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ECONOMICS PROJECT “RETAILING” Rushabh Shah MBA (I.B)

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a study on retail industry.

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Page 1: Retailing Industry

ECONOMICS PROJECT

“RETAILING”

Rushabh Shah

MBA (I.B)

Page 2: Retailing Industry

Introduction to Retailing

“Retailing consists of those business activities, which are involved, in the

sale of goods or services to consumers for their personal, family or

household use.” It is the final stage in the distribution process for goods and

services from manufacturers to final consumers.

Retailing involves

- Interpreting needs of the consumers

- Developing good assortments of merchandise

- Presenting them in an effective manner so that consumers find it easy and

attractive to buy.

Retailing differs from marketing in the sense that it refers to only those

activities, which are related to marketing goods and/or services to final

consumers for personal, family or household use. Whereas marketing,

according to American Marketing Association, refers to "the process of

planning and executing the conception, pricing, promotion and distribution

of ideas, goods and services to create exchanges that satisfy individual and

Organizational objectives."

Organizational buyers purchase in order to perform a task or sell a product

effectively, efficiently and at a profit. They could be industrial buyers or

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Manufacturer WholesalerRetailer

Final Consumer

Page 3: Retailing Industry

intermediary buyers. Industrial buyers are those who purchase goods and

services to be used in or to aid manufacturing process. Intermediary buyers

are those (i.e. wholesalers and retailers) who buy merchandise for resale.

Retailers include street vendors, local supermarkets, department stores,

restaurants, hotels, barbershops, airlines and even bike and car showrooms.

Still retailing may or may not involve the use of a physical location. Mail

and telephone orders, direct selling to consumers in their homes and offices

and vending machines - all fall within the purview of retailing. In addition to

it, retailing may or may not involve a "retailer." Manufacturers, importers,

non-profit firms and wholesalers are acting as retailers when they sell goods

and/or services to final consumers.

Whatever the form of retailing, a retail marketing strategy defines the

execution of the marketing process and facilitation of customer satisfaction.

This retail marketing strategy involves selecting a retail target market (i.e.

the carefully/exactly identified group of final consumers that a retailer seeks

to satisfy) and then implementing the corresponding retail marketing mix

(i.e. a combination of product, price, promotion and distribution strategies

that will satisfy the retail target market). The elements of the marketing mix

encompass the facets shown in the table below.

 

Retail Marketing Mix

Product Branding

 Packaging

 Product Design

Assortment

 Services

Price

 Cost of goods

Business Expenses

 Gross Margin

 Profit

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Promotion

Advertising

 Personal Selling

Sales Promotion

Public Relations

Visual Merchandising

Distribution

 Logistics

Store Location

 Site Evaluation

 Transportation

Storage of goods

 

The implementation of such a retail strategy mix benefits consumers and

producers and yields economic utility.

Source: -Ron Hasty, James Reardon - Retail Management 

The first point under retailing benefits for customers, bulk breaking refers to

the act of retailers of buying goods in large quantities and then breaking

them into smaller sizes for their individual customers. As a result purchases

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Page 5: Retailing Industry

become convenient for customers - in terms of quantity bought as well as

expenditures made. 

The assorting function is nothing but evaluating all the different products

available and offering to the target the optimum array of products from

which to choose.

The storing function performed by the retailers relieves customers of the task

of anticipating their desires too far in advance of their needs as the retailers

keep goods in inventory until customers are willing to buy and use them.

Retailers help manufacturers smoothen the production cycle by placing

orders for peak demands well in advance and by managing inventory even

on behalf of the manufacturer and create economic utility for consumers by

providing products in the form and at the place and time desired by the

consumer.

Why Study Retailing?

So far, it has been seen that retailing is a vital and involuntary action

performed by the living structure of the market economy (as opposed to the

case in a barter economy). In a barter economy, barter transactions take

place between consumers themselves. Consumers interact directly whereas

in a centralized market economy, transactions taking place at a larger scale

(both in terms of volume and variety) necessitate an interface between the

manufacturers and final consumers. Hence we reinforce the fact that

retailing is not a new deal.

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Page 6: Retailing Industry

Our study concentrates on organized retailing, which consists of shopping

malls, super markets, chain stores, and like. In the last few years a shift has

occurred in India from individual retail outlets owned separately and

managed distinctively to professionally managed retailing. This is an

industry, which has now started attracting better investments and talent.

Things changed primarily because of the rising expectations of Indian

consumers and the corporates responding quickly.

Today, the industry (in India) seems to be functioning somewhere between

the accelerated development and maturity stages, with high growth rates,

intense competition and moderate profitability.

In order to get an idea of the magnitude of the issue we are dealing with, we

look at the international scenario. During 1992, the largest 100 retailers in

the world generated over $1.1 trillion in revenues.

Retailing is the second largest industry in the world, one of the largest

employers of the world and an index of economic growth. In India there are

about 5 million retail outlets varying in sizes and nomenclatures. India has

the highest number of retail outlets per capita in the world but has the lowest

retail space per capita in the world (2 ft / person). Out of these 5 million

outlets 96% are smaller than 500 sq. ft. in area 3. There are about 3 million

outlets in India's 3700 designated towns and more than 6,00,000 villages.

About 350 million people live, within one-minute walk of these retail shops.

According to retail census conducted by market researcher ORG-MARK,

Rs.4,79,568 crore worth of products were sold through these 5 million retail

outlets.

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Page 7: Retailing Industry

Manufacturers owned and retail chain store are springing up in urban areas

to market consumer goods to the middle class in a much similar style as

malls around the globe. At present about 8% of the Indian population is

employed in the retailing industry as against 20% in USA. As India moves

towards the service oriented economy, a rise in this percentage is expected.

The number of the retail outlets is growing at about 8.5% annually in the

urban areas and in towns with population between 1,00,000 to 1 million; the

growth rate is about 4.5%.

According to Kurt Salmon Association, a global management consulting

firm, organized retailing seems all set to power ahead from Rs. 5000 crore

currently to about Rs.30,000 crore in next five years. A.T.Kearney reports

that organized retailing will account for about 20% of the total $8 trillion

retail market in India in the next 5-7 years as against 1-2% today. 

Consumer Spend by 2005 (in Rs. crore)

Unorganised Retailing 7,08,836

Organised Retailing

Food and grocery 5,956

Non food 23,886

In India,  organized retailing is catching up fast. Yet retailing is to be

recognized as full-fledged industry in the India. Organized retailing is bound

to grow tremendously provided the right marketing strategies are adopted.

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Page 8: Retailing Industry

Even though the big retail chains are concentrating on the upper segment

and selling products at higher prices like Crossroads, Akbarally's and

Shopper's Stop, retail stores are sprouting that cater to the needs of the

middle class. With a huge middle class population, the retailers like RPG's

Food World are tapping this market. The market is flooded with products -

branded and unbranded. The customers are in a dilemma as to pick which

one! The organized retail chains, display all the products and the most

attractive product catches the customer attention. Gone are the days of

customer loyalty with increasing number of products of similar quality

hitting the market. Differentiation plays the lead role. According to Mr.

