1 SYNOPSIS SYNOPSIS Thesis Title: “Causes and Impact Of recession In Indian retail Sector” Introduction: The Indian retail industry is now beginning and growing day by day. The concept of retail which includes the shopkeeper to customer interaction, has taken many forms and dimensions, from the traditional retail outlet and street local market shops to upscale multi brand outlets, especially stores or departmental stores. In this thesis, I am focusing on two aspects of retail marketing i.e. Store Retailing and Non store Retailing. Store Retailing: Store Retailing includes departmental store, which is a store or multi brand outlet, offering an Varity of products in various categories under one roof, trying to cater to not one or two but many segments of the society Causes and Impact Of Recession In Indian retail Sector Submitted by:Deepshikha Mehta
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SYNOPSISSYNOPSIS
Thesis Title: “Causes and Impact Of recession In Indian retail Sector”
Introduction: The Indian retail industry is now beginning and growing day by
day. The concept of retail which includes the shopkeeper to customer
interaction, has taken many forms and dimensions, from the traditional retail
outlet and street local market shops to upscale multi brand outlets, especially
stores or departmental stores.
In this thesis, I am focusing on two aspects of retail marketing i.e. Store
Retailing and Non store Retailing.
Store Retailing: Store Retailing includes departmental store, which is a
store or multi brand outlet, offering an Varity of products in various
categories under one roof, trying to cater to not one or two but many
segments of the society
Non store Retailing. : Non store Retailing Includes direct selling, direct
marketing, automatic vending.
Therefore, this concept of retail marketing through departmental stores, which is
coming up in a big way in India was decided to be studied in detail, through an
exploratory and conclusive research.
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
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OBJECTIVE :
Retailing in India – Past, present and future
Future growth potential of Retail Marketing in India.
How do Indian retailers sell their product?
Which International retailers eyeing Indian market..
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
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TOPIC 2
LOCATION/AREA OF STUDY
The location of the research work is mainly confined to metropolitan cities of
India. Along with it, emerging Retail Hubs in cities like Udaipur have also been
considered.
The Eastern part of the country is a place which has been on the expansion
prospective of multinational companies since a very long time but the recession
effect has jeopardized the chances of growth of retail sector in this area as well.
Hence, retail growth prospective in this part has also been given importance.
There have been major retail players in the country operating from a very long
time. Their growth pattern, expansion modules, effect of recession and future
prospective have also been discussed.
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
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TOPIC 3
INTRODUCTION OF THE RESEARCH TOPIC
Recession
In economics, a recession is a business cycle contraction, a general slowdown
in economic activity. During recessions, many macroeconomic indicators vary
in a similar way. Production, as measured by Gross Domestic Product (GDP),
business profits, and inflation all fall during recessions, while bankruptcies and
the unemployment rate rise.
Recessions generally occur when there is a widespread drop in spending often
following an adverse supply shock or the bursting of an economic bubble.
Governments usually respond to recessions by adopting expansionary
macroeconomic policies, such as increasing money supply, increasing
government spending and decreasing taxation.
Recession is the prime story of the global economy since last few Years. The
economy is facing an uninterrupted downfall that has further sent invites to
many disastrous results. These outcomes have gripped badly the international
economy status that has made the major entrepreneurs suffer sleepless nights.
Some of the key impacts are listed below:
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
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Background
Main article: Causes of the late-2000s financial crisis
The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005–2006. Already-rising default rates on "subprime" and adjustable rate mortgages (ARM) began to increase quickly thereafter. As banks began to give out more loans to potential home owners, housing prices began to rise. In the optimistic terms, banks would encourage home owners to take on considerably high loans in the belief they would be able to pay them back more quickly overlooking the interest rates. Once the interest rates began to rise in mid 2007, housing prices dropped significantly. In many states, like California, refinancing became increasingly difficult. As a result, the number of foreclosed homes also began to rise.
Share in GDP of U.S. financial sector since 1860
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
provided the ground for fraudulent acts, misjudgments and finally market
collapse.
Martin Wolf further wrote in June 2009 that certain financial innovations enabled firms to circumvent regulations, such as off-balance sheet financing that affects the leverage or capital cushion reported by major banks, stating: "...an enormous part of what banks did in the early part of this decade – the off-balance-sheet vehicles, the derivatives and the 'shadow banking system' itself – was to find a way round regulation."
Incorrect pricing of risk
The pricing of risk refers to the incremental compensation required by investors
for taking on additional risk, which may be measured by interest rates or fees.
For a variety of reasons, market participants did not accurately measure the risk
inherent with financial innovation such as MBS and CDOs or understand its
impact on the overall stability of the financial system. For example, the pricing
model for CDOs clearly did not reflect the level of risk they introduced into the
system. Banks estimated that $450bn of CDO were sold between "late 2005 to
the middle of 2007"; among the $102bn of those that had been liquidated,
JPMorgan estimated that the average recovery rate for "high quality" CDOs was
approximately 32 cents on the dollar, while the recovery rate for mezzanine
CDO was approximately five cents for every dollar.
Another example relates to AIG, which insured obligations of various financial
institutions through the usage of credit default swaps. The basic CDS
transaction involved AIG receiving a premium in exchange for a promise to pay
money to party A in the event party B defaulted. However, AIG did not have
the financial strength to support its many CDS commitments as the crisis
progressed and was taken over by the government in September 2008. U.S.
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
Providing information and answering customers queries. (Example: Sales
people of retail outlet )
Helping customer to choose a product or service, (Example, most apparel
retail outlet help in selecting clothes).
Displaying products in such a manner so that customer can see and test
them before making their purchase. (Example: many music retail outlets
have facilities to play CD or cassette before customer makes his purchase
can test these items).
HOLDING INVENTORY
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A major faction of retailers is to keep inventory, so that customers can
buy the products when they want. So as customers, we do not have to keep a
large inventory at home, knowing fully well that the product will be available at
a relatively stable price from retailers when we want them. Thus the customers
money is not blocked up in a large inventory and can be put to some other use
or in bank earning interest.
PROVIDING INFORMATION TO SUPPLIERS
As the retailer who is the final interface to consumer, it has the benefit of direct
consumer’s reaction. So many manufacturers collect customers’ response to
their products and services from retailers.
This concept of organized retail marketing has caught on like lighting. It creates
a distribution network that cuts various intermediary costs and creates a much
smoother interface between manufacturer and customer, you will study about
this in detail in further units. This organized network which bridges the distance
between the manufacturer and the consumer has seen many of the world’s
leading entrepreneurs successfully walk down a particularly profitable road.
With total sales going up to $6.6 trillion, the industry today is the world’s
largest private industry and accounts for over 8 percent of the GDP in western
countries. Now, it is Indians turn Today, we stand at the crossroads of a retail
revolution. After 50 years of unorganized retailing and fragmented kirana stores
with very basic offerings, fixed prices, zero usage of technology and little or no
ambience the industry has finally begun to move towards modernization,
systematization and consolidation.
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Retailing has now become a key growth area, there has been an attitude
change in the way the Indian consumer thinks about shopping, what, and how
they buy is now the big question. Over the last decade, there has been a
significant evolution in his psyche, a change that has been carefully recorded
and documented by behavioral pundits.
Retailers in India like abroad in diverse from such as street vendors to Large
groups like ABRL Bharti, Trent, Reliance Retail, Shoppers, Lifestole, Future
group, RPG to Multiplex chains like adlabs, Cinemax, PVR, Inox, FR, or food
courts ie Blue foods, SRS, Gigabites, spices and Vices are few names in long
list and different formats, each type of retailer survives and makes profit by
satisfying their target group of customers in most convenient and efficient
manner.”
Retail industry is a dynamic one as it tries to satisfy changing customer profile
and their needs with time. The stores change their format, style of presentation
and assortment i.e variety and depth of merchandise as per the requirements of
the customers. In this unit, you will study different types of retailers, retail
formats and their characteristics features with reference to Indian scenario of
organized retail business.
CLASSIFICATION OF RETAILERS
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Because there are so many different kinds of retail firms, classifying them all
into one neat system becomes difficult, we can use different bases for
classifying retail firms. Different types of classification are explained here.
1. LEGAL FORM
The three basic legal forms of ownership are sole proprietorship,
partnership and limited liability company (private or public).
Diagram 2.1: Classification of Retailers based on Legal Form
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
Classification of Retailers Based on Legal Form
Limited Company (Private or Public)
Proprietorship Partnership
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2. OPERATIONAL STRUCTUREThere are three operational structures; the independent trader (usually
operating only one retail outlet, the multiple or chain store; and the co-
operatives.
Diagram 2.2: Classification of Retailers based on Operational Structure
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
CLASSIFICATION OF RETAILERS BASED ONOPERATIONAL STRUCTURE
CO-OPERATIVESINDEPENDENT TRADERS CHAIN STORES
(MULTIPLES)
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3. RANGE OF MERCHANDISESome retail businesses offer a wide range of goods. Examples of these
includes variety stores like Marks & Spencer or department stores like Harrods.
Others concentrate on narrow ranges like health foods; leather goods, greetings
cards and these are called specialty stores or niche retailers .
Diagram 2.3: Classification of Retailers based on Range of merchandise
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
CLASSIFICATION OF RETAILERS BASED ONMERCHANDISE
Variety Stores (Departmental Stores)
Specialty Stores (Niche Retailers)
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4. DEGREE OF SERVICE
Although many retail outlets have been converted or built to self-service
or self-selection standards, there are others which offer their consumers services
such as delivery, credit, gift wrapping repairs, etc. it is interesting to note that
many former self-service retailers are now looking at ways of gaining
competitive advantage by adding new customer services.
Diagram 2.4: Classification of Retailers based on Degree of Services
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
CLASSIFICATION OF RETAILERS BASED ON DEGREE OF SERVICES
(LOW) Self Service & Self Selection
HIGHLarge No. of Consumer Services such as high credit,
home delivery, high involvement of sales staff in attending customer needs such as help in selection etc
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5. PRICING POLICY
Some retailers choose to emphasize low price rather than the service
element of their retailing mix. Aldi, the german food retailer, expanded very
rapidly in the late 1980s by pricing below the competition. Others choose to
price above the competition knowing that they will generate business on the
basis of some other attribute such as convenient location or exclusive image.
Diagram 2.5: Classification of Retailers based on the Pricing Policy
6. LOCATION
Another way to classify retailers is according to geographic location.
With the increasing cost of town centre sites and traffic congrestion, many
retailers have south edge-of-town loatons, whilst others have preferred to stay in
‘cluster’ locations in town centres as shown here. Stand alone stores, Shopping
Centres of Complex, Destination stores and Convenience stores are based on
location.
7. SIZE OF OUTLET
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
CLASSIFICATION OF RETAILERS BASED ONPRICING
LOWER PRICE(Discount Stores)
HIGH PRICE (Convenience Stores)
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The average size of many multiples’ branches has increased quite
markedly over the past few years as more and more firms become large and
medium-space users. The term ‘superstore’ has been used to define outlets
between 25,000 and 50,000 sqft and hypermarkets are those stores over 50,000
sqft. Many outlets are now being built in the 50,000-100,000 sq ft range. The
number of Superstores and hypermarkets increased from two in 1963 to 400 in
1986 and reached 1,000 in 1995.
Diagram 2.6: Classification of Retailers based on the Size of Outlet
8. BASED ON CUSTOMER CONTACT
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
CLASSIFICATION OF RETAILERS BASED ON SIZE OF OUTLET
Small Stores (0-25000 Sq feet)
Hyper Markets (over 50000 Sq feet)Suplus Stores
(25000-50000 sq Feet)
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Most retail transactions are conducted by face-to-face contact in retail
stores. However significant proportion of retail sales in generated by non-store
retailing operations such as order catalogues, telephone selling, e-retailing,
vending machines, door-to-door selling or mobile shops.
Diagram 2.7: Classification of Retailers based on Customer Contact
You will notice that some of these categories overlap but they are all important
in specific marketing situations, the conventional and most common
classification of retail organization based primarily on operational structure and
range of merchandise.
Now we will consider the main formats of retail organization in more
detail, most retail for discussed in the following sections have not made a big
impact or even unheard of in the Indian context, as the organized retailing is
only 2% of total retail sales (Excluding fuels). However, situation has begun to
change slowly since 1980s and has gathered momentum in nineties.
2.1 TYPES OF RETAILERS BASED ON MERCHANDISE AND
PRICING
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
CLASSIFICATION OF RETAILERS BASED ONMETHOD OF CUSTOMER CONTACT
Non-Store Retailing Retailing though stores
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As you have seen earlier that the classification was based on the range of
operation, and physical characteristics of the stores. Now you will study the
classification of stores based on merchandise and pricing mechanism. In Indian
context, these classifications may be new or developing in the form and hence
you cannot distinctly identify a store by these typical classifications. These are
departmental stores, specialty stores and discount stores
2.1.1 DEPARTMENT STORES
A department store is defined as a large store selling
A broad variety and deep assortment (to understand bradth and
depth of assortment refer Unit 3)
Offer considerable customer services and organized into physically
separate departments.
Large department stores have started appearing in Indian scenario like
Shoppers’ Stop, Vivek & Co., THS and Globus to name a few, but they can not
be compared to the departmental stores worldwide. Some of the US large
department stores chains are Sears, JC Penny, etc. some large departmental
store groups own many branches and these chains are called multiple
department stores.
A departmental store is organized into departments selling clothing and
accessories, home furnishings and furniture, toys and games, consumer
durables, and kitchenware.
With the success of the hypermarket in Hyderabad, RPG is looking at
establishing a wholesaler’s chain throughout the country, “In the next five
years, RPG retail is planning to setup 12 to 15 hypermarkets in India. After all
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Giant has been attracting retailers who prefer quality and good profit margins.
According to Mohammed Afzal, a retail shop keeper from Musheerabad area,
“the store offers single multiple and annual rebate on the goods bought, which is
the core attraction for us, “Adds another retailer, Mr. Raythaya, from Mehdi:
“The priced of the product solely depends upon the quantity we buy. If we buy
large quantity the price is very attractive.”
Hypermarkets are one of the fastest formats in Asia, where a number of
international chains intend to invest. For a customer this format helps in bulk
purchase of a variety of products, which is made easier with costs being less.
The store also ensures maximum stock availability, enforces strict quality
control measures with a replacement guarantee within a period. For a
manufacturer, the store provides a showcase of brands for a wide target
audience through a single point and reduced distribution costs for promoting
brands. The success of ventures like Giant and Margin Free markets has lured
many into this business.
Some of the characteristics of Department Store are:
Located in central market area or a major shopping centre,
locations supported by potentially large catchments.
Availability of parking space.
Freedom for the customer to move around the store and view.
Relatively high prices with margins large enough to cover heavy
staffing, the range of services offered and high accommodation
costs.
Provision of a large number of specialized goods in one location,
which allows some associated sales.
Availability of personal assistance in shopping added customers
services and amenities.
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Special staff expertise in particular products demonstration. Wide
range of customer services such as delivery, credit, the making-up
of soft furnishings and the provision of restaurants, cloakrooms,
telephones, etc.
2.1.2 SPECIALITY STORES
A Specialty stores has narrow product line with deep assortment (i.e. has
more depth in the same product category) and provides a high degree of
customer service. You will notice that in complete contrast to Department
stores, specialty stores have narrow product line or narrow variety but deep
assortment. It means there are few products with a wide variety of range, quality
and colour for customers to choose. This offers customers a better selection
along with assistance in selection by stores sales people. Examples of this kind
in Indian content are: Planet M, Music World and many apparel and shoe stores.
