RETAIL DOMAIN STUDYThis report is submitted as part of Domain
Study at PGPM Class of 2009, under the guidance of Dr. Pallavi
Mody, S P Jain Institute of Management & Research, Mumbai.
By Sameer Dhamangaonkar PGPM508_07 Sivaram Gunavel PGPM508_12
Mihir Jana PGPM508_14 Chetan Mahindra PGPM508_23 Prashant Malviya
PGPM508_59
Retail Domain Study
EXECUTIVE SUMMARYIndia's retail market has experienced enormous
growth over the past decade. Retail is one of India's largest
industries, contributing to about 10 per cent of the GDP and
providing employment to 8 per cent of the nation's workforce.
India's retail sector revenues are estimated to touch US$ 460.6
billion and the organized retail sector is projected to grow to US$
43.8 billion by 2010-11. Organized retail penetration is on the
rise and offers an attractive proposition for entry of new players
both domestic and foreign, as well as scope for expansion for
existing players. With a number of domestic and international
brands available in stores, metros and smaller cities in addition
to a wide range of product offerings from food and grocery to
furniture and fixtures, the Indian consumer is fast embracing
modern retail. The report starts with the global outlook of retail
industry, its functions and formats. Evolution of retail in India
as this gives a brief perspective of the trends in the Indian
retail market. The Government is progressively undertaking reforms
and liberalizing the retail sector; thereby attracting significant
foreign investments. The policy and regulations along with rural
retail opportunities are also discussed. Future of retail along
with new business trends and information technology trends and
discussed in detail. IT in retail is described in depth,
considering business intelligence, SCM, CRM applications and new
concepts like e-tailing, Global Data Synchronization, Planograms
etc. The changing business scenario of organized retail is
presented with case studies on Pantaloon and Wal-Mart. The growing
disposable incomes, the consuming class and the increasing standard
of living translate to opportunities across all the retailing
formats and verticals. The new shopping experience, retailers new
face, changing customer preferences are fast catching up in India,
with increase in internet connections, increased use of plastic
money and large base of young population that spends a considerable
time online. Future perspective on Indian Retail is presented to
conclude.
Page i
Retail Domain Study
TABLE
OF
CONTENTS
Overview of Retail Industry
.....................................................................................................
1 Global Retail Industry
..........................................................................................................
3 Market Value Forecast
..........................................................................................................
4 Types of Retailers in the Retail Industry
.............................................................................
5 Retail Market Segmentation
.................................................................................................
6 Major Players
................................................................................................................
6 Retail
Opportunities..............................................................................................................
7 Retail Formats
..............................................................................................................................
9 Retail
Functions.........................................................................................................................
13 Demand Forecasting
...........................................................................................................
15
Procurement.........................................................................................................................
17 Logistics and Warehousing
.................................................................................................
18 Category Management
........................................................................................................
20 Pricing
.................................................................................................................................
21 Pricing Strategy for
Retailers.....................................................................................
21 Promotions
...........................................................................................................................
22 Retail Market in India
..............................................................................................................
24 Growth Across Segments
....................................................................................................
26 Future Outlook
....................................................................................................................
26 Advantage India
..................................................................................................................
27 Policy and Regulatory Framework
.....................................................................................
28 Market Entry Strategies For Foreign Retailers in India
.................................................. 29 Risks and
Challenges
................................................................................................................
31 Living in Uncertain Times
.................................................................................................
32 Impact on Indian Economy
.....................................................................................................
40 Future of Retail
..........................................................................................................................
45
Page ii
Retail Domain Study
Retail Market Dynamics
.....................................................................................................
46 Future Retail Industry Scenario A World of Extremes
.................................................. 46 IT in Retail
..................................................................................................................................
49 Business Intelligence and Retailing
...................................................................................
50 Customer Relationship Management
.................................................................................
51 Supply Chain Management and Procurement
..................................................................
53 Alternate Sales Channel
.....................................................................................................
53 Finance and Asset
Management.........................................................................................
54
Planograms..........................................................................................................................
55
E-Tailing..............................................................................................................................
57 Global Data Synchronization
.............................................................................................
58 Software Packages in Retail
...............................................................................................
59 Key Retail Priorities
............................................................................................................
60 Retail Trends to Watch
.............................................................................................................
63 Trends in Indian Retail Industry
.......................................................................................
66 Retail Company Overview
.......................................................................................................
71 Pantaloon
Retail..................................................................................................................
72 Wall-Mart
............................................................................................................................
77 Conclusion
...........................................................................................................................
80 References
............................................................................................................................
81
Page iii
Retail Domain Study
LIST
OF
TABLES
Table 1 Global Retail Industry Group Value
...........................................................................
3 Table 2 Global Retail Industry Group Value
Forecast..........................................................
4 Table 3 Global Top 10 Retailers
..................................................................................................
6 Table 4 Economically Attractive Countries
.............................................................................
8
LIST
OF
FIGURES
Figure 1 Retail Processes
.............................................................................................................
2 Figure 2 Global Retail Industry Group Value
.........................................................................
3 Figure 3 Global Retail Industry Group Value Forecast
....................................................... 4 Figure 4
Global Retailing Industry Group
Segmentation.................................................... 5
Figure 5 Global Retail Market Segment
...................................................................................
6 Figure 7 Window of Opportunity Analysis
...............................................................................
7 Figure 8 Top Emerging Market by Volume (May 08 - Nov
08)............................................. 8 Figure 9 Top
Five Emerging Market by Value in $m (May 08 - Nov 08)
........................... 8 Figure 11 Organised Retail Mix
................................................................................................
12 Figure 19 Retail Merchandise and Information Flow
......................................................... 14 Figure
12 Important Retail Functions
....................................................................................
15 Figure 14 Procurement - Leaders and Followers
.................................................................
17 Figure 15 Elements of Logistics Cost
......................................................................................
18 Figure 15 Important Process Flow
...........................................................................................
19 Figure 16 Retail Supply Chain
..................................................................................................
19 Figure 17 Category Management
.............................................................................................
20 Figure 18 Point of Sale Operations
..........................................................................................
23 Figure 20 Indian Retail
Growth................................................................................................
25 Figure 21 Share of Verticals
......................................................................................................
26 Figure 22 Future Growth
...........................................................................................................
27 Figure 10 Critical Success Factors for Global Retailers in
Emerging Markets ........... 29 Figure 23 Moving ahead towards
Customer Centric Model
.............................................. 47 Figure 24 A
Photographic Planogram for Apparels
............................................................ 55
Figure 25 PHOTOGRAPHIC PLANOGRAMS FOR FMCG PRODUCTS
.......................... 56 Figure 26 Spending Shifts Across
Retail Channels
.............................................................
61
Page iv
Retail Domain Study
Overview of Retail Industry
Page 1
Retail Domain Study
The retail industry is a sector of the economy that is comprised
of individuals and companies engaged in the selling of finished
products to end users in the general public. Retail is the sale of
goods to end users, not for resale, but for use and consumption by
the purchaser. The retail transaction is at the end of the supply
chain. Manufacturers sell large quantities of products to
retailers, and retailers sell small quantities of those products to
consumers.
F IGURE 1 R ETAIL P ROCESSES
The global retailing industry group generated total revenues of
$11,326.8 billion in 2008, representing a compound annual growth
rate (CAGR) of 4.1% for the period spanning 2004-2008. The
specialty retail sector proved the most lucrative for the global
retailing industry group in 2008, generating total revenues of
$9,066.7 billion, equivalent to 80.1% of the industry group's
overall value. The performance of the industry group is forecast to
accelerate slightly, with an anticipated CAGR of 4.8% for the
five-year period 2008-2013.
Page 2
Retail Domain Study
$ billion
Year 2004 2005 2006 2007 2008
$ billion 9646.1 10199.5 10794.2 11395 11326.8
% growth 5.70% 5.80% 5.60% -0.60%12000 11500 11000 10500 10000
9500 9000 8500
$ billion
% Growth 0.08 0.06 0.04 0.02 0 -0.02 % Growth
T ABLE 1 G LOBAL R ETAIL I NDUSTRY G ROUP V ALUE
2004 2005 2006 2007 2008 YearF IGURE 2 G LOBAL R ETAIL I NDUSTRY
G ROUP V ALUE
G LOBAL R ETAIL I NDUSTRYThe following are some of the facts
about the global retail industry: Market Value The global retailing
industry group shrank by 0.6% in 2008 to reach a value of $11,326.8
billion. Market Value Forecast In 2013, the global retailing
industry group is forecast to have a value of $14,347.3 billion, an
increase of 26.7% since 2008. Market Segmentation I Specialty
retail sector dominates the global retailing industry group, with
80% of the industry group's value. Market Segmentation II Europe
accounts for 34% of the global retailing industry group's
value.
