIndianwomentonotthinktwicebeforespendinghundredsofrupeesonpremiumjewellery:

• GDPgrowthandanincreasingnumberofwomenenteringtheworkforceareenablingIndianwomentospendonpremiumjewellery.

• Indianwomenaretravellingabroad,readinginternationalfashionmagazines,lookingatglobalfashiononlineandchoosingmorecontemporaryproductstoreflectamoremodern lifestyle.

• Theincreasedadoptionofwesternwearhasfuelleddemandfortrendyjewellery.Theseaccessoriescomplementwesternapparel and are appropriate to wear to many personal and professional settings.

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Winning in India’s retail sector 45

Offeringthebestvaluepropositionisthekeytolong-termsuccess.

Understand the Indian consumer

CreatingandofferingthebestvaluepropositioniskeytopleasingandunderstandingtheIndianconsumer.Thebestvaluepropositioninfashionjewellerydoesnotnecessarilymeanthelowestprice.Consumersdefinevalueaccordingtodifferentparameters:

• Stylinganddesign

• Quality

• Fashion

• Customerservice

• Thebuyingexperience

SwarovskihasconductedlocalmarketanalysistounderstandwhatappealstotheIndianconsumer.Forexample,clip-onearringsthatsellwellinwesternmarketsdonotsellinIndiabecauseconsumersherehavepiercedears.ForitsIndianconsumers,Swarovskiselectsthemostsuitableproductsfromitsglobalrange.SwarovskibelievesthatitisimportanttobeflexibletoadapttothenuancesoftheIndianmarket.

Localise the product

LocalisationisimportantbutwillbedonewithtimeonceSwarovskihasincreaseditsdistributionstrengthandbrandawarenessinIndia.Tolocalise,Swarovskiwillneedtohaveacertaincriticalmassofsale.Thiswillnaturallyoccurasthemarketgrowsandasconsumersgravitatetowardmorechicaccessories.SwarovskiinChinahasalocalisedrange.

SwarovskiwillsoonofferlocalisedjewelleryforIndianwoman,devoidofreligiousintonations,soastokeeptheglobalappealofthebrand.Thatsaid,thislocalisedjewellerywillhaveanethnictwisttoappealtoIndianwomenwhoarebothmodernbutalsoliketocelebratetheirculture.

Source: Discussions with senior management at Swarovski, PwC analysis

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#3Mastering supply chain to drive competitive advantage

AccordingtoPwC’sthoughtleadershipreport Strategic Issues for Retail CEOs, “Mastering supply chain dynamics is critical forthegrowthofmoderntrade.”Supplychains will also become essential due to the following:

• Regionalvariancesexistindemandpatterns. These result in differences in goods distributed to cities and rural areas.

• Value-consciousconsumersdemandlowerprices.Thisrequiresretailerstobeagileinmovinggoodsefficientlyandquicklythroughthesupplychain.

• Supplychainshelpretailerscreatestrongcustomervaluepropositions,suchasbeingcost-effective,providingfresh and better product assortments andhavingabetterreach.

India is a large and fragmented country. Further, the absence of strong infrastructure andlogisticsmakesitdifficulttoreachconsumersinurban,semi-urbanandruralIndia.WiththeIndiangovernmentinvestingin state highways, logistics costs are bound to reduce. Studies suggest that logistics costsarebetween10to12%oftotalGDP.

Challenges

Today,efficientmanagementoflogisticsandthesupplychainisnotjustimportantforsurvival,butanecessityforretailerstogainacompetitiveadvantage.Lookingattherapidlyevolvingretailsector,itisessentialtodeveloprobustsupplychains.The following supply chain issues affect retailers:

• Inappropriate planning and forecasting: In the race for operational excellence, optimal demand and supply forecasting determine the winners. Sub-optimalforecasting,whichdoesnottakeintoaccountseasonality,promotions and factors leading to sudden increase in demand, often lead toissueslikestock-outs.Highinventorylevels,duetoimproperforecasting,alsoexist in the Indian retail sector.

• Purchase, logistics and distribution: India’s large geographical distances, fragmented nature of transporters and poor transport infrastructure developmentarethereasonsbehindhigh lead times and transportation costs.

