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Chapter II
Review of literature:
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2.0. Review of literature:
The literature review covers the concepts in the field of retail business on the global level,
and it also gives a snapshot of the traditional retail business in India. Thus, it frames the
groundwork for improving and adapting the ideas to the changing dimension of Indian retail
industry.
2.1 Systemic view
The complexity of IT implementation exists at both Individual and System levels (Corso,
Martini, Paolucci, Pellegrini, 2003). System complexity reflects the way in which components
manufactured have to be distributed to the players of the system upon predicting the demand.
The pattern of IT adoption should rather be analyzed in the frame of system complexity, which
also includes customer, economy, organizational mechanism and management practice (Skilling,
1996).
2.2 IT implementation and Organizational behavior
Knowledge driven development initiatives that make increased use of digital technologies
can create opportunities to develop knowledge networks to address a range of development
related problems (Walton, Gupta, 1999). Information Technology can provide significant
improvements in efficiency across a company, but only when implemented correctly. Otherwise,
IT system could be a curse and can drag the whole enterprise into spiraling inefficiency (Mandal,
Gunasekaran, 2003). IT benefits cannot be fully realized unless a strong alignment and
reconciliation mechanism is established between technical and organizational imperatives
(Mashari, Mudimigh, Zairi, 2002). The following part gives an Indian insight to the same.
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Indian Retail Environment Indian retail market has around 12 million outlets and it is the largest
retail outlet density in the world. However it has 98% unorganized retail market (CII -
Mckinnsey, 2004). Market is controlled by a handful of distributors and wholesalers.
Traditionally the retail business is run by small convenient stores, having shop in the front and
house at the back. More than 99% retailers function in less than 500 square feet. Most of these
outlets have very basic offerings, fixed prices and no ambience. These are highly competitive
stores due to cheap land prices and labor. Also, these stores avoid the taxes as they belong to a
small industry sector (Banerjee, 2004).
Generally the accounts of trading are not maintained separately. The educational
qualification level of these retailers is low. Information Technology is, as if, unimportant for the
stores, due to its small size and small business. But due to the poor inventory management in the
lower tiers, the upper tiers and finally the end customers has to suffer in terms of demand
invisibility and transferred cost respectively.
2.3 Consumer Psychology
The majority of middle class Indian consumers are wary of large retail formats with well-
stocked shelves (Aggarwal, Singh, 2004). They are considered to have overpriced goods, even
though they sell at the government mandate Maximum Retail Price (MRP). Smaller stores often
stay open beyond normal working hours and work on low margins because they employ cheap
labor and have lower overheads. Such outlets attract customers in large numbers. Also
consumers have the notion that large shops spend on promoting themselves and pass on the cost
to the consumer. Retail format should be one of the factors which should be taken into
consideration since; this is one of the reasons for failure of Wal-Mart in Indonesia (Robert Slator,
2002).
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2.4 Buying Behavior
Traditionally, the housewife handles the procurement of groceries in any house, and she is the
prime decision maker. Majority of the times, the customers are loyal to the retailer if no
articular incentive is available in any other shop. The retailer has an excellent personal
relationship with the family of the customer and he stays in vicinity. At times, he also gives
monthly credit to his customers and maintains a log book of the purchases of the customer over
time. Normally, the retailer is changed if there is a new person who is offering a lower price,
better quality or better service. The Indian customer normally does not go to a distant place for
groceries because of lack of mobility or the cost involved in mobility. However, he is prepared to
go to places for buying apparels or electronic items which are high involvement products
(Mckinsey, CII, 2004).
2.5 Recent Trends
Sustained GDP growth rate in the last 10 years has already created a base of over 30
million consumers. Current economic indicators seem favorable, and if a GDP growth rate of 6-7
% can be maintained, a 60 million affluent consumer base is possible by 2010 (CII - Mckinsey,
2004). Now, with the Government considering to open the Foreign Direct Investments (FDIs) in
retail sector, the entry of multi-national retail chains would change the entire retail scenario of
the country. As per the ―National Council of Applied Economic Research‖ (NCAER), almost 40
percent of India‘s high income urban population accounts for the 20-25 largest cities with a
population of more than one million. Therefore, most retail formats in these markets would be
seeing a change from Small Enterprise to the Super centers (Sinha, Banerjee, 2004). Food sales
constitute a high proportion of total retail sales. The share was 62.7% in 2003 and was worth
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approximately Rs 7,039.2 billion. Other segments having high or substantial share in Indian
retail include the apparel and the electronic sector.
2.6 Healthy signs for Organized Retail Business
In the year 2003, the customer spending had gone up by 9.6 per cent compared to the previous
year. The growth in 2003 implies a rise in market opportunity for retailers, estimated to be in the
range of 150 billion Rupees, among the Section A and B categories (upper and middle class), in
urban India alone (Hanna, 2004). Earlier, customers used to look for value of money first with
quality being second decision parameter. But nowadays, due to branding and exposure to media,
consumers look first at the quality of products and then look for value of money. Hence business
with the big suppliers providing the branded merchandise will spring up more (Kinra, 1995).
Information Technology, Quality Control, Training and streamlining operations to improve
efficiencies are becoming the focus areas for industry assortment, innovation and planning for
customer retention.
2.7 Development of Supply Chains
The network character of the supply chain is important and the key issues in the
management of the network are responsiveness, reliability and relationships (McLaren, Head,
Yuan, 2002). The global nature of Ex-4 Wall supply chain (inter-organizational supply chain)
raises the problem of global versus local control. ―Global co-ordination, local management‖
should be an approach for devising activities for global and local categories (McLaren, Head,
Yuan, 2002). The global activities include, for example, building the players of the supply chain,
network route structuring, information systems development, sourcing decisions and contracts.
The local activities include local customer service, inventory control, manufacturing,
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management, etc. The division of Supply Chain can be illustrated by the four levels of
complications.
The retail supply chains usually are the Network type - the complex ones, because most products
are not seized from single site. It also has a pool of players to be chosen in any category. Hence
the flow of information through this dense network should be agile as well as systematic, to
avoid demand distortion.