Simon Bell of A.T.Kearney, there is a close relation between the growth of

brands and the growth of the organized retailing. "Companies selling

branded products prefer to have big and organized retail outlets such as

supermarkets where there can be differentiated from unbranded products" he

opines. India is going through that phase in retailing, which the US

experienced in 80s and early 90s. From product based shopping, the

importance has shifted to experience based shopping.

The customers of the 21st century would expect to pick his/her own products

from an array of choices rather than asking the local kirana wallas to deliver

a list of monthly groceries. Thus the way of distribution of products has

gained importance in the past decade.

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The Industry Structure

Hence, commencing the study of retailing industry, we must first look at its

structure - what the retailing industry is made up of, what it looks like. The

structure of the retailing industry can be studied from two perspectives -

according to the form of ownership of various retail units or according to the

strategy mix that various retailers adopt. 

 

Based on the form of ownership, various types of retailers comprising

the retailing industry are described below:

A. An unaffiliated or independent retailer is one who owns and operates

only one retail outlet. A family mostly owns it with high dependence on the

owner, thus affecting long run success and employee morale. He is supposed

to have a friendly personalized image and his offering reflects the tastes and

preferences of its owners and customers. Kirana shops are very good

examples of such retailers.

B. A chain retailer or corporate retail chain  owns and operates multiple

retail outlets (store units) under common ownership. Most chains have well

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Page 10: Retailing Industry

defined management philosophies, which tend to be solid overall strategies.

These contribute towards limiting the independence of the local owners of

the individual units who, in addition, lack commitment also.

Consistent strategies with reference to store hours, product assortment,

prices, sales personnel, promotion and other policies must be maintained

throughout all branches in order to project a particular image of the chain.

This calls for centralized decision making which in turn result in difficulties

for individual units in adapting to local needs of the target markets.

There also exist associations of independent retailers, which are formed in

order to compete more effectively with corporate chain stores. They enjoy

benefits of a corporate chain while still maintaining status of individual

owners. These associations could be formed with other retailers (known as

co-operative chains), with sponsorship by a wholesaler (known as voluntary

chains) rather than by the retailers themselves or by franchise agreements

sponsored by manufacturers or distributors (known as dealers) or by service

firms (known as franchisees).

C. A franchise system results from a contractual agreement between a

franchiser and a retail franchisee, thus allowing the franchisee to conduct a

given form of business under an established name as per a particular

business format in return for an initial fee and a percentage of monthly gross

sales as royalty. It helps franchise to create national or international presence

quickly and with similar investments (than required by the franchise alone

for creating such a presence independently).

On the flip side, franchisees, that are owners and not employees, have a

greater incentive to work hard than the owners (or caretakers) of retail units

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Page 11: Retailing Industry

in other forms of retail chains. Also to their advantage, they obtain SOPs and

management skills from the franchise.

Further, they have support from co-representative to spot and solve

problems. To effect customer loyalty, uniformity has to be maintained

throughout the franchisee network. So in order to maintain the established

image of the franchise, franchisees have to meet some specified provisions

of franchise agreements. These, if not met, give the right to the franchise to

avoid the individual franchisee. It is for this reason that franchisees are

seeking more and more independence from franchise rules and regulations.

 

There are some key questions that a franchisee must answer while evaluating

franchisee opportunity:

· Does the franchise have a strong chance of competing in his community?

· Does the franchise have potential for further growth or does

its success depend on a fad?

· Will franchise ownership be an advantage in the business he is considering

or could he do as well on his own.

·What is the company's attitude towards-

Development of new products, franchisee termination and renewal, and

territorial protection for existing franchisees?

D. A Leased Department (LD) is a department in a retail store that is

rented to an outside party. If the existing store is well known, with a large

number of steady customers, it becomes easier for the LD to generate

immediate sales. It operates in categories on the fringe of the store's major

product lines and it must be taken care that it is not a parasite and does not

live off the traffic generated by other parts of the store. Thus goods or

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Page 12: Retailing Industry

services lines that it can offer may be restricted. Apart from this, various

requirements are imposed to ensure overall consistency and co-ordination.

E. Vertical Marketing System (VMS) is comprised of all the levels of

business along a channel of distribution (Refer to Fig.1). In an independent

VMS, there are three levels of independently owned businesses -

manufacturers, wholesalers and retailers. Such a system is most beneficial if

manufacturers and/or retailers are small, intensive distribution is sought and

customers are widely distributed.

In a partially integrated VMS, two independently owned businesses (most

likely a manufacturer and retailer) along a channel perform all production

and distribution functions without the aid of the third i.e. wholesaler. This

type of system is most appropriate if manufacturers and/or retailers are large,

selective or exclusive distribution is sought and existing wholesalers are too

expensive or unavailable.

Through a fully integrated VMS, a single firm performs all production and

distribution functions without the aid of any other firms. A fully integrated

VMS enables a firm to have total control over its strategy, to have direct

contact with final consumers, to have higher retail markups without raising

prices (by eliminating channel members), to be self sufficient and not rely on

others and to have exclusivity over the goods and services offered.

 

F. Consumer Co-operatives are retail firms owned by their respective

customer members. In such co-operative arrangements, groups of consumers

invest in the co-operative, receive stock certificates, elect officers, manage

operations and share the profits or savings that accrue.

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Page 13: Retailing Industry

Consumer Co-operatives come into existence with the purpose (of some

consumers) of operating stores as well or better than traditional retailers, of

getting control over prices, of saving money by substituting their own labour

or of getting access to healthful, environmentally safe plots, not available

from traditional stores.

Now, the first four categories are compared in Annexure 4 on six

parameters.

Based on the strategy mix that various retailers adopt, the industry will

comprise of fifteen types of retailers.

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Page 14: Retailing Industry

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.

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.

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Page 15: Retailing Industry

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 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

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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 more

advantageously 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.

Retailing in India: Trends and opportunities

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Page 17: Retailing Industry

Retailing - no marks for guessing this is the most active and attractive sector

of the last decade. While the retailing industry itself has been present

through history in our country, it is only the recent past that has witnessed so

much dynamism. It's the latest bandwagon that has witnessed hordes of

players leaping onto it. While international retail store chains have caught

the fancy of many travelers abroad, the action was missing from the Indian

business scene, at least till recently.

The emergence of retailing in India has more to do with the increasing

purchasing power of buyers, specially post- liberalisation, increase in

product variety, and the increasing economies of scale, with the aid of

modern supply and distribution management solutions.