Also,duetothediverselocationofsuppliersandthepresenceofseverallargeintermediaries, product costs increase artificially.Thisresultsindecreasedmarginsforretailers.Alargenumberofretailerslacktheabilitytoeffectivelymanagethelessthantruckload(LTL)sizedshipments.Besides,thebenefitsofaggregationandappropriaterouteplanninghavenotbeenfullyexploitedbyIndianretailers.Byconsolidating or aggregating the goods to be distributedtovariousdistributioncentres,retailers can reduce the number of times a merchandise is handled, thereby reducing thelikelihoodoffreightdamage.

Theabsenceoflong-termrelationshipswithtransportersduringpeakseasononspotrates also leads to an increase in product costs.

• Store replenishment:Attimes,retailersstoreinventoryatseverallocationsto shorten the lead time in reaching stores. With multiple distribution centresstockingthesameitems,differenceininventoryisobservedandstorereplenishmentarrivesfromdifferent centres.

• Underdeveloped infrastructure: Issuessuchaslackofgoodroads,communication infrastructure, electricity and water shortages and a limited number of ports impede the developmentofapan-Indianetwork.Besides,thelackofarobustcoldchainsystem also results in high wastage levels.TheruggedIndianterrainanduseofoldvehiclesbytransportersfurtherincreasesinefficienciesvii.

• Inconsistenttaxrates:AlthoughtheIndiangovernmentistryingtoregulateit,thetaxstructureisheavilyimpededbydifferentialtaxrates.Also,due to large geographical distances, suppliers need to operate a regional networkandnation-wideredistributioncentres, which in turn increase the sizeofsupplychain.Itisimportanttoshortenthischaintosavetimeandmoney.Oncethetaxstructuresare standardised, operations will be streamlined and retailers will be able to reduce costsviii.

Sector snippets

Some supply chain issues include the following:

• Presenceofmultipleintermediaries

• Absenceofsuitableinfrastructure

• Lackofintegrationwithsuppliers

• Increaseddemandfromconsumers

• Reducingshrinkage

• Preventingandmanagingstock-outs

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Winning in India’s retail sector 47

• Skills shortage: This gap exists in varyingdegreesinIndia’sretailsector.Thereareveryfewsupplychain management professionals with significantexperienceinthecountry.Retailprofessionalsneedtokeeppacewiththerapidlyevolvingretailmanagement processes and operations, demanding customers, etc. The absenceofstructuredskilldevelopmentinitiatives,lackofattractionfornewrecruitsarisingfrompoorworkingconditionsinwarehouses,lackofincentivesandbenefits,andtheemergenceofattractivealternatecareeroptionsalsoaggravatetheissue.

• Technology implementation and usage: It is a challenge for organisationstoachievetheirbusinessgoalsduetoinefficientimplementation of IT systems in vendormanagement,merchandisingandinventorymanagement,supplychain management, warehouse management, business intelligence, customer relationship management, stores management, etc. Further, forecastingdemandbecomesdifficultintheabsenceofproperknowledgeandskillsamonguserstofeeddataintothevariousITsystems,toretrievehistoricaldata, analyse and create meaningful results.This,inturn,resultsinstock-outs,lowinventoryturnsandahighpilferagerate.ProperandefficientusageoftheITsystemswillhelpderivemeaningfulresultsoutoftheavailabledata.Thiswillcreateefficienciesacrossthevaluechainandhelpmeetthe critical demand and supply issue, therebybenefittingallstakeholdersix.

Gaining the competitive edge

Creatingefficientsupplychainsandachievingcompetitiveadvantageforretailers is a function of the following:

• Integrating vendor-managed inventory (VMI) programmes with

planning and forecasting processes: InVMIprogrammes,thevendor,orsupplier,takescompleteresponsibilityofmaintainingtheinventoryatthebuyer’s, or retailer’s, premises. The vendor’srepresentativesarealsopresent at the supplier’s premises to help gather important information regardingmarkettrends.VMIprogrammes also help reduce problems ofstock-outsandexcessinventoryatthe buyer’s premises. Creation of a collaborativeVMIandreplenishmentprogrammes aid in enhancing planning efficiency,maintainingappropriatelevelsofinventories,risk-sharingforunsoldinventorybetweenvendors andbuyersandprovidingbettercustomerservice.