Page 3
Retail Domain Study
M ARKET V ALUE F ORECASTIn 2013, the global retailing industry
group is forecast to have a value of $14,347.3 billion, an increase
of 26.7% since 2008. The compound annual growth rate of the
industry group in the period 2008-2013 is predicted to be 4.8%.
Year 2008 2009 2010 2011 2012 2013
$ billion 11326.8 11708.6 12284.6 12944.4 13648 14347.3T ABLE 2
G LOBAL R ETAIL I NDUSTRY G ROUP V ALUE F ORECAST
% Growth -0.60% 3.40% 4.90% 5.40% 5.40% 5.10%
$ billion 16000 14000 $ billion 12000 10000 8000 6000 4000 2008
2009 2010 Year
% Growth 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% 2011
2012 2013
% Growth
F IGURE 3 G LOBAL R ETAIL I NDUSTRY G ROUP V ALUE F ORECAST
Page 4
Retail Domain Study
T YPES
OF
R ETAILERS
IN THE
R ETAIL I NDUSTRY
The global retailing industry group comprises of: Internet &
Catalog Retail It consists of the total revenue from sale of retail
goods online, mail order, television and catalog channels.
Specialty Retail It is made up of the apparel, computer and
electronics, home improvement, specialty stores, automotive and
home furnishing retail sectors Multiline Retail It covers revenues
generated through the sale of retail goods via department and
general merchandise stores. Broadly retailers can be divided into
two types in the industry: S T OR E R E T A I L E R S Those engaged
in the sale of products from physical locations which warehouse and
display merchandise with the intent of attracting customers to make
purchases on site. N O N - S T OR E R E T A I L E R S Those engaged
in the sale of products using marketing methods which do not
include a physical location. Examples of non-store retailing
include Infomercials Direct response television advertising
Catalogue Sales In-Home Demonstration Vending Machines E-Commerce
Multi level marketingMultiline Retail 14%
Speciality Retail 80%
Catalog and Internet Retail 6%
F IGURE 4 G LOBAL R ETAILING I NDUSTRY G ROUP S EGMENTATION
Page 5
Retail Domain Study
R ETAIL M ARKET S EGMENTATIONEurope accounts for 34% of the
global retailing industry group's value. In comparison, Americas
accounts for a further 32.6% of the industry group's revenue.
M A J OR P L A Y E R SMajor World Players are Wal-Mart,
Carrefour, Home Depot, Costco and Target.Rest of World 6.9%
Rank 1 2 3 4 5 6 7 8 9 10
Name of Company Wal-Mart Carrefour S.A The Home Depot Tesco
Metro AG The Kroger Co. Target Corp. Costco Wholesale Corp. Sears
Holding Corp. Schwarz Unternehmens
Asia Pacific 26.5%
North & South America 32.6%
Europe 34.0%
Country of Origin US France US UK Germany US US US US
Germany
Source: 2008 Global Power of Retailing (Deloitte)T ABLE 3 G
LOBAL T OP 10 R ETAILERS
F IGURE 5 G LOBAL R ETAIL M ARKET S EGMENT
Wal-Mart accounts for 4.4% of the global retailing industry
group's value. In comparison, Home Depot accounts for a further
0.7% of the industry group's revenue. The global specialty retail
industry remains fragmented despite the presence of large players
such as: Wal-Mart, Home Depot, Best Buy or Costco. Market players
include retailers in the apparel, computer and electronics, home
improvement, specialty stores, automotive and home furnishing
retail segments.
Page 6
Retail Domain Study
R ETAIL O PPORTUNITIES
F IGURE 6 W INDOW
OF
O PPORTUNITY A NALYSIS
Opening: A market that is just beginning its modern retail
story, in all major cities Peaking: A market that is developing
quickly and is ready for modern retail Declining: A market that is
still big and growing, but space for new entrants is getting
tighter Closing: A market having small window of opportunity for
new entrants; such markets generally have a very high penetration
of modern retail Key Asian economies, viz. India and Vietnam are in
the peaking phase. This means that the next 1-3 years are the best
time for foreign retailers to enter India and other countries in
peaking zone.
Page 7
Retail Domain Study
7.00, 11% 7.00, 11% 18.00, 28% China India Australia 8.00, 12%
Russian Federation Poland Turkey 10.00, 16% 14.00, 22%
F IGURE 7 T OP E MERGING M ARKET
BY
V OLUME (M AY 08 - N OV 08)
651.80, 9.12% 1147.10, 16.04% 2301.00, 32.18% Russian Federation
Republic of Korea Brazil Australia 1174.80, 16.43% 1874.90, 26.22%F
IGURE 8 T OP F IVE E MERGING M ARKETBY
China
V ALUE
IN
$ M (M AY 08 - N OV 08)
Market Risk by attractiveness country (25%) 2007 Country (25%) 1
India 67 42 2 Russia 62 52 3 China 75 46 4 Vietnam 57 34 5 Ukraine
41 43 Source: A T Kearney Global Retail Development 2007
Market saturation (30%) 80 53 46 76 44
Time factor (20%) 74 90 84 59 88
GRDI Indicator 92 89 86 74 69
T ABLE 4 E CONOMICALLY A TTRACTIVE C OUNTRIES
Page 8
Retail Domain Study
Retail Formats
Page 9
Retail Domain Study
Major retail formats are as follows: Department Stores A
department store represents a retail outlet that stocks a wide
variety of merchandise ranging from apparel, toiletries, cosmetics,
toys, and jewellery to appliances and furniture. Department stores
usually sell goods at fixed price with guarantees and allow
exchanges and refunds. They operate as a part of retail chains with
several outlets in different parts of the country or across several
countries. Supermarkets The supermarket format is one that is
departmentalized into self service stores and offers a range of
food and household articles. A typical supermarket is situated in a
convenient area preferably near residential localities. These
stores generally occupy a large area of space with parking lots. In
India, the stores mainly focus on the price proposition offering
products at lower prices to attract the customers. Hypermarkets The
hypermarket format represents a supermarket that has the features
of both a supermarket and a department store. Hypermarkets are
mainly located in the outskirts of major towns and cities. These
stores operate on a very large set-up with extensive parking lots.
Hypermarkets offer products ranging from fresh groceries to
clothes, jewellery, hardware, sports equipment, motor accessories,
books, consumer durables, electrical equipment and computers. A
hypermarket can be termed as a big discount store that stocks about
60 per cent food and 40 per cent non-food items. The hypermarket
formats are also termed as 'Godzillas' of retailing due to their
vast scale of operations. They usually have an extremely complex
supply chain offering value-for money to the price conscious
public.
Page 10
Retail Domain Study
Discount Stores A discount store format is also a type of
department store selling products at prices lower than that in
other retail outlets. The discount stores offer a wide assortment
of goods with quality assurance at competitive prices. They mostly
have large scale setups and purchase in bulk directly from the
manufacturers at deep discounts, and as such were able to pass on
the benefits to their customers. The discount store concept in
India is quite new. It has gained much popularity among the middle
class of Bangalore, Hyderabad, Mumbai and Kolkata. Some popular
discount stores are The Loot, My Dollar. Specialty Stores Specialty
stores are another retail format selling specific merchandise with
focus on a single category. These stores offer a large range of
selections within a single merchandise category. Prominent examples
of such stores in India include chains such as Planet M, Music
World and Crossword. Specialty stores mostly attract customers with
a predefined buying mindset that often lead to impulse sales too.
These stores have strong customer loyalty programmes. A recent
trend is specialty malls like Gurgaon's Gold Souk. Convenience
Stores Convenience stores are those stores that are open 24x7. They
stock most essential and fast moving consumer goods like food items
(both grocery and packaged foods), beauty and personal care
products and an array of products of day-to-day use. In India these
are mostly located at fuel retail stations. Some well known players
in this area are In&Out and My Mart. Kiosks and Food Court
Counters Kiosks are usually retail outlet structures, which are
open on all sides and mostly engage in selling consumer goods like
edibles and snacks, newspapers and magazines, etc. Now another new
dimension is getting added to the concept of kiosks. A number of
lifestyle products, fashion accessories stores and entertainment
kiosks are being added to the list. The concept of kiosks finds
relevance as an efficient medium of retail due to the space
constraints. Most of the kiosks are located in high streets, malls,
multiplexes, etc.
Page 11
Retail Domain Study
Source: Technopak Edelweiss Research
F IGURE 9 O RGANISED R ETAIL M IX
Page 12
Retail Domain Study
Retail Functions
Page 13
Retail Domain Study
The following illustration gives an overview of the retail
functions.
The following illustration depicts the flow of retail
merchandise and information.