Zodiac and Park Avenue (Raymond) are men’s specialty store.
A retail store selling a great variety of a particular characteristic group of
merchandise is known as an Emporium (Saree emporium, art emporium, etc)
2.1.3 DISCOUNT STORES
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A discount store is a general merchandise retailer that offers broad variety
of merchandise, shallow assortment, limited service and low price. Discount
stores offer lower price due to limited service and low cost locations. Discount
stores tend to have characteristics such as :
Very low prices (Value for money)
Low gross margins
High degree of self-service (no frills attached)
Low-cost fittings
No free services, such as delivery
Reliance on heavy advertising in nearby large population centres
Relative isolation of locations from convential shopping areas with
consequently low rents predominantly in ‘edge-of-town’ sites
(highways).
The dependence is therefore on shoppers requiring:
Good communications
Plenty of parking space
Visibility of the site from some distance.
The example of discount store chains are Wal-Mart. In India, so far discount
stores have not appeared on retail scene in a big way. The reasons are three fold.
Unlike most western countries, Indian manufacturers have much higher
bargaining power with their retailers. As there are very large number of small
retailers and no retail association with the influence negotiate with the
manufacturers. The other reason is that retailers themselves do not have
economies of scale to offer discounts on their own, in general, merchandise
retailing, factors like MRP – prescribed pricing and single country wide pricing
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policies adopted by most organized vendors deter the growth of discount stores
in the country.
Subhiksha of Chennai was the first chain to adopt discounting as a key strategy. Other food chains and super markets have started offering discounts but in a limited manner.
What does subhiksa in Chennai, Margin Free in Kerala. Bombay Bazaar in Mumbai, RPG’s Giant in Hyderabad, Big Bazaar in Kolkata, Hyderabad and Bangalore, and ‘Sabka Bazar’ in New Delhi have in common? Well. They all their products at prices way below the MRP>
Discount stores have arrived in India and industry insiders feel that they would spearhead a revolution in organized retailing.
“Modern retail formats will have 10-15 percent of the total market in the next ten years and while all formats will co-exist, large discount stores could be front runners in this evolution,” says Raghu Pillai, President and CEO, RPG Enterprises. The Rs 6000 cr RPG group of Food World, Health and Glow and Music World fame, opened its first discount store by the name of Giant early this year. “The response has been fantastic and we are growing month on month.” We believe that this store will generate revenues to the tune of Rs 100 cr annually in three years,” he says. “If you look at the list of top retailers in the world quite a few would be discounters. Around 60 percent of the business abroad comes from this format. Internationally, the largest retailer in the world Wal-Mart is a discounter,” says Kishore Biyani, MD. Bazaar. A part of pantaloon group, Big Bazzar invested a total of Rs 30 cr to have a discount store each in Kolkata, Hyderabad and Bangalore.
“We are doing better than expected, we have around 22000 clients each day with daily sales of Rs 25-30 lakh from all three stores,” he adds, both the firms are now on an expansion spree. RPG for instance, plans to have 15 Giant store
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in the next five years, which would entail total investment of Rs 225 cr. Big Bazaar, would be opening in Gurgaon by the year-end.
“We would also be opening three stores in Mumbai, beginning with March’12,” says Mr. Biyani. The total investment would be Rs 25-30 cr and the turnover expected from each store is around Rs 50 cr. The industry feels that discount stores, besides having advnantages of price, assortment dominance and quality assurance have the ability to quickly build sale and pass on the benefits.
“However the success would be for retailers who are able to build the sacle fast, manage their operations and all of that while offering value to the customer consistently, says Dipankar Halder, associate director, KSA Technopak.
There are discount specially formats as well when they specialize in a
given type of merchandise lines.
There are such discount stores (Found in the West in large numbers)
adopting an everyday low pricing strategy and they are known as an
Every Day Low Price (EDLP) format.
A category killer format is a large specialty store featuring an enormous
selection of its product category at relatively lower prices.
The factory outlet format is owned and operated by the manufacturer
selling their discounted merchandise, factory seconds, cancelled orders,
etc., at very low prices located in the adjacency of the factory itself. Some
of the textiles mills in Mumbai like Bombay Dyeing and Morajee have
their factory outlets in the precincts of their factories.
The warehouse format is a large sale of discounted merchandise by an
individual or an organization in the free ambience of a warehouse. This
format has a large width and depth of the multi categories in retails.
A single price denomination format store retails scrambled merchandise
lines at just one price point, which is generally a low price point. Such Causes and Impact Of Recession In Indian retail Sector
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retail outlets are famous in the US and the best example of this format is
the Dollar stores spread across the country. Similar to this are some
Indian stores where every item is Rs 5 or 15 mainly having plastic toys or
hair clips/bands etc.
2.1.4 SUPER MARKETS, SUPERSTORES AND HYPERMARKETS
A super market is a self-service food store offering groceries along with other
merchandise for household maintenance and laundry, etc. and size of under
25000 square feet. They are relatively large, low-cost, low-margin, high
volume, self-service stores. Number of supermarkets has come up in most cities
in last few years. A typical Indian Super Market is about 3000 sq.ft.
Superstores are large supermarkets (25,000+ square feet0. A superstore has
space for offering know traditional goods and services like a pharmacy, a flower
shop, a bookstore, a salad bar, a bakery, etc, under one roof (Nilgiris,
Bangalore).
A shopping mall is an arrangement of retail stores and other places for leisure
time activities such as dining, entertainment, etc., selected on their contribution
to an time activities such as dining, entertainment, etc., selected on their
contribution to an overall merchandising plan. A mall is spread over a large area
of more than 2,00,000 sq.ft. and runs as an integrated business by an individual
or an organization, to which independent retailers pay for opportunities to
participate.
A shopping centre or a plaza is a configuration of five or more tenant spaces of
approximately, 1000 sq. ft. each used for retailing developed under one building Causes and Impact Of Recession In Indian retail Sector
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plan in such a way to have unifled character. (Kannaiya shopping centre in
Linking Road, Mumbai, Fountain Palza, Egmore Chennai, Basant Lock in
Vasant Vihar, New Delhi).
The term ‘hypermarket’ is reserved for units over 50,000 sq ft of selling area or
more, relating groceries, general merchandise goods, pharmacy, flower shop,
phote shop, other concessions, etc. with a wide variety of merchandise offerings
in large quantities in each category selling huge volume with a wide variety of
merchandise offerings in large quantities in each category selling huge volumes
at less margins (Ansal Plaza, New Delhi).
Characteristics of above type of retail formats are:
Substantial surface car parking spaces under the control of the superstore
retailer and servicing the superstore largely or exclusively.
A range of 25,000-30,000 individual items, covering most foods and
many non-foods (the latter many take up 40 percent of the total selling
area.)
A broadly similar pricing, service and general marketing strategy to the
discount store.
The comprehensive in-store use of information technology such as
electronic point-of-sale equipment, and advanced food preparation
equipment, e.g. for in-store bakeries.
According to one study daily turnover of an Indian Supermarket averages
between Rs 15,000 – Rs. 42,000 per day (2008). The total turn over of 763
supermarkets in 1998 in the six cities (Mumbai, Delhi, Kolkata, Chennai,
Bangalore and Hyderabad) was Rs 677 cr.
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2.2 TYPERS OF RETAILERS BASED ON OPERATIONAL STRUCTURE
These are types of retailers which include independent traders, multiple chain
stores, cooperative societies, concessionaires, and franchising. They are
different from the merchandise-based stores because they have independent
supply mechanisms and hence price variations are high. Now you will study
these formats in detail.
2.2.1 INDEPENDENT TRADERS
A single individual or sole trader owns the majority of shops in India. Even in
US more than 90% of retailers own and operate single stores. Independents are
defined as retail organizations (other than co-operative societies) with less than
ten branches or no branches. The usual number of branches controlled by the
sole trader is one or at the most two. A family mostly owns this type of retail
format with high dependence on the owner Kirana shops, drug stores, STD/PCO
outlets etc. are very good examples of such retailers.
As most of retail sales come from unorganized retail (organized retail
being only 2% of total retail sales), almost 98% retail sales is generated by
Independents. However, in developed economies, though there are large
numbers of independent traders (over 90% in US), their market share is less
than 50%.
Advantages of the Independent Traders:
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As the owner (management) has direct contact with the customers and
therefore can quickly respond to their needs.
Independent traders can be very flexible owing to their small size.
They are not bound by any bureaucratic rules that may restrict retail
chains or cooperative society managed stores. So, they can free to locate
their store wherever they want and the type of merchandise they sell.
Disadvantages of the sole trader:
These may be summarized as follows:
Price competition from retail multiples who can reduce their costs
through bulk buying and other economies of scale.
Lack of specialist expertise in retail functions, e.g. buying, in store
merchandising, accounting, or possibly lack of time to carry them out
adequately. Singly store retailers have to rely on owner-managers’
capabilities to make broad range of retail decisions.
The cost of advertisement and promotion is very high for a singly store.
Lack of capital to expand and improve the business. Especially in case of
networking and use of IT for development of business, the expenditures
are too high for a single store.
Inertia- the small trader may not with to expand because of the extra
problems expansion brings.
Due to high accommodation costs the independent costs the independent
often lacks the advantage of being in a large shopping centre with heavy
pedestrian traffic generation.
Changing shopping habits brought about by increased car usage has
concentrated purchases in large well-located ‘one-stop’ stores in cities.
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2.2.2 MULTIPLE OR RETAIL CHAIN STORES
The large multiple retail organization is invariably of the joint-stock
company type (either private or public) and therefore in common ownership
with a degree of centralized control. A large multiple is defined as an
organization (other than a co-operative) with ten or more branches. This form is
strongest in department stores, specialty stores, variety stores, food stores, drug
stores etc. Their size allows them to buy in large quantities at lower prices, and
they can afford to hire specialist to deal with pricing, promotion, merchandising,
inventory control etc.
Most chains have well defined management philosophies. 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 difficultie for individual
units in adapting to local needs of the target markets. These also limit
innovation of individual units.
In India many manufacturer own retail chains, which then sell their
products only. Examples of this kind of are Videocon Plazas, BPL Gallery,
Raymond, Titan watches, etc.
Another form of multiple chains is Voluntary Chain, a wholesaler-
sponsored group of independent retailers engaged in bulk buying and common
merchandising is called Voluntary chain.
2.2.3 CO-OPERATIVE SOCIETIES The Co-operative Movement began in Rochdale in 1844. A co-operative society
is defined as a co-operative retailing organization trading on co-operative
principles, affiliated to the National Co-Operative Movement (through the
Cooperative Union) and registered under the Cooperative Societies Acts.
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Because many retail co-operative societies operate branches they re in this
respect similar to multiple chains, but in the form of organization and control
they are in many ways quite different.
The principles of the Movement applicable to retailing are:
Voluntary and open membership
Democratic control; one member ,one vote
Payment of limited interest on capital
In India cooperatives aggregate at least Rs 400 cr annually. Sahkari Bhandar
and Apna Bazar are two leading Mumbai based cooperative chains. Delhi has
couple of large cooperatives Mother Dairy of Delhi even distributes fresh
vegetables from its milk distribution centres.
Milk cooperatives are believed to have a substantial 10 percent share of the all
India market, which is about Rs. 60,000 -70,000 cr. Another form of
cooperative is a Consumer Cooperative, which is a retail firm owned by its
customers. Such societies can be seen in the educational campuses etc.
In contrast to consumer cooperative, independent retailers who set up a central
buying organizations is called a Retailer Cooperative.
2.2.4 CONCESSIONAIRE
The stopover store format is one that rides piggyback on another retail outlet,
say a petrol pump. This stopover format is a concession that offers intent use or
ready to eat categories of merchandise.
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A Kiosk is one such concessionaire format placed in a mall or a shopping centre
or a bus station, airport, etc, a kiosk is a small freestanding open pavilion often
open on one or more sides used for information, sales and promotion.
Partnerships and alliances for concessions offer a great deal of opportunity for
increasing customer contact, share of mind and share of heart especially in large
formats such as departments stores, malls and hypermarkets. By striking trust,
or with complementary marketers who are concessionaires, a retailer can add
value and convenience, and broaden his relationship with customers.
In addition to alliances such as McDonald’s with Crossroads, Qwikys with
Lifestyle, Ritazza with shoppers’ stop, retail ventures are trying to link with
such concessions as travel, information, entertainment, communication etc. in
order to hit upon that winning signature configuration.
It has been a long established practice in Asian retailing, particularly among
department stores, to lease space to third departments. These third parties are
typically vendors, manufacturers and distributors people with brand ownership
and stake in their product lines.
The concessionaire concept is very common in Aia. Initially, the decision to
lease out departments was largely a matter of augmenting the retailer’s own mix
of goods and services, particularly in areas where he/she lacked expertise or
technical capabilities, with the onset of Asian currency crisis, concessionaire
agreements become the most viable option for Asian retailers to stay afloat.
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Leased departments were thus mainly seen in such businesses as food and
beverage, pharmaceuticals, consumer electronics, books and music and video,
and the like.
Leased departments have grown steadily in Asian retail, and now account for 30
to 40 percent among most Asian department store retailers. This is a much
higher than their US and European counterpart, whose corresponding numbers
are typically less than 20 percent. In the north East Asian markets such as Japan,
South Korea, Taiwan and China, the concessionaire arrangement is even more
extensive. Leased departments may account for up to two thirds or 67 percent of
the total store area.
2.2.5 FRANCHISING
Franchising is the granting of sole selling rights within given geographical area.
The franchising company (the franchiser) supplies equipment and/or raw
materials for a licensee who either pays a franchise fee or a percentage of
turnover, or contracts to buy supplies from the franchiser (or a mixture of these
methods of payment).
The licensee is also helped in finding a location and is trained all aspects of the
business. Generally, franchises are distinguished by three characteristics:
The Franchiser owns a trade or service and licenses it to franchisees in
return for royalty payments.
The franchisee pays for part of the system. This is normally in two parts,
one as initial fee, which is only a small part of the total amount, second,
service fee on turnover on monthly or quarterly basis.
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The franchisee pays for part of the system. This is normally in two parts,
one as initial fee, which is only a small part of the total amount, second,
service fee on turnover on monthly or quarterly basis.
The franchiser provides its franchisee with marketing and operations
system for doing business.
Franchising is beneficial to both franchiser and franchisee. Benefits to
franchiser are:
covering new the territory,
hard work of persons who are entrepreneurs rather than employees, and
the franchisees’ familiarity with local community and conditions.
Benefits to franchisee are:
Buying into a proven business with a well known and accepted brand
name.
Receiving support in areas of marketing, advertising, site selection,
training/ staffing, and
Borrowing money from banks becomes easier.
The most common problems in franchising business are:
Franchiser encroaching on franchisees’ territory by bringing in another
franchisee in the same locality.
Exaggerated claim of support by franchiser, and
High failure rate.
Franchising is most frequently found in service retailing such as, car
maintenance (Kentucky Fried Chicken, McDonald), etc.