• Integrating components of the value chain: It is important for participants inthevaluechaintointegrateactivitiesandworktogether.Manufacturersshouldworkincloseassociationwithserviceproviders,distributors,wholesalers and retailers. Indian retailers can follow examples set by globalretailerswhohaveembarkeduponbackwardintegrationandhavedevelopedcaptivelogistics,transportsand warehouse capabilitiesx.

• Using a multimodal transport network: Currently,amajorityofthe goods in India are transported throughtheextensiveroadnetwork.Amultimodaltransportationnetworkinvolvingacombinationofroads,rail,air and water needs to be explored. Thiscanhelpovercomesomeofthebottlenecksexperiencedduringroadtransportationxi.

• Encouraging skill development: Considering modern trade emerged in the 90s, the organised retail sector in Indiaisrelativelyyoung.Retailtalentisstilldevelopingandsomelargeretailersare establishing training academies for

hiringnewrecruits.Retailersalsoneedtoinvestintraininganddevelopmentoftheiremployeesinareasofvendormanagement, merchandising and inventorymanagement,supplychainmanagement, warehouse management, business intelligence, customer relationship management and store managementxii.

• Usinginnovativetechniquesinretaillogistics:Voice-basedtechnologieshavebeencreatedtoincreasetheefficiencyofthelogisticsandsupplychains across industries. These solutions are being used by retailers in warehousesandsales-floors.Theyaidinmonitoringreal-timesales,collectingdatainventory,trackingschedulechanges,meetingrequests,improvingworkerproductivity,etc.

• Utilising technology: Modern logistics and supply chain management are notlimitedtotheflowofmerchandiseinpackedboxesandpacketsbutaredependentontheflowofinformation.Monitoring and controlling appropriate and authentic information can enable retailers to match demand and supply. Companiesshouldinvestintechnologytostoreandretrievekeydataforsuccessful forecasting. The need of the houristoadoptbest-in-classITsystemsacrosstheretailvaluechainsuchasmerchandise,financialplanningandforecastingsystems,vendorandmerchandise management systems, warehouse management systems, logistics and channel management systems, customer relationship managementssystems,RFID,etc.These are also essential in generating efficienciesforretailersxiii.

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48 PwC

IT optimisation

IToptimisationandeffectivenessisanareamostretailersneedtofocuson.Astheretailmarketevolvesandbecomesmorecrowded, supply chain systems and IT optimisationwillbekeytoremainingagile,reducing costs and being successful in the longterm.InIndia,theuseofITisconfinedto the organised sector, a small proportion oftheretailindustry.Ingeneral,mid-sizedplayersareonlyusingpoint-of-sale(POS)andbasicsystemslikestoressoftware,SKUsoftware,etc.However,smallmodernretailershavehardlymadeinvestmentsinITinfrastructure.

Barcodescanningwasthefirstmajortechnology application adopted by Indian retailersthatusheredinanewlevelofautomationtofront-endpoint-of-saleprocesses. Using scanning technologies madecashiersmoreproductive,reducedthe number of errors at the register and madetheinventoryandbuyingtrendsmorevisibleandaccurate.India’sretailsectorhasundergoneseveraltechnologyevolutionstoenableretailerstoincreaseefficiency,

improvecustomerserviceandbecomemorecompetitive.India’sretailsector,today,isadvancedinitsadoptionofbasicITsystemsandinfrastructurelikeERP,networksetc. Medium and large retailers are in the process of establishing robust transaction systemsincludingsuitablePOSsystems,merchandisemanagementsystems,CRMsystems,andradio-frequencyidentification(RFID)technologytoavoidpilferage.

Intoday’scompetitivemarket,moderntrade participants are relying more on IT solutions to manage the rapidly changing business scenarios and rising customer demand.HugeinvestmentsarebeingmadeinupdatingITinfrastructure.AccordingtoCiscoIndia,“Ofthetotalinvestmentsmadeby Indian retail companies, approximately

4to10%isinvestedinITandwithinthis,approximately 30 to 40% is meant for networkinginfrastructure.”xiv

Most Indian retailers need to use advancedITproductsandsolutionslikereplenishmentplanning,world-classsupplychain and logistics management systems, business intelligence and analytics systems, warehouse management systems, etc. The growth of the Indian economy is bringing aboutseveralchangesinconsumerdemandand purchase patterns. The Indian retail marketisdifficulttopredict,consumersareevolving,retailersareexpandingoperations,furtherdrivingtheneedforITadoption.

