retailing in india trends challenges & opportunities - reshu

8/3/2019 Retailing in India Trends Challenges & Opportunities - Reshu

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RESEARCH PROJECT REPORT

0N

RETAILING IN INDIA TRENDS CHALLENGES &

OPPORTUNITIES

Submitted for partial fulfillment of award ofMASTERS DEGREE IN BUSINESS

ADMINISTRATION of Uttar Pradesh Technical University, Lucknow.

BY

Bipin Singh

0723070013

MBA-II Year, 4th Semester

(January-May-2009)

DRONACHARYA COLLEGE OF ENGINEERING

B-27, KNOWLEDGE PARK-III, GREATER NOIDA (U.P.)

Retailing in India:Trends challenges & opportunities 1


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Acknowledgement

The project title RETAILING IN INDIA TRENDS CHALLENGES &

OPPORTUNITIES has been conducted by me in fulfillment of Master of Business

Administration, 2009. I have conducted this study, based on Primary and Secondary

research, under the guidance ofMs. Vandana Balyan (MBA-Faculty).

I would like to thank all the respondents without whose co-operation my study/ project

would not have been possible/ complete.

Last but not the least, I feel indebted to all persons and organizations who have

provided help directly or indirectly in successful completion of this study.

Date: Bipin Singh

0723070013



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DECLARATION

I hereby declare that this Research Project entitled, RETAILING IN INDIA

TRENDS CHALLENGES & OPPORTUNITIES, written and submitted by me,

under the guidance ofMs. Vandana Malan, is my original work and that it has not

been submitted to any other University/Institute previously

.

Bipin Singh

Date : 0723070013



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CERTIFICATE

This to certify that the Research Project report entitled RETAILING IN INDIA

TRENDS CHALLENGES & OPPORTUNITIESfor the award ofMasters Degree

in Business Administration from Uttar Pradesh Technical University, Lucknow, has

been carried out by Bipin Singh, bearing University Roll No. 0723070013, under my

supervision and guidance. The Report embodies result of original work and studies

carried out by the student himself and the contents of the report do not from the basis

for award of any other Degree to the candidate or to anybody else.

Date: Ms. Vandana Malan

(Assistant Professor)

Dept. MBA

Dronacharya college of Engineering

CERTIFICATE



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This is to certify that Bipin Singh University Roll No. 0723070013 has carried out the

project work presented in this report entitledRETAILING IN INDIA TRENDS

CHALLENGES & OPPORTUNITIES. The results embodied in the Report are

original and not submitted to any other University/Institute for the award of any

degree/ Diploma.

Date: Prof. S. K. BishayeeHOD, Dept. MBA

Dronacharya college of Engineering

Contents



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S. No. Items Page no.

1. Chapter 1 (i) Introduction 7

(ii) Scope & Importance

(iii) Objectives

(iv) Research Methodology

2. Chapter 2 Review Literature 19

3. Chapter 3 (I) Data Collection 23

(ii) Data nalysis & Interpretations

4. Chapter 4 (i) Research Findings 44

(ii) Recommendations

(iii) Conclusions

5. Chapter 5 Limitation of the study 56

Select Bibliography

Bibliography ...57

Annexure.56

Introduction



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Organized retailing in India has come of age especially during the last decade. The

liberalization measures post 1991 fuelled the growth of the industry. Many large chains

like the Tata, RPG, Raheja's and the Piramal, to name a few, joined the retail

bandwagon and have now started coming out of the red after years of making losses

and recovering costs. Over these years Indian retailing has evolved from largely

informal and disorganized marketplace to a more corporatized industry (we shall refer

to this sector as industry despite the Government's hesitation in granting it the status of

one).

The organized retailing in India has already shot past the Rs. 200 Bn mark and

WASpected to achieve Rs. 298 Bn by year 2005 (Source: Vision 2005 Document, KSA-

Technopak). India has over 12.5 Mn retail outlets, though most of it is fragmented andunorganised.

Entry Of Corporate Sector Into Retailing

The Indian Retailing sector has been largely unorganized in the post independence

period, to the most part untouched by corporate business principles. It was only in

1980s when the economy started to be opened, the situation began to change.

Companies like Bombay Dyeing, Raymond and Grasim from the textiles sector were the

first ones from the corporate world to step into the retailing by opening their own

outlets. Titan's is another successful story of a corporate creating a great retailing

concept, by establishing a series of elegant watch showrooms across the country.

The post liberalization era witnessed new wave of entrants in the sector with large

conglomerates like Tatas, the RPG Group, Rahejas and the Piramals investing in the

sector. Various other behemoths of the Indian corporate sector like the Birlas, the Hero

Group and Reliance have expressed their intention of joining the Indian retail foray.

Hero Group has recently declared its plan to enter retailing by opening retail stores on

the lines of 7-11 Stores. The Birlas have marked their presence by acquiring Madura

Garments, while Reliance plans to develop its retail venture and fuel retail network

simultaneously. Even the public sector oil companies like HPCL, IOCL and BPCL



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realized their potential for entering into retailing by leveraging their supply chain

network.

Research Objectives



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To study the structure of Indian market

To study the retailing in India

To study the factor effecting retailing in India

To study the growth opportunities for retailing in India

Research Methodology

Type of Research : Descriptive and conclusive

Data type : Secondary

Data collection source : Magazines,journals,internet



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Introduction

This chapter aims to understand the research methodology establishing a framework ofevaluation and revaluation of primary and secondary research. The techniques and

concepts used during primary research in order to arrive at findings; which are also

dealt with and lead to a logical deduction towards the analysis and results.

RESEARCH DESIGN

I propose to first conduct a intensive secondary research to understand the full impact

and implication of the industry, to review and critique the industry norms and reports,

on which certain issues shall be selected, which I feel remain unanswered or liable to

change, this shall be further taken up in the next stage of exploratory research. This

stage shall help me to restrict and select only the important question and issue, which

inhabit growth and segmentation in the industry.

The various tasks that I have undertaken in the research design process are :

Defining the information need

Descriptive and casual research.

SECONDARY DATA

Information that already exists somewhere, having been collected for another purpose.

Sources include census reports, trade publications, and subscription services. Data that

have already been collected and published for another research project (other than the

one at hand). There are two types of secondary data: internal and external secondary

data. Information compiled inside or outside the organization for some purpose other

than the current investigation. Data that have already been collected for some purposeother than the current study. Researching information, which has already been



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published. Market information compiled for purposes other than the current research

effort; it can be internal data, such as existing sales-tracking information, or it can be

research conducted by someone else, such as a market research company or the U.S.

government. Published, already available data that comes from pre-existing sets of

information, like medical records, vital statistics, prior research studies and archival

data.

Secondary source of data used consists of books and websites

My proposal is to first conduct a intensive secondary research to understand the full

impact and implication of the industry, to review and critique the industry norms and

reports, on which certain issues shall be selected, which I feel remain unanswered or

liable to change, this shall be further taken up in the next stage of descriptive research.

DESCRIPTIVE RESEARCH

STEPS in the descriptive research:

Statement of the problem

Identification of information needed to solve the problem

Selection or development of instruments for gathering the information

Identification of target population and determination of sampling Plan.

Design of procedure for information collection

Collection of information



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Analysis of information

Generalizations and/or predictions

CONCLUSIVE RESEARCH

A research is free to pick up problem, redesign the enquiry as he proceeds and is

prepared to conceptualize as he wishes. Decision oriented research is always for the

need of a decision maker and the research in this case is free to embark upon research

according to his own inclination. Operation research is an example of decision-

oriented research since it is ac scientific method of providing executive departments

with a quantities basis for decision regarding operations their control.

