Telecom | Update
Sector Update | 3 March 2020
Departmental Retail
Retail Leadership Summit 2020
Preparing to capture growth potential
We attended the ‘Retail Leadership Summit 2020’ which saw participation from
managements of retail companies across verticals such as grocery, apparel,
footwear, furniture, QSRs and restaurants. The discussions provided a sneak-peak
into opportunities/challenges amidst new competition and changing business
models (read digital advent), as well as the near- and medium-term outlook.
On an expansion mode
Unlike in the west, retailers across verticals are steadfast in adding new stores with
even online players like Nykaa and Lenskart accentuating the idea to expand rapidly.
A more striking part is the willingness of retailers to move beyond the mere
transactional approach of retailing to more experience-led shopping – something
beyond what online already offers. This includes a wider catalogue of products,
digital thrust and on-demand services/deliveries. For instance, Bata is opening full-
service experience stores including ‘endless isles.’
Private labels, new product categories – key pull factor
One key takeaway from all our conversations – particularly with retailers across
categories (including apparel players) – is that private labels increase stickiness of
customers significantly as they address two things: (i) fill product/category gaps
which have lesser options from brands and (ii) improve value proposition with lower
cost. This facilitates (i) healthy footfall and growth, even in a highly competitive
environment and (ii) better supply chain management and profit margins. For
example, Amazon Fashion elaborated how new-age sustainable products with
‘AlcisXNari’ brand made out of recycled products are gaining traction.
Slowdown is sentimental
Retailers acknowledged the grim overall sales trend. Consumer confidence index is
low due to weak sentiment. Instead of aggressive advertisements, retailers have
increased intensity of below the line (BTL) promotional activities and rejigged price
offerings to boost consumption.
Huge runway for growth; large players to take disproportionate share
At USD700b now, India’s retail market appears poised to deliver a CAGR of 9.5%
(according to BCG) to more than double its size to USD1,800-2,000b by 2030. Top
five players’ contribution could increase from 4-5% to 10-12%, implying a much
higher 19% CAGR over the next 10-11 years. This has already grown from ~1% in
2010. Top five players’ share in developed markets ranges from 25-30%, which is
indicative of the promise that larger players hold to deliver disproportionate growth.
Increased focus on supply chain, data analytics and innovative product offerings are
all set to reshape the retail industry going forward.
Research Analyst: Aliasgar Shakir(Aliasgar.Shakir@motilaloswal.com);
+91 22 6129 1565
Suhel Shaikh
(Suhel.Ahmad@MotilalOswal.com); +91 22 5036 2611;
Anshul Aggarwal
(Anshul.Aggarwal@motilaloswal.com); +91 22 5036 2511
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Departmental Retail Update
Notes from meeting with retailers
H&M – offering global products, expanding rapidly
It has reached 47 stores in 24 cities during its five years of presence in India.
Focus is to offer latest, in-demand global fashion products.
The company has set a target to expand footprint extensively and across
multiple new cities. Online will be one of the key enablers. It is selling through
H&M.com and Myntra presently.
Landmark – catering to customers across price points
Over the last five years, customers have become highly demanding and value
focused. It is increasingly employing technology to understand customer
preference and forecast demand.
The company has well-entrenched three formats: Lifestyle, Max and Easybuy,
which cater to customers across price categories. The aim has been to keep
stores profitable independently across formats.
Lifestyle has ~40% private label contribution and the plan is to keep it high
considering traction.
VMart – ramping up promotions to beat slowdown
It is sentiment-driven slowdown as the confidence index is low.
The company is working on improving consumer sentiment through promotions
(BTL activity), product rejigs and even passing on government tax cuts.
There is a growing trend of value-seeking customers, who look for good quality
at an attractive price point.
Big Bazaar – identifying micro product opportunities to drive growth
It is trying to find micro opportunities to grow at the time of slowdown. For
example, luggage is seeing double-digit growth. Similarly, own brand in home
ware categories is helping fill gaps. Focusing on volume leadership in specific
categories.
Getting Big Bazaar closer to the customer through Amazon, home delivery or
opening store closer to the customer.
Amazon Fashion – changing fashion trends
Fashion trends are changing for the new 20-year old customers. Shifting from
casual wear to comfy wear and from fast fashion to sustainable products.
Its brand Alcisxnari –apparels made from recycled fabric – is turning highly
popular.
Lenskart – expanding rapidly
Started online and now has 600 stores. Industry has 40,000 stores. Thus,
management believes even if it has 5,000 stores, it will be only 10%.
The product pricing is expensive than 35k retailers but it offers differentiated
products and a wider range. Convergence is high as customer is shortlisting the
product and then coming to try it in the store.
The company is using technology to understand customer location/preference
to open new stores.