2.3 NON-STORE RETAILING
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2.3.1 MAIL ORDER
Mail order retailing – using the mail to get orders and /or facilitate delivery –
takes several forms as follows; Mail Order Catalogues
There are mainly of two types – the general merchandise catalogue, and the
specialist catalogue. Much of the selling is done through network of part-time
agents who are paid a commission on the things they sell.
The advantages of the general merchandise mail order catalogue to the
customer are:
‘free credit
Price stability over the lifetime of the catalogue
Savings in transport fares and petrol
Wide selection of merchandise
Direct Response Advertising
This is the use of advertising in newspapers or magazines to describe a product
and stimulate the customer to write or telephone for it. Most national
newspapers have a Saturday bargain squares section advertising all manner of
postal bargains.
Direct Mall
This is the sue of advertising literature sent directly to the potential customer
for the propose of selling goods or services. The Reader’s Digest have been
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particularly successful in selling books in this manner and records, tapes and
collectors’ pieces are also sold via direct mail.
2.3.2 DIRECT SELLING
Direct selling that is direct selling of the product by salesman to you takes
several forms and follows:
Door-to-door Trading
Selling by sales persons is being done to launch new products. A veriety of
foodstuffs are also regularly delivered to the doorstep, e.g. milk, brad, eggs,
vegetables. Avon cosmetics are sold in this manner.
Mobile shops
These are travelling shops and are distinct from vehicles from which milk, brad,
news papers etc, are delivered, vegetables, plastic toys and toehr small goods of
house hold use are sold by hand driven carts.
Markets (Haats)
Haats or rural markets remain the traditional way of retailing in rural and semi-
urban India. In these markets, sellers bring their merchandise on one particular
day (s) to particular place. Vegetables, groceries and household items are sold in
this type of markets. Names of many localities were derived because on a
particular day a haat would be organized there. For example : itwara, Budhwara,
Mangalwara, etc.
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2.3.3 Automatic Vending
Selling out of machines has been part of the retail scene for many years
(particularly for making a local telephone call) and there has been something of
a recent boom in auto-vending, notably in closed, relatively vandal-proof areas
such as sports centres and airports. This possible limitation reduces the main
advantage of the machine in that they can be in operation for twenty- for hours a
day, seven days a week. Banks are providing this type of service through
ATMs.
2.3.4 ELECTRONIC RETAILING
Electronic retailing has tow formats, namely, television shopping and on-line
computer shopping services.
Retailing through Television
In this retail format customers watch a TV programme demonstrating
merchandise and then place an order over telephone. Major players in India are
Asian Sky Shop, TSN, TVC, Telebrands etc.
Retailing through Internet
In this retail format customers and retailer communicate through an interactive
electronic system (internet). After browsing through and satisfying himself
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customer places an order though internet, phone or by mail. Major retailer in
India using this format is Jaldi.com, Indiainfo.com, and Rediff.com.
Amazon.com has established itself as a major non-store book retailer.
PURPOSE
The overall purpose of the retailing is to provide goods and services
wanted by customers and to do so profitably so that business can be sustained.
This means if a retailer is to be successful and customer satisfied the retailer
must understand, the three core factors of retailing, namely customers, their
needs, wants and buying behavior: competition, their strategies: and above all
the environment of customers and competition.
3.1 CUSTOMERS
Customers are the most important element for the retailers. To be
successful retailer must know its customers. Why customers shop, how they
select a shop and how they select among that stores merchandise, thee can be:
Convenience of hours, of location, of shopping ease
Assortment of merchandise – whether a wide variety or limited
Quality and fashion level of goods
Price – generally important at the lower end
Services –such as credit, delivery, courteous sales staff, assistance in
selection, after sales services, return-goods privileges.
Excitement – such as promotional efforts
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If retailer really understands their customers, they can position themselves and
plan their merchandise and services accordingly. To a large extent the various
combinations of merchandise and services are controllable by the retailer Stores
can stay open in the evenings and on Sundays; retailer can decide to stock low
priced or expensive goods, to offer many services or bare minimum; to have
frequent sales, style, shows and other excitement –creating events or none. You
will learn in a later chapter why do consumers buy, hw is their buying process,
and what re the factors affecting consumers buying behavior.
3.2 COMPETITION
A retailers competition does not only come from those competitions who are
using the same retail format but also from new competitions who are coming up
from new formats.
The competition between retailers using the same type of retail format is known
as intra-type competition. Examples of this type of competition are: a
department store competing with other department stores; a discount store
competing with other discount stores; a supermarket competing with other
supermarkets; etc.
Competition between retailers that have similar merchandise but are using
different formats is known as inter-type competition. For example competition
between department and discount stores.
To provide one stop shopping and to attract a broader group of consumers,
retailers offer a broader variety of merchandise, some of it typically not
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associated with the store type. This is called scrambled merchandising. For
example: grocery shops keeping clothes, sports goods in a drug store, etc
Increased inter-type competition and scrambled merchandising has made it
harder to identify and monitor competition for retailers. In a way all retailers
are competing against each other for the money spent by the consumer on goods
and services. However, the intensity of competition is greatest among retailers
when customer view them having the similar retail mix. Retail mix is explained
in the next section.
The competition to the retailers may come from same retailer located within the
vicinity of the target market or a similar kind of business in that locality. For
example, a retailer located in a suburb selling video and music cassettes would
have competition with the cable TV and the movie theatre located in that
suburban area. The retailer may also face tough competition from the scrambled
stores, which in addition to their merchandising products also provide
videocassettes on rent. Therefore the retailer has to identify, assess the strengths
and weaknesses of his/her competitor while designing the strategy for marketing
its products.
3.3 Environmental Trends
This is the third core element of retailing. The environmental factors
surrounding the customers and the competition is a major factor confronting
retailers. These environmental factors are : changing customers needs, changes
in demographic composition of customer, changes in technology, changes in
business environment, legal framework.
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We will see in next few paragraphs what environmental factors are behind the
changing retail scenario in the Indian context.
Economic factors
The rate of growth in India has gradually picked up in last two decades. In the
eighties it breeched the so called “Hindu rate of growth’ and reached 5 percent
levels. Through out the nineties the growth has remained above this level even
crossing 7 percent levels. This has resulted in increased buying power and
disposable income in the hands of Indian consumers. Apart from growth,
India’s large middle class has led to introduction of organized retail formats.
You can see many types of retail formats in India now, for example, department
stores, specially stores, manufacturer-owned retail chains etc.
As Indian economy gets integrated in the world economy, global trends start
affecting Indian economy such as global recession. This gets reflected in
consumers buying patterns. Last year (2001) saw drop in sales of leading
retailers in India due to the economic slow down.
Demographic factors
There has been significant growth in number of towns and significant increase
in population or urban India due to migration from rural areas. Rising prosperity
and population has driven the population of many cities over 10 laths. This has
created interest in large retailers. Many retailers have opened their stores in
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number of cities now. Prominent among them are Shoppers stop, Food World,
Westside, Ebony Piramyd, Pantaloon, Lifestyle, Globus etc.
Social Factors
Nuclear small family is becoming a norm in India with increasing number of
women working outside the four walls of home. Thus, there is increase in
disposable income of families, however there is paucity of time as in many
families both (husband and wife) work.
Psychological factors
Consumerism is on increase in India. Media and cable TV proliferation has
given exposure to Indian consumers to new ideas, new life style and new
desires. This has fuelled consumer demand. Even in last four years when the
economy was not doing as well, consumer durables sales was growing at about
20%.
Similarly, there is increased emphasis on health, personal hygiene, etc.
Organized retailing is bound to grow tremendously provided the right mark-
eting strategies are adopted. Retail businesses have broken rank and seem
poised to surge ahead with renewed vigor, optimism, confidence and cap-
ability.
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There is an incredible amount of activity in terms of creation of retail-riented
space across India. As per some estimates, there are over 200 retail mall
projects under construction or under active planning stage spanning over 25
cities. This may translate into over 25 million sq. ft. of new retail space in the
market within next 24 months.
Huge retail formats, with high quality ambience and very courteous and
ambivalent sales staff, are the regular features of retail formats in most Asian
countries. However, in India except for a few big towns where modern retailing
formats abound, these features are grossly missing. ETIG expects organized
retailing to slowly penetrate the second rung and smaller towns which will
catapult the growth rate for the sector.
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 middle class. With a
huge middle class population, the retailers like RPG's
Foodworld are tapping this market. The market is flooded with products
branded and unbranded. The customers are in a dilemma as to pick which one.
Simon Bell of AT Kearney says "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 they can be differentiated from unbranded products"
Though doubts have been cast on the future of Indian retailing it is our belief
that the retail boom is yet to happen. While the industry is in the introduct-ion
stage in most geographies, it has just entered the growth region in the metro
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cities. Today, the right product mix, right sourcing strategy, and the right
communications are the mantras for success.
This paper begins by analyzing the retail formats in the present Indian scenario
and proceeds to outline the key strategic factors in retailing. In the last part the
paper shows the challenges facing retail and our recomme-ndations for making
organized retailing a success.
Organized retail formats in India
Each of the retail stars has identified and settled into a feasible and sustainable
business model of its own.
Shoppers' Stop - department store format
Westside - emulated the Marks & Spencer model of 100 per cent private
label, verygood value for money merchandise for the entire family
Giant and Big Bazaar - hypermarket/cash & carry store
Food World and Nilgiris – supermarket format
Pantaloons and The Home Store - speciality retailing
Tanishq has very successfully pioneered a very high quality organized retail
business in fine jewellery
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Structure of the retailing industry according to ownership patterns:
An unaffiliated or independent retailer
A chain retailer or corporate retail chain
A franchise system
A Leased Department (LD)
Vertical Marketing System (VMS)
Consumer Co-operatives
A new entrant in the retail environment is the 'discounter' format. It is also is
known as cash-and-carry or hypermarket. These formats usually work on
bulk buying and bulk selling. Shopping experience in terms of ambience or the
service is not the mainstay here. RPG group has set up the first 'dis-counter' in
Hyderabad called the Giant. Now Pantaloon is following suit.
Two categories of customers visit these retail outlets.
1. The small retailer. For example, a customer of Giant could be a dhabawala
who needs to buy edible oil in bulk.
2. The regular consumer who spends on big volumes (large pack sizes)
because of a price advantage per unit.
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Key Strategic Factors in Retailing
The key to success is identifying a superior value-promise and who is in a better
position to do it than retailers? Retailers are the closest to the point of purchase
and have access to a wealth of information on consumer shopping behaviour.
Retailers have some unique advantages for managing brands such as continuous
and actionable dialogue with consumers, control over brand presentation at
point-of-sale, control over shopping environment, display location/adjacencies,
and signage. And they have used this advantage with tremendous success.
The 3 stages of evolution of the trade channel are shown in the exhibit below:EXTENDED LIMITED DIRECT
As seen, the role of the intermediary is being diminished gradually, which has
obvious implication of backlash of the trade channel upwards towards the
suppliers. This is more severe in countries such as India, where the channel
economics in favour of the middlemen is still strong enough given the
fragmentation of the retail sector. Therefore when FoodWorld, the largest
grocer in India has a “direct supply” contract with over 20% of its key suppliers,
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MANUFACTURERMANUFACTURERMANUFACTURER
DEPO/CNF DEPO/CNF
DISTRIBUTOR
RETAILER RETAILER
SHOPPER SHOPPER SHOPPER
166
it gives rise to conflict of interest with the distribution infrastructure that
suppliers have painstakingly built over the years. Thus companies like HLL
have evolved a distinct distribution channel altogether (called “Modern Trade”)
to service the needs of such large grocers. Even the mom and pop stores (known
as kirana shops) are affected due to this “unfair” back-end advantage extended
by the supplier to its leading accounts (the emerging supermarket chains).
The strategies adopted by the retailer to compete with branded goods are illustrated by the following diagram. Branding the store and following a private label strategy is the key strategy which helps the retailer to compete with branded product
Challenges Ahead For Retailing
The unorganized nature of retailing has stunted its growth over several years.
"Lack of industry status affects financing prospects and stunts growth of the
industry", says Kishore Biyani, managing director, Pantaloon Retail India. In
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(All Figures are Property Tax in Rs./sq.ft./month)
It is thus absolutely necessary for the concerned authorities to take necessary
steps for rationalization of the municipal tax rates in Kolkata to prevent loss of
business, employment, and development opportunities.
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•The relevant provisions of the Shops & Establishment Act stipulate that a
commercial establishment of any kind (which includes a retail operation) must
allow its employees one and a half day of leave for every week of work. It also
stipulates the total number of hours that any establishment can remain open for
business on any working day. In this competitive environment virtually every
retail, entertainment and food business requires to conduct its business every
day of the week and provisions like this severely inhibit their profitability.
•A number of retail environments have been asked to pay an entertainment tax
for the music that they play in their stores. In fact it has also been reported that
such taxes also demanded if a television is used inside such an establishment.
This is our view in punitive since such music or television is not intended to
provide any formal entertainment.
•There is confusion about the size, number and nature of the signage that a
commercial establishment is allowed to display outside its premises. The KMC
has of late begun to demand tax on such signage at the same rates as are
applicable to hoardings. A standard needs to be instituted proportionate to the
area occupied by a commercial establishment indicating dimensions of the free
signage permitted by the establishment so that there is no confusion that is
allowed to persist in this connection.
•The issue of fixing of Maximum Retail Price (MRP) by manufacturers, which
is making retailers uncompetitive, needs to be addressed urgently.
•The rigidity of the Weights & Measures Act, which empowers the arrests of
members from the Board of Directors of a company, is another issue, which
demands immediate attention.
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Kolkata is an ideal location for the growth of the retail industry. The inherent
advantages of West Bengal/Kolkata need to be exploited fully by strengthening
the governmental/administrative support mechanism. A comprehensive, rational
retail support policy can go a long way in making the sector act as an engine of
growth for the state economy.
Conclusion
In India the retail sector is the second largest employer after agriculture,
although it is highly fragmented and predominantly consists of small
independent, owner – managed shops .There are over 12 million retail outlets in
India , and organized retail trade is worth about Rs.12,90,000 crore
(September,2010). The country is witnessing a period of boom in retail trade,
mainly on account of a gradual increase in the disposable incomes of the middle
and upper-middle class households. More and more corporate houses including
large real estate companies are coming into the retail business, directly or
indirectly, in the form of mall and shopping center builders and managers. New
formats like super markets and large discount and department stores have
started influencing the traditional looks of bookstores, furnishing stores and
chemist shops. The retail revolution, apart from bringing in sweeping, positive
changes in the quality of life in the metros and bigger towns, is also bringing in
slow changes in lifestyle in the smaller towns of India. Increase in literacy,
exposure to media, greater availability and penetration of a variety of consumer
goods into the interiors of the country, have all resulted in narrowing down the
spending differences between the consumers of larger metros and those of
smaller towns.
However, the supply of quality real estate space would be instrumental in
propelling the future growth momentum of the retail sector in India. The
addition of better and affordable retail space would enable retailers to deliver
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more better-quality products and services to the consumers, resulting in increase
in operational efficiencies and decline in costs for the supply chain. India is one
of the complex real estate markets in the world due to the large degree of
variation and inconsistence in the market practice and regulatory norms. A
combined effort by both central and state governments in terms of appropriate
zoning laws, transparency in ownership, and availability of loans for retail land,
is very much necessary for reducing existing bottlenecks.