Retail Industry in India

Even though India has well over 5 million retail outlets of all sizes and styles

(or non-styles), the country sorely lacks anything that can resemble a retailing

industry in the modern sense of the term. This presents international retailing

specialists with a great opportunity.

It was only in the year 2000 that the global management consultancy AT

Kearney put a figure to it: Rs. 400,000 crore (1 crore = 10 million) which will

increase to Rs. 800,000 crore by the year 2005 an annual increase of 20 per cent.



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Retailing in India is thoroughly unorganised. There is no supply chain

management perspective. According to a survey b y AT Kearney, an overwhelming

proportion of the Rs. 400,000 crore retail market is UNORGANISED. In fact, only a

Rs. 20,000 crore segment of the market is organised.

As much as 96 per cent of the 5 million-plus outlets are smaller than 500

square feet in area. This means that India per capita retailing space is about 2

square feet (compared to 16 square feet in the United States). India's per capita

retailing space is thus the lowest in the world (source: KSA Technopak (I) Pvt Ltd,

the India operation of the US-based Kurt Salmon Associates).

Just over 8 per cent of India's population is engaged in retailing (compared to

20 per cent in the United States). There is no data on this sector's contribution to the

GDP.

From a size of only Rs.20,000 crore, the ORGANISED retail industry will

grow to Rs. 160,000 crore by 2005. The TOTAL retail market, however, as indicated

above will grow 20 per cent annually from Rs. 400,000 crore in 2000 to Rs. 800,000

crore by 2005 (source: survey by AT Kearney)

Given the size, and the geographical, cultural and socio-economic diversity of

India, there is no role model for Indian suppliers and retailers to adapt or expand in

the Indian context.

The first challenge facing the organised retail industry in India is:

competition from the unorganised sector. Traditional retailing has established in

India for some centuries. It is a low cost structure, mostly owner-operated, has

negligible real estate and labour costs and little or no taxes to pay. Consumer

familiarity that runs from generation to generation is one big advantage for the

traditional retailing sector.

In contrast, players in the organised sector have big expenses to meet, and yet

have to keep prices low enough to be able to compete with the traditional sector.

High costs for the organised sector arises from: higher labour costs, social security

to employees, high quality real estate, much bigger premises, comfort facilities such

as air-conditioning, back-up power supply, taxes etc. Organised retailing also has to



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cope with the middle class psychology that the bigger and brighter a sales outlet is,

the more expensive it will be.

The above should not be seen as a gloomy foreboding from global retail

operators. International retail majors such as Benetton, Dairy Farm and Levis have

already entered the market. Lifestyles in India are changing and the concept of

"value for money" is picking up.

India's first true shopping mall complete with food courts, recreation

facilities and large car parking space was inaugurated as lately as in 1999 in

Mumbai. (this mall is called "Crossroads").

Local companies and local-foreign joint ventures are expected to moreadvantageously positioned than the purely foreign ones in the fledgling organised

India's retailing industry.

These drawbacks present opportunity to international and/or professionally

managed Indian corporations to pioneer a modern retailing industry in India and

benefit from it.

The prospects are very encouraging. The first steps towards sophisticated

retailing are being taken, and "Crossroads" is the best example of this awakening.

More such malls have been planned in the other big cities of India.

An FDI Confidence Index survey done by AT Kearney, retail industry is one of the

most attractive sectors for FDI (foreign direct investment) in India and foreign retail

chains would make an impact circa 2003.

Customer service

Customer service is a task, other than proactive selling that involves interactions

with customers in person or by telecommunication, mall or automated processes. It



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is designed performed and communicated with two goals in mind: operation

productivity and customer satisfaction.

Thus customer service may be said to include all the functions and activities

performed by a retailer in order to satisfy the customer, thereby building customers

for life.

Very often, the term customer service and customer satisfaction are used

interchangeably, however the basis difference between them needs to be

understood. Customer service focuses on the measurement of how well a firm

meets the established performance standards that are viewed as important to

meeting customers needs.

Customer satisfaction on the other hand is how the customer extremely the service

performance of a firm. An important day to customer satisfaction is obtaining

customer feedback. The aim of customer satisfaction is to identify the gap between

the customers perception of service and the actual service.

Importance of service in retail

In this age of intense competition, a retail organization, however big or small, is

concerned with the image that its stores carry in the minds of the consumers. This

image is largely influenced by the service provided by The store and the experience

of the customers. A satisfied customer is bound to tell others about his experience

as will a dissatisfied customer. Word of mouth publicity is, many times more

effective than advertising. Positive word of mouth is the best advocate for the store,

while negative word of mouth can result in disaster.

The level of customer service offered depends on the type of product sold and type

of retail outlet itself. In order to determine the service levels required by the retailer

he heeds to understand his target audience their needs and lifestyle.

Customer service as a part of the retail strategy

When a customer walks into a retail store, he can examine the merchandise checkthe price and quality, compare various product and offers and then make a decision



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on buying. While these are elements that he can touch and feel, he is also influenced

by factors like the image of the store, the ambience, music and the level of service

offered by the store. To be able to effectively use customer service as the unique

proposition a retail organization needs to create some principles of distinctive

sevice.

1. Identifying the key customers, listening and responding them the expectation of

various classes of customers is bound to be different and a retailer cannot be

everything to everybody. The retailer needs to identify its customers and priorities

them. Once the organization has identified its key customers, it is easier to understand

their buying habits and occasions for purchase and then service them accordingly.

Needs and hence, expectations of customers change due to various factors. A

change in the lifestyle of the customer would result in a change in his needs and this

would also translate into a change in his expectations. The organization needs to keep

track and be clear about the expectations of its customers in the present context. This is

critical for the organization to be able to plan its future business and to pre- empts the

competition.

Listening to customers helps the organization in identifying the moments of

truth and the service experience that they have had.

2. Defining superior service and establishing a service strategya strategy created

needs to have goals specified and the method by which these goals can be achieved,

spelled out. In order to provide superior service, the parameters of such service have to

achieve spelled out.

In order to provide superior service the parameters of such service have to first be

defined. These parameters have to be clearly defined and communicated to the personswithin the organization.

1. Setting standards and measuring performance setting standards for

performance not only ensure compliance with the targets, but also helps

improve credibility every time standards set are met and surpassed. This is the

stepping-stone to customer delight. At the same time, an inability to meet the

targets helps identify the gaps in service that can then be rectified.

2. Selecting, training and empowering employees to work for the customer

training requirements would be in the area of customer, skill communication



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and product skills. Empowering employees to take decisions symbolic like in a

method of vesting a large amount of responsibility. Customers who typically

return goods to a store or are dissatisfied with a product or service, are bound

to get more disillusioned if management authorization is needed for the action

to be taken.

3. Recognizing and rewarding accomplishment the retail organization needs

to lay special emphasis on this, as in most cases, the face of the retail

organization t that the customer is the salesperson. Rewards do not always

have to be monetary; they can be symbolic, like holiday lapel pins special

nametags, etc. in the retail environment, it is necessary that the frontline staff

is ambitious above providing a superior level of service to its customers .

Measuring the GAPS in service

Knowledge gap

Standards gap

Delivery Gap

Communication gap


Management perception of

customer expectation

Standards specifying service to be

delivered

Actual service delivered

Customer expectation

Retailer communications

about services

Customer perception of service

Service Gap


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Conceptual model of service quality

If the customer expects a certain level of service and the service provided by the

retailer fails to match the customs expectations, the service would be perceived as poor.