A definition of retailing is essential in order to be in a position to assess the

impact of retailing and its future potential. The current retailing revolution

has been provided an impetus from multiple sources. These `revolutionaries'

include many conventional stores upgrading themselves to modern retailing,

companies in competitive environments entering the market directly to

ensure exclusive visibility for their products and professional chain stores

coming up to meet the need of the manufacturers who do not fall into either

of the above categories. Attractiveness, accessibility and affordability seem

to be the key offerings of the retailing chain

The emerging sectors

Retailing, one of the largest sectors in the global economy, is going through

a transition phase not only in India but the world over. For a long time, the

corner grocery store was the only choice available to the consumer,

especially in the urban areas. This is slowly giving way to international

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formats of retailing. The traditional food and grocery segment has seen the

emergence of supermarkets/grocery chains (Food World, Nilgiris, Apna

Bazaar), convenience stores (ConveniO, HP Speedmart) and fast-food

chains (McDonalds, Dominos).

It is the non-food segment, however that foray has been made into a variety

of new sectors. These include lifestyle/fashion segments (Shoppers' Stop,

Globus, LifeStyle, Westside), apparel/accessories (Pantaloon, Levis,

Reebok), books/music/gifts (Archies, MusicWorld, Crosswords, Landmark),

appliances and consumer durables (Viveks, Jainsons, Vasant & Co.), drugs

and pharmacy (Health and Glow, Apollo).

The emergence of new sectors has been accompanied by changes in existing

formats as well as the beginning of new formats:

o Hypermarts:

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

o Mini supermarkets, typically 1,000-2,000 sq. ft.

o Convenience stores, typically 750-1,000sq. ft.

o Discount/shopping list grocer

The traditional grocers, by introducing self-service formats as well as value-

added services such as credit and home delivery, have tried to redefine

themselves. However, the boom in retailing has been confined primarily to

the urban markets in the country. Even there, large chunks are yet to feel the

impact of organised retailing. There are two primary reasons for this. First,

the modern retailer is yet to feel the saturation' effect in the urban market

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and has, therefore, probably not looked at the other markets as seriously.

Second, the modern retailing trend, despite its cost-effectiveness, has come

to be identified with lifestyles.

In order to appeal to all classes of the society, retail stores would have to

identify with different lifestyles. In a sense, this trend is already visible with

the emergence of stores with an essentially `value for money' image. The

attractiveness of the other stores actually appeals to the existing affluent

class as well as those who aspire for to be part of this class. Hence, one can

assume that the retailing revolution is emerging along the lines of the

economic evolution of society.

Spread of organised retailing :

Organised retailing is spreading and making its presence felt in different

parts of the country. The trend in grocery retailing, however, has been

slightly different with a growth concentration in the South.

However, the Mecca of retailing is undoubtedly Chennai. What was

considered a `traditional', conservative' and `cost-conscious' market, proved

to be the home ground for most of the successful retail names - FoodWorld,

Music World, Health and Glow, Vitan, Subhiksha and Viveks -to name a

few.

The choice of Chennai as the `retail capital' has surprised many, but a variety

of factors acted in its favour. Chennai, in spite of being a rapidly growing

metropolis offers reasonable real estate prices, one of the most critical

elements for the industry. Chennai has been witnessing a high industrial

growth and increasing presence of the MNCs, both in the IT sector as well as

outside it. The industrial boom has led to the emergence of new residential

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areas with aggregation of professionals as well as a rapid increase in the

number of `double-income' households and growth of the nouveau

riche/upper middle class with increased purchasing power. This has been

combined with the increasing need for touch and feel shopping (especially

for the large migrant population). All the factors have acted favourably in

nurturing the industry.

 Consumer- the prime mover

A variety of factors seem to influence the growth in the retailing industry.

`Consumer Pull', however, seems to be the most important driving factor

behind the sustenance of the industry.

In this context, A. F. Ferguson & Co. had carried out a brief survey among

consumers across income segments to understand their spending pattern. An

analysis of the `monthly purchase basket of the consumers surveyed

indicated that the average monthly household spend on food and grocery

related items varied across income segments. For instance, in the case of

upper income households, the average spend was around Rs 4,200 per

month. As against this, the average spend in the case of a middle income

household was around Rs. 2,850 and lower income households Rs. 1,250 per

month. (This is computed from a sample of 100 customers having an

average family size of four.)

Based on the distribution of the more than 15 lakh households in Chennai

across income segments and the average spend, a conservative estimate of

the grocery retailing potential at Chennai will be around Rs. 300 crores.

Besides increasing purchasing power, a variety of other factors also seem to

fuel the retailing boom. With increase in double-income households and

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working women, there is an increasing pressure on time with very little time

being available for leisure. In this scenario, consumers are seeking the

convenience of one-stop shopping, whereby they could have better utility of

time. They are also seeking speed and efficiency in processing, as a result.

Being more aware, consumers are on the look-out for more information,

better quality and hygiene as well as increased customer service. These

changes in consumer behaviour also augur well for the retailing industry.

However, in India there are no uniform trends with respect to consumer

buying behaviour. Organised retailing has definitely made headway in the

upper class. However, even in this segment, items such as milk, fruits,

vegetables and a significant portion of `through-the-month' purchases seem

to be done at traditional outlets. The middle income class prefer shopping for

processed food and personal care in supermarkets and fall back on

traditional outlets for bulk shopping. Organised retail outlets seem to be

associated with branded items/special purchases. Organised retailing does

not seem to have made an impact on the lower class, except for `curiosity'

shopping.

The biggest question before organised retailers therefore, is whether this

really means a huge untapped potential for the organised retailers and

whether the conversion in mindset going to be easy.

Emerging trends

The single most important evolution that took place along with the retailing

revolution was the rise and fall of the dotcom companies. A sudden concept

of `non-store' shopping emerged, which threatened to take away the

potential of the store. More importantly, the very nature of the customer

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segment being addressed was almost the same. The computer-savvy

individual was also a sub-segment of the `store' frequenting traffic.

Internationally, the concept of Net shopping is yet to be proven. And the

poor financial performance of most of the companies offering virtual

shopping has resulted in store-based retailing regaining the upper hand.

Other forms of non-store shopping including various formats such as

catalogue/mail order shopping, direct selling, and so on are growing rapidly.

However, the size of the direct market industry is too limited to deter the

retailers. For all the convenience that it offers, electronic retailing does not

suit products where `look and see' attributes are of importance, as in apparel,

or where the value is very high, such as jewellery, or where the performance

has to be tested, as of consumer durables. The most critical issue in

electronic retailing, especially in a country such as ours, relates to payments.

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Retail management skills

It is a fact that the retailing industry is in its starting phase in our country.

The benefits of organised retailing will only be felt once an equitable scale is

achieved. This to a large extent depends on the store size, the walkthroughs,

bills per customer per year, average bill size and the revenue earned per sq.

ft. But besides resources and bottomline, a variety of other aspects need to

be in place for tasting success. The need for qualified and trained manpower

is of utmost importance. The need for specialised skills is increasingly felt in

the areas of:

Strategic management - strategising, targeting and positioning,

marketing and site selection, among others

Merchandise management - Vendor selection, inventory management,

pricing and so on

Store management - Layout, display, customer relationship, inventory

management, etc.

