RETAILING MANAGEMENT – I

Dr . Padmaja Rachapudi PhD,MMM,MBA,MA

Retail

•According to Philip Kotler “ Retailing includes all the activities involved in selling goods or services to the final consumers for personal, non – business use. A retailer or retail store is any business enterprise whose sale volume comes primarily from retailing”.• retaillier (french word), which means to cut off a piece or to break bulk.•A retailer may be defined, as a ‘ dealer or trader who sells goods in small quantities’.

conti….

• Retailing may be understood as the final step in the distribution of merchandise, for consumption by the end consumers.

• Retailers attempt to satisfy consumer needs by having the right merchandise, at the right price, at the right place, when the consumer wants it.

• Retailers are the final business in a distribution channel that links manufacturers to consumers

• Indian retail industry is the second largest employer in the country with almost 12million retail stores in India.

Characteristics of retailing

• It offers direct interaction • Sale volume is comparatively large in quantities• Customer service• Sales promotions are offered at this point only• Different forms• Location and layout are critical factors• More employment opportunities

Retail Industry

• The next phase of economic development in India will be consumption led. With the sustained and strong rates of economic growth, retail sales is expected to cross USD 400 billion by 2010, turning India into the biggest retail market in the world!

• Retailing is the second largest industry in the US in terms of number of people employed.

Conti..• In India, the retail industry is broadly divided into the organized and

unorganized sectors. Of this total market, the organized sector accounted for Rs. 350 billion (about 3.5 % of the total) of the total revenues.

• Traditionally, the retail industry in India comprised of large, medium and small grocery stores and drug stores which could be categorized as unorganized retailing. Most of the organized retailing in India had recently started and was mainly concentrated in metropolitan cities.

• India retail industry is the largest industry in India, with an employment of around 8% and contributing to over 10% - 11% of the country's GDP.

• McKinsey report 'The rise of Indian Consumer Market', estimates that the Indian consumer market is likely to grow four times by 2025.

• Retail industry in India is expected to rise 25% yearly being driven by strong income growth, changing lifestyles, and favorable demographic patterns.

• organized retail market in India is expected to reach US$ 50 billion by 2011.

Conti..

• CB Richard Ellis' findings state that India's retail market is currently valued at US$ 511 billion.

• India retail industry is one of the fastest growing industries with revenue is increasing at a rate of 5% yearly.

• A further increase of 7-8% is expected in the industry of retail in India by growth in consumerism in urban areas, rising incomes, and a steep rise in rural consumption.

• India's overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a compound annual growth rate (CAGR) of 10 per cent

• organized retail, which accounts for almost 5 per cent of the market, is expected to grow at a CAGR of 40 per cent from US$ 20 billion in 2007 to US$ 107 billion by 2013.

Retail Evolutiona) Barter systemb) Haats – periodic markets that form a major part of the

rural market system in India. This is a location which witnesses a public gathering of buyers and sellers at fixed times at fixed locations.

c) Melas – Melas are fairs, and they can range from commodity fairs to religious fairs. It is estimated that more than 25,000 melas are held annually in the country. It is estimated that the average outlets in every mela would be more than 800.

d) Mandis – Mandis are markets set up by the state government for the sale of agricultural produce directly from the farmers.

Conti..

• Public Distribution system was introduced in India in the year 1950. ( the evolution of the public distribution of grains in India)

• Kendriya bandars (1963)• Mother dairy ( foods and provisions)• Co-operative stores( In Mumbai, Bombay bazar)• From the 1950’s to the 1980’s, investments in various

industries was limited due to low purchasing power and the govt’s policies favouring the small – scale sctor.

• From 1990’s the Indian economy slowly progressed from being state – led to becoming “market friendly”

Conti…• The first time organised retailing was noticed in the

textile sector. Vivek’s, Nalli’s, Raymond’s, Vimal, Garden etc. This was the beginning of new era in retail in India

• The vast middle class market demanded value for money products (Post liberalisation).

• The concept of retail as entertainment came to India with the advent of malls.

• From 3 malls in the year 2000, to 25 in 2003, 220 malls in 2006, with a cumulative estimated space of 40 million sq.ft and over 600 malls by 2010, giving cumulative estimated retail space of as much as 100 million sq.ft.

The Evolution of Retail in India

• [Traditional formatsItinerant salesman

HaatsMelas

Mandis

Established formatsKirana shops

Convenience / departmental storesCompany / multi brand showrooms

PDS / fair price shopsCo-operative storesPan / Beedi shops

Emerging formatsExclusive retail outlets

HypermarketsMalls / specialty malls

MultiplexesRural oriented formatsFast food outlets etc.

Functions of a Retailer

• Retailers provide important functions that increase the value of the products and services they sell to consumers and facilitate the distribution of those products and services for those who produce them. These functions are..