2.8 Demand Chain Management
The demand chain management concept emphasizes that the primary control of the
material flow should be the customer demand (Kotzab, 1999). Demand chain management
thinking leads to a customer-centric design of the supply chain.
Order Penetration Point (OPP) is the point in the supply chain where products are
allocated to a specific customer order (Andries, 1995). OPP in the supply chain is often
discussed in conjunction with the term postponement. Postponement can be applied to form, time
and place. Form postponement means that companies delay production, assembly or even
planning and design until after the customer has placed an order. This increases the ability to fine
tune products to specific customer wishes. Time and place postponement or logistics
postponement means that the forward movement of goods is delayed to the last possible place or
moment in the chain of operations and goods are kept in storage in the distribution chain (Prasad,
1995).
The positioning of the OPP has a crucial impact on the supply chain responsiveness and
needed inventory levels. If the OPP is positioned near the end customer, the delivery time is
shorter, but uncertainty and the risks for the manufacturer are higher. If the OPP is positioned far
up-stream, the inventory risks are lower, but the service level to the customer is lower. The
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lowest risk to the supplier is to have the OPP in manufacturing which eliminates the need for
inventories. On the other hand, this might mean long delivery times and low service levels to the
customers and the final decision is a trade-off between cost and service level as opposed to
competition.
2.9 Economies of Sale
There are three types of economies to be achieved with the supply chain approach on the
system‘s level: economies of scale, economies of scope and economies of speed (Shaw, Nisbet,
Dawson, 2001). Economies of scale in the supply chain convert into money in two ways - greater
bargaining power and lower unit costs, both being based on sheer volume. Economies of scope
means the benefit of being able to share resources across products, markets and businesses.
Economies of speed means the ability to react quickly to changing customer requirements, and
improved performance that is based on better sharing of control information. To be able to
realize the benefits, the network has to communicate openly and have common goals.
Economies of the sales make Every Day Low Price (EDLP) philosophy possible. EDLP
is probably one of the most difficult pricing strategies for any retail business to execute. It
requires a level of discipline that most retailers do not have. Trust has to be built with the
consumers over a period of years convincing them that the business will promote and that the
consumer will still be better off, receiving the lowest price for a basket of goods (Moyer, 1991).
EDLP offers many operational advantages as well. EDLP allows for more accurate
forecasting and combined with POS data sharing with suppliers, helps reduce inventory
throughout its supply chain improving inventory efficiency for both retailers and their suppliers
(Tarascio, 1997). A second cost advantage of EDLP is that it does not require the kind of
continuous price-item advertising that high-low pricing retailers must do.
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2.10 Demand distortion in Supply Chains
Forrester made simulation experiments with supply chains and described how a small
change in market demand can lead to a substantial change in demand for the manufacturer
(Forrester, 1992). In his model a 10 percent variation in demand caused a variation of over 50
percent for the manufacturer. Forrester suggested that the prime reasons for the demand
amplification were long supply chains with time delays in information processing, long lead
times and different control policies for orders and inventories (Brito, 2001).
2.11 Cross-Docking and VMI
On the physical distribution side, one of the most important innovations has been cross-
docking (Kinnear, 1997). In cross-docking, the products delivered to a warehouse are sorted,
reloaded and transported to the stores without ever staying in the inventory. In addition to an
efficient distribution strategy, Wal-Mart implemented a new approach to inventory control
together with Procter & Gamble. It gave the control of inventories to the supplier. This new
approach is called Vendor Managed Inventory (VMI). In a working VMI-arrangement the
supplier is able to see the real demand with the help of Point of Sale (POS) data, which is often
called Electronic Point of Sale (EPoS) if transmitted electronically. Based on the actual sales
information and inventory levels in the stores, the vendor makes the replenishment decisions
concerning the quantities, shipping and timing. This eliminates the ordering and purchase
decision process, thus reducing the distortion of demand information in the supply chain. The
benefits of VMI are a better utilization of resources in production, transportation and a reduction
of inventory levels. The supplier‘s buffer stocks can be smaller due to the smoother demand
signal. Additionally, the supplier has more freedom to co-ordinate the replenishment process
proactively, instead of responding reactively to purchase orders. This literature review is viewed
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as groundwork to frame the questionnaire. From the questionnaire framed, the current picture of
level of IT implementation to the retail business in India will be developed. The level of
efficiency or inefficiency of small and large firms and the firms implementing Centralized or
Decentralized inventory model, in terms of the inventory management will be confirmed.
A strategy is further formulated where in the recommendations are made with regards to the kind
of IT implementation and change in the organizational structure for the smooth operation.