F IGURE 10 R ETAIL M ERCHANDISE
AND
I NFORMATION F LOW
Page 14
Retail Domain Study
The various important retail functions are illustrated as
follows
F IGURE 11 I MPORTANT R ETAIL F UNCTIONS
D EMAND F ORECASTINGModern demand-forecasting systems provide
new opportunities to improve retail performance. Although the art
of the individual merchant may never be replaced, it can be
augmented by an efficient, objective and scientific approach to
forecasting demand. Large-scale systems are now capable of handling
the mass of retail transaction data organizing it, mining it and
projecting it into future customer behavior. This new approach to
demand forecasting in retail will contribute to the accuracy of
future plans, the satisfaction of future customers and the overall
efficiency and profitability of retail operations. Retailers face
several challenges when it comes to forecasting: Scale of the
problem (large number of stores and items to forecast) Intermittent
demand (slow and erratic sales for many items at the store
level)
Page 15
Retail Domain Study
Assortment instability (frequent new-item introductions and
seasonal assortment changes) Pricing and promotional activity
The following softwares are available for demand forecasting in
retail: SAS Demand Forecasting for Retail SAS Demand Forecasting
for Retail uses SAS' unique high-performance forecasting engine to
automatically diagnose, model, execute and reconcile forecasts
across multiple merchandise levels and locations. It allows
creation of forecast projects and manages forecasts with a built-in
forecast repository and versioning system. SAS Demand Forecasting
for Retail produces results at any level of the product and
location hierarchies down to the SKU/store level. Oracle Retail
Demand Forecasting for Retail Oracle Retail Demand Forecasting uses
time series forecasting algorithms and stateof-the-art modeling
techniques to create accurate forecasts with little human
intervention. The solution handles forecasting at a low level of
detail (such as at the item, by store, by day level), forecasting
for new products, and forecasting for products with sparse sales,
highlighting the anomalies for review. The various benefits
associated with using these softwares for demand forecasting are as
follows: Highly accurate forecasts It generates forecasts based on
underlying trend, seasonality promotions, inventory effects and
other known causal factors Faster implementation A retail-specific
data model and workflow that provide enhanced usability
Business-driven results By seamlessly integrating with existing
planning processes, it helps identify opportunities and improve
profitability Soft lines ready Includes models for fashion
forecasting, short lifecycle products and intermittent demand High
scalability Supports the entire organization down to the individual
store SKU level for all types of retailers Reduced workload
Automated exception-based forecast management reduces the need for
manual inputs and forecast updates.
Page 16
Retail Domain Study
P ROCUREMENTExcellence in procurement, both merchandise and
non-merchandise, can be key to improving both top-line and
bottom-line growth in the retail industry. As per the study done by
A.T. Kearney, they have seen that the leading companies in every
industry push their procurement function from a transaction-based
business necessity into a strategic weapon capable of delivering
significant competitive advantage. When approached strategically,
excellence in procurement is a key lever to create value and
competitive advantage for retailers. Now the question is, how are
these leaders doing it? How can they keep their advantage? What
must other retailers do to match their impressive performance in a
challenging industry? The study concludes that while revenue growth
understandably remains at the top of most retailers' agendas,
industry leaders also consider cost management a high priority.
They employ a balanced approach to procurement to ensure that
margins remain high and operating costs low to shield against the
very real possibility of suppressed top-line growth. Leaders in
procurement are also leaders in financial performers.
F IGURE 12 P ROCUREMENT - L EADERS
AND
F OLLOWERS
Page 17
Retail Domain Study
L OGISTICS
AND
W AREHOUSING
In the Retail Supply Chain, efficient logistics services help
organised retailers streamline their operational dynamics, achieve
business targets and attain higher levels of customer satisfaction
and profitability.
F IGURE 13 E LEMENTS
OF
L OGISTICS C OST
The warehousing is a crucial component of the Retail Logistics
value chain. Warehousing is typically used for stockpiling for
managing demand-supply gaps over a long period. In modern retail
set up, traditional warehouses are being replaced by Distribution
Centers (DC) which are accurately managed resulting in better
ordering and free flow of information and products in both
directions. Apart from storing the products, DCs carry out various
value added services which include MRP tagging, repackaging,
quality checking and bundling with promotion items. Special care
for perishable products, hazardous products and products that
require specific conditions for transportation and warehousing are
also key components of the value added services.
Page 18
Retail Domain Study
F IGURE 14 I MPORTANT P ROCESS F LOW
F IGURE 15 R ETAIL S UPPLY C HAIN
Page 19
Retail Domain Study
C ATEGORY M ANAGEMENTCategory Management lacks a single
definition thus leading to some ambiguity even among industry
professionals as to its exact function. Three comparative
mainstream definitions are as follows: Category Management is a
process that involves managing product categories as business units
and customizing them (on a store by store basis) to satisfy
customer needs (Nielsen) The strategic management of product groups
through trade partnerships which aims to maximize sales and profit
by satisfying consumer and shopper needs (Institute of Grocery
Distribution) Marketing strategy in which a full line of products
(instead of the individual products or brands) is managed as a
strategic business unit (SBU) (Business Dictionary)
Basically Category Management is a retailing concept in which
the total range of products sold by a retailer is broken down into
discrete groups of similar or related products; these groups are
known as product categories. Examples of grocery categories may be
tinned fish, washing detergent, toothpastes, etc. Each category is
then run like a "mini business" (Business Unit) in its own right,
with its own set of turnover and/or profitability targets and
strategies. An important facet of Category Management is the shift
in relationship between retailer and supplier: instead of the
traditional adversarial relationship, the relationship moves to one
of collaboration, exchange of information and data and joint
business building.
F IGURE 16 C ATEGORY M ANAGEMENT
Page 20
Retail Domain Study
Category Management is a philosophy for strategically managing a
retailers or suppliers business that recognizes categories as
strategic business units for the purpose of planning and achieving
sales and profit goals. Inherent in this philosophy is the belief
that simply managing at the department level does not provide
adequate strategic focus. The process of category management
implies a change in the way in which suppliers are viewed. The
implication of category management relies on collaborative and
cooperative supply partnerships. Category Management requires a
focus on team organization that spans both suppliers and retailers
organizational boundaries. The reasons for emergence of category
management are: Consumer changes Competitive pressures Economy and
efficiency considerations Advances in Information technology
P RICINGSetting the right price is the key for any retailer. The
right price, on right product, on right time in right market can
boost the sales and profits of any retailer. Therefore sound
pricing strategies are important for a successful retail business.
From consumers perspective, price is always a consideration as on
important feature of the entire offer in the purchase decision of a
particular product. Retailers should understand the characteristics
of the people who shop at their stores, reasons for why they shop
at their stores and the degree of consistency between the price
perception of consumers and the stores price philosophy.
P R I C I N G S T R A T E GY
FOR
R ET AIL ER S
Different types of pricing strategies are adopted by different
retailers based on product, store format and timing in market. Some
of the key pricing strategies are: Market skimming: The products
are priced high initially; then gradually the retailer brings down
the prices. Such type of pricing is effective for goods which have
a relatively inelastic demand
Page 21
Retail Domain Study
Market Penetration: The products are priced low; this is just
the opposite of market skimming. This is suitable for products
which have a high elasticity of demand Price Bundling: Retailers
bundle 2-3 products together. This is useful for those products
which have a high tendency of selling together Leader Pricing: In
this type of pricing strategy deep discounts are offered on a few
items. For example the retailer sells eggs at a cheaper rate, so
when a customer purchases the groceries along with that he/she is
induced to purchase eggs. Every Day Low Pricing (EDLP): In EDLP the
retailer sells the goods at relatively low prices at all times. The
price offered may not be lowest but remains more or less same
throughout the year. For EDLP to work for any retailer volumes are
a must. EDLP is most famously practiced by Wal-Mart. Odd Pricing:
In this type of pricing the products are priced at odd prices like
199, 299, 399 etc. The main idea behind this type of pricing is to
create a physiological advantage. The consumers feel the prices are
cheap and this induces more purchases. Single Pricing: In this type
of pricing all the goods are priced at the same rate. The Dollar
Store is the classic example of this type of pricing.
P ROMOTIONSRetail Promotions is broadly classified as all the
communication that informs, persuades and/or reminds the target
market or the perspective segment about the marketing mix of the
retail form. The retailers seek to communicate with customers to
achieve a number of objectives. These objectives include increasing
store traffic by encouraging new shoppers to visit the store,
increasing share of wallet for all shoppers or specific group among
them, increasing sale of a given category, and developing the store
image or the retail brand. The retailers communicate with customers
through many vehicles: advertising, sales, promotions, publicity
and personal selling.
Page 22
Retail Domain Study
F IGURE 17 P OINT
OF
S ALE O PERATIONS
Page 23
Retail Domain Study
Retail Market in India
Page 24
Retail Domain Study
The Indian retail market is the fifth-largest retail destination
globally. It is estimated to grow from the US$ 330 billion in 2007
to US$ 427 billion by 2010 and US$ 637 billion by 2015. Retail
contributes to 10 per cent of Indias Gross Domestic Product and
provides employment to 8 per cent of Indias working population.