Accordance of ‘industry status’ to retail in India is an issue that needs to be
addressed soon. Recognition would ease financing prospects, as well as
standardize and unify taxes for the industry. An alignment of the retail sector
with the tourism sector could also promote India as a global shopping hub.
For the retail sector to achieve further growth, the spread of organized retailing
has to become a national phenomenon. According to KSA Technopak, a leading
consulting firm, the organized sector will grow to almost Rs.30, 000 crores by
2010, representing 6% of the total retail market. The top 6 cities will account for
66% of total organized retailing. Although many international retailers and
brands still regard India as too difficult, they would welcome the opportunity to
create an appropriate joint venture, if they felt India was changing. The growth
of the organized retail industry in the country will mean thousands of new jobs,
increasing income levels and living standards, better products, and services, a
better shopping experience, and more social activities.
Low marketing and advertising budgets will work out:
To rectify the things, right solutions are always expected. Whether the market
growth is slower or faster, its potential should not be left unused. Anyways, new
and innovative solutions must be invented to answer the current market slump.
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Cutting down the marketing and advertising budgets will reduce the financial
burden on retailing industry. Marketing and advertising are the supreme factors
for the retail industry to penetrate more into retail market. Following innovative
marketing and effective advertising at low prices will be a brilliant move for the
present day market trends.
Challenge to get more customers at low cost:
In this current meltdown, driving the customers to the retail stores seems high
and dry. But, the markets always have a hidden potential despite the slump.
Today, the changing market trends demand the retail industry to expand its
reach to the more customer touch points so as to drive them to the retail points.
‘Low investments and high returns’ are now made possible with the arrival of
technology enabled marketing services. The retail industry should realize that it
would be at a fair advantage of including technology enabled marketing
services to unfold the immense retailing opportunities.
Present communication channel is ineffective and involves high costs:
The present channel for customer communication is apparently ineffective
which the retail industry has been following for the decades. Moreover, it
always involves high costs too. The outdated communication channels should
be modified according to the changing market trends. Now, an uninterrupted
marketing channel, which will be continuously tied to the shoppers, is needed to
boost up the retail industry. Going beyond the traditional marketing at low
prices will cut down the high costs and brings good returns.
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How should Indian retailers sell their product?
The Indian retail industry is now beginning and growing day by day. multi
brand. Furthermore, vertical marketing systems constantly threaten to bypass
large manufacturers and setup their own manufacturing. The new competition in
retail marketing is no longer between independent business units but between
whole systems of centrally programmed networks (corporate, administered, and
contractual) competing against one another to achieve the best cost economies
and customer response.
In India the retail sector is the second largest employer after agriculture,
although it is highly fragmented and predominantly consists of small
independent, owner – managed shops .There are over 12 million retail outlets in
India , and organized retail trade is worth about Rs.12,90,000 crore
(September,2010). The country is witnessing a period of boom in retail trade,
mainly on account of a gradual increase in the disposable incomes of the middle
and upper-middle class households. More and more corporate houses including
large real estate companies are coming into the retail business, directly or
indirectly, in the form of mall and shopping center builders and managers. New
formats like super markets and large discount and department stores have
started influencing the traditional looks of bookstores, furnishing stores and
chemist shops. The retail revolution, apart from bringing in sweeping, positive
changes in the quality of life in the metros and bigger towns, is also bringing in
slow changes in lifestyle in the smaller towns of India. Increase in literacy,
exposure to media, greater availability and penetration of a variety of consumer
goods into the interiors of the country, have all resulted in narrowing down the
spending differences between the consumers of larger metros and those of
smaller towns.
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Other measures
1. Focus on customers who are loyal neither to the firm nor to their competitors.
2. Close the gap between the customer’s needs and the current offering.
3. Reduce the “bad costs”, those producing benefits customers won’t pay for.
4. Cluster the stores according to local similarities and differences in customers‟
needs and purchase behavior.
5. Retool the processes – customer research, merchandise planning,
performance management, strategic planning to position the company in a much
better manner.
International Retailers eyeing Indian Market.
Retailer Type Status
Wal-Mart Hypermarkets Wait & watch
Marks & Spencer Lifestyle stores Already in
7-Level Supermarkets Evaluating
Carrefour Multi-format retailer Postponed Entry
Auchan Hypermarkets Evaluating
Shoprite Supermarkets Opening in Mumbai.
Dairy Firm Multi-format retail Tied up with RPG
Metro Cash & Carry Already in
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Mango Apparel retail Already in
Landmark Lifestyle stores Already in
How can it be done? (Past, Present & Future)
For a start, these retailers need to invest much more in capturing more specific
market intelligence as well as almost real-time customer purchase behaviour
information. The retailers also need to make substantial investments in
understanding/acquiring some advanced expertise in developing more accurate
and scientific demand forecasting models. Reengineering of product-sourcing
philosophies - aligned more towards collaborative planning and replenishment
should then be next on their agenda. The message, therefore, for the existing
small and medium independent retailers is to closely examine what changes are
taking place in their immediate vicinity, and analyze whether their current
market offers a potential redevelopment of the area into a more modern
multioption destination.
If it does, and most commercial areas in India do have this potential, it would
be very useful to form a consortium of other such small retailers in that vicinity
and take a pro-active approach to pool in resources and improve the overall
infrastructure. The next effort should be to encourage retailers to make some
investment in improving the interiors of their respective establishments to make
shopping an enjoyable experience for the customer.
Finally, the most important determinant of our growth is the quality of our
people.HLL is deeply privileged to continue to attract the very best talent as the
number one preferred employer at leading campuses. Retailers are also
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encouraging diversity in our talent skills, especially for newer businesses, and
are also bringing in a large number of talented women. Training programmes
have been revamped to expose entrants to local and global business -- staff
spends time in Indian villages and international cities -- all within a 12-month
training programme.A wide variety of categories and global operations provide
enormous development opportunities through organized career planning. A lot
of emphasis has always been placed on skill development -- today we are also
concentrating on building individual and leadership capabilities. Retailers are
offering an energizing and empowering environment enabled by creating small
teams focused on key initiatives. We have found this the best way of combining
both scale and speed. Deeper in the company, in factories and offices, we are
unleashing the talent and creative potential of all employees through initiatives
such as TPM.
In conclusion, let me say that our most valuable assets are its brands and people.
Today's market is very dynamic and increasingly competitive. We have
confidence in our strategy and are learning to grow even in declining markets.
We are putting in place key enablers to build our capability for sustained high
performance. We have brands with rich heritage and strong consumer equity.
We have people who bring the power of their ideas and execution to exploit the
full potential of our brands towards delivering continued profitable growth for
our country.
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TOPIC 4
REVIEW OF AVAILABALE LITERATURE
EXCUTIVE SUMMARY
The Indian Retail sector has caught the world’s imagination in the last few
years. Topping the list of most attractive retail destination list for three years in
a row, it had retail giants like Wal-Mart, Carrefour and Tesco sizing up
potential partners and waiting to enter the fray.
India’s retail growth was largely driven by increasing disposable incomes,
favorable demographics, changing lifestyles, growth of the middle class
segment and a high potential for penetration into urban and rural markets.
However, with the onset of the global financial crisis, Indian retailers have been
suffering from the effects of rapid credit squeeze, high operating costs and low
customer confidence.
The impact of current slowdown in Indian retail sector is summarized along key
operating parameters as follows:
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Impact of slowdown on key parameters
Top line /Sales Turnover
Bottom Line/Profitability
Cost Competitiveness
Cost of Finance
Stock Turns/Rotations
Working Capital Availability
Real Estate Availability
Real Estate Cost
Store Expansion Footfalls Tier II/III Expansion
Advertising Spends
Attrition Headcount/Recruitment
Investments in IT Intensity of consumer Promotions
Positive Impact No Impact/Status Quo Adverse Impact
In this report, we have suggested strategies for the retail sector to help cope with
impact of slowdown and validated them through extensive discussions with key
players in the industry.
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Strategies to help cope with the recession
Manage Costs · Optimize costs (Cut costs in a way that doesn’t harm the business) and optimize resources. Key amongst them are:
- improve labor productivity- manage inventory efficiently,- renegotiate the rentals· Adopt a revenue share model against fixed share model
Optimize technology usage . Implement technology – specially in areas of manpower training, real estate management, supply chain and logistics management and day-to-day store operations
Efficient store management · Streamline store processes, increase store visibility, manage staff effectively and look into store layout and product range
Re-evaluate store viability and expansion plans
· Classify stores clearly into categories: profitable, high cost-high sale, low cost-high price and unviable and take action accordingly for each category
Decode consumer behavior · Invest in consumer research, paying close attention to the diversity present in India’s geography, to be more sharper in delivery
Enter into alliances and leverage expertise
· Forge alliances and partnerships to leverage on each other’s financial muscle and expertise
Develop private labels · Offer competitive in-store labels to earn higher margins — a win-win situation for both customer and
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retailer (the key is to improve quality of in-store brand)
Build competent supply chain management
· Focus on logistics in terms of minimizing the costs and knowledge aggregation
· Leverage on technology and expertise of foreign players
Tap under penetrate markets · Think beyond the metropolitan cities, target the opportunity offered by the rapidly developing and largely under-penetrated
Tier II, Tier III and rural markets
Innovate · Stand out of the crowd and keep offering new ideas, services experiences to the customers
Some of our thoughts on future outlook and how it may impact behavior in
retail sector are as follows:
· It is widely believed that the current slowdown might last for 24 – 30 months -
depending on government incentives in increasing spends on infrastructure,
development initiatives and other activities to stimulate the economy
· We expect an increased focus on value retail in the coming months and a shift
away from lifestyle goods, thanks to the impact of the current slowdown
· There is expected to be increasing action in food retailing and FMCG products
as this segment is largely insulated from the slowdown, while sectors such as
home furnishing are less favored
· Retailers are likely to start closing unprofitable stores and rationalize capital
expenditure, as a part of cost optimization
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· Churn in malls is likely to increase in the short term when some retailers opt
for low-rent premises as a means of sustenance in the current economic
situation
· As Tier I cities become saturated, retailers may move to Tier II, Tier III cities
where profits are higher due to lower rentals and operating costs
· There are going to be increased investments in shortening of supply chain.
This is mainly due to the incentives offered by the government and the potential
for higher profit margins
· The frequency with which retailers liquidate slow-moving goods by offering
discounts to reduce inventory is likely to increase.
The long term prospects for retail chain expansion are still very attractive and
this period of uncertainty is seen by retailers as an important consolidation
imperative for an industry that has been growing at 30-40 percent p.a. over the
past decade.
INDIA’S RETAIL JOURNEY- FROM GEAR FIVE TO GEAR….
In the past few years, India’s retail journey seemed picture perfect with the most
attractive ‘stops’ still unexploited and under-penetrated. Favorable
demographics, steady economic growth, easy availability of credit, and large
scale real estate developments were fuelling the growth of India’s
approximately USD 25 billion organized retail market. The opportunity was
there for all to see and India was the destination of choice for top global
retailers. In this environment, India’s own blue chip companies like Reliance,
Bharti and RPG diversified to add retail to their sector portfolio. All things
considered, it was a good time for Indian retail.
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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.
Industry-wise Impact
An impact score of 0-15 indicates low impactAn impact score of 16-50 indicates moderate impactAn impact score of > 50 indicates high impact
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.
Organized retail penetration - Gap created by slowdown
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LIVING IN UNCERTAIN TIMES As per KPMG’s survey, even though almost all retailers believe that the current uncertainty is only near term and is likely to persist for 12-18 months, there exists certain degree of skepticism in achieving targets. This is clearly indicated by the Cartesian study where 53 percent of retailer’s confidence levels have been shaken.
Disappointing Footfalls
A large number of retailers have experienced a drop in footfalls which is
mirrored by slowing Same Store Sales (SSS) growth figures. This also
adversely impacts the time taken to break-even for new stores. SSS at some of
India’s biggest retail groups have become negative for the first time in six years.
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.
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According to KPMG’s survey, 70 percent of the respondents stated that the
slowdown has adversely affected their footfalls.
Player Average
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.
Working Capital on the rise Decline in Inventory Turnover
Margin contraction- Interest burden adversely impacts profitsOn their part, retailers have been trying to compensate for falling sales by curtailing expenses. This has countered the effect of the topline on operating margins leaving it largely unaffected. However, with working capital requirements and expansion capital being financed through sizeable debt,
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interest costs have significantly dented the bottomline.
Funding constraintsA large number of retailers are highly leveraged and rely on fresh equity funding for growth, which is difficult to come by in the current market. Banks are increasingly hesitant to finance retailers in the context of falling demand and low profitability. Working capital requirements have also been difficult to meet as 60 percent of KPMG’s survey respondents confirmed the drying up of credit.
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 years. However significant delays 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.
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“The slowdown and delay in development of quality mails have hindered our expansion plans to a large extent.” Amit Kumar, Head, Retail, Fashion@bigbazaar
Besides the weak economy and the feeble consumer sentiments, the disappointing retail growth is also attributed to…
Poor supply chain management and weak support infrastructure
· Poor infrastructure –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.
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As real estate prices skyrocketed, retail rentals also touched unsustainable levels eating directly into the profit margins of retailers. Until a few months back, store rentals were 300 to 400 basis points higher than even international levels. Retail rentals in Linking Road in Mumbai, South Extension in Delhi and Brigade Road in Bangalore have risen about 50 percent in the past 3 years.Rentals eating into profit margin of retailers
Mistakes by retailers have also added to external troubles
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.
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.
Interest coverage declining across players
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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.
STRATEGIES TO HELP RETAILERS COPE WITH THE SLOWDOWN
“Consumers are currently sitting on the fence and the challenge for retailers will be to offer the right baits to get them back to stores. Retailers have to focus on growing profits through sales growth and not mere cost-cutting strategies. There will be a sharp cut in overall sales growth this year, but a marked improvement in bottomlines with players focusing on efficiencies"- Kishore Biyani, Chief Executive Officer, Future Group
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Toughen internal efficiencies
Managing Costs:
Subdued quarterly results, staffing cuts and frozen budgets have increased the scrutiny on each rupee spent. When KPMG asked its respondents to name the most important focus area in the current times, about 90 percent of the retailers highlighted costs as their focal point and the remaining 10 percent mentioned evaluating store viability and revision of expansion plans as their main concern.
Cost Cutting: Cost cutting is inevitable in a downturn, but strategic decisions with a long term view should be the key focus while making cost containment choices. Many retailers have made the mistake of cutting those costs that are easiest and fastest. An effective strategy should be one that identifies the costs least important to delivering what customers value. This requires a deep
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understanding of customers’ needs and re-evaluating the business activities that actually deliver what customers value and the ones that do not. This ensures that the costs cut now do not harm the future potential of the business.
In mid 2008, Kishore Biyani announced a new strategy for his group: “Garv se bolo hum kanjoos hain”- Translated “Say ‘Yes, I am stingy’ with pride” With this campaign, the company aimed to save USD 36.5 million in a period of one year. The idea was to openly accept that cost-cutting needs to be implemented and then aggressively eliminate inefficiencies. The move ensured that internal overlapping of functions was avoided within various departments. At the back-end, human resources and information technology were integrated in an organized manner.
· Resource optimization: A retailer wants to better manage its back- end centers, supply chain and stores while improving its profitability. Each customer amongst his millions is defined by a different buying history, a different buying propensity, and a distinct servicing cost. This raises several questions.