Dissatisfaction with services provided largely stems from a difference between

expectations and what is actual provided. This is the basic premise for understanding

the gaps that may arise in customer service. The service level expected by the

customers is affected by his past experience, personal needs and word of mouth

communication. The received service is the actual service obtained by the customers.

The chief element important on the side of the firm, is the managements perception of

customer expectation, which affects the translation of perceptions into service

specifications.

The service specification has effects on the external communications to the customers

and on the actual customer service delivered, which can be of pre-transaction,

transaction and post transaction type. The external communication to customers on theside of a firm has effects on the expected service levels and on the received service on

the side of the customers.

In order to narrow the service gap, the organization must attempt to narrow down or

close four other gaps.

1. Knowledge gapthe difference between what consumers expect with regard to

service and what the management believes the consumers expect is called the

knowledge gap. Most organizations would happily believe that they know what



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the consumers want, but they may be mistaken. The failure to understand what

the customer really wants, usually leads to wrong facilities being provided. The

need is to understand the consumers and to create facilities to suit their needs.

Conducting regular customer research can help the retailer identify and

understand customer expectations. Similarly, regular interaction with retail

managers and scanning the customer complaints are ways by which gaps in

service can be determined.

2. Standard gap this is the difference what the management perceives that

customers expect and the quality specifications set for service delivery. Service

standards need to be based on the customers expectations. The management of the

organization needs to be committed towards providing high standards of service.

3.Delivery Gapit is difference between the quality specification set for service

delivery and the actual quality of service delivery. The level of service provided

would vary from employee to employee, and in the same employee over a period of

time. Clarity of the role that is to be done by the employee and adequate training to

enable the employee to serve the customer in an efficient manner is essential to

minimize this gap.

4.The communication gap this is the difference between the service the firm

promises it will deliver through its external communication and the service that is

actually delivers. If advertising or sales promotions promise one kind of service and

the customer receives a different kind of service, the communications gap increases.



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Retail pricing

Price is an integral part of the retail marketing mix. It is the factor, which is the

source of revenue for the retailer. The price of the merchandise also communicates

the image of the retail store to the customers. These are the various factors taken

into consideration while arriving at the price of a product

Factors affecting retail price.


Target Mkt

& Demand

StorePolicies

Retail

Price

Competitor

Price

Economic

condition


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Target market & Demand the first factor to be taken into consideration is the

demand for the product and the target market. Who is this product meant for and

what is the value proposition for the consumer. In some case, the price of the

product is linked to the quality. In electronic goods where a high priced product is

perceived to be of good quality.

Store policiesthe store policies and the image to be created also influence the

pricing of a product. Retailers who want to create a prestige image may opt for a

higher pricing policy while the retailer who wants to penetrate the market, may

decide to offer a value for money proposition.

Competitor pricecompetition for the product and the competitor price for a

similar product in the market, also needs to be taken into consideration. In case the

product is unique and does not have any competition it can command a premium

price, on the other hand in case there are a fair number of similar products in the

market, the prices of such products need to be taken into consideration before fixing

the price.

Economic conditionsthe economic conditions prevalent at the time play a major

role in the pricing policy. For example, during an economic slowdown prices are

generally lowered to generate more sales. The demand and supply situation in the

market also affects the prices. If the demand is more than the supply prices can be

premium however when supply is more than the demand, prices have to be

economical.

Pricing strategies in todays retail market, two opposing pricing strategies

prevail: everyday low pricing and high/low pricing.

Everyday low pricingthis strategy emphasis continuity of retail prices at a level

somewhere between the regular non sale price and the deep-discount sale price of

the retailer competitors the term everyday low pricing is therefore somewhat of a

misnomer. Low doesnt necessarily mean lowest. Although retailers using EDLP

strive for low prices, then are not always the lowest price in the market at any giventimes, a sale price at a competition store or a special purchase at a wholesale club



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store may be the lowest price. A more accurate description of this strategy is

therefore everyday same prices because the prices dont have significant

fluctuations.

Since it is difficult to always have the lowest prices, some retailers, such as circuit

city, have adopted a low price guarantee policy in which they guarantee that they

will have the lowest possible price for a product or a group of products. The

guarantee usually promises to match or better any lower price found in the local

market. The promise normally includes a provision to refund the difference between

the sellers offer price and the lower price.

Benefitsthe EDLP has three relative benefits in relation to high/low

(a) Reduced price warsmany customers are skeptical about initial retail prices.

They have become conditioned to buying only on sale the main characteristic of a

high/low pricing strategy. A successful EDLP strategy enables retailers to withdraw

from highly competitive price wars with competitors. Once customers realize that

prices are fair, they will buy more each time and buy more frequently.

Reduced advertising the stable prices caused by EDLP limit the need for weekly

sale advertising used in the high/low strategy. Instead retailers can focus on more

image oriented messages. Also catalogs dont become obsolete as quickly since

prides dont change as often.

Reduced stock outs and improved inventory management. An EDLP reduces the

large variations in demand caused by frequent sales with large markdowns. As a

result, retailers can manage their inventory with more certainty. Fewer stock outs

mean more satisfied customers, higher sales and fewer rain checks (rain checks are

given to customers when merchandise is out of stock; they are written promises to

sell customers merchandise at the sale price when the merchandise arrives.)

High low pricing in a high /low pricing strategy, retailer offer prices that are

sometimes above their competitions EDLP, but they use advertising to promote

frequent sales. The sales undertaken by retailers using high/low strategies have

become more intense in recent years in the past, fashion retailers would mark downmerchandise at the end of a season; grocery and drugstores would have sales only



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when their vendors offered them special prices or when they were overstocked.

Today many retailers respond to increased competition and a more value-conscious

customer by promoting more frequent sales.

The same merchandise appeals to multiple marketshigh low strategy allows

retailers to charge higher prices to customers who are not price sensitive and lower

prices to price sensitive customers. When fashion merchandise first hits the store, it

is offered at its highest price. Fashion leaders, those who are less sensitive to price,

and hard to fit customers often buy as soon as the merchandise is available. As the

season progresses and markdowns are taken more prices sensitive customers enter

the market and pay a lower price for the same merchandise. Finally hard-core

bargain hunters enter the market for the end of season deep-discount sales.

Sales create excitementa get them while they last atmosphere often occurs

during a sale. Sales draw crowds and crowds create excitement. Some retailers

augment low prices and advertising with special in store activities like product

demonstrations, giveaways and celebrity appearances

Sales move merchandise.All merchandise will eventually sell the question is , at

what price? Frequent sales enable retailers to move the merchandise even though

profits erode.

Emphasis is on qualitya high initial price sends a signal to customers that the

merchandise is high quality. When merchandise goes on sale customers still use the

original or reference price to gauge quality. An EDLP policy may send the wrong

signal to customers. They may assume that since prices are low, quality or services

may suffer.



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Approaches for setting prices

Retailers want to set prices tomaximize long-term profits, to do this they need to

onsider the following (1) cost, because they want to make a profit, (2) demand,

because this is what customers will pay For the merchandise and(3) competition,because customers shop around and compare prices. There are three approaches

for setting retail prices

1.Cost oriented method for pricing decision, the key component of net profit margin

is gross profit margin percentage (gross margin + net sales). Retailers set initial prices

high enough so that after markdown and other adjustments (known as reductions are

made, they will end up with a gross margin consistent with their overall profit goals.the retail price is determined by adding a fixed percentage to the cost of the

merchandise.