Higher disposable incomes, easy availability of credit and high
exposure to media and brands has considerably increased the average
propensity to consume over the years. Global Retail Development
Index - GRDI India ranked first for the third consecutive year on
the Global Retail Development Index 2007, conducted by AT Kearney
across 30 emerging economies. India is ranked as the most preferred
retail destination for international investors. Global Consumer
Confidence Index - GCCI India ranked first for the fifth time on
the Global Consumer Confidence Index June 2007, conducted by The
Nielsen Company. Indians were judged as the worlds most optimistic
consumers, with high financial confidence about their income for
the next 12 months. Indian retail showed a growth rate of 49.73 per
cent with a turnover of US$ 25.44 billion in 2007-2008 as against
US$ 16.99 billion in 2006-2007. Organized retail segment is
expected to grow from five per cent to about 14 to 18 per cent by
2015.
F IGURE 18 I NDIAN R ETAIL G ROWTH
Page 25
Retail Domain Study
G ROWTH A CROSS S EGMENTSIn India, the food and beverages
segment accounts for the largest share over 74 per cent of the
total retail pie. Traditional retail dominates food, grocery and
allied products sector, with grocery and staples largely sourced
from the Kiranas and push-cart vendors. The apparel and consumer
durables verticals are the fastest growing verticals.
F IGURE 19 S HARE
OF
V ERTICALS
F UTURE O UTLOOK Retail sector revenues pegged at US$ 460.6
billion by 2010-11 Organized retail projected to grow to US$ 43.8
billion Modern retail is expected to adapt and imbibe from the
traditional formats Unorganized formats converging from organized
formats, in the form of mushrooming village malls
Page 26
Retail Domain Study
F IGURE 20 F UTURE G ROWTH
A DVANTAG E I NDIAFastest Growing Economy GDP growth rate of 9.4
per cent posted in 2006-07 is highest ever in last 18 years. With
the first quarter growth rate for 2007-08 estimated at 9.3 per
cent, the economy is well poised to continue its growth story.
Young India Two-thirds of Indias population is under 35 years age
and more than 60 per cent of the population will be in the working
age group (15-60) till year 2050. Potential Untapped Market Indian
Retailing giant, Pantaloon Retail India Limited, captures a mere
0.3 per cent of total market in India, compared to Tesco Plc,
Englands 14.3 per cent and Wal-mart USAs 20 per cent, signaling out
the large untapped potential
Page 27
Retail Domain Study
Abundant Availability of Skilled Labour Over 37 million students
were enrolled in about 150,000 pre-college institutes and over 11.7
million in 14,000 higher education institutions in 2005-06 and
focussed courses on retail management
P OLICY
AND
R EG ULATORY F RAMEWORK
FDI up to 100 per cent is allowed under the automatic route for
cash and carry wholesale trading and export trading and FDI up to
51 per cent is allowed, with prior government approval for retail
trade in Single Brand products.
Value added tax (VAT) has been introduced and implemented in
most states and union territories, and across most industry
verticals (except a few like textiles) to resolve the multiple
taxation issues and maintain uniform prices across the countries.
Octroi has been abolished in many states to further trade in the
retail sector. The government is working towards reducing
impediments by introducing a singlewindow clearance mechanism. This
would reduce the entry and establishment timelines for new players
in the market and facilitate timely and hassle free approvals. The
government is releasing large tracts of undeveloped land for retail
development in the Mumbai and National Capital Region (NCR).
Page 28
Retail Domain Study
The Agricultural Produce Marketing Committee Act (APMC), which
curtails direct sourcing of agricultural produce (grocery, food
grains, etc), is proposed to be amended soon, with a Draft Model
Act being legislated by the government. The new act promotes direct
marketing to corporate by farmers, setting up of farmers/consumers
market and contract farming.
M ARKET E NTRY S TRATEGIES F OR F OREIGN R ETAILERS I NDIA
IN
Positioning: There are two successful positioning planks for
retailers in India (1) Value retailing and (2) Specialty retailing.
Experience and research suggests that the strongest proposition for
the Indian consumer is value for money. Value retailing implies
pricing to be lower than existing retail options for the consumer
i.e. local kirana stores for households, wholesalers for small
retailers, etc. A value retailer must have anchor categories that
sell at significantly lower price than competitive formats. For
value retailing format to succeed, the most critical factors are an
efficient supply chain model, leadership in sourcing and efficient
store operations. While value retailing appeals to multi Page
29
F IGURE 21 C RITICAL S UCCESS F ACTORS R ETAILERS IN E MERGING M
ARKETS
FOR
G LOBAL
Retail Domain Study
category consumers, single-category consumers would be attracted
to specialty retailers. Such retailers would have the largest
product range within a category, offer the best deals and have the
most educated sales staff on specialty categories like electronics,
apparel, medicine, etc. The success of specialty retailing is also
based on the ability to offer a customer a differentiated shopping
experience, an experience that is far superior to a multi-category
large format store. The most successful retail format in India for
some time to come will be the kirana store concept. Indianized
store format will work the best for global retailers. The GRDI
study has shown that the adapted retail format concept is the key
success factor for most retailers in emerging markets. While the
format can be anything from a neighborhood store to a hypermarket,
it is best decided by a bottoms-up analysis of the infrastructure,
consumer and geographic realities of the location.
Page 30
Retail Domain Study
Risks and Challenges
Page 31
Retail Domain Study
There is no doubt that the organised retail industry is on a
high growth trajectory. Favourable demographics, steady economic
growth (improving prosperity), higher disposable incomes, and easy
availability of credit are providing the necessary impetus to the
growth of modern retailing formats. However, there are several
challenges that continue to stifle this growth. There is agreement
among most players in the industry that the growth of organised
retailing can be faster than projected 35%, if some of these issues
are addressed proactively.
L IVING
IN
U NCERTAIN T IMES
In the past few years, Indias retail journey seemed picture
perfect with the most attractive stops still unexploited and
under-penetrated. This was the scenario till a few months ago.
Enter the global meltdown and India did not find itself completely
insulated from its harsh effects. As per the Cartesian survey,
almost all key industries in India have been negatively impacted by
the slowdown and retail is no exception. With the Q3 growth numbers
of FY2008-09 at 10-12 percent as against 35 percent of the previous
year, the happy grins are fast turning into nervous smiles. While
the sector is still registering decent growth, the heavy
investments made during the boom period may weigh the retailers
down. Disappointing Footfalls Although retailers are trying their
best to combat this slowdown through constant promotional offers
and deep discounts, consumers are expected to cut down on their
discretionary spending. With the global recession having no clear
end in sight, consumers see sense in saving for a rainy day.
Liquidity under pressure The slowing sales are resulting in lower
inventory turnover and increasing working capital requirements for
retailers. This in turn has resulted in liquidity pressures for
many retailers. To free the cash that has been locked, a large
number of companies have been trying to reduce the inventory on
their books and shorten working capital cycles.
Page 32
Retail Domain Study
Roll out delays to compound problems The organized retail space
was expected to receive investments to the tune of USD 25 billion
over the next 4-5 years5. However a significant delay in retail
real estate development and opposition to organized retail has
resulted in delays in investment. A large number of retailers have
not been able to meet their stated expansion plans. Currently, with
higher cost of funds and a slowdown in demand, developers are
likely to delay more projects in the near future.
Page 33
Retail Domain Study
Real estate Availability and high rental costs The real estate
costs for the Indian organised retailers are 8-20% of sales
compared to 3-4% for the retailers in other countries. This
adversely affects the economics of organised retailers, especially
the relatively smaller retailers. This is a result of a combination
of several factors including the following: Most Indian cities
suffer from poor city planning that has not provided for enough
commercial space, resulting in high speculative real estate prices.
The stamp duty rates in India (5-14%) are among the highest in the
world. For example, stamp duty rates in the UK range from 0-4%.
Archaic laws like the Urban Land Control Ceiling and Regulation Act
and the Rent Control Act complicate the usage of land and reduce
transparency in transactions. Over the last year, rentals in the
key catchment areas have increased 80-100% due to the mismatch
between supply and demand for real estate; overall, rentals have
increased ~40-50%. The last budget has proposed levying 12% service
tax on rental payments, which is likely to adversely affect the
retailers who are already battling escalating rentals. This
proposal is being disputed and the hearing on the same is expected
soon.
Crowding in unattractive locations Another reason for slow
growth in organized retail is poor choice of locations. Clustering
is a common theme in retail in India and retail malls appear
wherever real estate is available rather than where they are
actually needed. This has resulted in attractive city centers being
devoid of malls and newly developed areas having too many.