Administrative Management - Human resources, finance, marketing

and so on

 

With the need for specialised skill set, retailing has become a specialised

area of knowledge and training. The RPG School of Retailing and the

introduction of specialised retailing courses at various business schools,

including the IIMs, stand testimony to this.

Technology impact

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The other important aspect of retailing relates to technology. It is widely felt

that the key differentiator between the successful and not so successful

retailers is primarily in the area of technology. Simultaneously, it will be

technology that will help the organised retailer score over the unorganised

players, giving both cost and service advantages.

Retailing is a `technology-intensive' industry. It is quoted that everyday at

least 500 gigabytes of data are transmitted via satellite from the 1,200 point-

of-sales counters of JC Penney to its corporate headquarters. Successful

retailers today work closely with their vendors to predict consumer demand,

shorten lead times, reduce inventory holding and thereby, save cost. Wal-

Mart pioneered the concept of building a competitive advantage through

distribution and information systems in the retailing industry. They

introduced two innovative logistics techniques - cross-docking and

electronic data interchange.

Today, online systems link point-of-sales terminals to the main office where

detailed analyses on sales by item, classification, stores or vendor are carried

out online. Besides vendors, the focus of the retailing sector is to develop the

link with the consumer. `Data Warehousing' is an established concept in the

advanced nations. With the help of `database retailing', information on

existing and potential customers is tracked. Besides knowing what was

purchased and by whom, information on softer issues such as demographics

and psychographics is captured.

Retailing, as discussed before, is at a nascent stage in our country. Most

organised players have managed to put the front ends in place, but these are

relatively easy to copy. The relatively complicated information systems and

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underlying technologies are in the process of being established. Most

grocery retailers such as FoodWorld have started tracking consumer

purchases through CRM. The lifestyle retailers through their `affinity clubs'

and `reward clubs' are establishing their processes. The traditional retailers

will always continue to exist but organised retailers are working towards

revamping their business to obtain strategic advantages at various levels -

market, cost, knowledge and customer.

With differentiating strategies - value for money, shopping experience,

variety, quality, discounts and advanced systems and technology in the back-

end, change in the equilibrium with manufacturers and a thorough

understanding of the consumer behaviour, the ground is all set for the

organised retailers. The bottomline could look brighter, after all!

It would be important to note, however, that the retailing industry in India is

still a `protected industry'. It is one of the few sectors which still has

restrictions on FDI. Given the current trend in liberalisation, it will not be

long before the retailing sector is also thrown open to international

competition. This will see a further segregation of the international retailing

brands and the domestic retailers, thereby injecting much greater dynamism

into the market. That will be when the real action will begin. In the second

article on retailing, we uncover a model for retailers to handle the emerging

scenario.

Industry Players

What is the reason that big groups like Tatas, ITC, Piramal Enterprises and

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S.Kumars are putting huge amounts of money into retailing? The answer is

very simple. Now, just a couple large organized retailers are in the market

whose turnover crosses Rs. 100 crore. And in this sector anything above 25

crore counts you as a major player.

Consultants like A.T.Kearney have predicted that by year 2005 retailing will

be worth Rs. 1,60,000 crore in India. Table 1 gives an overview of the main

players in this sector along with their expansion plans:

 

Table 1: India’s Large Retailers

Company

Turnover

(in Rs

crores)

Outlets Space (in

sq ft)

Expansion Plans (to be achieved by

2002)

RPG 156

27 Food

World

2 Music

World

4 Spencer’s

outlets

200 000

50 Food World

8 Music World

18 Health & Glow outlets for total

turnover of 23.75 crores per month

Shopper’s

Stop 130

1 each in

Mumbai,

Bangalore,

Hyderabad,

Delhi,

Jaipur

100 000 !5 –17 outlets if FIPB approves

Foreign Equity

Vivek & Co 90

8 in Chennai

3 in

Bangalore

1 in Salem

100 000

10 stores in Chennai and Bangalore

7 in Hyderabad, Vishakapatnam &

Vijayawada

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Nilgiris 76

17

Supermarke

ts

14

Cakeshops

80 000

4 outlets

30% growth in terms of turnover

289 stores by 2007

Pantaloon 60

12 stores

40

franchises

90 000 11 superstores

NANZ 40

15

Supermarke

ts

70 100 N.A

Vitan 25

11

Department

al Stores

50 000 25 outlets

100 crore turnover

Crossword 16

Bookstores

in

Ahmedabad,

Delhi,

Mumbai,

Pune

Goa, Nasik

27 000 25 stores

Landmark N.A

1 in Chennai

and

Coimbatore

18 000 Plans to open Mall in Calcutta with

Emami

Kemp

Chain of

Stores

N.A 2 stores in

Bangalore 125 000

Kemp City retailing cum

entertainment development, over 200

acres

Charagh

Din N.A

Mumbai

store 10 000

Will remain single location store

 

Note: N.A -Not available

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Cross Roads, another major player promoted by the Piramal Enterprises is

making waves in Mumbai. It started its operations in August -September

1999 and details of its operations were not available to incorporate in this

report.

Major Players At A Glance

RPG:

The expected growth and potential in this sector have prompted the bigwigs

like RPG to go in for expansion plans. The RPG group, now having Rs.156

crore turnover from organized retailing, is expected to pump in Rs.120 crore

into its expansion ventures and expects Rs.2000 crore turnovers from

retailing by the end of year 2003. Its growth plan for its FoodWorld chain of

supermarkets will be boosted by the decision of Dairyfarm (the retail

division of Jardine Matheson), its technical partner to exercise its option of

taking 49% in FoodWorld.

According to Mr. Harsh Goenka, Chairman, RPG Enterprises, "moving into

retailing was part of our plan to change our business mix from commodity

based business to service based ones."

Shopper's Stop:

Shopper's Stop launched its Mumbai branch in 1991 with their men's line

soon followed by women's and children clothes. The concentration was on

"one room, one ambience, and one experience" and its success resulted in

opening new branches in Bangalore and Hyderabad. Cashing on in the

current consumerist trend, the shop not only offers products but also offers

an avenue to channelise operations. For customers who cannot afford a John

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Miller or Wendell Rodericks original once a year moderately priced truck

show is held at Shopper's Stop.

Vivek & Co.:

Vivek & co. in Chennai is good example of a multibrand store. The

company operates three huge stores in Chennai and one in Bangalore with a

combined area of over 1,00,000 sq. ft. Its price policy is low and its main

attraction is the discount sales held annually on the New Year's Day. Vivek

& co. recognising the inherent dangers in too much bigness is developing

about fifteen small store with not in-depth product representation. Fierce

competition and the urge to capture the untapped market, made the retailer

take this decision. Vivek & co.'s presence is however largely confined to the

south of India.