· Given the capacity and costs for each channel, which of the customers, should receive what kind of offers, through which of the channels?
· What will happen if some parts of the business are outsourced as against building in-house capabilities?
· Would it be viable to initiate a new model?
In each case the answer is “it depends”. The best way to allocate resources depends on the nature of the resources and the constraints at hand:
For example, in order to conserve resources, Vishal Retail too has decided to look at centralizing some of its operations. It has already closed its large distribution centers in Mumbai and Kolkata and opened a centralized warehouse in Gurgaon, near Delhi.
Future Group has merged the back-office operations of its different stores to lower costs amid the global economic slowdown. “Our back- end operations
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have been converged to cater to multiple formats as a part of our cost-cutting and efficiency enhancing exercise,” Rajan Malhotra, Chief Executive, Big Bazaar. The group is also considering reducing the size of some Big Bazaar stores, and closing the worst performing ones.
Companies need to review their optimization strategies in the changing environment, as with effective optimization they are likely to be able to bring about savings leading to improved competencies even in an unfavorable climate.
·Improving labor productivity: Retailers are turning their attention towards employee productivity to boost sales. Many retailers are going slow on hiring in back-end operations with training staff high on their agenda.
Koutons Retail has increased the performance target for its employees to deliver more. “We have motivated our employees to give that extra 25 percent in the quality and quantity of work they do,” --D P S Kohli, Chairman, Koutons Retail India.
Vishal Retail is planning to start a performance-based remuneration process in its back-end operations, whereby employees will get higher perks and salaries based on their performance. “Though we can’t do much about labor cost at front-end operations, we are considering performance-based remuneration at the back-end. We are encouraging our people to work harder so that they bring in more efficiency into the system,”
Manpower retention and training: Inspite of a downturn, the requirement for skilled manpower still persists. Companies need to understand how to retain their most desirable staff while ensuring their future development. This becomes a bigger concern particularly when management development costs are under pressure, as this is a leadership challenge.
One of the common problems with retail firms is that they hire fresh graduates without any experience in the retail sector. This has led to over-ambitious expansion plans which has left the firms struggling. The current downturn has highlighted this issue and made firms realize that to succeed they need experienced talent with an understanding o the ground realities faced by the Indian retail sector.
With scarcity of an experienced talent pool, talent development has to be brought in-house. The need is to focus on selected senior managers, to develop
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their capabilities to coach and mentor others. Indian players have already started to take steps to curb this problem and are opening academies to meet their manpower needs.
In 2008, two companies — Bharti Retail and Vishal Retail — announced the launch of retail training academies in Ludhiana and Delhi respectively. The 2 facilities are expected to churn around 5,000 trained persons every year. The new schools are in addition to the existing academies including Spencer's Pragati, Subhiksha Retail Institutes in Mumbai, Delhi, Bangalore and Hyderabad, and Future Learning and Development Academies in Ahmedabad, Bangalore and Kolkata.
Inventory Management: In any retail operation, restraining inventory cost is of utmost importance. Improper inventory may result in stock- outs for some of the categories whereas excess stock for others. Lower inventory turns are likely to have negative impact on ROI and more so for categories where gross margin is quite low like fruits and vegetables, milk, staples, mobiles, etc. In addition, higher inventory may result in obsolete stock, margin leakages, damages and high carrying cost (interest, space, handling costs, etc.).
Retailers should aim to:
Reduce stock- outs When an item in not available it reduces direct sales and can lead to customers shopping elsewhere
Avoid Bargain hunting Buying huge quantities of goods at low prices
but then being unable to sell the stock may lead to increased cost of inventory.
Increase Inventory turnover Increase inventory turnover and, in turn, reduce excess inventory stock- This is both important and difficult as it may require a change in retailer mindset and tough decisions in terms of write- downs.
Control shrinkage In India shrinkage is equivalent to 2.9 percent of retail sales and is the highest in the world. Reducing shrinkage through well-defined processes for physical counting of inventory, digital surveillance, Electric tags, etc might effectively save costs and improve.
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Bringing down Real estate costs: Real estate rentals constitute the biggest cost item for retailers at about 10-15 percent of sales. Quite frequently it has been observed that one of the major costs for retail stores i.e rental cost is ignored by retailers.
Renegotiating Real estate costs:
The current environment is conducive for retailers to re-negotiate the rentals and bring down this cost. Large retailers like the Future group, reliance retail and Aditya Birla Retail are in the most of furiously renegotiating rentals to bring down costs, some players have managed a 40 to 50 percent reduction in store rentals.
Rent constitute major chunk of retailer’s cost
Entering into revenue sharing model as against fixed rental model
Although previously developers and landlords were unwilling to enter into revenue sharing model, they are now ready to lease out their empty spaces. The model under which retailers share a percentage of their sales with real estate companies is seen as a fair way of sharing risks between the two stakeholders. Revenue-sharing model increase the responsibility of the developer to bring in footfalls in the mail by providing good upkeep of the infrastructure. The model is sustainable during the downturn as the retailers do not have to take the hit alone. Players can leverage the opportunity by collaborating with developers to work out a win-win model and a revenue sharing deal.
“We believe this is the way forward for all the retailers as it is beneficial for both the developer and the retailer,” – Kishore Biyani, Chief Executive Officer, Future Group.
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Organized retail in India faces many hurdles in the absence of proper supply-chain infrastructure and development of effective electronic payment and delivery channels.
The technologies that retailers have deployed over the years, to serve their distributed networks, are without standards. Going forward, technology is likely to be a key differentiator to bring about efficiencies, save on costs and offer better services to customers. The problem with old technology is that there are no standards and in many instances, one does not integrate with another.
All the elements within the retail industry right from data warehouses, logistics, supply chain, store management, point of sale, etc. are likely to get impacted positively with the usage of technology be it RFID, GPS, intelligent video analytics, point-of-sales terminals or sensor-based shopcarts, etc.
Although Indian retail chains have started deploying these technologies, there still exists a challenge to implement them simultaneously and make the process more efficient.
The advantages of implementation of technology could be scaled manifold by carefully choosing solutions in context of the said business and by use of technology in following domains:
· Manpower training: Retailers need to gear up with good people management programs. One way this can be done is through certification programmes. Such programmes are likely to enable employees to upgrade their basic skills in retail operations and result better utilization of the available resources.
· Real Estate Management: Information technology can be leveraged to provide project management capabilities to monitor the progress of store launches. Timely launch of retail outlets can provide a good head- start for retailers and save significant funds as well.
· Supply chain visibility: IT can help retailers set up basic forecasting, replenishment and supplier management solutions to improve supply chain management. Starting from sensor based inventory management to RFID based control over the inventory coupled with GPS based tracking; IT can help in maintaining the optimally minima inventory enabling reduced input costs.
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· Store operations: Innovative use of Intelligent Video Analytics, point- of-sales terminals and sensor-based shop carts can help retailers enhance customer experience and simultaneously reduce costs by controlling shrinkage.
· Logistics management: Retailers can leverage IT for back-end support and 3PL companies for physical infrastructure such as warehouse space and a transportation fleet. GPS technology is extremely useful in real time tracking of the goods moment.
Case Example
Shopper’s Stop: Fifteen percent of Shopper’s Stop’s net worth is invested in IT. The company has reaped its benefits through reduction in shrinkage levels and enhancing customer’s experience. Shopper’s Stop has one of the lowest shrinkage levels in the industry (0.4 percent)
“We have found that 50 to 55 percent of a customer’s experience revolves around two components: The availability of merchandise, and the ease and speed of a billing process. Out of the two, the availability of merchandise is more important. Here, I see IT playing a much more important role.”-- B.S. Nagesh, Managing Director, Shopper's Stop
Future Plans: Since the base of Shopper’s Stop IT structure is more or less in place, progressively a large part of their investments is expected to be inclined towards user education. The company plans to invest in understanding its customers using CRM technologies by building data warehousing, data-mining, and CRM capabilities. There is also likely to be further investments in enhancing corporate governance, information insight, scaling and managing SKUs, network and infrastructure management, and disaster recovery.
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Reevaluating store viability and expansion plans
With catchments turning unviable, rampant store closures and format rationalization is on the cards. Rationalization is likely to intensify in coming quarters. Retailers may need to shut down unviable stores to conserve cash and inventory.
Given high debt levels and dormant equity market, capital for growth has become scarce. Expansion plans need to be re-looked because of capital scarcity and catchment reassessment.
Efficient store managementEven after setting up stores, retailers may face issues in running stores efficiently. There are currently no streamlined and defined processes for allocation of products/categories, inventory management (both on shelf and in back room), workforce management and store infrastructure management.
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Issues facing retailersNew Customers
· Marketing inadequate:- Insufficient hype during store launch, lack of regular in store events
· Store visibility:- Store not distinctly visible within mall or on street outside
Loyalty and Spend
· Staff knowledge and motivation:- High attrition rates, low product knowledge, poor customer interaction skills, inadequate competition and incentives· Product range:- Wear range of certain categories· Price Perception:- Price communication not strongly brought out through VM and product adjacencies· Layout and VM:- Reduced shoppability due to layout and VM not being optimal· GC management not aggressive:- Inadequate monitoring and incentives on GC recruitment targets
Costs · Rent:- Very high rentals, poor retail to carpet and carpet to chargeable ratios. Low packing density of options· Power:- Absence of monitoring mechanisms and metrics for power control· Personnel:- Large number of idle personnel leading to high costs
Players need to take multiple initiatives to fix retail basics and ensure growth to meet the targets
Decode consumer behaviorIndia is a diverse nation with multi-lingual, cross cultural population spread across different geographical regions. Retailers have to recognize the fact that a strategy that holds true for a particular region and set of people may not hold true for others.
While India has a great market potential, most retailers tend to ignore the basic fact about the diversity of its customer base. Any retailer who does not do his ground work in terms of understanding his customer needs stands a great risk of failing even with one of the best models at hand.
A case in point is discount shopping in India. Indian discount shopping is still
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fragmented because of diverse culture while western retailers are able to treat the entire customer base as one. This helps them gain benefits of large scale promotions and offers. The opportunity lies with the Indian retailers to customize discount seasons based on festivals of different regions. However, annual planning of sales based on geography and festivals is still at a nascent stage in India.
Retailers should recognize that consumer is the king and cannot be ignored. The true metric of success may not be in terms of number of new stores added by a company, rather, increase in same store sales through a thorough understanding of consumer requirements.
According to KPMG’s survey, while attracting the customers was one of the top concerns of the retailers, investment in consumer research was not amongst their top priorities. Retailers have started espousing different approaches to seize a share in consumers’ wallet. Some of the strategies adopted by retailers:
Offering Discounts
Most retailers have advanced off-season sales plans and some have extended discount sales periods from 15 days to a month. The discounts on offer have gone up from 25-30 percent to 40 percent, even higher for certain lifestyle products
Lowering Prices Certain retailers are moving towards adopting “First Price Right “approach. Under this the retailer does not offer discounts, rather directly competes on the selling price by offering best price without any mark downs.
Offering Value Added Services
Companies are offering innovative value added services like happy hours on shopping deals, offers for senior citizens, contests for students, lottery gains, etc
Leveraging partnerships
With an aim to keep customers longer on the shop floor andincrease conversions, retailers are now pitching to partner withmanufacturers, service providers, financial companies, etc. tocreate a buzz around certain product categories
KPMG believes that companies that invest in CRM and consumer research analytics may stand to gain against those who take customers for granted. Big Bazaar has set up Customer Advisory Boards (CABs) as a measure for
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receiving valuable customer feedback. Through CABs the management aims to get closer to customers and give them a platform to voice their opinions about the stores. CABs consist of 8-10 influential people of the community like local doctors and lawyers who hold meeting and collect feedback from consumers. The feedback is then assessed and implemented by management to develop better customer relationships.
Entering into alliances and leveraging expertiseIn the current scenario retailers should be on lookout for opportunities to partner with foreign retailers as it could possibly bring in the much- needed capital and expertise. The relationship could involve joint contribution by parties with shared control/ownership and has some degree of exclusivity attached to it.
Retailers can also consider entering into an alliance with:
· A retailer from the same channel
· A retailer from a different channel
· Vendors
· Back-end service providers like third party logistics players and IT service providers
Alliances enable retailers in entering new markets, categories, expanding value proposition and capturing new consumer segments. While globally, it’s a common trend, Indian retailers are slowly recognizing the importance of such partnerships and therefore actively seeking for opportunities to unlock value.
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Tap new consumer segments
Extend into new categories
Enter into new geographies
Enhance value proposition
Reliance retail has tied up with Pearle Europe to launch a chain of optical stores in India
Future Group isleveraging Blue Foodsexpertise in food andbeverages (F&B )
Fabindia has acquired a 25 percent stake in
UK's bohemianwomen's wear retailer EAST, to help FabIndiasell its garments in UK
Shoppers’ Stop hasentered into an alliancewith Mothercare UK toexpand its valueproposition in mothercare and kids wearsection
For tapping the kids segment in India, Spencer retail has tiedup with Woolworths formarketing its Chad Valley range of toys
Spencer's entered intopartnership withspecialists like Sankalp,Rajdhani, Yo China and Singapore based Bread Talk to open chain of food outlets in its stores
AB Retail acquired 90 percent stake inTrinethra from India Value Funds to gain a strong retail footprint inSouth India
Trent, has entered intoa joint venture withInditex Group todevelop and promoteZara stores in India andthus leverage on Zara’sinternational experience
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It’s the time of Private LabelingPrivate labels enable retailers to offer quality products and earn higher margins. The retailer also derives many advantages of using private labels. In-store labels are at least 5-20 percent cheaper across various categories. This is because they cut out middlemen costs and pass on the benefit to the consumer. Private labels enhance the bargaining power of the retailer while negotiating with manufacturer (national/ international) brands. In the long run, the retailer can use the Private Labels to attract customers to his outlet. Thus, many retailers are considering increasing their private label offerings significantly.
Aditya Birla Retail is aggressively pursuing the strategy of promoting sales of private labels. Currently, the segment accounts for around 3 percent of its total sales. A B Retail, which operates supermarket and hypermarket formats, under ‘More for You’ food and grocery chain, is targeting to increase private label sales to 10-15 percent in the next 2-3 years.
When we asked Mr. Amit Kumar, Retail head, Fashion@bigbazaar on private labeling, he said that he plans to increase his private labels from 60 percent to 90 percent in the next three years. According to him private labels provide four key merits:
· Gives the opportunities to stand out from the crowd
· Helps maintain consistency in stocks. Outside brands may or may not be available in the future leading to a potential loss of customers.
· Enables retailers to control margins by improving their bargaining power
· Facilitates movement into a planned environment. Since private labeling requires long term planning, it enables the retailers to understand all the nuances of its products as against an opportunity stock which could turn into an opportunity cost in the long run
Globally, own label brands contribute to 17 percent of Retail Sales with a growth of 5 percent per annum. International Retailers like Wal-Mart of USA and Tesco of UK have 40 percent and 55 percent own label brands representation in their stores, respectively. In India there is an increasing trend towards acceptance of Private Label brands and thus their penetration is on the rise especially in the Apparel, Consumer Durables, Home Care and FMCG segments. Overall, in India, Private Labels constitute 10-12 percent of the organized retail product mix.