Retailing in India is currently estimated to be a USD 200 billion industry, of which organised
retailing makes up 3 percent or USD 6.4 billion. By 2010, organised retail is projected to reach
USD 23 billion KSA Technopak: Global retail sales are estimated to cross US$12 trillion in 2007
Planet Retail estimates. The organized retail in food and grocery segment in India is growing
fast, although the exact numbers on its growth differ widely (16–50 per cent) depending on the
source and definition being used. The growth rates projected by Planet Retail for the next five
years indicate that the growth in organized food retail is likely to be accelerating,12 and it may
turn out to be akin to the information technology revolution but so far has been well rooted in
domestic demand and domestic capital The sales of the top-five grocery retailers, for example,
are projected to grow from US$1 billion in 2007 to US$15 billion in 2012, a 15-fold increase in
five years (Planet Retail website; Gulati and Ganguly 2007). Consumer outlook for 2005 and in
terms of market share it is expected to rise by 20 to 25 per cent KPMG (2005), Consumer
Markets in India. The report also predicts a stronger retailer growth than that of GDP in the
coming five years. Organized retail has the potential to lift the Indian economy to higher levels
of productivity and growth. In the context of the United States, a McKinsey Global Institute
study17 indicated a contribution by the retail sector of nearly one-fourth of the rise in
productivity growth from 1987-95 to 1995-99 Quoted in Morgan Stanley Research (2006). They
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provide goods and services that appeal to customers, in an excellent ambience that is conducive
for shopping, created based on consumer preference analysis, and offer good value as some of
the benefits of large-scale purchases are passed on to consumers. In India, retail has its deep root
since long back –and that is why India is being known as ―Nation of Shopkeepers‖ with about 12
million retailers by 2003 Euromonitor.com,2004 . Organised retailing contributes 2% to the total
Indian retail sector and expected to increase to 5%, by 2010. Retail sector forms 10-11% of GDP
Retail Management-An Asian Perspective Draft Monograph,2006. It is attractive in terms of
investment, employment opportunity, and usage of technology. Indian organised retail industry
was worth Rs. 13,000 crore in the year 2000 and was expected to grow by 30 per cent in the next
five years touching Rs. 45,000 crore in 2005 http://www.indiainbusiness.nic.in/india-profile/ser-
retail.html . Retail managers are in a constant need for right kind of information for making
effective decisions. Modern advancements in ITES (Information Technology Enabled Services)
and communication has permitted deployment of DSS (Decision Support Systems). DSS can be
defined as computer based systems that help decision makers to confront ill structured problems
through direct interaction with data and analysis models. John R Beaumont,‖An Overview of
Decision Support System for Retail Management‖,Journal of Retailing Vol 64 No 4 Winter 1988
pp361-373 . DSS are basically characterized by three capabilities; dialogues, data and modeling-
the emphasis of each varies from organization to organization. DSS includes a wide variety of
systems, tools and technology that support decision making. EIS(electronic information
system),ESS( Electronic support system),GIS(geographic information system),OLAP(online
analytical processing),software agents, knowledge discovery system and group DSS – all can be
considered as DSS .Broadly two major categoriesof DSS namely enterprise wide DSS and
desktop DSS exist http://dss.cba.uni.edu/glossary/dssglossary.html . The organization needs to
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pool in both internal and external data, software, customer data, models and trained people to
appreciate and use the systems for decision making which will help build sustainable competitive
advantage Andy Thompson & Jonathan Walker,‖ Retail Network Planning- Achieving
Competitive Advantage through Geographical analysis‖ Journal of Targeting, Measurement and
Analysis for Marketing, May, 2005;13,3;ABI/INFORM Global,Pg. 250. It is expected that
technology - based competition and innovation is escalating because of competitive pressures in
retail industry. Technology is viewed as one way of competing but needs to become more
affordable. According to Sheldon Leitch, a principal at Toronto - based Ernst & Young, who
tracks the retail industry,‖there are three things retailers need to do well: build in a front end at
the point - of - sale, segment the market by demographics and build so - called merchandise
allocation systems‖ Slofstra, Martin,‖ Tandem takes DSS to retailers,‖ Willowdale: Mar 30,
1994.Vol.20, Iss. 7; pg. 1, 2 . Thus DSS range from what if spread sheet and simulation analyses
to ―expert system‖- applications of artificial intelligence. While developing the DSS in the
organization, it is very essential that views of different stakeholders are taken into consideration.
For example; executives and professionals are the users, MIS managers are the developers
managing the process of development and installation, Information specialists build and develop
systems, system designers who create and assemble technology on which DSS are based and
researchers who study DSS and its process. Thus following are the key characteristic
requirementsof DSS: As managerial decisions are always made with organisation‘s own culture,
routine and operating procedures, DSS should have adaptability Little, John D. C.,‖ Decision
Support Systems for Marketing Managwers‖ Journal Of Marketing, 1979,43(summer):9-26.
Profile of the sample retail outlets: Convenience storeas the name signifies, are stores that
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provide a high level of convenience to their customers in terms of convenient location and
extended operating hours A J Lambha‖ The Art of Retailing‖ 2003, Tata Mcgraw Hill , 476p.
DSS is computer enabled methodology for using the database
GDP growth rate in 2003-04 recorded a fifteen year high of 8.5% and subsequently maintained a
steady growth for the next two years. Real GDP growth accelerated from 7.5 per cent during
2004-05 to 8.4 per cent during 2005-06 on the back of buoyant manufacturing and services
activity supported by a recovery in the agricultural sector RBI (2006), Press Release: 2006-
2007/300. the 20 million middle class home in rural India equal the number in urban India4
and
thus have the same purchasing power Marketing White book (2006). Given the increasing urban
exposure of rural India, the urban and the rural upper-income groups can form an interesting
continuum market, giving it a scale of 23 million households, or 115 million consumers In 2006-
07, the consuming class would be about 60 million households, or 300 million consumers
Bijapurkar, R. (2003), The New, Improved Indian Consumer, Business World, 8 December, pp.