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Someofthekeyinnovationsthathaveoccurred in India’s retail sector include the following:

RFID technology

• Itenablesorganisationstobecomemoreefficientintrackinggoodsandassets,optimisinginventorylevelsandimprovingassetvisibility.

• Itcanbeusedforcustomeridentificationbyissuingsmartcards embedded with smart chips.TheseRFID-enabledcardsprovideinformationsuchasbuyingpreferences,shoppingbehaviour,etc.

• ThereareprivacyconcernsrelatedtotheuseofRFIDwhichmustbeaddressed to fully utilise the potential of the technology.

Case study

The use of this technology helped enhance WillsLifestyle’sexistingprocessessuchasreducingtime-to-market,managingmaterialefficientlyandbringingmoreaccuracyinbooksascomparedtophysicalinventory.Thechain’sapparelproductsused to slow down when they reached the warehouses. Each day that a box of clothing remainedshelvedinthewarehouse,wasaday less on display and worth 10 hours less inmakingasale.Withtraditionalmanualpractices, there was only so much that theretailercoulddotoreduceitstime-to-marketcycles.Lookingtostreamlineoperations,thechainidentifiedRFIDasthesolution that could increase the company’s responsiveness.Today,ittakesthecompanybetween20to30secondstoinventory30to35garments(aboutonebox)comparedtothefiveandeightminutesittookearlier.Currently,onagivenday,eachworkercanhandle between 2,000 and 3,000 garments from the earlier 300 to 400.xv

Open source security solutions

These solutions enable retailers to secure theirapplicationsandimproveoperationalefficiencyandagility.

Case study

Trentimproveditssecuritywithamoreflexibleandcost-efficientopensourcesolution. Since then, the retailer has brought innewfunctionalitiestotheirPOSsystemand increased the speed of deployment. Thishasimprovedtheirtime-to-marketandenabled them to adopt new functionalities across stores, ahead of their competition. Forinstance,whenthecompany’smarketingteam rolled out a new customer loyalty programme, the IT team made a simple changetoitsPOSandtheprogrammewasdeployedacross42storesinjusttwodays.Thiswasatremendousimprovementgiventhatitusedtotake20daystorolloutanewreleaseacrossstores.Overatimeframeoffourtofiveyears,theretailer’soperatingexpenses were reduced by 40%. With the deploymentoftheopensourceproject,theretail team increased its operational agility and security infrastructure.xvi

Retail Business Processes

Supporting IT Infrastructure

Planning and Forecasting

FinancialPlanning and Forecasting

Merchandise Planning and Forecasting Supply Chain Management

BusinessIntelligence SolutionsandAnalytics

Dec

isio

n S

up

po

rt

Purchase VendorManagement

PurchaseOrderManagement

Merchandise Management

Item Cataloging Management

Logistics DistributionCentreManagement

LogisticsManagement

Channel Management

RFIDTechnology

Storage Warehouse Management

ReturnsManagement

ReplenishmentManagement

InventoryManagement

DispatchManagement

StockTransferManagement

Sales Point of Sale Solutions

E-commerceSolutions

SupportSystems

KnowledgeManagement MIS

Financial Management

HumanResourceManagement LoyaltyPrograms,Schemes and Promotions

LegalandContracts Management

Customer Relationship

CustomerRelationshipManagement

Source: PwC analysis

Technology components required by retailers

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50 PwC

Cloud computing

Forretailersseekingtogaingreaterresultsusing minimal resources, cloud computing islikeamiracle.Itallowsretailerstoinvestlessinmaintaining,monitoringandupdatingsharedworkingdocuments,email and operational data. It enables them instead to focus resources on store portals,socialmedia,digitalmarketing,etc.Retailershavebeenquicktorealisethebenefitsthatcloudoffers.

Cloud computing enables retailers to efficientlymanageseasonalandunexpecteddemandandweather-disastrousevents.InatypicalITenvironment,retailersneedtoscalefixeddatacentreresourcespriortodemandspikes.Thisleadstowastedcapacityandincreasedcosts.Evenworse,itcanmeananunder-supply,withnetworkoutagesandcrashedservers.However,bytakingadvantageofcloudcomputing,retailerscanadjusttothisdynamicdemand.Withcloudcomputing,retailersonlyhavetopayforthelevelofservicetheyneed,without the costs of unused or under supply capacity.