3 March 2020
2
 Motilal Oswal Financial Services
Departmental Retail Update
Huge potential in India’s retail market; expect ~10%
CAGR over FY19-30
With growth drivers in place, India’s Private Final Consumption Expenditure (PFSE)
and retail sector appear set to deliver a better performance compared to developed
economies. Driven by long-term PFCE CAGR of 10% over FY19-25 (to USD3.2t),
India’s retail industry will likely deliver a CAGR of ~10% to reach a size of USD1.8-2t
in FY30. Currently, retailers are bearing the brunt of economic slowdown but should
rebound to its previous growth levels once things come back on track. In 2019,
white goods and mobile phones grew at double digit, while FMCG grew at 7%.
India retail industry is highly fragmented with the share of top five players at mere
4-5% (v/s ~1% in 2010). This is much lower than in developed economies (e.g. 25-
30%/30-35% in the US/UK). This share of top five players is expected to increase at
10-12% by 2030, implying a 19% CAGR over the next decade. Thus, stronger players
could grow disproportionally.
Exhibit 1: Indian consumption growth should exceed that in
developed markets
Consumption 2025E (USDt)
9.9%
18.1
3.6%
3.2
India
US
4.5%
3.4%
2.5
Germany
3.4%
1.8
France
4.5%
CAGR 2019-2025 (%)
Exhibit 2: Top 5 players’ to deliver~19% CAGR over next
decade
Size of retail market (USD b)
Share of top 5 players (%)
11.0%
2.4
UK
700
FY19
1900
FY30E
Source: RBI, IMF, EIU, Oxford, Euromonitor, CCI, BCG analysis
Source: RBI, IMF, EIU, Oxford, Euromonitor, CCI, BCG analysis
Exhibit 3: Top players could take higher industry share over next decade
Source: Euromonitor, Company reports, Analyst reports, BCG analysis
3 March 2020
3
 Motilal Oswal Financial Services
Departmental Retail Update
Exhibit 4: Factors driving retailers growth over next decade
Factor
Implications
Spend increase to be 2.5x due to income growth from USD1.6k
Income growth
2.5x increase in income/capita from 2016 to 2027
to USD4k annually
Urban population to be 38% by 2027 vs. 32% in Average consumption is 1.2-2.3x more in urban household v/s
Urbanization
2016
rural
75% households to be nuclear in 2027 v/s 71% in Nuclear families have 20%-30% higher consumption v/s joint
Nuclear families
2016
families
80% population would belong to Gen ‘I’ by 2027 Have options, higher appetite to spend and comfortable with
Gen 'I'
v/s 70% in 2016
credit
Farm and factory output
Steady agri-supply and stable commodity markets drive
Steady increase in farm/production income
growth
consumption/price stability
Source: EIU, Ministry of Agriculture, GOI
Shift
3 March 2020
4
 Motilal Oswal Financial Services
Departmental Retail Update
Key Exhibits
Exhibit 5: Share of repeat purchases of private labels across
categories in FY19
70%
60%
70%
50%
50%
55%
75%
Exhibit 6: Category-wise EBITDA margin of Indian listed
retailers
Category
EBITDA margin
Food & Grocery
6-8%
Apparel
8-11%
Footwear
14-16%
Jewellery & Watches
10-11%
Food QSR
12-15%
Source: company reports, analyst reports, media articles
Source: KPMG report
Exhibit 7: Pricing/promotions still influencing sales
Brand
45%
Recommendation/own usage
41%
19%
27%
40%
7%
14%
26%
13%
Apparel
Pricing/Promotions
40%
45%
18%
31%
6%
Hotel
35%
14%
Electricals
Features of offering
33%
18%
31%
14%
14%
Flight
25%
3%
30%
Mobile
42%
52%
61%
22%
33%
Eat-out Order-in Food Staples
Source: CCI survey, BCG analysis
Exhibit 8: Retailers shifting to smaller format stores (% of new stores added)
Neighbourhood and convenience (<4k sqft)
Large format and hypermarket (>25k sqft)
52%
2018-2019
13%
59%
2016-2017
21%
20%
88%
2014-2015
2%
10%
Source: Planet Retail, BCG analysis
35%
Mid size (4k - 25k sqft)
3 March 2020
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 Motilal Oswal Financial Services
Departmental Retail Update
Exhibit 9: Online is important for mobile/service categories
Online
Leisure travel
Order-in food
Mobile
Apparel 7%
Electricals 2%
Staples
1%
46%
44%
35%
93%
98%
99%
Source: CCI survey, BCG analysis
Offline
54%
56%
65%
Exhibit 10: Triggers for purchase and spend at each occasion
Trigger
Experimentative
Experimentative
Functional
Celebratory/Societal
Occasions/year
1.8
13.8
0.4
7.2
1.5
17.0
Spend/occasion
(INR)
15,051
605
10,860
2,097
718
1,966
Functional
Functional
Source: CCI survey, BCG analysis
Exhibit 11: Online gains faster in electronics and toys & games categories over 2008-18
2008
2018
15.3%
1.4%
Electronics
0.5%
13.0%
0.3%
10.8%
0.1%
5.0%
0.5%
2.3%
0.2%
1.8%
0.1%
1.6%
Toys &
Games
Apparel & Homeware &
Footwear Furnishings*
Health
Accessories &
Eyewear
Beauty &
Personal
Care^
Source: Euromonitor. *Homeware & furnishing category is from 2013 and ^beauty & personal care is
from 2010
Exhibit 12: Pure offline sales are prevalent in food, healthcare and FMCG; online is prevalent in travel and small appliances
1%
1%
2%
2%
Pure online
4%
42%
94%
94%
93%
91%
80%
58%
5%
5%
4%
Health
care
7%
Staples
16%
FMCG
Large
appliances
23%
23%
Mobile
Pure offline
Mixed
22%
54%
49%
65%
34%
Small
appliances
51%
52%
57%
17%
12%
37%
14%
34%
5%
38%
13%
Apparel
Packaged Fresh food
food
Leisure
tour
Travel
ticket
Movie
ticket
Source: CCI survey
Exhibit 13: India’s digitally influenced customers are increasing
Description
India's internet users as of Dec'19 (m)
India's internet users expected to be in 2021 (m)
Smartphone penetration (%)
Smartphone users (m)
Retail spend in Indian in 2021 (USD b)
Customers digitally influenced (m)
Amount/users
627
650
30%
345
50
150
Source: TRAI, industry reports, media articles