28-36. there are nearly 42,000 rural haats, average number of sales outlets per haat is 300 and
average sales per outlet is INR 900 and average foot fall in a haat is about 4,500. In rural India
there are 50 million Kisan Credit Card (KCC) holders and in 2002-03, LIC sold 50 percent of its
policies in rural India Marketing Whitebook (2006) Consumer spending in India has grown at
over 12 percent since mid-1990s and 64 per cent of Indian GDP is accounted for by private
consumption Consumers & Markets, Marketing Whitebook (2006), p.109. By the end of 2005
one single mall was operational with GRA of 1.2 lakh sq ft and by the end of 2008 there will be
37 malls operating with gross leasable area (GLA) of 15.2 million sq ft. Ludhiana is leading the
way with 11 malls and GLA of 5 million sq ft Retailing in Punjab: 2010 and beyond (2006), An
Image & CII study. Tesco is planning to enter the market through a partnership with Home Care
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Retail Mart Pvt Ltd and expects to open 50 stores by 2010 The Global Retail Development Index
(2006), AT Kearney. the Land mark group also operates multiple formats such as hypermarket
(Max), departmental store (Lifestyle), Shoe mart and Fun city etc Family entertainment centre
which offers excellent opportunity for kid to learn and have fun. In early 2006, the K. Raheja
Corp (C.L. Raheja Group) has introduced it‘s value retail concept Hypercity which is the
country‘s largest hypermarket at 118000 sq ft. Hypercity carries product range varies from
Foods, Home ware, Home Entertainment, Hi-Tech, Appliances, Furniture, Sports, Toys &
Clothing. Hyper city Retail plans to open 55 hypermarkets by 2015. Reports in media indicate
that Reliance is set to open its hyper market format called ‗Reliance Mart‘ in Ahmedabad in
December 2006 in 1.5 lakh sq ft of space http://www.thehindubusinessline.com Subhiksha, the
Chennai based discount retail chain is going national. By July 2006 the retail chain had around
150 stores and planning to open 350 more by March 2007. The National Capital Region (NCR)
is going to get a fair share of 145 stores http://www.hindu.com. The 3,840 sq ft store retails wide
variety of products such as men‘s denim wear & sports wear, women‘s sportswear, junior jeans
and accessories like handbags, belts and watches. Apart from the new store in Hyderabad,
Tommy Hilfinger is also available in its exclusive stores in New Delhi, Gurgaon, Chandigarh,
Bangalore and Mumbai http://www.imagesfashion.com/back/expansion/outlet_mar05.html. US
based My Dollar Store started operation in Mumbai through master franchise arrangements with
Sankalp Retail Value. The store opened with a floor space of about 4,000 sq ft of space in Nirmal
Lifestyle and offers wide range of products ranging from shampoos-to-juice-toys. Predictions
about the growth and impact of (r)e tailing seem to have oscillated quite dramatically since the
late 1990s. Initially, some commentators argued that it would lead to a transformation of the
whole retail economy. The events of 2000 and 2001, which saw the failure of a number of high-
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profile (r)e tailers and dramatic falls in the share values of the remainder, led to much more
measured assessments (Edgecliffe-Johnson, 2000). In 2002, Reynolds noted that many
traditional retailers had increasingly downgraded the threat potential of (r)e tailing on their
strategic agendas. Marketing Intelligence & Planning Vol. 22 No. 7, 2004 pp. 742-750 Emerald
Group Publishing Limited. Internationalisation is one of the key factors in European economic
development.
Today's shoppers no longer visit to "look-alike boxes"; rather they expect a unique experience
while shopping, from each buying situation. When shoppers decide to visit a particular retail
format, they anticipate fulfillment of their shopping motives. In case of existing formats, they are
often aware of the behavior that they are engaged, to obtain the highest benefit from their
interaction with the retail environment.
Stone, Horne et al (1996) advance economic factors hedonic factors or the combination of two to
find out shoppers' motives behind shopping in alternative retail formats. Lumpkin, Greenberg,
and Goldstucker (1985) found that elderly shoppers are less price conscious and feel shopping as
a recreational activity and their choice is heavily dependent on entertainment value. A store is
also chosen based on the self-confidence that the customer has regarding the store about the
nature and quality of the product and service the store would deliver. It also depends on the
involvement in the shopping situation. Stone, Horne et al. (1996) found impulse purchasing,
bargain hunting, experiencing the environment and social contact as the motivating factors
behind car boot sales in a study in U.K. Kenhove, Wolf and Waterscoot (1999) found store
choice is determined by nature of task. Sinha, Banerjee and Uniyal (2002) conclude image and
perception along with individual characteristic has significant impact on final outcome.
Perception about stores is, in turn, derived substantially by tangible characteristics of the stores.
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While, Donthu and Garcia (1999) found enjoyment, navigation, and convenience are the online
factors, shoppers seek. Degeratu et al. (2000) indicated that on line shoppers were found to be
less price sensitive. They found that shoppers show different behavior, across formats, so far as
shopping occasion and shopping need are concerned. There was also a wide disparity in the
demographic, socio- economic and psychographic profile of the shoppers among different
formats. In demographic parameter women's share to e commerce revenue is only 17% in US in
the year 1999 (Rosen and Howard 1999), which may explain by their favorable inclination
towards touch and feel experience, available in store- format shopping only. Broadly, it can be
inferred that shopper's profile, need and purchasing power lead to format selection decision,
which is focused on the value sought at that particular purchase situation.
After living with a wide variety of format choices the customer today choose a medium as an
information source and another medium to purchase the product. Today shoppers can check
product availability on line and pick up at a store; buy online and return product at store. The
shifting trend in format patronage among US shoppers with in store category has been studied by
(Rousey, Morganosky, 1996) shoppers across different retail formats. Convergence of Formats
and Consequent Changes in Format Selection Pattern: After the rise and consequent pre-mature
demise of dotcom euphoria, a growing interest is emerging in multi-channel retailing. Given the
pure-play model did not deliver value as envisioned, online retailers are considering on-land
operations. While the brick and mortar stores take advantage of online medium to leverage on-
land strength, eventually paving the way for multi-channel structures from both direction.
According to BCG Report (2000) multi- channel retailers (Clicks and Mortar) now account for
two-thirds of on line sales revenue. BCG 's recent study reveals that consumer spending on line
will increase by 41%, from $ 51.3 billion in 2001 to $ 72.1 billion by the current year in the
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United States itself. Schultz (1996) predicted that the 21-st century marketplace would be multi-
media and multi-channel with customers enjoying a wide range of media and channel options.
Rosen and Howard (2000) estimated the future impact of electronic commerce on traditional
retail sales. They opine that those with a physical presence and brand name will have a
competitive advantage over those with only virtual presence.
As a consequence, physical retailers with e-com capability are expanding their physical presence
at the above average rate. Retailers without e-presence are closing store at an above average rate.
However, retailers expanding virtually are also growing physically, with a view that Internet will
complement their physical presence. Out of availability of diverse retail formats and cross-
shopping pattern of consumers, raise some hitherto unobserved issues. Based on data of U.S.
customers, Morgaonsky (1997) argues, which makes shoppers' format patronage habits complex
and convoluted is that in the emergence of new formats consumers do not necessarily replace
one format with another. According to him, as many of the emerging formats emphasizes price
savings, the consumer may be exchanging time for money, in their multiple format patronage.