Lastly,cloudcomputingtransformshowretail employees collaborate and share information.Byimplementingahostedintranet with messaging, online meeting andsocialnetworkingtoolsthatspantimezonesandgeographies,employeescancollaboratemoreeffectively,whetherinthefield,atheadquartersorwithasupplier.Cloudcomputingimprovesinformationflowand enables retailers to spend more time interacting with consumers.

Case study

TheleisurechainOxfordBookstoreincreaseditsrevenuebyINR3.4crorebyusingtheSaaSERP.Priortothis,issueslikeexcesspurchases,over-stockedSKUsandslow-movinginventoryplaguedtheretailer.ThereweresignificantinefficiencieswiththePOSfunctionandsincetheinventorymanagement system was not integrated withthePOSsystem,thecompanylackedcontroloveritsinventory.Withdispersedretailoperationsandincreasedvolumeoftransactions,themainchallengewastofinda way to regulate processes and manage transactions. The company decided to implementaSaaS-basedERPtoresolvethechallenges.Today,theERP-SaaSprojecthas centralised the entire product titles across all branches into a single directory controlledbytheERP.TheERPalsocoversthe company’s payroll, accounting needs andwebtools.TheinvestmentofINR1.08croreintheERP-SaaSincreasedfootfallsby25%andbillsizeby20%.Profitswerespectacularonthee-platformtoo.Onlinesalesincreasedby100%andrevenuesgrewby50%.Otheraspectsofmanagingthebusiness,likeoperatingaCRMsystem,loyalty programmes and discount schemes, havebecomeeasier.xvii

Innovations used by retailers globally

• MobilePOS: This technology enables consumers to purchase goods while putting them in a shopping cart. The customer is spared the hassle of standinginlongqueues.

• Digitalsignage:Static signboards havenotprovedbeneficialintermsofhelpingacustomertrackaproduct.Digitalsignboardsintegratedwithanautomatedtrackingsystemareexpectedtomakethistrackingeasier.

• Intelligentdatabase: Today, with technologyadvancements,adetaileddatabase of customers can be made availableonline,tohelptheretailerunderstand a particular customer’s buying characteristics and preferences.

IndianandglobalITserviceprovidersareworkingonarangeofotherretailinnovationssuchashi-techstoresolutions,mobility solutions, shopping assistants, etc. thatwilleasedailyoperationsandprovideretailersthemuchneededcompetitiveadvantage.

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Winning in India’s retail sector 51

i Jones Lang LaSalle, Indian Real Estate: An Outlook on Industry Trends, 2011

ii Jones Lang LaSalle, Indian Real Estate: An Outlook on Industry Trends, 2011

iii http://www.hul.co.in/careers-redesign/carreerschoices/researchanddevelopment/OverviewofResearchCentres/

ivhttp://timesofindia.indiatimes.com/articleshow/7289240.cms?prtpage=1

vhttp://articles.economictimes.indiatimes.com/2011-04-06/news/29388975_1_innovation-centre-innovation-labs-innovation-process

vihttp://articles.economictimes.indiatimes.com/2011-04-06/news/29388975_1_innovation-centre-innovation-labs-innovation-process

viiAashish Sood, Supply Chain Challenges in Indian Retail, May 2011 http://www.ideasmakemarket.com/2011/05/supply-chain-challenges-in-indian.html

viiiAashish Sood, Supply Chain Challenges in Indian Retail, May 2011 http://www.ideasmakemarket.com/2011/05/supply-chain-challenges-in-indian.html

ixAashish Sood, Supply Chain Challenges in Indian Retail, May 2011 http://www.ideasmakemarket.com/2011/05/supply-chain-challenges-in-indian.html

xAashish Sood, Supply Chain Challenges in Indian Retail, May 2011 http://www.ideasmakemarket.com/2011/05/supply-chain-challenges-in-indian.html

xiDrivers shaping the smart supply chain, TCS, 2011 www.tcs.com/whitepapers

xiiDrivers shaping the smart supply chain, TCS, 2011 www.tcs.com/whitepapers

xiiiAashish Sood, Supply Chain Challenges in Indian Retail, May 2011 http://www.ideasmakemarket.com/2011/05/supply-chain-challenges-in-indian.html

xivNeeraj Gandhi, IT innovations in Indian retail, http://www.expresscomputeronline.com/20080107/market02.shtml (7 January 2008)

xvKanika Goswami, RFID Speeds Up Wills Lifestyle Business, http://www.cio.in/case-study/rfid-speeds-wills-lifestyle-business

xviSneha Jha, Trent Strengthens Security with an Open Source Solution, http://www.cio.in/case-study/ka-ching

xviiVarsha Chidambaram, With SaaS ERP, Oxford Bookstore increased its revenue by Rs 3.4 crore, http://www.cio.in/case-study/erp-solution-delivered-saas-style-bumped-oxford-bookstores-revenue-rs-34-crores