Page 34
Retail Domain Study
Inability to compete with traditional retail Organized retailers
have not been successful to provide services that match those of
kirana stores. The true reason of their troubles is that the
business capacity of the kirana shop owners and buyers is high in
India. Mom and Pop stores already have a model that is preferred by
consumers and is also cost efficient. The big stores are still
trying to get their model right in providing an alternative to
neighborhood retailers who offer convenience, credit and
personalized service. Over reliance on debt funding The rapid
expansion in retail space in recent years was largely debt funded.
This has resulted in substantial leverage, which has added to
retailers financing risks in the recent scenario. The declining
interest coverage clearly indicated that a large number of
retailers are highly leveraged and are battling high interest
payments. Whatever be the reason, we believe that players who take
immediate strategic measures are likely to be the dark horses. Be
it store rationalization, change of supply chain, consolidation of
operations, improvement in IT infrastructure, retailers need to
think quick to protect their margins and toughen up for more
challenging times.
Improperly developed malls Several industry players who attended
the National Retail Summit were of the view that quite a large
percentage of malls, already developed or under construction, are
not designed keeping in mind the requirements of modern retail
formats. Quite a few of the malls are developed with the idea of
selling off the retail space, rather than managing it on a
long-term basis. In most cases, the space is sold to the highest
bidder without paying much heed to the mix of retailers who will
occupy the mall. As a result, there is a fair possibility that such
malls may not become destinations of
Page 35
Retail Domain Study
choice because of poor retailer mix. With the passage of time,
there is a good chance that the customer tastes and preferences
also change. However, since the ownership of retail space in such
malls is with several parties, changing the retailer mix to suit
customers requirements becomes a difficult task. As a result, such
malls can fall out of favour with the customers. In several
developed markets, the developer leases the mall space on long-term
contracts rather than selling the space upfront. At regular
intervals, the developer reviews the tenancy mix to weed out
retailers that are not able to attract good footfalls. This helps
the long-term sustainability of the mall. The scenario, as
discussed above, is however quite different in India with the
concept of mall management not having caught up. Most of the mall
developers do not follow a scientific method of selecting the
retailer mix before the construction begins. As a result, the level
of utilities available in such malls may be far lower than what is
required by the traffic generated by the retailers in these malls,
resulting in severe pressure on the mall infrastructure. On the
basis of the above-mentioned factors, several industry observers
are of the view that quite a few of the malls being developed will
come up for redevelopment in 5-6 years, as they may not be able to
keep up with the changing consumer tastes and preferences.
Underdeveloped supply chain Efficiencies in supply chain will
determine which retailers will succeed in the long term; in view of
this, it looks like that the bigger companies that have more
financial muscle to make significant investments will have a
distinct competitive edge. The supply chain infrastructure in India
is however still quite underdeveloped. There has been a lack of any
meaningful investments by the existing retailers in developing
robust and scalable supply chain. Retailers of food and groceries
have not yet invested enough in setting up a cold chain system;
hence, there is enormous wastage. Moreover, there is a very low
level of automation in the supply chain and point of sale systems.
There is little real-time link between suppliers, warehouses, Page
36
Retail Domain Study
and retail stores. This results in cost inefficiencies in the
system, leading to increased delays and shortages. The other reason
for underdeveloped supply chain is the inconsistency in tax regime
among states. Non-uniform VAT regime, multiple points of taxation,
and taxes like octroi, and entry tax in some states prevent
development of optimal supply chain models, acting as deterrents
for organised retailing. Underdeveloped supply chains, lack of
strong cold chains, poor warehousing facilities, bad roads, etc.
have been contributing to increased logistic costs for the
retailers. Globally, the logistics cost component to the total
retail price is around 5 percent, while in India it is as high as
10 percent. Absence of a mature Third Party Logistics (3PL)
industry Poor infrastructure (roads, communication and power) makes
logistics and transportation in India extremely difficult. Further,
internal operations of retailers, such as warehouse processes and
distribution, are usually fairly ad hoc and inefficient. Retailers
are keen to outsource their logistics to 3PL. But there is an
absence of a mature 3PL player providing high service levels at
competitive prices. Fragmented supply base The supply base is
highly fragmented with a large number of intermediaries squeezing
the margins of all involved, which also includes the retailer. This
not only has an adverse affect on the margins but also results in
cases of mishandling, theft and increased instances of shrinkage.
Reliable and Integrated infrastructure Large retail franchises
depend on reliable and integrated infrastructure.
Telecommunications modernization has been a success story in India.
The other critical sectors, notably roads, ports, air cargo
facilities, and electric power, are seeing increased investment but
are still well below international standards.
Page 37
Retail Domain Study
Policy and taxation hurdles India suffers from several policy
and taxation hurdles. If these issues are addressed effectively,
modern retailing could grow significantly. The government has still
not granted industry status to retail. This makes financing from
banks difficult, resulting in high interest rates, which ultimately
pushes up capital costs. Approximately 37-45 licenses are required
to start a retail operation. This causes considerable delay in
starting a new store operation. Inconsistent agriculture and
fertilizer subsidies by states lead to price anomalies and
variation for the same product, thereby leading to supply chain
inefficiencies. The government has only allowed 51% FDI in retail
and that too in single brand retail. Further, talks to bring in FDI
in multi-brand retail have met with severe opposition. These
factors have restricted the entry of foreign retailers into the
country, who could have otherwise significantly contributed in
improving the supply chain and level of technology usage in the
sector. Inadequate human resources The retail industry is manpower
intensive. Countries with high penetration of modern retail employ
10-12% of their workforce in retailing. Given Indias large working
population, the issue is not shortage of manpower, but competency
gaps that exist because of absence of vocational training
facilities for the organised retail sector. Most industry players
feel that there is a significant shortfall of resources trained in
retail specific skills sets, including supply chain management,
merchandising, vendor management, facilities management, customer
relations, and branding. This has resulted in high attrition rates
and rising people expenses, hindering aggressive ramp-up of most
retailers.
Page 38
Retail Domain Study
Protests against organised retailers In the past few months,
there have been protests in Uttar Pradesh, and the communist-ruled
Kerala and West Bengal, including violent demonstrations last
September that forced Reliance Fresh, the food stores arm of
Reliance Retail, to shut their shops and lay off staff. Thousands
of traders, hawkers, farmers, and workers are protesting against
the entry of large domestic corporations like Reliance, Spencers,
and foreign players like Wal-Mart into the retailing space. These
protests are on the back of the belief that the entry of the
corporations into the retail sector will negatively impact the
livelihood of the intermediaries and the traders, who form a large
share of the society currently. These protestors are demanding a
national policy that is agreeable to all the stakeholders including
small traders, shopkeepers, wholesalers, and vendors be put in
place, since retail is the second-largest employer in the country
and the livelihoods of 40 mn people are likely to be affected if
the entry of big players is allowed at such an alarming pace. On
the back of these protests, the government has deferred the
proposal to allow FDI in multi-brand retail till a study is made to
ascertain the impact on traditional retailers by the growth of
organised retail. In case of any adverse decision on this front,
the growth plans of organised retailers will be severely hampered.
The impact will be pronounced in the food and grocery space, as
most of the players are targeting this segment. In India, unlike in
the industrialized countries, labor is typically not the critical
cost factor in establishing a business, and this may make a
business model based on replacing labor with technology
vulnerable.