Online retailing, which has provided time and money savings, fails to provide touch and feel and
other hedonic benefits. A study by Master Card International revealed that, as format option
increases, consumers become more adventurous in their shopping habits. (Solomon, 1993).
Figure – 1 elicits the bases on which shoppers may like to look at the combined format retailers
(McKinsey, 2000).
Researches have been done to assess the impact of different form of retailing, namely stores,
catalogues, TV and internet by examining the shopping experience in terms of product display,
shopping time, delivery time and price. But the influence on retailer's brand by the emergence of
multi format structure has not been looked into. Format Switching and Consequent Possibility of
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Brand Image Revaluation: Rasch and Lintner (2001) observed 85% browsers brought offline the
brand and product they identified online and concludes that the online channel has a profound
influence on consumer's offline behaviour, and therefore will play an integral role in an
increasingly multi-channel world. The concept of retail store's image is described as an overall
impression of a store as perceived by consumers, (Keaveny and Hunt, 1992), or as an
individual's cognition and emotions as inferred from perceptions or memory, that are attached to
a particular store (Baker et al., 1994). Retailer's image can be described as a combination of
functional and psychological attributes that are meaningful to the shoppers. A shopper confronts
retail mix in the form of elements, namely,
a) Variety and assortment of merchandise
b) Store design, display and ambience
c) Price
d) Customer service and facility and
e) Accessibility.
A shopper may switch to a new format either permanently or intermittently changing among
formats. While switching to new format a satisfied patron will be inclined to shop from favorable
retail brand, also present in that particular format. Though in a different format and shopping
situation, the shopper carries expectation of identical value proposition congruent to retailer's
brand image perception in the parent format. Buchanan, Simmons and Bickart (1999)
emphasised retailers' ability to influence on manufacturer's brand equity, either through physical
encounter (store format) or through direct communication (non- store format). He has further put
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forward how the inconsistency created at the retail point may lead to revaluation of brand. In the
same manner, when retailers themselves proliferate into different formats, the shoppers evaluate
their experience about the retail brand from past shopping experience. Shoppers visit retail
format with some expectation, which is mainly derived from earlier experience. So, while
visiting a new format of a patronized retail brand they may encounter a new set of retail mix and
a different level of retail value proposition. When expectation are disconfirmed, shoppers engage
in constructive processing that can result in revised brand valuation. If the value is lower than the
earlier experience, the retailer's brand equity is exposed to the risk of dilution. On the contrary, if
the retail value proposition offered by retailer is equal or higher than original format it reinforces
and increases brand equity. To sum up, it can be said, when expectation are disconfirmed,
shoppers engage in reprocessing that can result in revised brand valuation. Abdelmessih and
Stanger (2001) pointed out the risk of delivering consistent experience is high as dissatisfaction
in one channel can be carried out to other channels also. He found that many retailers who
become frustrated with an online site, for functional failure, blame the retailer not the Internet In
the year 1999 itself, at least 6 percent of shoppers switched their patronage habit in the off-line
store, due to dissatisfaction in online experience. The number of switchers increased to 9 percent
in the year 2000. In absence of complete information about a store, shopper makes inferences
from available information cues before forming perceptions of the store (Monroe and Krishnan,
1985). Here the experience in online version of the store acts as a cue that helps the shoppers to
form impression about the on land store. The situation warrants more attention, as valuable
premium segment customers are more exposed to multi channel shopping and very sensitive
towards the brand image of the retailer they patronize. To achieve multi channel offering, retail
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need to understand shopper's attitude behind each shopping situation across channels and how
these situation shapes shopping behavior.
Opportunities arising out of proliferation of retail formats: The new area of retail business
ushered lots of opportunity both for the shoppers and retailers. Shoppers acquire benefits from
savings in terms of time price and searching effort, expanded information on goods and services,
shopping convenience and greater availability of customized products, uninterrupted
accessibility and smooth flow of transaction choosing any of the available format. To the
retailers e-commerce offers greater efficiencies in market and information access, providing
scope of better services, reduced operating and product procurement cost. (Rosen and Howard,
2000). McKinsey study (Calkins, Farello and Smith, 2000) revealed that traditional store based
retailers only need spend about $5 a person a person to bring their existing customer online,
which is as high as $45 case of pure e- retailers. Retailer with strong brand equity enjoys
shoppers' preference and loyalty, and extracts either price premium or volume advantage (in case
of price parity), or both. (Stevenson, Shlesinger and Pearce, 1999). Synchronisation in
Delivering and Communicating Retail Value Proposition:
According to Henderson and Mihas (2000), new multi category retailers have emerged that
combined functional benefits like price, convenience and service, with the emotional relationship
that gives a retail brand true personality. They cited example of office supply industry in the U.S,
where retail players have started opening smaller stores, giving the shoppers the killer assortment
of goods through whatever format or channel best suits a given transaction. The culmination of
this trend is emergence of electronic commerce through WWW. They point out the retailer's
challenge of multi channel management and the need to provide a consistent brand statement
across each channel. But Wileman and Jery (1997) describe that retail formats appear to vary
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substantially in their potential for supporting for the development of strong retail brands. While
segmentation is easy for repertoire retailers, proximity retailers occupy the opposite end. Thus
the task of retailers to bundle their retail strategy mix in a way that builds and maintain loyalty
across formats is particularly challenging.
Palmer (1997) reveals there are significant differences (Table-3) among the four formats, namely
In-store, Catalogue, Cable T.V and Internet in approaches to connecting with shoppers. Out of
120 separate products across four retail formats, his findings show that store design and product
display are format specific. Convenience in terms of shopping time and payment option is
significantly different across the formats. In providing accessibility (available shopping hours)
WWW is highest followed by Cable TV, catalogue and in-store. In absence of complete
information about a store, shopper makes inferences from available information cues before
forming perceptions of the store (Monroe and Krishnan, 1985).