CrossRoads :

A stand-alone departmental store that spans four floors and takes up 35,000

sq.ft. A recent development in Mumbai promoted by Piramal Enterprises

defined its target audience as families that have annual income of 2,00,000

to 20,00,000. The emphasis is on their target unit which is the family and not

individual. Experience is what it aims at. Crossroads hosts Mumbai's largest

video games, which prove to be a good attraction for children and even

elders. McDonalds has its outlet here as it feels the spill over traffic has the

potential to be enormous. This traffic is being accelerated through cross

promotions e.g. an event in one outlet can win the customer a prize from

another.

Situated in a strategic location in Mumbai, Crossroads has become a star

attraction within few months of starting its operations.

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Environmental Analysis

I) PEST Analysis:

Now, in a particular geographic region, the environment there affects the

retailers in the region in various ways. We have studied the effects under the

following heads:

-Political environment

-Economic Environment

-Social (Socio-Cultural) Environment

-Technological Environment

a) Political Environment: 

With the opening up of the economy, more and more MNC's have pervaded

the Indian Business arena, through joint ventures, franchisees or even self-

owned stores. The very first MNC getting into the business was Spencer's, a

tie up between the RPG Group and the Dairy Farm International, a $ 10 bn

Hong Kong based company, and a part of the Jardine Mathenson group.

Government uses regulation to prevent development of monopolies, which

results in restricted competition and fixed prices. (MRTPC). Government

also propounds price competition laws and unfair trade practice laws.

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Retailers must understand what rights they have in pricing merchandise,

what provision they should make for customer relations, what rights and

responsibilities they possess when making a sales, what rights their

employees have and what liabilities they may face while selling products to

the consumers.

b) Economic Environment: 

The type of economic system (capitalism or socialism etc.) existing in a

country has a direct bearing on the potential for and the development of the

retailing industry in that country. A retailer cannot escape the effects of the

factors in the macroeconomic environment, be it domestic or global that

influences the local market.

Inflation, unemployment, interest rates, tax levels, the GDP and the rate of

real growth in GDP (Inflation adjusted) are some aspects of the economy

which a retailer must cope with.

Real growth makes more income available to people who then tend to spend

more, leading to higher sales and more profits for the retailers. However

growth also leads to higher competition in the long run. As the economy

expands, higher demand levels lead more firms into the market, trying to

fulfill the consumers' needs. The inflation (i.e. increase in price) leads to less

goods being bought at higher prices. As the retailers' cost of goods increases,

they attempt to pass on this increase to the consumers. However, it is often

not possible to pass on the entire amount to the consumer, hence resulting in

cuts in the retailers' profits.

With the increase in Purchasing Power Parity (PPP) and the disposable

income of the Indian consumer, retailing is catching up at a very fast pace in

the country.

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c) Social Environment: 

As discussed under the title 'demographic and lifestyle trends' above, the

demographic trend and lifestyle patterns, of the society that a retailer intends

to serve, decide the retailer's strategy.

Traditionally, children seldom accompanied their parents while grocery food

shopping. Shopping for children was confined to that during festivals when

dresses were brought for them. But, in the present day, due to scarcity of

time, working parents prefer to spend as much time as possible with their

children and this includes their shopping hours also. As the organisation

retail sector offers the option of entertainment along with shopping, the

younger couples opt for these retail outlets for shopping.

Speaking at KSA Retail Summit, 2000, Peter Lau, Chairman of Giordans

International, Hong Kong, said, "It is the format of consumer expectation

that changes, not the goods or services they want.” This is depicted in the

following diagram:

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KSA Technopark conducted a study on consumer attitude towards shopping

in association with the market research firm ORG- MARG in January and

February 1999. The study was spread over the four zones of India viz.

North, South, West and East and covered a random sample of 7300

respondents in twelve cities. Findings of the study are given in Annexure 3.

The results of this study clearly reflect that the buying patterns do vary

according to the customs and lifestyle of a region. In the south

approximately seven hours are spent on shopping per week. This figure is

the highest amongst the four zones, which probably explains the more spurt

of new malls and supermarkets in the south than in the other zones.

Further, the study has attempted to find out what a customer expects out of a

store. Here, the six attributes desired by most number of people (65% and

above) are polite and courteous salespeople, quality of products, non

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intrusive sales persons, value for money, attractive displays and range of

products.

Although desired by a very low percentage of people (only 10%) yet the

attribute of an entertainment centre for children has also figured in.

That is to say, apart from quality and range of products, value for money and

attractive displays, the human touch has a vital role to play. Smart, polite

and courteous sales people might make all the difference for a store, which

is like any other in terms of its product offerings. 

There is also emphasis on schemes and promotions, which, as the study

ratifies, do pull customers. Further the trend is towards more convenience

and flexibility in terms of exchange/ return policies, which play a vital role

in encouraging the purchase. 

d) Technological Environment: 

Technology is probably the most dynamic change agent for the retailing

industry. The computerization of the various operations in a retail store,

including inventory management, billing and payments as well as database

(of customers) management, widespread use of bar coding, point -of-sale

terminals and Management Information System has changed the face of

retailing drastically. Apart from providing the retailers with better and

timelier information about their operations, the technology also does the job

of preventing theft, promoting the store's goods and creating a better

shopping atmosphere. These can be done with the help of closed circuit

televisions, video walls, in-store video networks, kiosks and other forms of

interactive applications ranging from CD-ROMs to virtual reality to let

customers select and buy products.

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They make the customer's life a lot easier by facilitating the use of

developments like credit cards. Toll free 800 numbers have brought about a

revolution in consumer's ordering and feedback mechanisms. These also

pave way for tele-shopping and net-shopping. Emerging technologies will

also facilitate just-in-time management of certain products within the store.

These trends are already visible in the music and greeting card industries.

II) Porters Five Forces:

As yet, we have been analysing the retailing industry in the context of the

macro-environment - consisting of Political laws, Economic regulations,

Social customs and Technical standards, in the land of a particular retailer.

Now we move on to the analysis of the industry in the context of

competition prevalent within the players of the industry. This addresses the

need to identify those factors in the environment, which influence the

capability of a firm to achieve a competitive advantage and to position itself

to such advantage.

Players at different levels of scale of operations have to confront different

levels of competition posed collectively by the five forces- threats of new

entrants, rivalry amongst the existing firms, and pressure from the

substitutes and the bargaining power of buyers and suppliers. Different

forces take on prominence in shaping the competition at and also across

different levels.

 

1. Threat Of Entry:  

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To an industry depends on the extent to which there are barriers to entry,

which most typically, are one or more of the following six:

i. Economies of scale are not such a big issue in the retiling industry. The

scale of operation might be small for a firm to begin with and it can, in its

initial stages, focus on a specific target segment whose needs can be

addressed by that scale of operations.