Page 39
Retail Domain Study
Impact on Indian Economy
Page 40
Retail Domain Study
The lure of Indias retail sector lies not only in its size, but
also in its vast potential. The retail sector is expected to grow
by 25 percent annually and hit the 400-billiondollar mark within
the next few years. Retail growth in China is expected to be just
over half the rate in India, making India the next frontier in
retail expansion. The retail sector accounts for 7 percent of
employment and 10 percent of the countrys GDP. Despite its size, it
is still dwarfed by Chinas retail sector, which may be as much as
two-times larger than Indias. Additionally, only 3 percent of
Indian retail is organized. The other 97 percent consists of small
shopkeepers and hawkers running mom-and pop stores. This
unorganized portion accounts for much of Indias large informal
economy. Today, organized retail operations, chain stores, and
international investment are starting to move in, leading at least
part of the retail sector to dramatically increase its scale of
operations and integrate itself more closely into the international
economy. This move will produce significant gains for the economy,
potentially reducing farm-to-market losses of agricultural
products, encouraging infrastructure improvement, and driving the
training of the middle segments of the labor force. It will also
produce losers, notably those of Indias 50- plus million small
shopkeepers and hawkers who will be displaced by the modernized
retail sector. More fundamentally, the growth of the retail sector
will create new dynamics and relationships in the Indian economy
and between the Indian and global economies. FDI Regulation As the
retail sector continues to grow, the government is starting to
liberalize its protectionist policies. Foreign investors have long
been limited to entering the Indian market through franchising,
licensing, or wholesaling. Using these methods, Nike, Adidas, and
Benetton have already become common names in India. As apart of
Indias ongoing economic reforms, foreign retailers are allowed to
own 51 percent of single-brand outlets. Thus far, however, the
worlds largest retailers have had mainly wholesale operations in
India. The German firm Metro and Shoprite from South Africa have
opened wholesale operations. Wal-Mart has also signed a joint Page
41
Retail Domain Study
venture with Bharti, under which it will provide the
supply-chain and cash-andcarry type of wholesaling for a new wave
of Bharti retail stores. They have recently opened their first
cash-and-carry joint venture store in Amritsar on an investment of
$7 million, and they plan to open at least 15 outlets across the
country in the next three years. The stores will be run under the
brand name of Best Price Modern Wholesale. Unemployment Concern The
concern about allowing these major operators to move into retail
stems mainly from the concern that large-scale liberalization will
adversely affect the large, unorganized retail sector. In a country
like India that is struggling to find sufficient employment for its
ever-expanding workforce, a retail model that relies on replacing
low-skilled labor with technology inspires understandable
skepticism. Moreover, the contrast in modernity between Indias
urban and rural areas will become that much more visible. As a
result, any move to bring in foreign investment in retail will be
controversial and emotional. Modernization and new Job
opportunities The combined effort of foreign retailers and local
firms to gain their piece of the retail pie will bring some
disruption to the existing small-scale retail sector, including an
estimated 12 million small shopkeepers and 40 million hawkers as
well as their families. The large operators, especially the foreign
ones, have been looking at ways to mitigate this impact. Wal-Mart,
in anticipation of entering the retail market directly, has
outlined a plan to help compensate local retailers who might be
displaced through a three-month retraining program to convert
small-shop owners into sales workers. Modernization will also
create demand for jobs staffing warehouses, supply centers, and
transportation routes. Such plans will not eliminate the
controversy surrounding foreign investment in retail. Wal-Marts
Page 42
Retail Domain Study
reputation in the United States as a hard-nosed employer bent on
minimizing employee benefits will certainly influence the political
response to any decision to liberalize the retail sector. Expansion
of manufacturing sector Currently, Wal-Mart sources between 70 and
90 percent of its goods worldwide from China, providing a
considerable boost to the Chinese manufacturing sector. In a recent
interview, Raj Jain, president of Wal-Mart operations in emerging
markets, estimated that Chinese and other international sourcing
will account for less than 10 percent of the goods provided by
Wal-Mart in India. India also has a low cost of labor, and its
manufacturing productivity is constantly improving. India could
therefore provide a legitimate alternative to Chinese manufacturing
not just in India but also throughout the world. Benefits to Indian
Agriculture Potentially standing to gain the most from a more
organized and better-equipped retail sector is Indian agriculture,
especially perishable crops. Currently, 35 to 40 percent of fruits
and vegetables grown in India perish in transit because of poor
transportation methods and a lack of refrigeration. In a recent
study by the consulting firm CRISIL, it was estimated that
organized retailing could increase farmers incomes by 37 percent.
This would boost both GDPCRISIL estimates by 1.7 percentage
pointsand the standard of living of a population that has gained
relatively little from Indias two decades of faster growth. Foreign
retail firms could also help fund much needed improvements in
infrastructure. Food processing is underdeveloped in India, adding
only 7 percent to its value as opposed to 40 percent in China.
Thus, the increased emphasis on food processing holds great
potential for further increasing employment rates in India.
Emergence of India as the retail sourcing hub Riding on the back of
a strong manufacturing industry, India is fast emerging as an
important global sourcing hub for top international brands India
has had a continued presence in the global scenario as one of the
leading exporters of apparels and textiles. The expiry of the Multi
Fiber Arrangement has further widened the global markets for
apparel. Many international brands have identified India as one
Page 43
Retail Domain Study
of the important supply centres for procurement of textiles and
apparels. Wal-Marts sourcing operations was estimated at US$ 1
billion, Tescos around US$ 100 million and Marks & Spencer
around US$ 145 million from India for the year 2005- 06. Unilever
sources major portion of their fast moving consumer goods from its
wholly owned Indian subsidiary, Hindustan Unilever Limited. Adidas,
Next and Calvin Klein are expected to follow suit, with Adidas
opening its first office in Bangalore. Rural retailing Rural
retailing constitutes more than 95 per cent of total retail
revenues, with more than 70 per cent of Indias population
concentrated in the rural areas. Rural hypermarkets are growing at
a blistering pace meeting the unique requirements of the rural
consumer. The range of services provided by the rural retailers
extends from creating a platform to buy and sell farm produce, to
banking services, to restaurants etc. One of the key players in the
rural retail segment is ITC with its Choupal Saagar initiative. ITC
has 14 outlets in operation presently and plans to increase the
number to 700 over the next 7-10 years. ITCs Choupal Saagar retails
products and also acts as a procurement hub for ITCs e-choupals
where farmers are offered better rates for their agriculture
produce, compared with the prevalent market rates for the same.
Other examples of players and their services in the rural retail
segment are DSCLs Hariyali Kisan Bazaar and Indian Oil Corporations
Kisan Seva Kendra. DSCLs Hariyali Kisan Bazaar has over 70 outlets
presently and the company proposes to operate a total of 200
outlets over the next 12 months. The outlets provide a spectrum of
offerings including agronomist-consultations, agri-inputs, and
financial services, apart from the conventional retailing services.
Indian Oil Corporations Kisan Seva Kendra offerings extend over
fuel, agri-produce, fast moving consumer goods and other value
added services. The company has a network of over 1400 outlets
presently. Reliance Retail and Pantaloon Retail India Ltd. are
expected to undertake more ventures to capture the vast untapped
potential in the rural retail segment.
Page 44
Retail Domain Study
Future of Retail
Page 45
Retail Domain Study
R ETAIL M ARKET D YNAMICSIn recent years a confluence of market
forces has created an extremely challenging environment for
retailers.
F UTURE R ETAIL E XTREMES
I NDUSTRY
S CENARIO
A
W ORLD
OF
Page 46
Retail Domain Study
In particular, these mega-trends are driving toward a world
characterized by market bifurcation.
Retailers must target their most profitable customer
segments.
F IGURE 22 M OVING
AHEAD TOWARDS
C USTOMER C ENTRIC M ODEL
Page 47
Retail Domain Study
Customer-centric retailing is redefining business model and
retailers will undergo systematic changes. There is a shift in
loyalty from Push to Pull platform.
Better store experience translates to improved business results
for retailers.
Page 48
Retail Domain Study
IT in Retail
Page 49
Retail Domain Study
B USINESS I NTELLIGENCE
AND
R ETAILING
Business Intelligence (BI) refers to the ability to collect and
analyze huge amount of data pertaining to the customers, vendors,
markets, internal processes, and the business environment. A data
warehouse is the corner stone of an enterprise-wide business
intelligence solution; various analytical (OLAP) and data mining
tools are used to turn data- stored in the data warehouse - into
actionable information. The information economy puts a premium on
high quality actionable information - exactly what Business
Intelligence (BI) tools like data warehousing, data mining, and
OLAP can provide to the retailers. A close look at the different
retail organizational functions suggests that BI can play a crucial
role in almost every function. It can give new and often surprising
insights about customer behavior thereby helping the retailers meet
their ever-changing needs and desires. On the supply side, BI can
help retailers identify their best vendors and determine what
separates them from not so good vendors. It can give retailers
better understanding of inventory and its movement and also help
improve storefront operations through better category management.
Through a host of analyses and reports, BI can also improve
retailers' internal organizational support functions like finance
and human resource management.
Page 50
Retail Domain Study
C USTOMER R ELATIONSHIP M ANAG EMENTThe Customer Relationship
Management (CRM) strategy should include: Operational CRM:
Automating interaction with the customers and sales force
Analytical CRM: Sophisticated analysis of the customer data
generated by operational CRM and other sources like POS
transactions, web site transactions, and third-party data
providers.
A typical retail organization has a huge customer base and often
customer's needs are fairly differentiated. Without the means to
analyze voluminous customer data, CRM strategy is bound to be a
failure. Hence, Analytical CRM forms the core of a retailer's
customer relationship strategy. Marketing and sales functions are
the primary beneficiaries of Analytical CRM and the main touch
points from where the insights gained about the customer is
absorbed in the organization.
Following are some of the uses of Analytical CRM: Customer
Segmentation Customer segmentation is a vital ingredient in a
retail organization's marketing recipe. It can offer insights into
how different segments respond to shifts in demographics, fashions
and trends. Campaign/ Promotion Effectiveness Analysis Once a
campaign is launched its effectiveness can be studied across
different media and in terms of costs and benefits; this greatly
helps in understanding what goes into a successful marketing
campaign.