Chen and Leteney (2000) opined that successful Internet retailers are those who have been able
to successfully transfer critical elements from traditional retailing to Internet. The desire of the
multi channel retailers to co-ordinate price in such a manner so as to prevent internal competition
among different formats of the same retail brand. Though, a study on standardized DVD brands
(Tang and Xing 2001) finds that prices by pure Internet retailers are significantly lower than
prices by on line multi channel retailers, the practice of charging differential price across format
by the same retail brand has severe impact on the brand image. In the same manner, any one of
the components of retail mix if not at par with the other formats, the brand image of multi
channel retailer loses focus. Communication and positioning decision are likely to be more
effective if the relationship among the objective environment of the format, motivating factors of
the shoppers and preference for the retail brand attributes are known. But motivating factors are
43
not uniquely associated with individuals across formats or with formats across individuals. So,
the basis of positioning and differentiation cannot be determined in individual or format level.
Rather a decision of building retail brand, offering compelling proposition through different
formats to meet shopper's different motivating factors is a pragmatic approach. The value
proposition across formats is rarely fit, but the challenge to the retailers is to reduce the disparity
and leveraging the parent brand's equity in the new format situation.
As WTO-statistics show, world foreign trade volumes grew from 280 billion US$ in 1970 to
8,900 in 2004, and the direct investment volumes grew from 520 billion US$ in 1980 to 8,200 in
2003 (UNCTAD estimates a slight but steady increase for 2004;m UNCTAD, 2005; WTO,
2005). As is generally known, both are dependent on each other: direct investments involve
trade, and vice versa. Internationalisation research covers a period of about 35 years, but with the
focus on production companies. The internationalisation of modern retailing began in the 1990s,
and has seen highly dynamic development. Within only a couple of decades, the largest retailers,
such as Carrefour (No. 2 in the world) and the Metro Group (No. 3), have entered the market in
around 30 countries and now achieve foreign turnover rates of some 50 per cent (the figures for
the world‘s No. 1 – Wal-Mart – are 12 and 25 per cent) (Swoboda et al., 2005; Swoboda and
Schwarz, 2006). In comparison with other aspects of retail management, however,
internationalisation is a topic that is seldom discussed. Dawson (1993) and Sparks (1995) claim
theories of internationalisation that are specific to the retail trade International Journal of Retail
& Distribution Management Vol. 34 No. 7, 2006. For the third (consecutive) year, India tops [. .
.] as one of the most attractive countries for global retailers [. . .] Modern retail, accounting for 2-
3 percent of the market, is expected to grow at a compounded annual growth rate (CAGR) of 40
percent, from $8 bn. to $22 bn. by 2010. Overall India‘s retail sector is expected to grow from its
44
current $350 bn. To $427 bn. by 2010 and $635 bn. by 2015 (Morierty et al., 2007, p. 9). The
food and grocery retail sector, which had been a slow starter, is currently attracting the maximum
attention. Penetration of modern retail in the food and grocery retail sector is the lowest@0.8 per
cent (Images F&R Research, 2007, p. 21). Despite an inherently low-gross margin, this low-
penetration rate coupled with the huge market potential – 42.1 per cent of total consumer
shopping basket – (Businessworld, 2003/2004, p. 85) makes the food and grocery retail sector
very attractive for large business houses. Thus, we have today mega Indian business houses and
corporate like the Reliance Group of Mukesh Ambani (Reliance Fresh & Reliance Hyper),
Future Group of Kishore Biyani (Food Bazaar), RPG Group (Spencer‘s Retail), the Aditya Birla
Group (More), ITC Ltd (Choupal Fresh & Choupal Saagar), Wadhawan Holdings (Spinach), the
Godrej group (Nature‘s Basket & Godrej Aadhar), Subhiksha, J Raheja group (Hypercity), etc.
driving the forays into food and grocery retail through different models like single-format, multi-
format or integrated urban-rural model. And, to cap it all, we hope the first Bharti-Wal-Mart
(franchise operations of Wal-Mart in India) stores to start operations in early 2008 International
Journal of Retail & Distribution Management Vol. 36 No. 9, 2008 pp. 689-700 q Emerald Group
Publishing Limited. Traditional retail over the years India at the time of its independence in 1947
was in the clutches of a vicious circle of poverty – characterized by very low per capita
consumption and one of the lowest income levels in the world. Retailing was focused more on
the basic necessities rather than luxury. In terms of retail institutions, it was mainly mom-and-
pop stores (kirana stores) run by individuals and the wet markets or bazaars. There were also the
government-run public distribution shops (PDS) as well as different co-operative stores. All
these stores were having counter-service – self-service was not a feasible option. Even in the
early 1960s, it was reported that ―there is not a single supermarket in all of India‖ (Westfall and
45
Boyd, 1960, p. 14). Over the years, more and more counter-service format stores came up all
across the country and by the turn of the century it was almost 12 million. The majority of these
stores focused on food and grocery – in the form of fast-moving consumer goods (FMCG) items
– sold at maximum retail price (MRP). Many of the stores provide credit to customers. While in
terms of sheer numbers it is the grocery kirana stores which dominate, in value terms it is the wet
markets which are estimated to be accounting for about 70 per cent of food and grocery retail
sales (Jones et al., 2005). The level of the internet readiness of a country is important because it
has an effect on a nation‘s ability to compete globally (Sprano and Zakak, 2000). E-commerce
readiness at a country level is not necessarily the same among different industry sector levels
(Palacios, 2003). Furthermore, there are differences among SMEs within the same industry in the
level of e-commerce activities and adoption. SMEs do not constitute a homogeneous set because
they vary significantly by size, sector, location, knowledge base, motivation and others (Taylor
and Murphy, 2004). Fillis et al. (2003) believe that owner/manager related factors play a major
role in the adoption of e-business and e-commerce for smaller firms. For example, high degrees
of entrepreneurial orientation on the part of key decision makers are needed for a firm to adopt e-
commerce International Journal of Emerging Markets Vol. 2 No. 4, 2007 pp. 395-405.