Retail price= cost+ mark up

Cost =retail price- mark up and

Mark up= retail price- cost

The difference between the selling price and cost is considered to be the mark up and

should cover for operating expenses and the transportation etc

Mark up %= (at retail)= (retail selling price-merchandise cost)/retail

selling price

Mark up%(at cost )=(retail selling price-merchandise cost)/merchandise

cost

Advantage in cost oriented methods strength is that it is quick, mechanical and

relatively simple to use. Retailers use it because they are making thousands of pricing

decisions each week and cannot take the time to thoroughly analyze and determine the

best price for each product.



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2.Demand oriented methodprices are based on what customers expect or are willing

to pay. It largely depends on the perceived value attached to the product by the

customer. Sometimes a high priced product is perceived to be of a high quality and a

low priced product is perceived to be of a low quality.

Advantageit allow retailers to determine which price will give them the greatest

profit. But demand oriented pricing is hard to implement, especially in a retailing

environment with thousands of SKUs that require individual pricing decisions.

3.Competition oriented methodin competition-oriented method prices are based on

competitors prices, here the retailer may price the product on par with the competitor,

above the competitor or below that price.

Advantageit is always important to keep in mind what competition is doing- after the

entire customer does. The degree to which a retailer sets the market price or follows

the market leader is , however a complicated issue

Conclusion retailers need to consider costs, demand and competition in setting

prices. The cost oriented method would be the starting point for setting a price. The

competition-oriented method provides an outside check on the marketplace. The

demand-oriented method is then used for fine-tuning the strategy. Retailers would start

with a price based on costs and their profit goals. Consider competition and then

perform tests to determine if it is the most profitable price.

Pricing of retail servicespricing of services can be more complicated than the

pricing of goods for three reasons: 1. Inability of customers to match supply and

demandit is more difficult to match supply and demand for services than it is for

products. In retail services retailers can use multiunit pricing.

1. To determine an accurate reference price secondly it is more difficult for

consumers to obtain accurate reference price is a price point in memory for a

good or a service and can consist of the price last paid the price most

frequently paid, or the average of all prices customers have paid for similarofferings. Consumers get information to form their reference from the



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experience of buying similar merchandise, information obtained from peer

groups or from advertising, second customers use price as an indicator of

service quality more than they do the quality of goods. Another factor that

results in the inaccuracy of reference prices is that individual customer needs

vary. Still another reason customers lack accurate reference prices for services

is that they feel overwhelmed with the information they need to gather.

2. And to judge quality. The third difference between pricing services and

merchandise is that buyers are likely to use price as an indicator of both

service costs and service quality. Customers use of price as an indicator of

quality depends on several factors, one of which is the other information

available to them. When service cues to quality are readily accessible, when

brand names provide evidence of a company reputation or when level of

advertising communicates the company belief in the brand, customers may

prefer to use those cues instead of price. Another factor that increases the

dependence on price, as a quality indicator is the risk associated with the

service purchase. In high-risk situations, many of which involve credence

services such as medical treatment or management consulting, the customer

will look to price as a surrogate for quality.

Conclusion because customers depend on price as a cue to quality and because price

sets expectations of quality, service prices must be determined carefully. In addition to

being chosen to cover costs or match competitors, prices must be chosen to convey the

appropriate quality signal. Pricing too low can lead to inaccurate inferences about the

quality of the service. Pricing too high can set expectations that may be difficult to

match in service delivery

Price adjustment

1. Markdown markdowns are reductions in the initial retail price. Markdowns

are a type of second-degree price discrimination because the lower price

induces price sensitive customers to buy more merchandise. The reasons for

taking markdowns can be classified as either clearance or promotional

(generate sales). The markdown strategy also worked with vendors to timedeliveries with demand, it may be before demand of late supply of demands.



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Liquidating markdown merchandise no matter what markdown strategy a retailer

uses, some Merchandise may still remain unsold. A retailer can use one offive

strategies to liquidate this merchandise.

(a) job-outthe remaining merchandise to another retailer

(a) Consolidate the marked down merchandise.

(b) Place the remaining merchandise on an internet auction site like e

bay, or have a special clearance location on its own website.

(c) Give the merchandise to charity Second-degree discrimination

(d) Carry the merchandise over to the next season

Mark down and price discrimination ideally retailers would like to have the

opportunity to charge customers as much as they would be willing to pay. This practice

is calledfirst-degree price discrimination.

Second degree price discrimination Charging different prices to different people on

the basis of the nature of the offering. These are the various second degree

discrimination pricing.

Couponscoupons offer a discount on the price of specific items when they are

purchased at a store. They provide an incentive to price sensitive customers to

purchase papers on products on the shelf, at the cash register over the Internet and

through the mail. Coupon converts those first time users to regular users encourage

large purchases increase usage ad protect market share against competition.

Rebatea rebate is a portion of the purchase price returned to the buyer. From the

retailers perspective rebates are more advantageous than coupons since they increase

demand in the same way coupons may, but the retailer has no handling cost.

Price bundlingis the practice of offering two or more different products or services

for sale at one price. These strategies can also be used to move less desirable

merchandise,

Multiple unit pricingis similar to price bundling in that the lower total merchandise

price increases sales but the products or services are similar rather than different.

It means more quantity price is less compare to less quantity price is high.



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Variable pricing (zone pricing)means charging different prices in different stores,

markets, or zones. Retailers generally use variable pricing to address different

competitive situations in their various markets

Leader prizingin leader pricing the retailer sells one or a few items at a deep

discount so as to increase traffic and sales on complementary items. The key to a

successful leader pricing strategy is that the product must appeal to a large number of

people and should appear as a bargain items best suited for this type of pricing are

those frequently purchased by shoppers e.g. bread, eggs, milk

Odd pricingretail prices are set in such a manner that the prices end in odd numbers

such as Rs 99.9

Popular retail chains

Big Bazaar



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BIG BAZAAR the countrys leading discount

hypermarket now gives its shoppers one more

reason to celebrate on 26th Jan, 2006.

26th Jan, 2006 will go down in the history of

shopping as the Maha Savings Day. It will actually be the sabse sasta din for

shoppers across all Big Bazaar and Food Bazaar outlets which shall be open from

8:00am onwards upto midnight, on that day ONLY.

The Maha Savings Day will see shoppers get deals they have never seen or heard

before. The offers are spread across categories from electronics to utensils to apparel

to furniture to food. Thus, there will be a reason for everyone to celebrate on 26th Jan,

2006; be it a house wife who will be able to get a pressure cooker for Rs. 299 or

fashion conscious who will get a pair of 2 Ruf n Tuf Jeans for just Rs. 499; the teenager

wanting a trendy mobile can get a Motorola C115 for Rs. 1399; or the status conscious

can get a designer sofa for Rs. 15,999 or a 21 Flat TV for Rs. 5890 and many more

such offers.

Thats not all, a customer will get sugar for 1 year Free on shopping above Rs. 4000/-

and on shopping above Rs. 8000/-, he will get 1 year sugar as will as Charminar

basmati rice Free.

Commenting on this initiative, Mr. Sanjeev Agrawal, President - Marketing, said, At

Big Bazaar adding value to our consumer and making his/ her shopping experience

memorable has always been a priority. The Big Bazaar has always supported the

consumers unvarying effort of saving the maximum while getting the best. It is a

pleasure for us to introduce such offers so as to continuously add value to our

consumers shopping experience and gain their trust and loyalty which in turn

tremendously increases our credibility. We are sure that the consumers shall take full

advantage of the sabse sata din in the history of shopping

Its true that Shopping ka ye din phir nahi aayega since all these offers are

available only on the 26th of Jan, 2006 across all the Big Bazaar and Food Bazaaroutlets.