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52 PwC

Looking aheadThe Indian retail sector is evolving rapidly and those who enter the market now can learn about local dynamics, develop market insights and establish leadership positions

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Patience, deep pockets, localisation and market evolution NowistherighttimetoenterandestablishoperationsinIndia’sboomingretailsector.DomesticandglobalretailerswhohavealreadyenteredtheIndianmarketarelearningaboutconsumerwants,preferencesandneeds.Thisisanimportanteducationforretailersandbrandslookingtoestablishleadershippositions.Weprovideaninsightintothefourkeyareasoffocusforthecomingdecade:

#1Understanding consumers needs, preferences and wants

• Consumersvarybyregion,state,cityandstreet.Itiscriticaltounderstand localmarketdynamicsandensurethatproductassortmentsatthestorelevelcan meet these needs.

• Creatinglocalisedproductswillhelpdrivepurchasesandincreasesales.

• Dataderivedfromloyaltyprogrammeswillhelpretailersunderstandconsumerbehaviour.

#2Operating stores efficiently and profitably

Mastering supply chain systems

• Operatingstoresandmanagingoperationswillleadtocostcompetiveness.Passing on the best prices to consumers include the following:

- Findingtherightmerchandisemixforstoresbycatchmentarea

- UsingITtooptimisesystems

- Incorporatinglogistics,warehousing,transportandcoldchain

- Reducingshrinkage

- Securingtherightretailrealestate

#3Serving value-aware consumers

• Indiansarenotalwayslookingforabargain.Recognisingthis,retailersandbrandsneedtooffervalueinquality,styleandprice.

• Offeringacomprehensiverangeoffoodandnon-foodprivatelabelswilladdressthisdemand-supplygapinthemarket.Privatelabelswillalsobecomemoresophisticatedintheirlook-and-feel.Retailerswillusetheirprivatelabelportfoliosasameansofdifferentiatingandstandingoutinthemarket.

#4Evolving with the market

• Withtheemergenceofmoderntradeinthe90s,India’sretailecosystemisevolvingrapidly.Goodcustomerservicepolicies,loyaltyprogrammesandpromotionalofferswillbeasignificantpartoftheretaillandscape.

• Thesectorwilleventuallyliberaliseandwhenitdoes,severalbenefits willflowtostakeholders(consumers,unorganisedtrade,farmers, producers,theexchequer,etc.).Whenthesectoropensfurther,weexpecttoseesomeconsolidationasmarketdynamicstakeovertocreateamorecompetitivemarketplace.

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54 PwC

Works cited

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Winning in India’s retail sector 55

Primary research discussions were conducted with senior management at: • Flipkart

• MaxRetail

• Swarovski

PwC thought leadership reports used include:• StrategicIssuesforRetailCEOs

• 14thAnnualGlobalCEOSurvey

• StrongandSteady2011OutlookfortheRetailandConsumerProductsSectorinAsia

• TheRisingElephant—BenefitsofModerntradetoIndianEconomy

• TheBenefitsofModernTradetoTransitionalEconomies

• R&CWorld’sExpress,Growth re-imagined--Succeeding on the world stage

Secondary research• www.reuters.com

• www.economictimes.com

• www.ibef.org

• JonesLangLaSalle,’IndianRealEstate:AnOutlookonIndustryTrends,’2011

• www.hul.co.in/careers-redesign/carreerschoices/researchanddevelopment/OverviewofResearchCentres/

• www.timesofindia.indiatimes.com/articleshow/7289240.cms?prtpage=1

• www.articles.economictimes.indiatimes.com/2011-04-06/news/29388975_1_innovation-centre-innovation-labs-innovation-process