Page 51
Retail Domain Study
Customer Lifetime Value Not all customers are equally
profitable. At the same time customers who are not very profitable
today may have the potential of being profitable in future. Hence
it is absolutely essential to identify customers with high lifetime
value; the idea is to establish long-term relations with these
customers. Customer Loyalty Analysis It is more economical to
retain an existing customer than to acquire a new one. To develop
effective customer retention programs it is vital to analyze the
reasons for customer attrition. Business Intelligence helps in
understanding customer attrition with respect to various factors
influencing a customer and at times one can drill down to
individual transactions, which might have resulted in the change of
loyalty. Cross Selling Retailers use the vast amount of customer
information available with them to cross sell other products at the
time of purchase. This effort is largely based on the tastes of a
particular customer, which can be analyzed using BI tools based on
previous purchases. Retailers can also 'up sell' - sell more
profitable products - to the customer at the time of contact.
Product Pricing Pricing is one of the most crucial marketing
decisions taken by retailers. Often an increase in price of a
product can result in lower sales and customer adoption of
replacement products. Using data warehousing and data mining,
retailers can develop sophisticated price models for different
products, which can establish price - sales relationships for the
product and how changes in prices affect the sales of other
products. Target Marketing Retailers can optimize the overall
marketing and promotion effort by targeting campaigns to specific
customers or groups of customers. Target marketing can be based on
a very simple analysis of the buying habits of the customer or the
customer group; but increasingly data mining tools are being used
to define specific customer segments that are likely to respond to
particular types of campaigns.
Page 52
Retail Domain Study
S UPPLY C HAIN M ANAGEMENT
AND
P ROCUREMENT
Supply chain management (SCM) promises unprecedented
efficiencies in inventory control and procurement to the retailers.
With cash registers equipped with bar-code scanners, retailers can
now automatically manage the flow of products and transmit stock
replenishment orders to the vendors. The data collected for this
purpose can provide deep insights into the dynamics of the supply
chain. Some of the applications of BI in supply chain management
and procurement are: Demand Forecasting Product Movement and the
Supply Chain Vendor Performance Analysis Store Front Operations
Market Basket Analysis Out-of-Stock Analysis
A LTERNATE S ALES C HANNELThe success of a retailer in future
would depend on how effectively it manages multiple delivery
channels like the Internet, interactive TV, catalogs, etc. A single
customer is likely to interact with the retailer along multiple
channels over a period of time. This calls for an integrated
strategy to serve the customer well, which requires smooth flow of
information across channels. To ensure smooth flow of information
customer data needs to be collected from different channels in one
data warehouse. Customer relationship strategy can then be built
around this customercentric data warehouse. BI can be used for
analysis of alternative sales channel in the following ways: Web
Log Analysis This involves analyzing the basic traffic information
over the e-commerce web site. This analysis is primarily required
to optimize the operations over the Internet. Typically such type
of exercise will let analyze the user navigation of a particular
website, determination of popular keywords and knowledge of
referrer site. Web Housing This involves integration of web log
data with data from other sources like the POS transactions, third
party data vendors etc. Channel Profitability Data warehousing can
help analyze channel profitability, and whether it makes sense for
the retailer to continue building up expertise in that channel. The
decision of continuing with a channel would also include a number
of subjective factors like outlook of key enabling technologies for
that channel. Page 53
Retail Domain Study
Product - Channel Affinity Some product categories sell
particularly well on certain channels. Data warehousing can help
identify hidden productchannel affinities and help the retailer
design better promotion and marketing campaigns. AND
F INANCE
A SSET M ANAG EMENT
Following are some of the uses of BI in finance: Budgetary
Analysis Data warehousing facilitates analysis of budgeted versus
actual expenditure for various cost heads like promotion campaigns,
energy costs, salary, etc. OLAP tools can provide drill down
facility whereby the reasons for cost overruns can be analyzed in
more detail. It can also be used to allocate budgets for the coming
financial period. Fixed Asset Return Analysis This is used to
analyze financial viability of the fixed assets owned or leased by
the company. It would typically involve measures like profitability
per sq. foot of store space, total lease cost vs. profitability,
etc. Financial Ratio Analysis Various financial ratios like
debt-equity, liquidity ratios, etc. can be analyzed over a period
of time. The ability to drill down and join inter-related reports
and analyses provided by all major OLAP tool vendors can make ratio
analysis much more intuitive. Profitability Analysis This includes
profitability of individual stores, departments within the store,
product categories, brands, and individual SKUs. A major component
of profitability analysis is the costs incurred by stores/
departments and the cost of acquiring, storing and allocating shelf
space to particular product categories, brands, or SKUs.
Page 54
Retail Domain Study
P LANOGRAMSA planogram is a diagram of fixtures and products
that illustrates how and where retail products should be displayed,
usually on a store shelf in order to increase customer purchases.
They may also be referred to as plano-grams, plan-o-grams,
schematics (archaic) or POGs.
F IGURE 23 A P HOTOGRAPHIC P LANOGRAM
FOR
A PPARELS
A planogram is often received before a product reaches a store,
and is useful when a retailer wants multiple store displays to have
the same look and feel. Often times, a consumer packaged goods
manufacturer will release a new suggested planogram with their new
product, to show how it relates to existing products in said
category. Because the most basic planograms are little more than
text-boxes stacked and sorted, basic planograms can be created in
any type of painting or word processing program or even on the back
of a napkin. The use of planogram software however, enables a user
to do much more advanced and detailed analysis. Most planogram
programs even automatically add product images to products, in
addition to providing dynamic shading and labelling to better show
opportunities in the set. Following are the few companies that
offer planogram creation software: Mockshop: Mockshop automates the
production of planograms for the fashion industry. Intactix: JDA
Intactix offers a variety of space management solutions. Logical
Planning Systems: Shelf Logic2000 planogram design software
vendor.
Page 55
Retail Domain Study
MarketMAX: Provider of merchandise analysis, planning, and
optimization solutions. Their Planogram Manager is a PC-based
application for developing planograms. Apollo: Apollo is space
management software that has been around for over 20 years. It is a
product of Information Resources. Spacemate: Ingen Spacemate is
software for creating, viewing and editing planograms. Various
rules can be applied to the products in order to produce an optimal
planogram.
F IGURE 24 PHOTOGRAPHIC PLANOGRAMS FOR FMCG PRODUCTS
The following are some of the major business benefits from
planograms: Consumer driven store-specific planograms increases
value leading to lifetime customer loyalty. Targeted store-specific
planograms lead to maximum in-store compliance resulting in an
accurate understanding of product distribution. Accurate
store-specific planograms ensure optimum supply chain efficiency
that results in higher availability to consumers, maximum stock
turn and the most efficient use of space. Introducing focused
store-specific planograms leads to increased sales and
profitability, reduction in stock and operational costs and an
overall improvement in bottom line contribution. Tailors
assortments including product launches and group-specific
go-tomarket strategies, so that you can improve cluster results and
meet true local demand. Increases movement at full retail value
while lowering carrying costs and decreasing out-of-stocks and
excess inventory, so that you can enhance your overall
profitability
Page 56
Retail Domain Study
Streamlines space and floor planning, so that you can increase
your space productivity and optimize your capital investment
Translates merchandising strategy into tactics, so that you can
drive consistent store execution of your corporate strategic and
assortment decisions.
E-T AILINGElectronic retailing, or e-tailing, refers to the
practice of selling goods and services over an electronic medium
like the Internet. Many traditional brick-and-mortar firms like
Toys 'R' Us and Barnes and Noble also sell their wares via Web
sites. Other companies, such as Amazon.com, rely solely on the Web
to conduct business. While books, CDs, and computer software and
hardware are the most common goods sold by e-tailers, clothes,
cosmetics, perfume, plants, toys, and other types of merchandise
also made their way to the Web in the late 1990s. One of the first
and most well-known e-tailers, Amazon.com got its start in July of
1995. Because the business-to-consumer (B2C) model was relatively
new and unproven then, Amazon had to develop its own architecture
and manage its own site. As online shopping grew in
popularityaccounting for $3 billion in consumer spending in 1997
and $7.1 billion in 1998technology vendors like IBM Corp. moved
into ecommerce and began offering to build and even oversee sites
for companies wanting to launch an e-tailing venture. Benefits of
E-Tailing No real estate costs E-tailers do not have to maintain
expensive showrooms or warehouses in prime locations; they operate
through their web sites and thus save drastically on the real
estate costs. The real estate costs in the metropolitan cities are
sky high. Besides this, the maintenance costs of a virtual store
vis--vis a physical store is much less. Easy and comfortable Easy
and comfortably -obtained info is another advantages that shopping
on the Net offers. On the Internet, product information is just a
few clicks away, all accessed in the comfort of a home. Traditional
retailing stands out in stark contrast: the consumer searches
frantically, runs up and down, and grills a poorly trained store
assistant who is unable to help him out. In the bargain, valuable
time is lost. Simply put, shopping on the Internet for, say 15
minutes could save a two-hour trip to the Page 57
Retail Domain Study
mall. Consumers prefer to save this time so that they can devote
more time for their professional and domestic priorities. Better
interaction with the customers The greatest benefit of online
commerce is its ability to establish interaction en-masse.