In recent years, research has focused on understanding consumer behavioral response patterns in
out-of-stock situations in retail (Walter and Grabner, 1975; Schary and Becker, 1978; Zinszer
and Lesser, 1980; Motes and Castelberry, 1985; Emmelhainz et al., 1991; Charlton and
Ehrenberg, 1996) and response drivers (Schary and Christopher, 1979; Emmelhainz et al., 1991;
Verbeke et al., 1998; Campo et al., 2000; Zinn and Liu, 2001). However, there is almost
complete lack of understanding about consumer‘s attitudes towards out-of-stock store. It is more
important to understand attitude than behavior for two reasons. One, attitude towards store
46
influences behavior (which in turn determines profits) importantly and consistently; two, store
attitude can serve as an important measure for effectiveness of retailer strategies and/or practices.
For example, in an out-of-stock, retailer can ypically face revenue losses; however, if
attributes/factors which affect how consumers rate/patronize store are appealing/acceptable, store
attitudes would stand protected lending support to overall retailer strategy and/or practices. This
paper attempts to understand determinants of attitude of consumers towards store in out-of-stock.
This can help retailer protect consumers‘ store attitudes by appropriately modifying
determinants. Asia Pacific Journal of Marketing and Logistics Vol. 20 No. 3, 2008 pp. 259-275.
Practical implications stem from the prevalence of stockout situations. Grocery Manufacturers of
America (2002) identified stockout as obstacle in meeting shopper satisfaction objective. Yet
another Indian study, found 37 per cent of the top SKUs for six top FMCG players were out-of-
stock on a particular day (Retail Biz, October, 2003; Vinay Kamath, Hindu Business Line, 30
October 2003). Political concerns over the loss of livelihood by lakhs who run mom-and-pop
stores also need to be addressed (Bureau, 2007a; Jha and Guha, 2007). The Prime Minister‘s
Office of India had initiated a study on the impact of retail giants on small retailers by Indian
Council for Research on International Economic Relations and this move had been welcomed by
the Confederation of All India Traders. This study reports that unorganized retailers in the
vicinity of organized retailers experienced a decline in their volume of business and profit in the
initial years after the entry of large organized retailers, but the adverse impact on sales and profit
weakened over time (Joseph et al., 2008). The same study also reported that all income groups
saved through organized retail purchases and lower income consumers saved comparatively
more. This apparent conflict in the report as to why in spite of higher savings to consumers while
47
shopping at organized outlets the adverse impact on sales and profit of unorganized retailers
reverses over time, may be because the study takes a snapshot picture of the present without
delving into the possible reasons of why the customers behave the way he does. Asia Pacific
Journal of Marketing and LogisticsVol. 21 No. 1, 2009 pp. 127-143.
Internationally, while some studies suggest that large scale retailers like Wal-Mart are
responsible for widespread closings of mom-and-pop stores (Wal-Mart Watch, 2005; Basker,
2005) and question whether cost to communities in terms of labor displacements and higher
poverty is offset against benefits of lower prices and greater convenience (Goetz and
Swaminathan, 2006), other studies suggest that the process of creative destruction unleashed
byWal-Mart has had no statistically significant long-run impact on the overall size and
profitability of the small business sector in the USA (Sobel and Dean, 2006). In Asia, with the
exception of Hong Kong, Singapore and Malaysia, traditional channels still command more than
half of the grocery retail market in the rest of the countries in Asia (KPMG, 2006).the experience
in China and Indonesia has shown that while both organized and unorganized sectors exist and
grow for the first 5-10 years, albeit at different rates, the structural changes start hitting the
unorganized sector after the share of organized retail reaches 25-30 per cent (Gulati and
Reardon, 2007). At present certain Asian countries which have witnessed high growth rates
between 2003- 2007 in modern grocery sales are China (105 per cent), Turkey (56 per cent),
Vietnam (59 per cent), Indonesia (70 per cent) and India (49 per cent) (Gregory, 2008). Overall
situation in Asia for grocery retailing indicates shrinkage in the traditional grocery sales with
South Korea witnessing a 13 per cent decline in small retailers between 1996-2004, Hong Kong
facing a decline in market share of traditional grocery channels by 21 per cent between 1994 and
2004, Singapore witnessing a fall of 8 per cent between 2002 and 2003 in the proportion of
48
households spending bulk of their grocery money at traditional shops, Japan facing a decline in
contribution of small and independent businesses to the grocery retail market to the tune of 7 per
cent between 1998 and 2004, China having traditional style markets contributing to only 68 per
cent of grocery sales in 2004, and Indonesia facing a shrinkage in traditional retailers, including
wet markets, roadside stalls and independent grocers (KPMG, 2006). In India modern trade or
organized retailing already account for 30 to 40 per cent of grocery sales in the top 6-7 cities of
the country (Kakkar, 2008).
Employers become trainers in retail : Can the logistics sector follow suit?
The retail boom is likely to create an additional 2.5 million new jobs by 2011. Surprisingly, there
is not one premier educational institute offering training courses with retail focus and the
capacities of smaller institutes nowhere close to demand. Homegrown retail giants are now
following the global pattern of supporting training infrastructure. Some are setting up their own
schools: a case in point being the RPG Institute of Retail Management. ITC is planning a retail
training academy in partnership with NIS Sparta. Pantaloon Retail (PRIL) started a one year full-
time post- graduate retail management program at K G Somiaya, Mumbai, five years ago. Its
other programs include the recent distance learning course in retail management with Madurai
Kamaraj University.The company is looking at the NIFT and Pearl Academy to teach visual
merchandising. Its 17,000 employees are eligible for a two-year fully paid MBA after two years
of work. http://economictimes.indiatimes.com/articleshow/842990.cms. For keeping the store
attractive for shoppers the store adds new products on a weekly basis. Mulund boasts of three
dollar shops on SL Road, and one in Mulund (E) near the station. Royal Shoppe on SL Road
offers everything from crockery to towels, shoes, curios, lamps, etc. Royal Shoppe now offers
goods ranging from Rs 29 to over Rs 1,699 http://mid-day.com. Rural incomes are growing
49
steadily as well. NCAER shows while the number of middle-class households (with annual
income between Rs 45,000 and Rs 2.15 lakh) is at 16.4 million in urban India, the figure stands
at 15.6 million http://www.blonnet.com.The Godrej Adhaar, the rural retail initiative of Godrej
Agrovet Ltd operates a chain of 18 stores providing a host of services to farmers and their
families and is planning to set up at least 1,000 stores across rural India in the next five years
http://www.thehindubusinessline.com.