• AashishSood,SupplyChainChallengesinIndianRetail,May2011 Website:www.ideasmakemarket.com/2011/05/supply-chain-challenges-in-indian.html

• Driversshapingthesmartsupplychain,TCS,2011

• www.tcs.com/whitepapers

• NeerajGandhi,ITinnovationsinIndianretail Website:www.expresscomputeronline.com/20080107/market02.shtml(7January2008)

• KanikaGoswami,RFIDSpeedsUpWillsLifestyleBusiness Website:www.cio.in/case-study/rfid-speeds-wills-lifestyle-business

• SnehaJha,TrentStrengthensSecuritywithanOpenSourceSolution Website:www.cio.in/case-study/ka-ching

• VarshaChidambaram,WithSaaSERP,OxfordBookstoreincreaseditsrevenuebyRs3.4crore Website:www.cio.in/case-study/erp-solution-delivered-saas-style-bumped-oxford-bookstores-revenue-rs-34-crores

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56 PwC

AcknowledgementsRetail and Consumer Practice

LalithaBanerjee

Tax and Regulatory Services

KamalAbrol

VikasGarg

SahilGupta

NishantSaini

Consulting

KrishnakumarSankaranarayanan

ManishaSachdev

Brand and Communications

NandiniChatterjee

NidhiJain

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Winning in India’s retail sector 57

About PwC

AcknowledgementsRetail and Consumer Practice

LalithaBanerjee

Tax and Regulatory Services

KamalAbrol

VikasGarg

SahilGupta

NishantSaini

Consulting

KrishnakumarSankaranarayanan

ManishaSachdev

Brand and Communications

NandiniChatterjee

NidhiJain

PwCfirmshelporganisationsandindividualscreatethevaluethey’relookingfor.We’reanetworkoffirmsin158countrieswithcloseto169,000peoplewhoarecommittedtodeliveringqualityinassurance,taxandadvisoryservices.Telluswhatmatterstoyouandfindoutmorebyvisitingusatwww.pwc.com.

InIndia,PwC(www.pwc.com/India)offersacomprehensiveportfolioofAdvisoryandTax&Regulatoryservices;each,inturn,presentsabasketoffinelydefineddeliverables.NetworkfirmsofPwCinIndiaalsoprovideservicesinAssuranceaspertherelevantrulesandregulationsinIndia.

Providingorganisationswiththeadvicetheyneed,wherevertheymaybelocated,ourhighlyqualified,experiencedprofessionals,whohavesoundknowledgeoftheIndianbusinessenvironment,listentodifferentpointsofviewtohelporganisationssolvetheirbusinessissuesandidentifyandmaximisetheopportunitiestheyseek.Ourindustryspecialisationallowsustohelpco-createsolutions with our clients for their sector of interest.

Wearelocatedinthesecities:Ahmedabad,Bangalore,Bhubaneshwar,Chennai,DelhiNCR,Hyderabad,Kolkata,MumbaiandPune.

ContactsForfurtherinformation,pleasereachouttoanyofourkeycontactsintheRetailandConsumerPractice:

RohitBhasinPartnerLeader,RetailandConsumerPractice

PriceWaterhouse&Co.17thfloor,Building10CDLFCyberCityGurgaon,Haryana122002India

Direct:+91(0)1243306016Mobile:+91(0)9810191282Email: [email protected]

AkashGuptExecutiveDirectorRegulatoryLeader

PricewaterhouseCoopersPvt.Ltd.17thfloor,Building10CDLFCyberCityGurgaon,Haryana122002India

Direct:+91(0)1243306001Mobile:+91(0)9811331613Email:[email protected]

LalithaBanerjeeSenior ManagerRetailandConsumerPractice

PricewaterhouseCoopersPvt.Ltd. 7thfloor,TowerD,TheMillenia1&2MurphyRoad,UlsoorBangaloreKarnataka560008India

Direct:+91(0)8040797064Mobile:+91(0)9845736653Email:[email protected]

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Notes

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©2011PricewaterhouseCoopersPrivateLimited.Allrightsreserved.Inthisdocument,“PwC”referstoPricewaterhouseCoopersPrivateLimited(alimitedliabilitycompanyinIndia),whichisamemberfirmofPricewaterhouseCoopersInternationalLimited(PwCIL),eachmemberfirmofwhichisaseparatelegalentity.

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