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Private label penetration (%)
Players like Shoppers Stop, Tata Trent, Pantaloon, Reliance, Spencers, Subhiksha, and Vishal have moved towards adopting private labels to address consumer needs and to increase profitability of their retail businesses.
In India, very few players are into own manufacturing of private labels and are dependent on third parties – For example, Vishal Retail is increasingly shifting from manufacturing to third party sourcing primarily because of increase in categories for private labeling and volumes.
Recession spears private label appealPrivate labels are likely to continue to grow in the current financial environment as cash-strapped consumers' perception of the products as a 'cheaper option' changes. Part of private label growth in a recession is permanently sustainable. As consumers learn about the improved quality of private labels in recessions, a significant proportion of them are likely to remain loyal to private labels, even after the necessity to economize on purchases is no longer required.
Higher profile, quality-focused private label brands are likely to prosper as consumers begin to reassess their views of own-brand goods. Also, with increase in competition and rising pressure on margins, private label are increasingly getting attention due to the aggressive marketing of retailers at par with branded goods.
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“Today with the margins that the FMCG companies offer, no one can survive. Even global retailers such as Wal-Mart, Carrefour and others are successful because of their strong focus on private labels. No retailer can survive on high rentals and low margins, adding that margins on private labels are higher, as much as 35-40percent”- Thomas Varghese, Chief Executive Officer, Aditya Birla Retail.
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Build a competent supply chain management system
Strengthen support infrastructureWith the large players like Reliance, Bharti - Wal-Mart, Tata’s entering into in retail market, there is likely to be enhanced focus on improvements in logistics and supply chain infrastructure. Retailers as well as third party logistics providers may increase their investment in logistics infrastructure. To gain cost leadership in the market, big players may have to minimize costs by developing supply chain infrastructure. Warehouses, distribution centers and transportation are likely to see modernization.
Warehouses
A large number of players in this industry are small / medium entrepreneurs running the warehouse for one or more companies. The scale of these warehouses is not large enough to tap large scale economies or justify investments in higher standards. However, going forward, the implementation of VAT regime is expected to drive consolidation and hence larger scale warehouses. Also the rapid growth of organized retail is expected to drive sophistication and efficiency in warehousing practices.
Cold Chain
There is an untapped potential of USD 2.6 billion for providing efficient cold storage facilities.15 Driven by a growing demand for convenience foods, we expect retailers to partner with logistics specialists to meet their cold chain infrastructure needs.
Third Party Logistics (3PL)
3PL market in India is still in a relatively nascent stage. However, realizing the cost benefits that these companies bring, retailers are gearing up to use 3PL services for their logistics function. As the sizes of retailers grow with a potential for scale economies, we foresee them to move to 3PL service providers.
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Backward integration
There is a need to reduce the number of intermediaries so as to increase the efficiency and profitability of retailers. One of the ways to do that is to integrate the functions in the supply chain. There have been initiatives in this regard in rural India following the government’s approval of contract farming and land leasing. This is likely to allow accelerated technological transfer, capital inflows and assured market for crop production. This is likely to eliminate the intermediaries sucking away a large chunk of the margins. Pepsico’s contract farming in Punjab, ITC’s e- chaupal and Mahindra Shubhlabh services are examples of this vertical co-ordination leading to an increasingly efficient supply chain.
Optimize Processes
IT can help retailers optimize their processes in a lot of ways including improving forecasting accuracy, reducing stock-outs, increasing sourcing efficiency, increasing product movement visibility, reducing lead time and optimizing transportation. Starting from sensor based inventory management to RFID based control over inventory, IT can help in maintaining optimal inventory resulting in reduced input costs.
Venture into under penetrated markets: Rural Retailing
India has witnessed a rapid increase in incomes with per capita incomes soaring to USD 1000 in 2008 from miniscule USD 418 in 1998. The growth has not been restricted to urban India, as the per capita income in rural India has grown by 50 percent in past 10 years.
Among key reasons for the latter are rising commodity prices, improving productivity and higher production. The increasing availability of basic infrastructure, improving access to funding, employment guarantee schemes, better information systems and growing literacy are together
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ITC –CHOUPAL SAGAR :A Successful Rural Retailing Model
CONCEPTHub and spoke model involving engagement with farmers in rural India. A rural shopping mall where farmers can sell their commodities and can buy almost everything including cosmetics, garments, electronics, appliances and even tractors. It serves as an agri-sourcing centers, shopping centers, and facilitation centers
IMPACTChaupal Sagar stores have become meeting point for farmers to transact commerce and exchange useful information. ITC awarded “Innovation for India Award 2006” for e-Choupal in the Social Innovations category for business organizations. e-Choupal specially cited in the Government of India’s Economic Survey of 2006-07 for its transformational impact on rural lives.e-Choupal is one of the top five alternative channels for LIC Policy sales, and accounts for 10percent of the national weather insurance market helping bring prosperity to rural households. With additional fiscal incentives provided by the government, rural India is set to witness further boost in overall farm incomes.
Overall, there is a huge market which is waiting to be served, ready to splurge, willing to explore new products and services. Retailers can tap on their wallets given they do their homework well.
According to India Retail Report 2009 by Images, "India's rural markets offer a sea of opportunity for the retail sector. The urban-retail split in consumer spending stands at 9:11, with rural India accounting for 55 percent of private retail consumption."
As per IBEF, rural India accounted for almost half of the Indian retail market, which was worth about USD 300 billion. With most of the retail markets getting saturated in Tier I and Tier II cities, the next phase of growth is likely to be seen in the rural markets.
Major domestic retailers have started setting up farm linkages. Few examples include, DCM’s Hariyali Kisan Bazaars, Pantaloon Godrej’s joint venture Aadhars, ITC’s Choupal Sagars, Tata’s Kisan Sansars and Reliance Fresh are some of the established rural retail chains.
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Many Retail players are capitalizing on rural India’ s potential by Partnering with farmers Triveni (Khushali bazaar)· Triveni aims at increasing the association of rural communities. Currently the company has 2 owned and 4 franchises stores. Each store provides to farmers agri inputs, agri equipment for sale and rental, irrigation equipment, cattle feeds, FMCG, petrol, diesel, two wheelers and tractors, and other goods to complete the farmer’s basket of goods
ITC (e chaupal)· IITC procures all materials directly from the producers, thereby cutting down the middlemen all together· It pays upfront to the producers, meaning there is no credit system
HUL (Shakti)· Access to the remote rural areas and market potential· Sell its products through women self-help groups who operate like a direct-to-home team of sales women in inaccessible areas where HLL's conventional sales system does not reach
Godrej Agrovet (Aadhar)· Complete solution provider to the farmers rendering farm advisory services, credit facility to farmers, providing up to date information on weather, price, soil & water testing facility, FMCG / consume durables, etc. to farmers
Reliance Retail (Fresh & Fresh plus)· Focusing on sourcing directly from farm gate for Fresh & Fresh Plus.· Aimed at connecting farms & unorganized retail by setting up 1600 farm-supply hubs across the country.
Tata (Tata Kisan Sansar)· Provide end-to-end solutions, right from what crops to grow to how to sell them for the maximum returns
M&M (Shublabh)· Shublabh interfaces with bank for the financing w.r.t the fertilizer and seeds firm ,as well as for the delivery of produce to the end buyer and payment to farmer
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DCM (Hariyali Kissan Bazaar)· Caters for about 15-20,000 farming households and at least 70,000 acres of agricultural land.
Innovate: categories, services, business models…
In today’s world of internet technology, globalization when everyone is connected and well informed; retailers have to ensure that they continuously understand the pulse of their customers and design their offerings accordingly. This requires not only in-depth understanding customer requirements but also thinking laterally to come up with innovative solutions which would make the retailers stand out of the crowd.
With rapid globalization, increased connectivity and heightened awareness the consumer is much more conscious about his needs and requirements. He not only seeks to purchase a product but also the entire shopping experience. KPMG believes that players, who can customize their offerings according to the specific needs of the Indian consumer, are likely to emerge as a leaders. Retailers have to start appreciating this fact and take out their thinking hats to plan innovative solutions for their customers.
The current environment is a good time for generating trials; the consumers are actively looking for the best value and may therefore be more than willing to experiment. Internationally, with consumer currently debating over whether or not to spend their hard-earned money on that next cup at Starbucks, McDonald's has a perfect opportunity to prove that their Premium Roast coffee—a step up in price for McDonald's, but still cheaper than Starbucks —is a pretty tasty brew.
“Innovation and newness should be the name of the retail game in India. As an industry we have to be radically different in our approach towards consumers, product offering, market segmentation and competition.This would create demand within the target segment and in turn help attain viability for the business model. Instant gratification as envisaged by the promoters in the past actually reduced the share of the pie resulting in the repelling impact as witnessed today.”- Anurag Rajpal, Vice President (Apparel), Spencer’s Retail.
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Mom & Me Stores : A Unique Specialty Retail ModelBusiness Model Target AudienceA specialty concept started by Mahindra & Mahindra's in January 2009 Store size: Range between 5,000 and 10,000 sq.ft Stores to be located in Metros, major cities at high street or mall locations The concept provides various functionally important products that offer safety and quality products that are currently lacking in India
The primary target for company includes ‘-9 to 9’which means women who are expecting, tomothers who have kids up to the age of 9 years,and kids from 0-9 years
Product Offerings Add on’sProduct basket would comprise of maternity wear, fashion apparel for babies, toddlers & young kids, toys & games, wellness products for mothers and babies, nursery and furnishings, travel & safetyproducts, personal products, foods, etc. Partnership with international brands: Startrit, Brainy Baby, Mary Meyer, CAM, Bugaboo, Evenflo,and Avado
Value added services like feeding area, play areafor kids, nappy change area, and other facilitieslike a stroller to use at the store, reading lounge,etc.M&M will conduct morning coffee meetings,consultations with experts and many such moreevents to be a source of knowledge and expertisefor customers The website will also serve as a f forum for customers to share information
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Big Bazaar’s Chaos Theory Evolved to evolved to cater to the Indian Mindset Concept Impact A value for money hypermarket that subscribes to the notion that chaos in stores increases sales. Mr. Kishore Biyani realized that in abroad hypermarkets have long, narrow aisles, suitablefor individuals shopping around carts which won’t work in India, so in big bazaar he created multiple clusters within every store.The stores are designed as an agglomeration of bazaars with different section selling different categories.The U-shaped section and islands have proved to be more appropriate for the Indian context than long aisles. Brought in the innovative concept of ‘sabse saste 3 din‘ which offers, deals and discounts, helping ensure that there is something for everyone in the family to shop for, and customers get 'value-for-money'.
Big Bazaar and Food Bazaar to be hived off into independentcompanies.Big Bazaar is eyeing a turnover of USD 1700 million by the next financial year.In 2007-08, Big bazaar clocked 110 million footfalls.Kishore Biyani awarded the 'Retail Face of the Year’ at Images Retail Awards 2007.
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FUTURE OUT LOOK
"We predict an increase in 'value for money' category and a decline in lifestyle category. Also we mightsee lesser aggression in stores expansion and focus on store productivity, shrinkage and loss reduction"-Narayanan Ramaswamy, Executive Director, KPMG
Retail
Every usage High ticket retail Impulse purchase High end luxury Value Format Home furnishings/ Books/Music/ Apparel/ fashion
The past six months have been difficult for the retail industry. Retail has been one of the seven industries in the country that have been severely impacted by the downturn in economic conditions. The sector has entered into a mode of correction removing some of the flab that had accumulated over the past 5 years of rapid expansion. Almost all retailers that we met with were redrawing their expansion plans and seriously evaluating options to close out poor performing stores. These efforts are expected to intensify over the next few months. There could be some Merger and Acquisition (M&A) activity that has been missing of late with the long-term players likely to consolidate and move ahead strongly.
There is a consensus however within the sector that this restructuring exercise may continue for the next 12-18 months before retailers begin another serious round of expansion.
The long term prospects for retail chain expansion are still very attractive and this period of uncertainty is seen by retailers as an important consolidation imperative for an industry that has been growing at 30-40 percent p.a. over the past decade. The relatively low rates of penetration of organized retail in most categories coupled with the sheer attractiveness of India’s demographic and
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economic environment is expected to continue to add momentum to overall prospects of this sector in the long term.
Short term outlook The current slowdown is expected to last 24–30 months conditional on
government incentives in increasing spends on infrastructure, development initiatives and other activities to stimulate the economy.
In light of the effects of the slowdown, we expect an increased focus on value retail in the coming months and a shift away from lifestyle goods.
The focus is likely to shift towards food retailing and FMCG products as this segment is largely insulated from the slowdown.
Retailers may start focusing on cost reduction by closing the unprofitable stores and rationalization of capital expenditure.
Churn in malls is likely to increase in the short term when some retailers may find it difficult to sustain in the current economic situation, instead opting for low rent premises.
As Tier I cities become saturated, retailers are likely to move to Tier II, Tier III cities where profits are higher due to lower rentals and operating costs.
There are going to be increased investments in shortening of supply chain. This is mainly due to the incentives offered by the government and the potential for higher profit margins.
The frequency with which retailers liquidate slow moving goods by offering discounts to reduce inventory are expected to increase
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TOPIC 5
ISSUES EMERGED
India is the fifth largest retail market globally, with a size of INR 16 trn, and has been growing at 15% per annum. Organized retail accounts for just 5% of total retail sales and has been growing at 35% CAGR. Though the journey has so far been rather mixed,organized retail is being tipped as one of the biggest gainers from growing consumerism and rising income. India’s robust macro- and microeconomic fundamentals, such as robust GDP growth, higher incomes, increasing personal consumption, favourable demographics and supportive government policies, will accelerate the growth of the retail sector.
We have structured the report broadly In three parts (1) Learning from the past (2) Consolidation (3) View on future (4) Critical issues
1) Learning from the Past: During 2005-2007, the sector was in a hyper growth phase. In pursuit to capture market, companies made strategic as well as operational errors which has been broadly classified as follows:i. Race for increasing retail space resulting in haphazard growthii.Unviable formatsiii.High lease rentalsiv.Manpower costs and productivity issuesv.Poor backend infrastructurevi.Entry of too many new players
2) Consolidation: During the global slowdown phase of 2007-2009, the Indian retail players paused to realize their past mistakes and took time and effort to re-organize themselves:i.Focus on profitable growthii.Exit from unprofitable stores / formatsiii.Rental renegotiation / revenue sharing arrangementsiv.Reduction in salaries / higher manpower productivityv.Significant investments in backendvi.Exit of unsuccessful new entrantsIndustry also witnessed failures like Subhiksha and Vishal Retail with many other existing players still trying to fine tune their operation
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Learning from the past
• Hyper Growth Frenzy - The Indian organized retail revitalization is already reflecting in improved financials over the past few quarters and this trend will sustain in the coming periods as well. However, the sector underwent a hyper growth phase during 2005-2007.The companies got carried away and committed strategic and operational errors, which they subsequently realized.
• Race for increasing retail space resulting in haphazard growth - Organized retailers entered the race of adding retail space without proper due diligence on the catchment area, mall density and acceptability of organized retail. Retail space addition was looked upon as a key success factor and was a key market cap driver. This resulted in haphazard growth, with several malls coming up within a square km in places like Gurgaon and Ahmedabad, which impacted footfalls and store viability.