3 March 2020
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 Motilal Oswal Financial Services
Departmental Retail Update
Exhibit 14: Store experience/trust in channel remains important criteria across categories
Variety
Familiarity/Trust in channel
Convenience to shop/pay
5%
9%
14%
14%
28%
18%
12%
Staples
18%
10%
9%
31%
8%
24%
Electricals
8%
7%
17%
16%
37%
16%
Hotel
Store experience
Pricing/attractive offers/bargaining
Proximity
10%
5%
8%
18%
7%
23%
30%
Apparel
13%
11%
35%
10%
13%
18%
13%
5%
27%
19%
21%
16%
Mobile
Flight
Source: CCI survey, BCG analysis
Exhibit 15: Conflicts with changing consumer behavior that could impact retailers growth
Rising
convenience
culture could
conflict with
sustainability
e.g. Cosmetics brand
around sustainability
became more popular with
young adults
Hyper
personalization
could conflict with
data and privacy
Being more trendy
could conflict with
rising culture of
minimalism
e.g. Data Protection in EU
e.g. US apparels start-up
providing individuals control adopted ‘less is more’ by
over personal data
minimalist design for daily
wear
Source: BCG experience
Exhibit 16: Challenges faced by global retailers
Exhibit 17: US retailers store traffic fell 4% annually since
2010
2010 2011 2012 2013 2014 2015 2016 2017 2018
Reducing
footfall in
stores
Suboptimal
assortment
planning
Driving
penetration to
next tier towns
Gross margins
under pressure
Limited multi-
channel
presence
High employee
cost
-0.6%
-1.9%
-2.6%
-3.6% -3.8%
-3.0%
-2.0%
Lack of talent
and high
attrition
High supply
chain costs
-4.9%
-6.6%
Source: Morgan Stanley, company reports, BCG experience
Source: Morgan Stanley, company reports, BCG experience
Exhibit 18: Potential alliances/collaborations in retail industry
Potential alliances/collaborations
Big retailer + Unorganized small stores
Big retailer + Niche retailer
Retailer + Fintech + Delivery + Messaging players
Retailer + Social media + Technology players
B2B wholesaler + Unorganized small stores
Rationale
To scale quickly in hard-to-reach markets
Augments customer value proposition
To create seamless transactions
To enhance capability to understand consumer behaviour, target consumers
To improve economics and to access consumer data
Source: BCG experience
3 March 2020
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 Motilal Oswal Financial Services
Departmental Retail Update
Exhibit 19: Potential regulatory changes and their impact on retailer’s business models
Regulations
FDI
Minimum wage
Likelihood
Potential implications
Relaxation of FDI, 100% in multi-brand retail
To change business model to compete with global retailers
Higher minimum wage or benefits for employees
Reliance on flexible workforce, improve employee productivity
Formalization or inclusion of independent contractors Increase pay/benefits and change in model to incorporate gig
Gig formulation
as employees
workers
Stringent laws on capture, storage, utilization of
Clearly communicate and build greater transparency for
Data privacy protection
personal data
personal data use
Private labels
Curtailment of private labels
Rethink store economics and operating models
Tariffs
Changes in tariffs, localized sourcing norms, GST rules
Source: BCG analysis
Exhibit 20: Organized retail in India has undergone with many changes in last three decades
Source: Retailers Association of India
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8
 Motilal Oswal Financial Services
Departmental Retail Update
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BUY
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UNDER REVIEW
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3 March 2020
9
 Motilal Oswal Financial Services
Departmental Retail Update
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alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect
or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment
banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and
independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already
available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the
views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other
person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of
or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject
MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category
of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors,
employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may
arise from or in connection with the use of the information.
The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any
and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold
MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages,
expenses that may be suffered by the person accessing this information due to any
errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website
www.motilaloswal.com.CIN
no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road,
Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:
INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company
Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management
Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of
Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a
group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory
services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee
of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj
Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench.
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