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Shoppers stop

The foundation of Shoppers' Stop was laid on October 27, 1991 by

the K. Raheja Corp. group of companies. Being amongst India's

biggest hospitality and real estate players, the Group crossed yet

another milestone with its lifestyle venture - Shoppers' Stop.

From its inception, Shoppers' Stop has progressed from being a

single brand shop to becoming a Fashion & Lifestyle store for the

family. Today, Shoppers' Stop is a household name, known for its superior quality

products, services and above all, for providing a complete shopping experience.

With an immense amount of expertise and credibility, Shoppers Stop has become the

highest benchmark for the Indian retail industry. In fact, the companys continuing

expansion plans aim to help Shoppers Stop meet the challenges of the retail industry in

an even better manner than it does today.

Shoppers' Stop in the only retailer from India to become a member of the prestigious

Intercontinental Group of Departmental stores (IGDS). The IGDS consists of 30

experienced retailers from all over the world, which include established stores like

Selfridges (England), Karstadt (Germany), Shanghai No.1 (China) , Manor

(Switzerland), to name a few.

Shoppers' Stop won "The most admired Appeared Retailer of the year 2000" Award at

the Images Fashion Awards.Mr. B.S. Nagesh won the "Annual Award for Excellence as

Top CEO for 2001" at the Institute of Marketing Management.

Mr. Nagesh was also nominated for the Ernst & Young "Entrepreneur of the year

2000" Award.

Shoppers' Stop swept a majority of awards at the CMAI awards 2001-2002. The

awards won include:

"CEO of the Year."

"Retailer of the Year."

"Individual Retail Outlet of the year" - Shoppers' Stop, Delhi.

"Advertising Campaign of the Year -7 Wonders" and



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"Management Team of the Year."

Shoppers' Stop was awarded the "IT user award for best IT practices in Retail

Category" for year 2003-2004.

Shoppers' Stop won the "Best Retail Chain of the Year award" & Mr. B. S. Nagesh won

the "Best Retail Professional of the Year" award at the 4 th annual Image Fashion

Awards, 2004.

.

Wills life style

In a major retail push, the Rs.4,000-crore ITC Ltd is

readying to roll out a network of 25 Wills Life Style stores across the country by early

August this year. As a prelude to the nationwide roll out, the Lifestyle Retailing

Division (LRD) of ITC Ltd. is also kicking off a major outdoor and print campaign,

handled by Lowe Lintas, beginning mid-June 2001.

Currently, ITC has presence with only one company-leased Wills Life Style store in

New Delhi, which was opened in July 2000. Buoyed by the reception of its Delhi store,

ITC will add two more outlets in Delhi out of its new network of 25. "Were seeing

exceptionally high level of consumer loyalty for our Wills Sports branded products.

One in three consumer is coming back to us and weve found the upscale consumers

visiting us at least once a month," says on ITC source.

"The roll out is part of the companys objective to be a leading player in the sphere of

life style retailing products," says the ITC source.

That is not all. "Though it has taken us nearly a year to finalise 25 outlets, our retail

development team is all set to establish a network of 50 outlets as promised earlier

by the fiscal end (March 31, 2002)".

However, in the first phase, the expansion will be focussed on the 25 outlets in smaller

boom towns rather than major metros like Ambala, Chandigarh, Bareli, Pune,



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Indore, Ranchi, Bhuvaneshwar, Chennai, Hyderabad, Bangalore, Cochin, Vizag,

Coimbatore, Pondicherry, Mangalore, Thiruvanathapuram, Calicut, Aurangabad and

Belgaum. It will only be in the next phase that it will roll out across major metros like

Mumbai. ITCs next national print and outdoor campaign with a tagline of `Be a

Sport will promote the Wills Life Style network. "The campaign will communicate

that sports is a state of mind," says an ITC source.

As per its dual branding strategy, Wills Sports will be a relaxed wear brand while Wills

Life Style will be a retail brand. This will allow, in future, to push Wills Sports products

in multi-brand outlets. Premium brand accessories and perfumes (currently, it stocks

only leather accessories) will however be available at Wills Life Style outlets.

The Wills Life Style network will have a mix of company-leased and franchised outlets.

Of the upcoming 25 outlets which have been implemented on a turnkey basis, 14 are

franchised operations and 11 company-owned.

The outline for ITCs Lifestyle retailing expansion has been laid out by the US-based

American Design Intelligence group. The consultancy is helping ITC in its retailing

strategy, design selection, visual merchandising as well as operational procedures and

processes.

Depending on the market potential, the company will have three size-wise classification

of Life Style stores; a minimum space of 1,000 sqft per outlet; over 1,500 sqft; and the

larger format 3,000 to 4,000 sqft. "The confidence level is high among our franchises,"

says the company source; without divulging financial figures. "In a short span of six

months, our Delhi store has already emerged as the countrys top three best selling

single-brand apparel stores."

According to the company, a brand audit during December 2000-January 2001, by

Indian Market Research Bureau, for its Delhi outlet revealed that Wills Sports

apparels share of mind space garnered was much larger than the companys share of

the market.

The big format Wills Life Style stores will carry around 110 styles (around 4,000 SKUs)

while the smaller, 1,000 sqft stores in smaller towns may stock around 50-60 styles

(1,500 SKUs).



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As a strategy, this division has also taken a firm decision to stay away from seasonal

discounting of its products. The company proposes to change designs every six months

though around two dozen core styles will remain unchanged.

The company has also raised the prices of its woven products by around 6-7 per cent

beginning May 2001, following the imposition of new excise levy. "Our sourcing costs

have gone up but we are absorbing a good part of it," says the company source. The

LRD has already forged sourcing alliances with 15 manufacturers, including a couple

of foreign-based ones. The company also plans to extend its portalwww.willssport.com

to emerge as a customer service extension and enable repeat buyers to access the Wills

Lifestyle network and order through the new medium.

Mcdonalds

McDonald's India opened its doors to India in October 1996. Ever since, our family

restaurants in Mumbai, Delhi, Pune, Ahmedabad, Vadodara, Ludhiana, Jaipur, Noida

Faridabad, Doraha, Manesar, Gurgaon have proceeded to demonstrate, much to the

delight of all our customers, what the McDonald's experience is all about.

Our first restaurant opened on 15th April 1955 in Des Plaines, Illinois, U.S.A. 48 years

down the line, we are the world's largest food service system with more than 30,000

restaurants in 100 countries, serving more than 46 million customers every day.

http://www.willssport.com/http://www.willssport.com/


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VIVEKs

A store more reputed than the brands it sells

"I want to grow bigger than my suppliers," declares Mr. B. A. Kodandarama Setty,managing director of Viveks, India's largest consumer durable chain. He is not day

dreaming. It has happened elsewhere in the world and Mr. Setty wants to replicate it

with 200 showrooms

And signs of that happening are visible now. Firstly, the Rs. 140-crore turnover retail

group (consisting of Viveks Rs 108 crore and its subsidiary, Jainsons, with a Rs. 32

crore turnover) is targeting to achieve a combined turnover of Rs. 220 crore this fiscal.

The figure is higher than the turnover of some smaller consumer durable companies.

Secondly, the Viveks chain commands better faith and brand equity than that of the

brands it sells. It is common to hear, "I bought a new television at Viveks," omitting to

mention the brand name.

So how does Mr. Setty intend to achieve his ambition? Expansion is the one word he

has been breathing since1995 when Vivek & Co. became a public limited company.

Between 1965-1995, the company owned just three showrooms. The number went up to

16 by 2000.

But what gave Mr. Setty a vision of big growth was the takeover of Jainsons, a

competing chain with 14 showrooms, in 1999 for an undisclosed sum.