• Unviable formats - Various formats mushroomed during the hyper growth phase. Retailers were looking to create some niche positioning for which they were ready to experiment.Large retailers expanded into numerous specialty formats ranging from mobile phones, beauty, health, wellness, media, entertainment, catalogue retailing, tea and snacks kiosks, etc. Some of these ideas were ahead of their time, as the modern Indian shopper had just begun emerging. In their attempt to get a higher share of the consumer wallet, retailers ignored the value proposition for the consumer
• High lease rentals -Retail is a tough business to operate; PAT margins are as low as 2-3%.
Indian organized retail follows the lease rental model due to high real estate costs and paucity of quality malls. Lease rentals should ideally be 3-6% of sales depending upon the format. However, rentals in a few specialty stores touched Rs 300/sf/month during the heydays - in a period of two years, lease rentals in general increased 50-70%. The increase was more evident in FY08 and FY09 due to decline in same store sales growth.
• Manpower costs and productivity issues - Aggressive store opening plans resulted in retailers keeping a bench of new recruits. Trained manpower was scarce, which resulted in salaries of experienced professionals going through the roof. However, lack of properly trained manpower and people with sales and
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retail mindset resulted in poor productivity for the industry and impacted performance.
• Poor Backend infrastructure- Focus of organized retail during 2005-2008 was faster store openings, with little focus on strengthening backend activities like vendor development, supply chain management, inventory management, logistics and reducing wastage. This resulted in companies having high cost of logistics, poor fill rates (70% of the required SKUs or goods) and stockouts (lack of automated ordering systems and real time inventory), and very low inventory turns (loads of slow moving inventory in stock)
• Entry of too many players- The hyped phase resulted in the entry of houses like Reliance, Bharti, Aditya Birla Group, India Bulls, Mahindra, Godrej, DCM, Marico, Dabur, etc with already established players like Tata, RPG, Future Group, Raheja, etc. Most of the players that entered the space had no prior experience in retailing nor were there any synergies with their existing businesses. Many players just entered to create a footprint, which could later be sold to foreign players in event of opening up of FDI in retail.
Methodological Issues:
1. Supply ChainSupply chain dynamics is a critical factor for growth and profitability of modern trade due to following reasons: Regional variances exist in demand patterns which result in differences in goods distributed to cities/rural area . Value conscious consumers demand lower prices, which require retailers to be cost efficient It can assist retailers in creating strong customer value propositions, such as being more cost effective, providing fresher products, better product assortment and have a better reach.
2. Innovation and Marketing• The importance of branding is imperative in today’s increasingly crowded retailmarketplace which not only comprises several brands but is also characterizedby the consumer's fickle mindedness about choosing products.• Innovations in Retail SectorLaunching of new formats (SIS, Value, etc.)Customer loyalty programmes that enable retailers to use customer data togenerate new product ideas, build brands, launch marketing and promotional campaigns
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Creation of private labels that, over time, can be marketed, branded and positioned as unique and well recognized brandsDevelopment, creation and implementation of customer service standards that delight and excite consumers as they interact with retailersCreation of new distribution channels such as non-store channels where the staff visit consumers at their homes and bring merchandise, allowing consumers to display products in their homes, understand product features, etc.• Companies are focusing on making marketing strategies more efficient atlowest possible cost. Some vehicles that are being increasingly used are: Reality Shows Mobile Phones Brand Ambassadors The Internet Sponsorships
3. Private Label products – a major growth driver for retailers• Since Indian consumers are value conscious, Retail & Consumer companies are launching a range of private labels products in order to meet the demands of value conscious consumers, to develop product portfolios and to improve margins in a retail environment where efficiency and competitiveness is imperative While low-price private labels exist, retailers are changing their focus from “a price game” to one that involves developing a portfolio of brands with distinct positioning for each brand. Retail chains are trying to understand unfulfilled demands existing in Indian market through need-gap analysis and are incorporating demographic and psychographic indicators.
• India’s major retailers expect to embark upon the following strategies for their private label products— Increase the range of offerings Derive an increased share of revenue from the sales of products Embark upon promotional offers and sales Increase the visibility of products in store outlets Offer selected products through other retailers’ outlets
4. GST will benefit retailersAfter much deliberation, the Empowered Committee (EC) of State Finance Ministers finally released the First Discussion Paper on 10 November, 2009 on the implementation of a dual GST in India. The nation-wide implementation of a dual GST signals the next generation of tax reforms designed to remove the barriers of trade through a common market in India and to accelerate the country’s growth prospects.
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The dual GST will have a material impact on businesses. The taxable events under the dual GST regime would be significantly different from those prevalent under the existing excise and value added tax provisions. Besides, there will be major differences in terms of the tax base, the rates of tax, the manner of levy and collection thereof, the manner of utilization of input tax credits etc.
• It is therefore apparent that trade and industry must gear itself up for the GST, not only from a business efficiency standpoint but also from a compliance standpoint In particular, the impact of the GST on the retail sector is likely to be extremely significant, given the significant growth of the retail sector and hence its relative size, but also because of the nature of the dual GST itself
• Some of the key advantages for the retail sector under the GST regime:i. GST will benefit retailers - Cross border retail trade between States can get easier with GST and this would help many retail companies to expand their distribution optimally. The tax will also have a significant positive impact on the supply chain of retail operations. However, most importantly, the dual GST is expected to operate in a manner that all of the input taxes paid on procurement of goods and services by retail companies will henceforth be eligible for a complete offset.
ii. Major tax issues impacting retailers and how GST can assist - The retail sector currently faces the significant challenge of an inability to offset the service tax credits pertaining to several input credit services, including the most significant cost for retail companies of property rentals, as also non-creditable central sales tax on inter-state purchases of goods. Similarly, on imports,the retail sector is unable to offset the countervailing duties against output taxes. Under the proposed GST regime, these
challenges will entirely disappear since the retail sector would be able to offset the entire input taxes, whether paid at the Central level in the form of the CGST or at the State level in the form of SGST against its output CGST and SGST respectively. Even with regard to inter-State sales of goods, the sector can offset the input taxes of the CGST and SGST against the output IGST which is applicable on such inter-state sales.
iii. Simplified Compliance RequirementsFrom excise standpoint - The retail sector typically undertakes activities such as packing and repacking of goods procured in bulk quantities into retail packs.
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Such activities with reference to specified products are treated as deemed manufacture under the current excise laws and accordingly are liable to excise duty. The retailers have to ensure timely payment of such taxes, filing of returns etc. leading to practical difficulties and increased compliance costs. Further, the additional excise duty burden is possibly borne by the retail sector as increases in the price of products may not always be possible. The GST regime can help address some of these problems From excise standpoint - Currently the retail traders need to deal with different compliance procedures in different states.Besides adding to compliance costs, these pose problems in maintenance of uniform and consistent reports and accounts across all states. This leads to serious IT systems challenges. The GST regime would reduce the currently prevalent disparities in compliance procedures across different states to a large extent thereby paving the way for a far lower tax compliance cost for the retail sector
Uniform threshold limits under proposed GST regime - The current tax structure lacks uniformity, in terms of prescribed threshold limits and periodical compliance requirements. The threshold limits prescribed by the different State VAT laws vary from INR 0.2 mn to INR 0.5 mn. Under the proposed GST regime, a uniform SGST threshold across states is recommended at a gross annual turnover of INR 1 mn both for goods and services. However, the threshold for CGST for goods is proposed to be kept at INR 15 mn with a similar high level for services as well. In addition, there would be a compounding cut-off at INR 5 mn of gross annual turnover and a floor rate of 0.5% across the States Differing thresholds for CGST and SGST will be relatively difficult to administer as compared to administering uniform thresholds across the two taxes. Further, differing thresholds across goods and services will also pose problems. Clearly, uniform thresholds are a better option from a business standpoint. The retail trade has a stake in ensuring uniform thresholds. However, should the differential thresholds remain intact, the retail sector would need to adopt in order to ensure that it is both compliant under differing thresholds as well as able to fully offset its input taxes.
• The impact of GST on tax collection from Retail sector: It is expected that the dual GST will comprise CGST and SGST of 8% each. If this assumption becomes a reality, it would mean that the overall revenues could decline due to reduction in the current aggregate rate of 20% (approximately) comprising federal excise of 8% and the State VAT at the typical rate of 12.5% by four percentage points. However, this will be balanced by the fact that the federal GST will now apply throughout the chain and will no longer be restricted to manufacturing
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The increased tax base will enable the state governments to maintain tax revenues from the retail sector, notwithstanding the reduction in the State GST rate from 12.5% to 8%. The important and independent point however, is that the GST will surely incentivize an explosion in consumption and therefore it plays to the larger story around the fact that India’s economic growth is essentially domestic consumption led growth
Hence, it is this incentivizing consumption that would lead to significant enhancement of revenue for both the Central and the State Governments. The retail sector is at the centre piece of this great consumption led growth story. Consequently, the GST will undoubtedly ensure that the tax revenue from the retail sector will significantly rise in the times to come.Summary
The key benefits of the GST for the retail sector are as follows – Enhanced competitiveness through efficiencies in procurement and distribution
Enhanced competitiveness through full and complete offset of all input taxes
Ability to offer lower prices for goods through increased offset efficiencies as also lower compliance cost
Lower cost on compliance from an accounting and reporting standpoint
Enhanced government revenues from retail sector through higher CGST, SGST and IGST collections.
5. Workforce management practice is at nascent stageAccording to the Indian Labor Market Report 2009, published by the Tata Institute of Social Sciences (TISS), retail is the largest employer among the emerging sectors in India. Hiring in the retail sector is projected to increase in the future due to several new entrants, including well-known global names, entering the sector as well as the range of formats that retailers plan to adopt Growth in the Indian retail sector and the corresponding demand for talent has highlighted the need for effective workforce management systems. A closer look at the industry suggests that in general, HR practices in workforce management are in the nascent stages of development. To understand the challenges in acquiring. developing and retaining a retail workforce, it is important to understand the context of talent in the retail sector:
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Since organized retail is an emerging sector in India, experienced retail talent is somewhat scarce
Globally, retail has a high turnover of greater than 40 percent, with even the larger and more established retailers facing attrition rates, which can be higher than in other sectors
The talent crunch in retail is exacerbated by the lack of requisite training infrastructure
Talent AcquisitionOrganized retailing is highly manpower intensive. At the lower levels, there is requirement for large number of support staff,such as customer care associates. It is essential to hire employees with the right hard and soft skills, customer service ethic,etc. Employers have explored various options of meeting workforce requirements from hiring students on a part-time basis to entering into agreements with management schools to offer programmes in retail management for line staff and store managers
For experienced frontline staff, companies typically poach from multinationals and other retailers
For filling front-end operations like HR and merchandise management, FMCG companies are targeted as sources for potential hires
Retailers are entering into partnerships with business schools to create content and courses in retail management
Companies are using referral programmes and internal hiring to fill talent requirements. Employers are increasingly using technology and outsourcing services to manage large scale staffing programmes.
5. Sustainability and green marketingSustainability is becoming a business imperative and involves securing businesses for the future. Sustainability issues are affecting retailers across every point of the business model. Converging influences are forcing sustainability issues to the top of the corporate agenda and are impacting every function and business unit. Consumer awareness, pressure on commodity and energy prices, scarcity of raw materials, together with regulator and competitor actions are combining to ensure businesses cannot ignore the environmental and social dimensions of how they operate. Understanding the strategic implications of the drive for sustainability and factoring it into corporate decision-making is
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to secure the future and enhance commercial performance Sustainability has internal and external implications for costs, risks and commercial performance. The commercial logic for assessing and minimizing energy, carbon, water and commodity usage is clear. A more efficient use of key inputs and reductions in waste offers cost-saving opportunities
Therefore, leading companies are opting for a two-pronged mandate — Reducing the levels of resources used
Adopting innovative solutions to secure the quantity and quality of materials needed to manufacture and operate Consumers are becoming increasingly attuned to sustainability issues and demanding retailers to keep pace with their changing expectations. Most consumers in India are in the early stages of thinking of sustainability as a high-cost option or a “luxury” that “normal people” cannot afford. Retailers, therefore, assume an important role in promoting the accessibility of sustainable products to all consumers. In today’s economic climate, consumers want to understand why a price premium exists so they can make an educated choice on which products best fit their emotional, ethical and functional needs.
At present, the three major sustainability issues facing retailers are• Climate change - The measurement of retailers’ carbon footprints and those of their products is seen as an important step in enabling retailers to understand and mitigate their impacts on climate change. Although the carbon footprint labeling of individual products by selected large retailers is a step forward, the initiative is at a relatively early stage and to date lacks the critical mass and public awareness to drive significant changes in consumer behavior
• Waste - This issue is at the top of the agenda for both consumers and retailers. There is a widespread call for reducing the overall amount of packaging, more guidance on recycling and more education and emphasis on re-use. This area needs co-ordination and leadership, ideally from the industry, working closely with local authorities and other experts
• Supply Chain - Ensuring security of supply is considered to be a goal which can be compatible with social compliance and something that retailers can work on together. Responsible procurement brings with it many issues for retailers and these are perceived to become more pressing as environmental pressures become increasingly felt. Collaborative efforts seem to be the most effective response to many of these issues in terms of increasing the impact and reassuring consumers
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Green MarketingGreen marketing, which initially emerged in the early 1990s in the developed countries, involves the procuring and supplying of products or services that have a lesser or reduced effect on human health and the environment, as compared to competing products or services that serve the same purpose. The goal of a green marketing program is to implement approaches that enable companies to purchase and supply products or services of a high quality, at the most reasonable cost, while also lowering the impact on the environment and human health. Green marketing has the potential to impact sustainable consumption and also result in significant shifts in demand and supply.
While the development of these items is at a nascent stage, consumers are helping drive Research & Development efforts due to increasing awareness about climate changes and rising energy prices, heightened focus on health and safety, and the desire to help contribute to the preservation of the environment. Green marketing typically aims to satisfy customers and improve the quality of the environment. Retailers must take several initiatives to shift their focus from niche to mainstream consumers, make green products affordable and thereby contribute in solving environmental issues
Aspects related to development of green marketing initiatives in India are
Absence of consumer demand for green products - Some retailers are not focusing on green marketing at this time since their consumers are not demanding environment-friendly products and services.
Focus on operations and improving profitability - Some retailers indicate that they are choosing to focus on improving operations and strengthening the profitability of their ventures, before addressing non-core activities, like sustainable practices and development
Reducing carbon footprint - Selected retailers, such as McDonald’s, are committed to reducing their carbon footprints. To that end, the company removed preschoolers from its restaurants and found a way to direct cool air from ACs to the coke system which results in chilled coke. The company, in addition to using biodegradable packaging, also constantly refreshes air in their restaurants; during low volume periods, McDonald’s adjusts fresh air refreshment levels to reduce carbon emissions
Making initial strides – some of the practices include
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Reducing the number of plastic bags given to consumers since plastics and packaging are high costs items
Encouraging consumers to buy company-branded linen bags or persuading them to bring their own bags by charging them for the purchase of plastic bags
Using recyclable paper billing roles and printing thermal bills which are 20 percent the size of A4 paper-based bills
Restricting the use of air conditioning in stores
Sponsoring green events
Introducing biodegradable packaging for products.