1) Providing an assortment of products and services – Most consumers are well aware of the product assortments retailers offer.

2) Breaking Bulk – To reduce transportation costs, manufacturers and wholesalers ship cases / cartons to retailers. This is called breaking bulk. It is cost effective for both manufacturers and consumers.

Conti…3) Holding inventory - A major function of retailers is to keep inventory

that is already broken into user – friendly sizes so that products will be available when consumers want them.

4) Providing services – a) Retailers provide services that make it easier for customers to

buy and use products.

b) They offer credit so consumers can have a product now and pay for it later.

c) They display products so consumers can see and test them before buying.

d) Some retailers have salespeople on hand to answer questions and provide additional information about products.

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5) Increasing the value of products and services – By providing assortments, breaking bulk, holding inventory, and providing services, retailers increase the value consumers receive from their products and services.

Study & Practice of Retailing• A successful retail manager requires

analytical and creative skills. There are two methods for the study and practice of retailing.

1) Analytical method

• Retail manager is a finder and investigator

• Systematic decisions

• Standardized set of procedures, success formulas and guidelines.

Conti..2) Creative Method• The creative retail manager is an idea person.• The manager must respond the unforeseen

events in the environment• Imaginative and creative mind.3) A Two – Pronged Approach• Both methods are mainly implemented by the

retail manager.• Retailers in the 21st century cannot do without

creativity or analytical skills.

Key Drivers

1) Consumer Pull

a) high income segment

b) Middle and lower income group

2) Rising Incomes

3) Explosion of Media

4) Change in Consumer Behavior

Conti…5) Consumerism Cycle• Over the time the distributor gains control over the market,

at this stage the distributor becomes an important link between manufacturer and customer.

6) The rural Market waking up7)Establishment of the Supply Chain• Entry restrictions for multinationals have been removed in

nearly all sectors• This has enabled chain retailers to enjoy better range depth

and sourcing options as well as improved margins.• According to a study, there are 18,000 stock keeping units

(SKU), while most retailers have the space for at most 5,000-7,000 units.

• Because of this real estate companies and other corporates into investing in malls and other retail formats.

Conti…

8) Emergence of Hubs of Retail Activity

9) Change in Scale of Operations• Subhiksha and Food World has many stores

spread over many cities.• This growing scale enables the supermarkets to

eliminate links in the purchasing chain and to make deals with food processors directly.

• Because of huge purchases, HLL has dedicated a team to deal with these emerging power retailers.

Conti…10) Entry to the Corporate Sector11) Expansion of family owned businesses12) New Entrepreneurs13) Building chains around brands14) Foreign retailers looking for entry

options• Should have a tie up with some of the

indian retailers because of FDI restrictions.• Tesco, Kingfisher, Metro, Carrefour and

Ahold are exploring entry options.

Indian retail industry

Key Challenges1) The Kirana• CRM practice• Known about the customer’s families• Credit and home delivery• Consumer familiarity runs from generation to

generation• Open longer hours and stock most of the

goods• Consequently, a large number of customers

are not willing to pay a premium for the shopping experience promised by large format retailers.

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2) High costs for the organized sector

• High expenses to organized sector .

• The lease cost up to 6-10 percent of sales

• Manpower cost is lower at 5-6 percent of sales

• Capital costs are more in retail business due to major renovations needed every 5-7 years.

Conti..3) Specialization• The real boom in organized retailing will come

once the supermarket start selling daily need goods at 90 percent of the regular price, as Carrefour is doing in China.

• Build strong sourcing networks that connect the business directly with farms, and sell fresh food at attractive prices.

• Ex. Subhiksha ( 7-8 percent markdown on the MRP)

• Indian consumers are buying mainly from store – based retailers. Grocery still remains the main purchase from these stores.

Conti…

4) Correct Merchandise Mix (inventory planning and Management)

• Getting the right product mix is critical to retailing

• Every retailer wants to have high-value, high margin, and fast moving products.

• The retailers use to check volumes is ‘sales density’, which shows the amount of sales per sq ft of shop space.

Conti..

5) Strong IT support• The backbone of retailing is IT• It would require large investments that connect

every aspect of the operations seamlessly, from suppliers to the cash counters.

6) Poor Infrastructure• Cold chains• Roads and rail infrastructure• Efficiency of Supply Chain• A strict quality control increases the prices of the

merchandise

Conti…..7) Industry Status• The Indian Retail Council was formed in 2000.• Unified tax laws• The existing labour laws are difficult for shops to

have flexible timings• The industry is expected to see further growth

of organized retailing in both food and non-food segments in the coming years.

• Indian retailing needs to adapt to change. The change can be in terms of modification and creation of new formats or new products for the same targeted customers.