The Jainsons acquisition gave Mr. Setty an immediate presence in small towns in Tamil

Nadu, apart from eight showrooms in Chennai. The reason for keeping two chains,

instead of merging them into one, he says, is that "the customer profile and brand

equity of the two chains are different". Soon after the takeover, four more showrooms

were opened under the Jainsons fold in Tamil Nadu.

According to him, Jainsons will be confined to Tamil Nadu while showrooms under the

brand Viveks will be opened in all southern states, before going national. "First I have

to become the regional king. Only then, I can think about marching towards the west



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and north," he remarks. Adds Mr. B. A. Srinivas, director of the company and Mr.

Setty's brother, "By this March, we should have about 40 stores."

The economic liberalisation and the resultant growth of the consumer durables industry

gave the necessary impetus for Viveks' expansion. According to a study conducted by

CII-McKinsey & Co, the consumer durables market grew from Rs. 12,000 crore in

1995 to Rs. 20,000 crore by the end of 1999.

And so did competition for Vivek. According to Mr. Setty, there are around 200

consumer durable outlets in Chennai alone and 8,500 stores in the country. The CII-

McKinsey study estimates that traditional dealers do 75-82 per cent of the consumer

durable sale. The study further states that organised retail chains and company

showrooms account for less than 5 per cent with street markets contributing the

balance.

However, the proliferation of consumer durable brands is squeezing the small dealers

as they lack the financial muscle to stock all brands. This, in turn, augurs well for retail

chains like Viveks, Jainsons, Vasanth & Co, Chennai and Vijay Sales, Mumbai.

The acquisition of Jainsons gave Viveks a good bargaining power with its 75 suppliers.

"It centralised the sourcing and availed of cash discount," remarks Mr. Srinivas.

Further, the increased competition amongst suppliers resulted in better margins for

Viveks. This hastened the breakeven point of each new showroom. According to Mr. J.

Ramanan, director, finance, the outlay per store remained around Rs. 50 lakh while the

brand building cost increased manifold with the expansion.

The strategy being followed by Mr. Setty now is to capture market share in one

particular city/town and then branch out to other places. Having one showroom in each

city is not the success recipe, he feels. In Chennai, Viveks has a market share of 17 per

cent, 6 per cent in the rest of Tamil Nadu and 8 per cent in Bangalore.

Product-wise in the Chennai market, Viveks commands 10

per cent of the television market, 15 per cent and 18 per centof the refrigerator and washing machine markets. However,



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the inventory cycle time is around 30 days.

With its presence in all major cities/towns in Tamil Nadu through its two chains and

with five showrooms under Viveks' name in Bangalore, Mr. Setty is now setting his foot

in Andhra Pradesh by opening one showroom each in Hyderabad, Vizag and

Vijayawada.

The target of 200 showrooms will be achieved through the franchisee route by

rewarding high performers with a license. But before embarking on that, the company

has to streamline its supply chain management and investments have been made in IT

systems.

With a sizeable number of showrooms, the next plan for Vivek is introducing store

brands. "We will do it for kitchen equipment and other items like iron box and water

heater, etc.," remarks Mr. Srinivas. "Our investments will be in packaging and

promotion," adds Mr. Ramanan.

Corprate Players moving in to retailing- Why?

Here are a few reasons for the corporate sector to enter into retailing: -

2nd Most Attractive Retail Market:

AT Kearney has ranked India as the second most attractive retail market after

Russia, in its Global Retail Development Index 2004 report. Going three ranks

up and surpassing China, in contrast to last years position, India has achieved

the second position despite of stringent FDI rules and regulations. The



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improvement in living standards and continuing economic growth (40% growth

in GDP between 1999 and 2003) has been the major reasons behind

international retailers gaining confidence in the Indian retail market. Other

reasons include increase in per capita income by one-third between 1999 and

2003 and the market size of the country that offers tremendous promise as its

population is expected to surpass China by year 2050.

Low Penetration of the Organized Retail Sector:

The mere 2% share of the organized retail sector in the total Indian retail

market worth Rs. 10000 Bn makes it a hot cake for Indian corporate sector.

With increasing number of nuclear families, working women, greater work

pressure and increased commuting time, convenience has become an integralpart of shopping. Customers want all-under-one-roof places to shop that offers

them convenience and variety. This offers an excellent incentive to the

corporate sector to join the retail bandwagon.

Exceptionally High Growth Rate:

The sector has witnessed spiralling growth rate and will continue with the same

for a couple of years. The present size of the organized retail market has shot

past the Rs. 200 Bn mark and is expected to touch Rs. 298 Bn by 2005 (Source:

Vision 2005 document, KSA-Technopak) and Rs. 372 Bn by year 2007 (ETIG,

Changing Gears - Retailing In India).

Increase in Consumer Spending and Shift in Consumer Buying Behavior:

According to KSA-Consumer Outlook 2003 study the consumer spending grew

by 12% and that consumer confidence is higher than any other Asia-Pacific

market. The consumer spending patterns are changing with the consumers

moving beyond basic necessities to acquire trappings of comfort, luxury and

style. With higher disposable incomes and easier funding options, the 285

million strong Indian middle-class is creating a retail boom like never before.

Improved Living Standards:

The Global Retail Development Index 2004 has placed India on a higher

Country Risk with a score of 62, which is due to increased living standards and

continued economic growth. This improvement in living standards has fuelledthe desire among shoppers to get the best in terms of product, price, service and



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satisfaction. Corporate sector companies are in a better position to satiate the

customer expectations with shopping satisfaction, entertainment, quality

products, polite salespersons, right product information and discounts.

Operational Competitive Advantage:

Having developed strong processes and world-class infrastructure, the

corporate sector companies can have the advantage over other retailers who

are busy addressing such bottlenecks as supply chain and poor operational

efficiency. In its Vision 2005 document, KSA-Technopak has identified this as

an opportunity for the entrants with inherent high operational efficiencies.

Why Diversify?

For corporate players entering retailing would mean complete diversification from

their current business activities. But looking at the attractiveness of the potential of the

Indian retail market it is the most apt time for Indian corporate sector to join the race

since foreign retailers have still not entered India due to FDI restrictions.



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Retail Scenario in India : Touching Meteoric Scales

As the corporates the Piramals, the Tatas, the Rahejas, ITC, S.Kumars, RPG

Enterprises, and mega retailers- Crosswords, Shoppers Stop, and Pantaloons race to

revolutionize the retailing sector, retail as an industry in India is coming alive.

Retail sales in India amounted to about Rs.7400 billion in 2002, expanded at an

average

annual rate of 7% during 1999-2002. With the upturn in economic growth during 2003,

retail

sales are also expected to expand at a higher pace of nearly 10%. Across the country,

retail sales in real terms are predicted to rise more rapidly than consumer expenditure

during 2003-08. The forecast growth in real retail sales during 2003- 2008 is 8.3% per

year,

compared with 7.1% for consumer expenditure. Modernization of the Indian retail

sector will

be reflected in rapid growth in sales of supermarkets, departmental stores and

hypermarts.

Sales from these large-format stores are to expand at growth rates ranging from 24%

to

49% per year during 2003-2008, according to a latest report by Euromonitor

International, a

leading provider of global consumer-market intelligence.

A. T. Kearney Inc. places India 6th on a global retail development index. The country

has

the highest per capita outlets in the world - 5.5 outlets per 1000 population. Around 7%

of

the population in India is engaged in retailing, as compared to 20% in the USA.