But these surely gain importance once expensive technological

advancements (which may be beyond the reach of small retailers) come into

picture. For instance, it may be difficult for the small firms (or retail outlets

or chains) to use fully automated inventory systems or toll-free 800 numbers

or in-store video networks or other interactive applications. As a result, they

might lose out on the grounds of efficiency, in competition with their larger

competitors. So they must adapt by concentrating on providing more

personalized services to the target segment seeking it. Hence this factor is

mainly responsible for triggering competition between large and small

retailers.

ii. Capital requirements again depend on the scale of operations. Franchisers

have an edge over the corporate retail chains in this regard as they are able to

form national / international networks without high investment of their own.

iii. Cost advantages independent of size (scale) arise due to the experience

gained by early entrants and the relationship they have established over time

with their suppliers, manufacturers and customers. These might also pose

difficulties in handling market and operational problems. This is why

absolutely new local entrant face severe competition from the large retail

chains operating worldwide who might want to plunder their regions, with

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the expertise that they have gained as a result of years of experience. On the

top of it, with the help of lucrative offers, they tie-up with the existing local

players who know the area well. Such an example is Spencer's tying up with

RPG to open Food World Dairy International.

iv. Expected Retaliation from the existing firms (at large scales) is rising

over time or due to recent trend of foreign collaborations, they now have the

financial muscle to combat any sort of competition relating to price or

promotion. For small and local retailers, this is not such a big issue.

v. Legislation regarding location, prices, number of employees etc. affects

the operations or even establishments of a new entrant - at large as well as at

small scales. Today legislation has contributed towards increasing

competition tremendously by allowing entry of foreign players,

independently or as a joint venture with the local players. But it works

towards keeping a check on entry by implementation of FIPB regulations.

vi. Differentiation: postulates that new entrants might have to spend heavily

to overcome existing customer loyalties, which established firms are

enjoying due to past advertisement and customer service or simply due to

early entry into the market. To attract its target segment, a retailer will have

to project some benefit(s) that he/she is offering over and above the

offerings of the existing players.

2. Intensity Of Rivalry Among Existing Competitors is High:  

In case of tangible products in retailing industry as the existing feature in the

consumer market is brand loyalty (i.e. loyalty to a manufacturer's product)

rather than store loyalty. Consumers look for a particular brand which they

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have used/ consumed/ heard about, which might be available with a number

of different types of retailers- big and small. Today big supermarkets or

malls with specialized retailers do pose a threat to the neighbourhood retail

stores, which are now used for fulfillment of immediate and small needs

only. On the other hand, large professional retailers face competition from

more personalized retailers who might be more comfortable with offering

facilities like credit on purchases, return and exchange offers, specialized,

hard to get and better quality items and extended business hours in order to

retain whatever customer base they have and not let it be lured away by

competitors. They just have to niche around big retail stores and malls by

improving customer service, tailoring selection to customer needs and not

competing directly with their product lines. Big retailers cannot match small

ones on value. They live on hype and not reality. E.g. Big retail stores

(chains) like Wal-Mart create illusion that they always undersell the market,

based on a handful of heavily promoted items at rock bottom prices, but the

rest of their inventory is not as price competitive.

According to the research published in Business World - May 1999, few

large retailers do have large turnovers- 35.2% of the total retail turnover. But

that still leaves a bulk of the market in the hands of the medium and small

retailers.

Mr. R Gopalkrishnan of Tata Sons has opined that- "In India, smaller

retailers continue to grow contradictory to the normal economic

development where small retailers decline in numbers with their emergence

of the large players." Experts feel that the size of population and the high

unemployment rate have contributed to their growth of small retailers. With

so many looking for work, setting up a small outlet is relatively a simple

thing to do.

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Lastly, high (10%) industry growth has turned competition into a market

share game.

3 . Pressure From Substitutes emerges mainly from two factors:

1. Switching costs for customers to the substitute.

2. Buyer willingness to search out for substitutes.

Also the threat of substitution may take four different forms, each of which

we shall now discuss with reference to above factors.

i. Product-for-product substitution - 

The growing popularity of traditional non-store retailing base of catalog mail

orders, direct mailers, telephone sales, door-to-door selling, supplemented

by recent innovations like vending machines, in-home video tape

infomercials, on-line CD ROM systems, tele-shopping and net shopping

poses a threat to store retailers. These media do provide the customers with

ease of shopping, some entertainment and even more information about

range of products. But still there are reasons due to which these media are

not catching on quickly especially in India. E-tailing transactions are less

than a quarter of a percent of the total retail business in India 8. Even in

western countries, it accounted only for 20% of the total retail spending.

In the US, store based retailers, altered by analyst's predictions that online

retail could account for as much as 10% of the total US retail sales by 2003,

are queuing up to the internet. However, the situation in India is little

different. With limited penetration of computers and Internet, will online

retailing (e-tailing) catch up is a big question mark. Retailing is expected to

change with the rapid development of new online sales and distribution

channels that can be used from anywhere but the extent to which it will grow

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in India depends on the shift in the mindset of Indians whose current state

gives rise to many deterrents As described in the section on challenges (e-

tailing) these substitutes need to take care of these hindrances in order to

grow in magnitude. Furthermore, instead of complete substitution, these

media should be looking at possibilities of collaboration with the existing

store retailers.

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ii. Substitution of need -

 We take switching from one store or one type of store (e.g. small

neighourhood retail outlet) to another (e.g. a big department store) as an

example of this type of retailing. In this case, the buyers might be looking

out for new experiences and might not mind the nominal switching costs

(like longer distance to be covered)

iii. Generic substitution-

Generic Substitution or doing without is not possible in case of retailing

industry. Retailing will definitely remain, in one form or the other, as long as

the manufacturers manufacture and consumers consume. Retailing does not

seem to become extinct even in the future. The issue that remains to be

addressed is just - what forms it keeps evolving into. One most prominent

form visible today is e-tailing.

4. Bargaining Power Of Suppliers is high if:

i. There is high supplier concentration (i.e. few number of suppliers for the

industry). In case of the retailing business, large numbers of manufacturers

are competing for shelf space, resulting into low bargaining power of

suppliers in this context. 

ii. There are other substitute products for sale to the industry. With large

numbers of firms manufacturing similar goods or providing similar services,

differentiation is what gives a competitive edge to some suppliers over

others. But again due to spade of brands in the market bargaining power of

suppliers is low even in this context. But in one specific case of exclusive

distribution or dealership bargaining power of suppliers may be high. 

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iii. The industry is not an important customer of the supplier group. This is

not at all the case here. Today, apart from probably factory outlets, retailing

is the only interface between manufacturers and consumers.

iv. The suppliers' product is an important input to the buyer's business.

Generally, this is not the case with individual suppliers, hence affecting their

bargaining powers adversely.

v. Switching costs from one supplier to another are high. This

again is not the case in most of the categories of retail sales expect for the

exclusive dealership of some firms.

vvi. There is threat of forward integration by suppliers. This might be a

threat in the long run. Signs are visible in the form of direct mailers, door-to-

door selling, tele-shopping and e-tailing.

Marketers across the FMCG category and the durable sector feel that the

retailer is going to be a powerful influence on buyers. A primary reason for

this is trust. Many families take goods on credit from the retailer and

moreover, spoilt goods are taken back by him. With all these facilities

thrown in, when he recommends a product, the consumer has no reason to

doubt him. 