In 2005 LG Ezbuy was the major internet retailer in value terms with a commanding share of
close to 23 per cent. Other major players in terms of value share are Times Internet
(indiatimes.com), Yahoo Web services (yahoo.com), India Online (Rediff.com), Fabmall and
Sify.com. Fabmall online store offers about three million stock keeping units and attracts about
10,000 visitors per day and on average ships over 20,000 orders per month Non-store retailing,
Retailing in India, Euromonitor Report,, 2006. Researchers from Knight Frank India, a real
estate consultancy, cipher that rentals in established malls in top metros have jumped by 20-30 %
in the last six months. Generally retailers work out a rent-to-revenue ratio with developers at
which they feel they can sustain their business. Normally, this figure varies between 4% for a
hypermarket (that is, rent will constitute 4% of revenues) and 10% for a department store, to
nearly 20% for very niche retailers. But, at a monthly rate of Rs 200 per sq ft, a department store
might have to make Rs 2,000 per sq ft per month just to break even Daftari, Irshad and Sharma,
Samidha (2006), ―Runaway realty prices steal industry's smiles‖, Economic Times, September
19, Bangalore Edition. PricewaterhouseCoopers estimates that Indian retail will get USD 412 by
2011and majority of investment will be directed toward the two most popular retail formats:
hyper markets and supermarkets http://www.deccanherald.com.
50
2.12. Statement of the problem
To discuss the importance of retailing in the Indian economy and sample area, to explain the
dimensions by which retailers can be classified for listing the major tasks involved in developing
a retail marketing strategy. To describe the major types of retail operations and to describe
future trends in retailing.
(―Why organized retailing is happening only in metro cities? And to study the determining
factors for the development‖)
2.13. Objectives:
1. To study the attractiveness of the cities differ in terms of culture, customer lifestyle,
financial ability and infrastructure.
2. To know unorganized retailer‘s perceived threat of organized retailer‘s entry is dependent
of the city.
3. To understand Influence of the organized retailer on the customer buying in terms of
quantity is independent of the city.
4. To study unorganized retailer‘s perceived threat of organized retailer‘s entry is
independent of level of competition prevailing in the local market.
5. To understand whether unorganized retailer‘s perceived change in consumer buying
power due to entry of organized retailer‘s entry is dependent of level of competition
prevailing in the local market.
6. To know location, opportunity, investment and advertisement influence risk perception of
unorganized retailer.
51
7. To study opportunity for expansion of business is dependent of type of ownership of the
shop or not?
8. To know whether there is no equal opportunity across the cities for organized retailer to
enter.
9. To understand whether there is an association between factors influencing the expansion
and factors influencing the initial investments.
2.14. Formulation of Hypotheses:
1. H0: The attractiveness of the cities do not differ in terms of culture, customer lifestyle,
financial ability and infrastructure.
H1: The attractiveness of the cities differ in terms of culture, customer lifestyle, financial
ability and infrastructure.
2. H0: Unorganized retailer‘s perceived threat of organized retailer‘s entry is independent of
the city.
H1: Unorganised retailer‘s perceived threat of organized retailer‘s entry is dependent of
the city.
3. H0: Influence of the organized retailer on the customer buying in terms of quantity is
independent of the city
H1: Influence of the organized retailer on the customer buying in terms of quantity is
independent of the city
4. H0: Unorganised retailer‘s perceived threat of organized retailer‘s entry is independent of
52
level of competition prevailing in the local market.
H1: Unorganised retailer‘s perceived threat of organized retailer‘s entry is independent of
level of competition prevailing in the local market.
5.H0: Unorganised retailer‘s perceived change in consumer buying power due to entry of
Organized retailer‘s entry is independent of level of competition prevailing in the local
market.
H1: Unorganized retailer‘s perceived change in consumer buying power due to entry of
Organized retailer‘s entry is dependent of level of competition prevailing in the local
market.
6.H0: Location, opportunity, investment and advertisement do not influence the risk
perception of unorganized retailer.
H1: Location, opportunity, investment and advertisement influence risk perception of
unorganized retailer.
7.H0: Opportunity for expansion of business is independent of type of ownership of the shop.
H1: Opportunity for expansion of business is dependent of type of ownership of the shop.
8. H0: There is equal opportunity across the cities for organized retailer to enter.
H1: There is no equal opportunity across the cities for organized retailer to enter.
9. H0: There is no association between factors influencing the expansion and factors
influencing the initial investments.
53
H1: There is an association between factors influencing the expansion and factors
influencing the initial investments.
10. H0: There is no relationship between why existing unorganized retailers are not
Expanding and why organized retail giants are entering north Karnatak
H1 There is relationship between why existing unorganized retailers are not
Expanding and why organized retail giants are entering north Karnatak
2.15. Methodology
The following methods were used in the study:
A study of international experience particularly the recent developments in emerging
market economies;
Interviews of major players in organized retailing
Questionnaire-based survey of 500 unorganized retailers including
2.16. Limitation of the study
The study was purely based on the data given by the owners/executives of the retailing
companies/outlets who are generally suspicious of the motives of any investigation because of
fear of taxation and competition. In addition, due to non-availability of time series data with
respect to the business performance indicators over a period of time, only recent year‘s data
(2006-07) was used to analyze the performance. Therefore, the investigation was confronted with
various drawbacks in ascertaining the data. In case of companies having chain of outlets/units,
only one unit/outlet data was used to assess the overall objectives of the study. Hence, greater
care was taken to collect the data as accurately as possible.
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