In a developing country like India, a large chunk of consumer expenditure is on basic

necessities, especially food-related items. Hence, it is not surprising that food,beverages



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and tobacco accounted for as much as 71% of retail sales in 2002. The share of

foodrelated

items had, however, declined over the review period, down from 73% in 1999. This

is not unexpected, because with income growth, Indians, like consumers elsewhere,

have

started spending more on non-food items compared with food products. Sales through

supermarkets and department stores are small compared with overall retail sales.

Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about

30%

per year during the review period). This high acceleration in sales through modern

retail

formats is expected to continue during the next few years, with the rapid growth in

numbers

of such outlets due to consumer demand and business potential.

The factors responsible for the development of the retail sector in India can be broadly

summarized as follows:

Rising incomes and improvements in infrastructure are enlarging consumer markets

and accelerating the convergence of consumer tastes.

Looking at income classification, the National Council of Applied Economic Research

(NCAER) classified approximately 50% of the Indian population as low income in

1994-

95; this is expected to decline to 17.8% by 2006-07.

Liberalization of the Indian economy which has led to the opening up of the market

for

consumer goods has helped the MNC brands like Kellogs, Unilever, Nestle, etc. to

make significant inroads into the vast consumer market by offering a wide range of

choices to the Indian consumers.

Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.

The internet revolution is making the Indian consumer more accessible to the growinginfluences of domestic and foreign retail chains. Reach of satellite T.V. channels is



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helping in creating awareness about global products for local markets. About 47% of

Indias population is under the age of 20; and this will increase to 55% by 2015. This

young population, which is technology-savvy, watch more than 50 TV satellite

channels,

and display the highest propensity to spend, will immensely contribute to the growth of

the retail sector in the country. As India continues to get strongly integrated with the

world economy riding the waves of globalization, the retail sector is bound to take big

leaps in the years to come.

The Indian retail sector is estimated to have a market size of about $ 180 billion; but

the

organised sector represents only 2% share of this market. Most of the organised

retailing in

the country has just started recently, and has been concentrated mainly in the metro

cities.

India is the last large Asian economy to liberalize its retail sector. In Thailand, more

than

40% of all consumer goods are sold through the super markets and departmental

stores. A

similar phenomenon has swept through all other Asian countries. Organised retailing

in

India has a huge scope because of the vast market and the growing consciousness of

the

consumer about product quality and services.

A study conducted by Fitch, expects the organized retail industry to continue to grow

rapidly, especially through increased levels of penetration in larger towns and metros

and

also as it begins to spread to smaller cities and B class towns. Fuelling this growth is

the

growth in development of the retail-specific properties and malls. According to the

estimates available with Fitch, close to 25mn sq. ft. of retail space is being developed

and



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will be available for occupation over the next 36-48 months. Fitch expects organized

retail

to capture 15%-20% market share by 2010.

A McKinsey report on India says organised retailing would increase the efficiency and

productivity of entire gamut of economic activities, and would help in achieving higher

GDP

growth. At 6%, the share of employment of retail in India is low, even when compared

to

Brazil (14%), and Poland (12%).

Emergence of new formats of retailing in India

Popular Formats

Hypermarts

Large supermarkets, typically (3,500 - 5,000 sq. ft)

Mini supermarkets, typically (1,000 - 2,000 sq. ft) Convenience store, typically (7,50 - 1,000 sq. ft)

Discount/shopping list grocer

Traditional retailers trying to reinvent by introducing self-service formats as well as

value-added services such as credit, free home delivery etc.

The Indian retail sector can be broadly classified into:

a) FOOD RETAILERS

There are large number and variety of retailers in the food-retailing sector.

Traditional types of retailers, who operate small single-outlet businesses mainly

using family labour, dominate this sector .In comparison, super markets account for

a small proportion of food sales in India. However the growth rate of super market

sales has being significant in recent years because greater numbers of higherincome

Indians prefer to shop at super markets due to higher standards of hygiene

and attractive ambience.



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b)HEALTH & BEAUTY PRODUCTS

With growth in income levels, Indians have started spending more on health and

beauty products .Here also small, single-outlet retailers dominate the market

.However in recent years, a few retail chains specializing in these products have

come into the market. Although these retail chains account for only a small share of

the total market , their business is expected to grow significantly in the future due to

the growing quality consciousness of buyers for these products .

c) CLOTHING & FOOTWEAR

Numerous clothing and footwear shops in shopping centers and markets operate all

over India. Traditional outlets stock a limited range of cheap and popular items; in

contrast, modern clothing and footwear stores have modern products and attractive

displays to lure customers. However, with rapid urbanization, and changing patterns

of consumer tastes and preferences, it is unlikely that the traditional outlets will

survive the test of time.

d)HOME FURNITURE & HOUSEHOLD GOODS

Small retailers again dominate this sector. Despite the large size of this market, very

few large and modern retailers have established specialized stores for these

products. However there is considerable potential for the entry or expansion of

specialized retail chains in the country.

e)DURABLE GOODS

The Indian durable goods sector has seen the entry of a large number of foreign

companies during the post liberalization period. A greater variety of consumer

electronic items and household appliances became available to the Indian customer.

Intense competition among companies to sell their brands provided a strong impetus

to the growth for retailers doing business in this sector.

f)LEISURE & PERSONAL GOODS

Increasing household incomes due to better economic opportunities haveencouraged consumer expenditure on leisure and personal goods in the country.



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There are specialized retailers for each category of products (books, music products,

etc.) in this sector. Another prominent feature of this sector is popularity of

franchising agreements between established manufacturers and retailers.



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Malls In India

Over the last 2-3 years, the Indian consumer market has seen a significant growth in

the

number of modern-day shopping centers, popularly known as malls. There is an

increased demand for quality retail space from a varied segment of large-format

retailers and brands, which include food and apparel chains, consumer durables and

multiplex operators. Shopping-centre development has attracted real-estate developers

and corporate houses across cities in India. As a result, from just 3 malls in 2000, India

is all set to have over 220 malls by 2005. Today, the expected demand for quality retail

space in 2006 is estimated to be around 40 million square feet. While previously it was

the large, organised retailers with their modern, up-market outlets, and direct

consumer interface- who had been a key factor driving the growth of organised retail in

the country, now it is the malls which are playing the role.

Factors such as availability of physical space, population densities, city planning, and

socio-economic parameters have driven the Indian market to evolve, to a certain extent,

its own definition of a mall. For example, while a mall in USA is 400,000 to 1 million

sq.ft. in size, an Indian version can be anywhere between 80,000 sq.ft. and 500,000

sq.ft. By 2005, total mall space in the 6 cities of Mumbai, Bangalore, Hyderabad,

Chennai, Kolkata, and National Capital Region (Delhi, Noida, Gurgaon) is expected to

increase to over 21.1 million sq. ft. Compared to other big cities, Kolkata and

Hyderabad are relatively new entrants in the mall segment, but are witnessing quick

growth. Smaller cities like Pune Ahmedabad, Lucknow, Ludhiana, Jaipur, Chandigarh

and Indore, are also expected to see a formidable growth in the growth of malls in the

near future. But malls in India need to have a clear positioning through the

development of differential product assortment and differential pricing, in order to

compete effectively in a growing mall market. Segmentation in malls, like up-market

malls, mid-market malls, etc. , proper planning, correct identification of needs, quality

products at lower prices, the right store mix, and the right timing, would ensure the

success of the mall revolution in India.



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A retail revolution is imminent as chains like Wal-mart, tesco, target and

others wait for new FDI rules. But, Forget a cakewalk, its going to be war

in India for these global retail giants; and bloodshed wont be far behind

How Does India Compare?