5. Bargaining Power Of Buyers is high:

 Bargaining Power Of Buyers is high for the retailing industry because of

flux of retailers of varying sizes and types within the reach of consumers.

Hence because of nominal or no costs of switching suppliers (for the final

consumers) , these retailers are fighting for the fixed budget of consumers.

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The customer in the past decade has become the key focus. The marketing

strategies revolve around him. From shopping, the trend has shifted to

shopping, entertainment and experience. 

Challenges Ahead For Retailing

Organised retailing is not a bed of roses for the big players also. In addition

to the advent of Internet, various issues glare at retailing. Some of them are 

Human Resource: 

Big retail shops do not confine their target segments for employees to

undergraduates. Shoppers Stop broke the myth of MBAs not wanting to go

into the retailing career. Cross Roads and Spencer also hire MBAs to

manage their chains. However there still exists a gap between the supply and

demand of professionals. Mr. Goenka, chairman RPG Group, hopes that one

of the greatest challenges facing modern retailing in India is the availability

of trained personnel. In order to address the problem RPG Group has set up

a national retail Institute in Chennai, which, offers a variety of courses in

retail management for frontline, supervisory and managerial post.

Retaining the human resources is also a major challenge for these big

retailers. The bigwigs like Crossroads offer high compensation and create a

cohesive environment that makes an employee proud to be a part of such big

retail chains. 

Space and Infrastructure: 

To establish a retail shop/ Mall, the real estate and the infrastructure are very

vital. The expenditure and availability on both the accounts do hinder the

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growth of the retail chain. The land ceiling restrictions and other state

restrictions on land use have prevented the growth of efficient retailing in

the cities. An average investment of about Rs. 5 crore is required to establish

a mall and that explains the rush of big companies into this business. Small

and individual retailers find it difficult to pour in that much of investment. In

addition to the initial investment, to combat e-tailing, expenditure has to be

incurred on technological side. This makes the retail projects less attractive

for the individual players.

Consumer Mindset Towards Discount Stores:

In India the concept of discount stores like Wall-Mart, at which genuine,

defect free international brands are available at 50% discount, is yet to catch

on. Still, the major section of customers is conservative and choosy and

prefers to go to a known retail shop than opt for a discount store. Very few

discount stores like SM2, Mumbai are at present operational. Its reach is

confined to major cities. Breaking the conventional mindset of the Indian

consumers that discount stores do not sell inferior goods will take some

time.

Rural Market- How To Penetrate?

Penetration into the rural market is what big retailers have to concentrate on

for growth. Attracting rural markets will be different from that of the urban

market. For example detergent cakes are preferred to powder and coconut oil

in bottle to sachets in the rural areas. The rural consumer are different from

the urban consumers as they are more price sensitive and their quantity of

consumption would be less as their share of wallet for shopping along with

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entertainment is delineated. Food and agricultural inputs dominate the rural

consumers list and whatever is left would be used to fulfill aspirational

needs. Customers in the rural area are not urbanites without money. He has a

distinct identity and value system. One more challenge in the rural market is

that shopping habits vary according to seasons. During harvest time, the

spending of a rural consumer increases compares to other times. However,

penetration of television, increasing literacy levels, mobility between rural

and urban areas and telecommunication (STD Services) have increased their

awareness towards branded products and entertainment. Customized retail

shops would be a big success in the rural areas too if the right strategies are

adopted.

Indian Scenario - The Road Ahead

What retail might look like in India

Thanks to a massive population and indications of better levels of disposable

incomes side by side with awareness emerging, retail is being seen as a

massive emerging opportunity in India.

Naturally, since retail revolutions took place in the more developed markets

much earlier, the feeling is that India can draw from their experiences.

Although, given India's own unique characteristics, expectations are that as

the retail scenario evolves (surely rapidly now), the country will emerge

with its own retail models as well.

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Yet, consultants say that there are enough models out there in the developed

part of the world that will find acceptance here, even though they may find

some modifications to suit local needs better. The challenge, really, is in the

re-invention.

There are certain formats these consultants feel can work in India:

small stores, with complex but efficient supply chains

small supermarkets that run on brand variety and tight

inventory control

a mix of food and general merchandise stores

out-of-town shoppatainment complexes

mid-sized retail propositions within town limits

small corner outlets with integrated home delivery

Effectively, then, leaving out hypermalls of the US kind, other retail models

are possible in India, though a model cannot really be moved across borders

piecemeal. What can come in piecemeal, however, is the supply chain

management model attached to a broad model that is being transferred.

Again, consultants say that you have to build on what's already there -- you

can't just wipe the slate clean and start afresh. And so the likes of catalogue

or mail order buying will not necessarily lose significance. Make it more

efficient and it can work. However, since in a lot of product categories, the

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consumer may prefer a touch-and-feel before taking a decision, these kinds

of formats can be supported by display outlets sans on-premise stocking.

Take your pick, order and get it all delivered at home. E-retailing could also

adopt something like this combination. There are no strict rules anywhere,

anymore. And rural India? Maybe that's where a modified multi-product

hypermart could work, is the opinion. And the best model? No, there are no

ideal models - adopt/adapt/develop the best fit from what's out there in the

West. And here in India.

The bottomline: there are basic commonalities in retail evolution in any

market. As incomes rise, value additions go up. As value adds go up, retail

models gain significance. And then come shakeouts and consolidations.

That's the ground reality. You just can't shake that.

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What Drives The Industry?

Demand determinants

The actual composition (the distribution of the types of retail stores) of the

retailing industry in a particular geographic area is determined by the

following factors:

·Demographic Trends 

· Life style Trends

I  Demographic trends:  

Demographic trends involving population size, the number of households,

population mobility, its location and income dominate a retailer's strategic

planning for the future, hence qualifying him for a particular category from

the ones described above. These factors have been elaborated upon in

Annexure 2.

II Lifestyle Trends:   

Life-styles represent the ways in which individual consumers; families or

households live and spend time and money. The life-style trends, in

correlation with demographic trends, do have a great impact on the structure

of the retailing industry. The trends regarding some factors must be

understood and adapted to by the retailers.

DEMOGRAPHIC FACTORS

1.Population Size and age Distribution

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Population size and age distribution determine what the retailers must be

offering and to which segment of the market, depending upon their goals.

Further, factors like average life expectancy, birth rate, marriage age,

average number of children, family life cycle define the requirements of the

market and the firms (retailers) should act accordingly. Applying the

traditional family life cycle to retailers.

2. Number of households

Number of Households and their composition have key implications for

retailers. These will influence the purpose (self use or to be used by others)

of purchases made. These factors also determine the types of goods and

services for which the demand is high and hence in which there is scope for

retailers to make money.

3. Population mobility

Population mobility results into :

Prosperity of well-known chains and franchisees.

Higher sales of national and regional brands.

Higher purchase levels, especially of clothing and home related goods

and services, because some items are discarded in moving to new

environments (particularly if the moves are long distance and there are

climate changes.