Interaction refers to the ability of reaching the customers on an
individual basis and reacting appropriately to responses of
individual customers. Interaction is a vital tool for mass
customization. Examples are many and include online marketing of
flowers, software books and education. This has also led to greater
satisfaction among the online buyers. Mass Media A supermarket has
limited area of operation. It caters to customers of a city (and/or
its suburbs), but a web site can be accessed from any part of the
country or for that matter from any part of the world, thus
increasing the potential customer base.
G LOBAL D ATA S YNCHRONIZATIONAccurate data helps at all stages
of the supply chain, from purchase order to delivery, from storage
to the retail shelf. Suppliers are finding that by synchronizing
data across their entire supply chain infrastructure, they can
enjoy the following benefits: Lower costs for shipping and
logistics Fewer discrepancies in shipments to retailers Reduced
number of invoice write-offs Improved outbound logistics processes
Faster time to market with new products
Page 58
Retail Domain Study
S OFTWARE P ACK AGES
IN
R ETAIL
Page 59
Retail Domain Study
K EY R ETAIL P RIORITIESMultichannel convergence The number of
shoppers crossing channels increased 8% from 2004 to 2005, bringing
the total in the US to nearly 40 million households. As
cross-channel shoppers become more mainstream, their demands will
have more of an impact on retailers regardless of channel. But most
retailers arent organized to provide a holistic experience to
consumers, either because their eCommerce organizations are too
separate to mesh well with stores or because store systems and
processes arent structured to handle meeting online shoppers needs.
Customer service in stores Retailers have been declaring each year
the year of the customer for decades, and 2007 will be no different
as retailers continue to turn to customer service as a
differentiator. Multiple pressures drive renewed attention to
customer service: Cross-channel shoppers bring different
expectations of what customer service really means, and consumer
centric retailing initiatives work to reshape stores to fit the
needs of shoppers specific to each location. Add in the other
trends for 2007, like supply chain data foundations that make it
easier for retailers to tap into and use expanded product data, and
merchandising renewal that enables local market assortments.
Without technology to bring it all together and help manage the
increase in complexity, retailers will be hard pressed to make
customer service improvements stick. Supply Chain Data Foundation
Global data synchronization (GDS) and the challenges of sharing
clean data between trading partners have put renewed focus on
supply chain data foundations. Adding to the interest is the
potential for data proliferation as RFID adds more product and
location numbers to the mix and the pressure that consumer-centric
retailing initiatives are putting on customer data foundations.
Retailers that dont take a holistic approach to mastering their
data risk perpetuating silos as different groups build out their
own solutions to increasingly interconnected data entities.
Retailers who learned the hard way about the importance of data
cleanliness in recent data synchronization efforts will turn back
to master data management (MDM) and product information management
(PIM) as foundational efforts required to get the most value out of
GDS initiatives. Also, RFID will increasingly be wrapped into
Page 60
Retail Domain Study
these efforts, not from a tagging and reader infrastructure
perspective but from a data perspective so that MDM and PIM will be
ready for RFID when it comes. Merchandising renewal Though users
and vendors alike often refer to merchandising systems as if they
were a well-integrated suite, the reality is that merchandising
applications can be as siloed as the worst tangle of best-ofbreed
applications. But changes in the pricing process, in demand
forecasting and demand management, and the pressure of localized
assortments have forced a re-evaluation of existing merchandising
silos. Optimization Price optimization in particular has been a hot
topic in the past, and adoption of all retail optimization
technologies doesnt look to be slowing down in 2007. But
implementation efforts to date face challenges from data
cleanliness, cultural resistance, and process implications.
Retailers struggle with organizational changes required to support
optimization technologies, as adoption moves from a trial run that
tacks optimization on to the end of a larger process to a
commitment to an integrated part within the overall merchandising
process.
F IGURE 25 S PENDING S HIFTS A CROSS R ETAIL C HANNELS
Page 61
Retail Domain Study
Page 62
Retail Domain Study
Retail Trends to Watch
Page 63
Retail Domain Study
SALES GROWTH IS EXPECTED TO DECLINE IN MOST RETAIL SECTORS
ASCONSUMERS CUT BACK ON SPENDING IN 2009
The retail industry, as with all other industries is in the
heart of a deep global recession. The knock on effect of the credit
crunch has left consumers struggling to cover costs, shopping for
essential items only and being very picky about product and price.
For many retailers, sales growth is declining. In 2009, the focus
will be on keeping afloat by being creative with minimal budgets to
help cut costs and maintain market share.
One area of consideration will be minimizing loss through theft.
In tough economic times, retailers are hit by rising shrink rates
and falling retail sales, crime and theft loss directly impacts on
the bottom line. The hard business climate will inevitably lead to
higher levels of shrink and this will become increasingly more
noticeable Page 64
Retail Domain Study
against falling retail sales. Loss prevention at the checkout
has increased in priority over the last year, including in Nordics
where it has not been a common issue prior to the downturn, and is
expected to continue to be an area of focus in 2009. Retailers will
be looking for other ways to reduce costs, such as ways that make
it cheaper and easier to communicate and share data as well as ways
to reduce inefficiencies in-store, the back office and throughout
the supply chain. The biggest cost to a retail business is its
staff so inevitably staff cuts are often the first consideration in
a cost cutting exercise. Retailers will be seeking ways of making
the workforce more efficient so that the same levels of customer
service are achieved with fewer staff members. CUSTOMER LOYALTY
WILL BE CRITICAL FOR SALES GROWTH IN 2009; A FOCUS ON IMPROVING
THEOVERALL CUSTOMER EXPERIENCE IS KEY
Increasing sales revenue means increasing the return on
footfall. To do this, retailers will need to know their target
market: know who their customers are and know exactly what they
want and expect from their shopping experience, from the store
design right through to the delivery method. To continue attracting
loyal customers the majority of the retail industry will be
expected to cater for and respond to the changes in their target
market through personalizing the shopping experience, online and
in-store. Value retailers are partially exempt from this rule,
where other issues such as ensuring stock is on the shelf will be a
focus. Making certain that the correct products are in stock and on
the store shelf, ensure the POS system is in working order and
having enough staff to handle queries instore will help retailers
maintain market share. However, staff cuts and in some cases, store
closures are inevitable as retailers look to control costs.
Retailers that are faced with store closures will look for new ways
to keep customers in store closure areas by encouraging previous
store customers to instead buy online in order to maintain market
share. No matter what the customers preferred shopping channel is,
the retailer must offer a joined-up experience, to encourage
loyalty and repeat purchases. Consistent branding and design,
product offerings, gift card and loyalty schemes will help to
ensure the fickle customer has a positive experience.
Page 65
Retail Domain Study
INVESTMENTS THAT PROVIDE RETURNS IN LESS THAN 12 MONTHS WILL BE
TOP PRIORITY, RATHERTHAN LENGTHY SYSTEM OVERHAULS
Investments in 2009 will be expected to positively contribute to
the financial year end. Retailers will be focusing on two areas in
2009: Technology and services which help to cut operational costs
and provide a return on investment in a short space of time,
ideally within 3 6 months. Due to rising crime rates, loss
prevention will earn more attention in 2009. Data mining
applications are relatively cheap, quickly implemented and provide
proven returns. Advanced workforce management solutions will also
prove a cost effective and popular way of controlling staff costs.
Cost effective technology that is implemented quickly and almost
immediately shows improvement to sales revenue. Improving the
customer experience in order to maintain or improve levels of
loyalty is expected to be a key issue in 2009. Kiosks, category
management, BI and customer feedback systems will play a key part
in retailers customers experience improvement strategies in
2009.
LARGE SCALE AND LENGTHY PROJECTS WILL BE PUT ON THE BACK BURNER
As capex is cut in 2009, IT budgets will suffer. Minimal large
scale IT contracts will be signed in 2009, whereas those projects
that are already underway will likely experience delays as a
result. Vendors managing costly systems and telecom infrastructure
upgrades will be the losers in this environment. A trend towards
large outsourced services contracts in retail could be these
vendors saving grace.
T RENDS
IN
I NDIAN R ETAIL I NDUSTRY
The Indian Retail Sector is at an inflexion point, with changing
demographics driving growth of organized retailing and driving
growth in consumption. With changing demo