80

40

40

20

3

USA

Thailand

Brazil

China

India

Share of Organised Retail in Total retail

sector in some major economies

Series1 80 40 40 20 3

USA Thailand Brazil China India

(Figures in %)



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The Retail Entrants

The track heats up

Foreign Direct Investment in Retail Sector in India


Retailers Type Status

7-Eleven Supermarkets Evaluating

Amway Direct Selling Already in

Auchan Hypermarket Evaluating

Carrefour Multi-Format Retailer Postponed Entry

Dairy Farm Multi-Format Retailer Tied up with RPG

J C Penny Product Sourcing Already in

Landmark Lifestyle Stores Already in

Lee Cooper Product Sourcing Already in

Levi's Product Sourcing Already in

Mango Apperal Retailer Already in

Marks & Spencer Lifestyle Stores Already in

Metro Cash & Carry Already in

Oriflame Direct Selling Already in

Reebok Franchising Already in

Shoprite Cash & Carry Already in

Sony Manufacturer retailer Already in

Wal-Mart Hypermarket Wait and Watch

Gap Product Sourcing Already in


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October 13, 2005 : Retailing is the largest private sector in India and second to

agriculture in employment. India today has perhaps the highest retail outlet density

with approximately 15 million retail outlets. The entire retail trade contributes about10-11% to Indias GDP and is valued at an estimated Rs 9,30,000 crores. Out of this,

organized retailing industry is around Rs 35,000 crores. Organized retailing is

primarily urban centric, its share as represented in urban scenario is projected to be 12

to 20%. Growing at more than 30%, the organized sector is driving the retail growth in

India and contributes significantly to the growth of the economy. This economic growth

comes primarily from increased consumer spending.

India as an Emerging Destination for FDI

India today represents the most compelling investment opportunity for mass merchants

and food retailers looking to expand overseas. According to AT Kearneys Annual

Global Retail Development Index for 2005 an annual study of retail investment

attractiveness among 30 emerging markets India displaced Russia to move from the

second place to the first. Indias retail market, totaling $300 billion, is vastly

underserved and has grown at an average rate of 10% in the last five years. This

increased spending and consumer confidence is a positive indication for the growth of

the Indian economy.

Present FDI Regime and Entry Routes

The Central Government in 1997 had taken a careful policy decision of keeping FDI in

Retail at bay. But the present policy allows India to have a presence of international

brands, through different routes as follows:

Franchise

Joint Venture

Manufacturing

Distribution

Cash & Carry (100%)

FDI in Retail Benefits & Concerns



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Benefits and Impact on the country:

Inflow of investment and funds

Growth of Infrastructure

Knowledge Base / Technical know-how

Reduced Cost and Increased Efficiency

Franchising opportunity for local entrepreneurs

Investment in supply chain, cold chains and warehousing

Implementation of IT in retail

Stimulate Infant industries and other supporting industries

Increased Local sourcing

Increase number and improve quality of Employment

- Provide better value to end customers

-Hence, it will lead to overall economic growth and create benchmarks.

Concerns regarding foreign investments:

Foreign players would displace the unorganized retailers because of their superior

financial strengths

Induce unfair trade practices like Predatory Pricing, in the absence of proper

regulatory guidelines

Create Monopoly and promote cartels

Give rise to cut-throat competition rather than promoting incremental business

Increase in real estate prices and marginalise domestic entrepreneurs

Hence, checks are to be injected to ensure the over all growth of small and big retailers

and to create a level playing field for all.

What needs to be done?

After leading the IT bandwagon, India is poised to grow as a Retail hub. It is

imperative to sustain the modernization of the retail sector and cater to the growing

taste of the Indian consumer and dispel the myth that the game is big Vs small or

traditional Vs modern or organized Vs unorganized or local Vs foreign.What is needed

is to promote consumption which will ultimately lead to economic growth of the

country. For the Indian consumer, the gradual and step-wise entry of foreign

companies in retail involves three pivotal changes modern technology, bettertransparency in dealings and sharing best practices.Today, the question is not of



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whether India should open to FDI but on when to open and how to open. FDI

in Retail can be leveraged for incremental results in the sector with an India-specific

approach keeping the following points in consideration:

FDI should be opened in a gradual phased manner, allowing a lead-time for the

Indian Retailers to create a level playing field for all. Hence promote competition and

contribute to the growth of the Indian economy.

Upgrade existing Infrastructure and stimulate further development

Key initiatives that the Government and the Industry need to take together Ensure

that the opening of this sector to foreign players is a win-win for all To ensure that

Indian retail dynamics are very different from other countries. Hence to ensure that

though we learn from global experiences, we do not go all out to copy global models

Defining the Way Forward

FDI would serve the purpose of much needed capital and bring a boom in the Retail

sector. As, some of the global retailers are already coming in through other channels

there is no justification to keep FDI in Retail on hold.

However, the industry also feels that capital formation is needed and this will take at

least 2 to 3 years time. Hence, retailers, for capital formation, need this lead-time,

reiterating the fact that FDI should be allowed gradually. But this should not constrain

the growth of the Retail sector.Since objective of FDI is to increase investment, there is

also a need to explore alternative funding routes, in addition to FDI. For example, if a

capital turnover ratio of 1:5 is assumed, then it requires at least Rs. 20,000 crores of

investment. Hence Foreign Institutional Investors (FIIs) and Venture Capital (VC)

firms should be legalized and encouraged for investment in the primary market.

FIIs and VC firms are currently allowed to participate in the growth of the listed retail

companies present in the secondary market; they have the necessary financial muscle

and are increasingly on the lookout to invest in India. Retail is a sunshine sector with

tremendous growth potential allowing them to invest in retail companies in the

primary market will enable many of these emerging companies to increase operations,

improve infrastructure, set up the latest systems, achieve critical mass and enhance

employment opportunities.



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Another objective of FDI is to enhance infrastructure. While there is no dearth of

potential investors in metro cities, the Tier-2 and lesser cities are getting sidelined. FDI

should be initially allowed in Tier2 and lower cities to facilitate infrastructure

building. The more such investment, the more incentives to operate in Metro cities.

Models similar to airline operators and telecom operators need to be explored. With

this the focus would be on incremental business and create a level playing field for all

and not on cutthroat competition.The Government is already considering a host of

conditions for bringing in FDI. One of them is to impose a minimum limit of 10,000 sq

ft on the floor space of foreign retail chains and limit the number of stores to one per

million once FDI in retail is allowed. This also serves to create level playing fields for

all players. Also, inclusion of a clause for reserving at least 500-600 sq ft (out of

10,000 sq ft) of retail space for foods & processed foods alone will further help to

protect the interests of certain sectors like agriculture and integrate them with the

organized retail supply chain. These measures are to be applicable for a short while

only, as the Department of Industrial Policy and Promotion (DIPP) is considering

easing some of these restrictions with time.Hence, with an objective of enhancing

Indian economy by increasing consumption, a recommended CII policy for introducing

FDI in retail is as follows:

FDI should be gradually allowed first in relatively less sensitive sectors garments,

lifestyle products, houseware, entertainment etc.

Alternative funding mechanisms and investment opportunities should be considered like

FII and venture capital in the primary market, in addition to FDI.At least 2-3 years

lead-time should be given to the Indian retail industry for much needed capital

formation by Indian Retailers and to promote a level playing field for all.Promote FDI

in Tier 2 and less developed cities to focus on the thrust for infrastructure growth.

Organized retail in India to triple by 2010: CRISIL

Mumbai: According to a study conducted by CRISIL Research and Information

Services, the organized retail industry in India is expected to grow 25-30 per cent


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