Boom in unified, nationwide credit system, which can ease and thus

encourage purchase transactions.

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Necessity of large scale advertising which will be helpful in

generating and maintaining a retailers image. E.g. Food World and

Music World started in the south and are catching up in the northern

and western states of India. Crosswords has franchised outlets to

enable better reach.

4. Location

Location of the population determines what it will buy and where. It is

location of the buying population, which plays a vital role in deciding

Locations of the retail units.

Opportunities for various types of retailers and also various types of

items such as furniture, lawn mowers and snow blowers.

5. Working Women

Their median ages and composition of their families along with their desire

of combining the roles of working women, wife and/or mother has these

implications for retailers. Workingwomen :

Are concerned with convenience and ease of performing household

duties and hence are apt to spend large amounts for major appliances

and household equipment, especially when they are time saving

Are more independent in their purchases as they seek individualism

and personal identity; are self confident and individualistic

Are prone to use leisure time for pleasure (The above two points have

a strong influence on the market for ready-made clothing, sports

goods and car-rental agencies)

May be unable to shop during regular retail hours, thus creating

opportunities for direct marketers and retailers with extended hours

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Have less time to prepare meals - hence help  in growing the

importance of prepared foods, convenience foods and quick serve

restaurants 

Increasing family affluence, thus expanding the purchase of luxuries

and are demanding as consumers.

Will be more responsive to advertisements placed in evening time

periods, particularly on television.

Females are spending 60% on shopping entertainment and eating out

whereas men are spending about 50%

6.Income

Higher incomes broaden markets for luxury goods and services. They also

lead us to the anticipation of increase in the demand for high quality services

and wider assortments. At the same time retailers should also keep in mind

that due to unemployment and inflation, there are consumers with low-

income levels who also need to buy goods and services.

PSYCHOLOGICAL FACTORS - LIFE STYLE TRENDS

1. Gender Roles

The increasing number of working women (with characteristics as described

above) is altering the life styles significantly, not only of women themselves,

but also of the males. Larger number of males is now fulfilling the roles that

were thought to be females in the past. These trends reflect on the demand

for better and more services and for more automated equipment, which the

retailers can encash.

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2. Consumer sophistication and confidence

With increasing number of consumers who are cosmopolitan in tastes and

styles and more knowledgeable and demanding than before, the expected

outcomes are:

- Decreasing desire for conformity

- More willingness to experiment

- Insistence on detailed information

- Sharply stronger demand for quality in goods and

services

3. Poverty of time

Poverty of time results from the trend of increase in the number of working

women, increases in distances between locations of work and home and

increase in the number of people working at second jobs. This leads

consumers to place a high value on goods and services minimizing time

expenditure may be sought by consumers in one or more of the following

ways:

Emphasizing physical fitness

Emphasizing or de-emphasizing material possessions and status

symbols

Attain individuality ("doing one's own thing")

In responding to consumer desires for self-fulfillment, the retailers

must act according to their understanding of the motivations of their

target markets. 

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These factors looked upon in the context of a particular geographical

region, decide the numbers of various types of retailers functioning in

that markets.

DEMAND FORECASTING FOR SHOPPERS STOP

After studying retailing in microscopic view we studied Shoppers Stop for

the purpose of Demand Forecasting. The figures for the last 10 years were

made available to us by an employee of this retail chain. And on the basis of

these we have prepared a Demand Forecast for the same for the year 2002.

Demand Forecasting will help Shoppers Stop in the following ways:

1. Helps in making decisions regarding long term financing

2. Inventory control

3. Arrange appropriate promotional efforts

4. Fixing the right price

5. Prepare Manpower requirements

These are some of the few requirements of demand forecasting.

Thus by forecasting Shoppers Stop can exactly determine the nature and

trend of goods demanded and personnel required to sell the same etc. this

will yield good returns and also cut costs in the long run.

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Future of Retailing : E-Tailing

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The retailing community has accepted and realised the fact that the

consumers want to choose between the variety of brand and value for money

is their topmost priority. The big retailers have to deliver a consistent

branded experience. Crossroads in Mumbai is an endeavour to achieve the

same, though its target segments the upper and upper middle class.

Technology has made a difference in retailing also. E-tailing (through

internet) is considered to be eroding the store retailing slowly. Is it the real

picture? With the concept of B2C (Business to Consumer Transactions over

internet) coming up at a fast pace, an intimate two-way access is emerging

between the retailer and the customers. Customised products are offered to

the customers. For instance while one buys a book through Amazon.com, a

synopsis of the book, its reviews, its prominent readers and other books of

the same author are some of the information provided to the customers.

Within minutes of placing an order, one gets a confirmation thus saving time

and satisfying the customer. The penetration level of the internet is

increasing at a pace that the reach would be equivalent to what television

took about 40 years and that cable about 15 years .

In online services and the web, the retailers seek out the customers unlike

the traditional model where the customer goes to the store and locates the

product. The busy life-style of the consumers in this hectic era, tilts the

preference needle towards the online retail model. However, B2C success

depends on the behavioural and attitudinal changes in customers. First, the

customers have to be familiar with Internet and have to be informed about

buying on the net. Then, the customers have to build the mentality to trust

the e-sellers and be convinced on the products quality. The KSA customer

2000 study showed that only 1% have ever used net shopping though 40%

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are aware of it. But 10% of the representatives do not trust the quality in net

shopping. This shows e-tailing (stand alone) has a long way to go in India.

The major advantage of the retailers in India is that, most of the products

operate on the push factor than pull factor. In order to popularise their

products the manufacturers have to attract the customers to feel the products,

physical existence and this is enabled by the retailers. 

Instead of viewing e-commerce as a threat for retailing the big retailers can

embrace technology and provide value added and personalised services to

the customers. In the recent times, companies like ARCHIES have used

technology to their advertisement and increased their sales. By promoting,

Fathers day, mothers, sisters, friendship, valentines, and even egg and Love

at first sight days, Archies has been successful in pulling crowd in their

galleries all over India.

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The big retailers can learn the lesson from Archies. A recent KSA

Technopark survey findings showed that Apparels and Consumer durables

occupy the top slot in priority for shopping in India. Apparels and Consumer

durables and for that matter even footwear are those products which gives

satisfaction when you feel it. How can the big retailers use technology in

this? Technology is so flexible that it can coexist with business anywhere.

The big retailers have to have their websites to combat the competition from

e-tailing. For instance for clothing, the big retailers can show the variety and

design offered by them through the net. A virtual experience can be provided

and the customer can have n option whether to visit the shop or shop from

home. If the virtual round through the shop is irresistible, the customer will

definitely come to the shop for an experience at least. Thus, in this era of

Information Technology store and retailers have to become technology

savvy to satisfy customer preferences. The consumer mercantile activities

grouped into three phases, pre-purchase preparation, purchase

consummation and post-purchase interaction have to be properly

incorporated with technology.

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