Few initiatives that retailers can undertake upon creating sustainable business practices are - Discourage plastics
Reduce the number of plastic bags given to consumers, and instead use paper/ jute bags
Encourage consumers to bring their own bags
Encourage consumers to purchase retailer-branded linen bags
Avoid excessive packaging and reduce the use of plastic as a packaging material
Introduce the use of biodegradable packaging for products
Printers, copiers and faxes
Minimal power consumption during operation and standby mode
Reduce the quantity of paper consumed, (i.e. two-sided copying/printing and multiple-page in one page copying/printing)
Use toner cartridges that have reusable and recyclable parts/raw materials
Paper usage
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Use recyclable paper billing roles and print thermal bills
Separate and recycle various types of papers (copy paper, newspapers, magazines, corrugated cardboard, etc.)
Refrigeration/ Air conditioning
Minimum power consumption during operation and stand-by mode
Materials for refrigerants, insulators and foaming agents that have minimal effect related to ozone layer destruction and global warming
Creating awareness
Sponsoring the green events and offsetting the emission when organising events
Putting the sensitizing taglines in the products (e.g., Think Climate – Wash at 300C.)
Carbon Footprinting - A carbon footprint is the total set of greenhouse gas (GHG) emissions caused by an organization,event or product. Retail space carbon footprint reduction is gaining importance due to the emergence of green building concepts and also the increased focus on establishing energy efficiency in stores
Transportation - Many supermarket chains have been assessing transport usage and are exploring alternatives to transportation and distribution by road. Some global retailers have:
Reassessed the locations of warehouses to reduce the number of road miles required
Changed their fleet vehicles to use more efficient vehicles and therefore, lower the level of emissions
Switched some transportation activities from road to rail
Water Footprinting - The water footprint of a business (i.e. the ’corporate water footprint’) is defined as the total volume of freshwater that is used directly or indirectly to run and support a business. It is the total volume of
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water use, to be associated with the use of the business outputs. The water footprint of a business consists of two components –
The direct water use by the producer (for producing/manufacturing or for supporting activities)
The indirect water use (in the producer’s supply chain)
Investment in renewable energy - Switching to renewable sources of energy, such as wind and solar power, to operate offices helps reduce carbon emissions. Investing in renewable energy also supports the uptake of green energy which is vital in moving towards a low-carbon economy
Energy/ Green House Gas (GHG) emission label in products –
Informing and developing awareness among consumers about energy used and GHG emissions emitted during manufacturing of the product is important
Using more energy-efficient ovens, refrigeration and air-conditioning is important since these tools are the major users of energy in retail stores
Using more efficient lighting, timers and motion detectors that switch off lights when they are not needed
Waste management of packaging materials - Physical supplies are running out faster than previously predicted, competition for remaining resources is intensifying and in the medium-term we are likely to see changing weather patterns that lead to volatile output levels. Many retailers have been working with suppliers to reduce packaging waste associated with the products sold
Rural livelihoods - The use of retail goods leading to sustainable livelihoods for indigenous artisans and craftsmen is increasing, as locally made handicrafts, fabrics and ecologically beneficent and ‘natural’ products find place in retail outlets that position themselves as sensitive to sustainable business practice
Supply chain dynamics - Greening the supply chain through healthier products and environmental quality is emerging as large international groups who follow a uniform global policy with respect to green procurement enter India
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Involving consumers - Retailers need to encourage and help customers to change their behaviours. The retail sector can effectively influence lifestyles changes since it is in daily contact with consumers’ moods, preferences and expectations.
Some issues that retailers can explore include:
Conducting R&D on healthier options for consumers
Educating customers about healthier options and nutritional enrichment of food products
Discouraging overconsumption: Replacing “buy one get one free” offers with promotions for greener (low carbon) products could have a significant impact on consumer choice
Key Findings
- Organized retail will form 10% of total retailing by the end of this decade (2010).
- From 2006 to 2010, the organized sector will grow at the CAGR of around 49.53% per annum.
- Cultural and regional differences in India are the biggest challenges in front of retailers. This factor deters the retailers in India from adopting a single retail format.
- Hypermarket is emerging as the most favorable format for the time being in India.
- The arrival of multinationals will further push the growth of hypermarket format, as it is the best way to compete with unorganized retailing in India.
Key Issues and Facts Analyzed
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The research report also addresses the issues and the facts that are critical to the success of Indian retail industry in general & organized retail industry in particular.
- Evaluation of current market trends. - Profile discussion of key players in this sector. - Analysis of various challenges and opportunities before the industry.
Key Highlights of the Market
- What is the market size and scope of the Organized Retail in India? - What and where are the growth prospects and issues related to the industry? - What are the factors driving growth in this sector? - Size of organized market segment wise and its growth prospects. - Who are the major players in Indian Retail Industry, their presence and strategies being used by them and their market positioning? - What are the opportunities & challenges in front of the retailers in India and emerging trends there?
.These all mention above are the key challenges and factors emerged in the study of the research and should be kept in mind while deciding the future way of Indian Retail Industry.
TOPIC 6Causes and Impact Of Recession In Indian retail Sector
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OBEJECTIVES OF THE RESEARCH
The retail sector is in trouble, with consumer confidence at its lowest in years and consumers facing higher living costs on almost every front.Retail confidence has plunged to a five-year low, suggesting the key sector may soon slip into a recession, the Bureau for Economic Research (BER) warned yesterday.
Its index for retail business, which comprises 14% of the economy, fell to 52 points in the first quarter of this year from 71 points in the previous quarter, suggesting sales volumes contracted in that period.
Rising inflation and slower consumer spending, the main engine of economic growth, had eroded profit margins and sales were also expected to fall in the second quarter, the BER said.
Two successive quarters of contraction would technically put the retail sector — which has been hardest hit by rising interest rates — into a recession.
“The BER has made a significant downward revision to its forecast for overall consumer spending,” senior economist Linette Ellis said.
“We now expect it to increase by between 2% and 3% in 2010, compared to an estimated 7% in 2009 and 8% in 2008.”
Falling sales?
Figures from Stats SA today will also show whether retail sales fell in January, after declining by 0,5% in December and 0,2% in November — the first annual falls in five years.
Retailers have been hit the hardest by a cumulative four percentage point increase in lending rates since June 2006, which is expected to curb economic growth to between 3% and 4% this year from 5,1% last year. They have also suffered from a spate of unplanned power outages in January.
Small firms that cannot afford to buy backup generators have been most affected, and business groups have warned power constraints could force many
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small retailers to close.
The BER retail confidence index has tumbled from a record high of 91 index points to 52 points in the second quarter of last year.
“In the past, such a dramatic turnaround in and low level of retailer confidence typically signalled the beginning of a recession in this sector,” it said.
Growth slowsQuarterly gross domestic product data from Stats SA has shown that growth in retail trade, which includes hotels and restaurants, has slowed for five quarters in a row. But the sector still managed to grow 2,1% in the final quarter of last year. This was unlikely to carry on in the first quarter, the BER said.
Retailers for semi-durable goods such as clothing and footwear, non-durable goods such as food and beverages, and durable goods like furniture and household appliances all reported lower sales volumes.
“Furthermore, the majority of the BER's respondents expect retail sales to continue to contract during the second quarter of 2008,” it said.
The fall in confidence could also be blamed on increasing margin pressure and plunging profitability, which may reflect the inability of retailers to pass on rising costs to consumers.
Inflation has soared in the past year, with the headline consumer price index surging 9,3% in December.
The retailers were effected simply because the retail industry depends on the ability of people to be able to buy stuff. That might seem like an obvious statement, and of course businesses rely on customers to buy products, but the retail industry is directly effected by this. While a paper company might rely on other companies to buy the paper products, a retailer is directly effected by the consumers.
When the average person all of a sudden doesn't have the money to make ends meet, they won't have money to do anything. That means that they don't have the money to go out to eat, or go shopping as much. It was seen during the holiday season when sales were slower than they have been in the past few years. Black Friday was roughly unchanged from last year, but most other days were not as good.
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When the customer doesn't have money to spend this effects everyone. When the retailer isn't making as much money, the retailer is forced to slash hours, and then slash jobs if they have to take that step. It isn't easy for the retail sector when there is no money to go around. I worked in retail during the recession, but was lucky enough to work for a company that was able to weather the storm well.
Retail is still going to be effected because retail still needs those consumer dollars. The job losses aren't going to go away though, and they are the last thing to rise again. As the jobs come back the money for the retailers will come back. The retailers will be able to hire more people, and this will help the economy as more people have jobs again.
The retail industry was one of the harder hit industries during the recession. It is hard to rely on the dollars of the consumer to stay afloat, and then see those dollars go away. Hopefully things will start to pick up as the recession seems to be ending, and the money will be again flowing from the wallets of the consumers.
Retailers are likely to cut prices in future to create demand. Gibson Vedamani, CEO of Retailers Association of India told PTI, “The present slowdown should not last more than six months. Value retail is already back on track. Retailers may reduce prices in the next few months in an effort to make people buy more.” He said, “As of January, they (retailers) are limiting inventories because it is critical in maintaining gross margins.”
According to him, there is nothing much to worry about because, the mid-segment consumption is steady. Moreover, the steps taken by the government to curb inflation and interest rates has helped the industry, “Liquidity position is much better now than it was till a week back. Companies in the retail sector have been working better now with the secured loans that banks have been forthcoming with.
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The Economic Impact of a Recession – Possible Winners and Probable Losers Winners It has been argued that a recession has advantageous economic side-effects, both in general terms and in relation to individual sectors of the economy.
It speeds up the process of business evolution, forcing companies to reduce costs and adopt new practices. A slowdown in the property market opens up opportunities for first-time buyers, partly because prices fall in general and partly because the buy-to-let sector contracts, making more properties available7. Businesses (and individuals) are more likely to think in terms of greater efficiency. They may, for example, look to switch to renewable sources of energy or insulate their properties. This will provide work for other businesses in this sector.
Losers Manufacturing: The manufacturing sector has declined at a record rate as consumers rein in their spending. Construction companies have been badly hit by deteriorating economic conditions, particularly house builders. Services: Some analysts suggest it will be the service sector (e.g. retail, leisure and financial services) that will suffer the most, noting that it has already suffered its biggest fall in output since 1996. The service sector constitutes 75% of the total economy. Many of the companies most likely to suffer in a recession are those in the middle of their sector, where the sector itself does okay but consumers shift around within it:
Designer stores survive because their clients, the wealthy, are insulated against recession. Most bargain stores survive as many consumers trade down. Those that suffer are the likes of M&S and Debenhams as consumers trade down or hold fire. The same is true in the hotel and restaurant industries, where it is three and four star businesses that are reporting the most significant downturns. Although in a creative sense, the Arts can thrive during a recession, it can suffer as state subsidies are cut, contributions from businesses reduce, backers for projects are harder to find and patrons look to reduce their outgoings.
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Public Sector: Cost-cutting in the public sector is also highly likely. Sources report that government departments have been asked for updated plans for job cuts, and that ministers are to draw up plans for a new efficiency drive and have been asked to reduce administrative budgets by 5%.
Summary: For many people, the reality of a recession will be a complex inter-relationship between falling property prices, rising costs and the burden of personal debt. As expected, those most at risk from its economic and social effects are those on low incomes, which may be sub-divided into the likes of the elderly, the disabled and those with young children. Importantly, during a recession, many more people, who under normal circumstances would expect to at least ‘get by’, would fall into the at risk category as their circumstances changed, often through no fault of their own.
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TOPIC 7
HYPOTHESIS
1 Non-involvement of Government in retail industry.2 Stock performance of the major players.3 Business performance of major players.4 Considering all market conditions favorable as per laws and investment
policies.
To accomplish this study, the following hypotheses were formulated, based on the literature review to ascertain the buying behaviors of consumers during recession.
H1: The type of retail format would positively affect a change in
frequency of shopping.
H2: The type of retail format would adversely affect the footfall of
consumers for luxury items.
H3: Customers who shops frequently are more likely to respond to discounts vis -à-vis others.
H4: Customers who shop frequently are more likely to spend a higher amount for shopping.
H5: Customers who shop more frequently are likely to witness higher fluctuations for luxury items than for regular items.
Limitations
The study focuses and emphasizes on a sample size of 50 in and around Metros due to the time and cost constraint. Since the area of study has only been Metros and also on a select sample of 50 the results may or may not be applicable to the other cities in India.
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TOPIC 8
RESEARCH METHODOLOGY
MEANING OF RESEARCH Research refers to a search for knowledge. It can also be defined as a
scientific and systematic search for relevant information on a topic. Intact it is
an art of scientific investigation. Research methodology is prepared to describe
not only the research procedure and method adopted for the achievement of the
project but also the logic behind the use of this method so that the result can be
capable of being evaluated by the others; its main aim is keep the research on
the right track. It includes research design, sampling procedure, and method of
data collection and analysis procedure pertaining to the act.
The proposed investigation is tentatively based on the following materials and
methods:
Sources of the data collection
To conduct the investigation, data will be collected from both primary and secondary sources:
1 Primary data: Primary data will be consolidated mainly through Questionnaire that will consist mainly of feedbacks from the retailers and the consumers, the agents and supporting staff of major retail players in the market.
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2 Secondary data: Secondary data will be collected mainly through
Journals online contents and market trends Magazines and feedback from financial experts
The data collected was first collated into digital form. Quantitative Analysis was then done on the data collected using SPSS 12.0
SAMPLING TECHNIQUE
A sample of 100 respondents was chosen based on Random Sampling Technique.
RANDOM SAMPLING TECHNIQUE
In this sampling technique each and every unit of the universe has the same chance of being included in the sample. The selection of the units depends upon the element of chance and it is not affected by the investigator's bias. A sample is considered a simple random one of its members are drawn in such a way that each observation of the universe has an equal chance of being included in the sample and every possible combination of observations in the universe is the same chance of being included. QUESTIONNAIRE
A questionnaire is a set of questions relating to the enquiry. I have used the structured type of questionnaire in which I have used one type of questions:
CLOSE ENDED QUESTION
In this type of questions there are limited choices to respondent. The
respondents have to choose the answer from the choices given.
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ANALYSIS OF DATA
The analysis of the data through light on the different aspects of the survey work. For the analysis worktables are used to describe the response to the various questions asked to the individuals during survey. The number of responses to a given question is shown in it. Based on these tables, bar charts and graphs are made for the ease of understanding and to make things more clear.
MARKETING RESEARCH
Marketing research is the systematic design, collection, analysis a reporting of
data and findings relevant to a specific marketing situation facing the company.
Marketing research process
Define the problem and research objective
Develop the research plan
Collect the information
Analyze the information
Present the findings in Report
Make decisions
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ANALYSIS AND INTERPRETATION
1. What is your family income rupee in lakhs? (Per annum)
Family Income
15%
31%
12%
42%0.5 to1
1 to 2
2 to 3
3 and more
Interpretation:-
In Udaipur and Metros city majority of people who goes to retail outlets are belong to the categories of Rs.3 lakhs and more. These people in percentage are 42%.
Second highest income group is comes under the category of Rs.1 to 2 lakhs.
Third highest income group is comes under the category of Rs. .5 to 1 lakhs.
Forth highest income group is comes under the category of Rs. 2 to 3 lakhs.
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2. How much income you spend on Retail outlets?
37
26
1316
8
00
10
20
30
40
No. of respondents
Percentage of income
Part of income spend on retail outlets
no.of respondents 37 26 13 16 8 0
10% to 15% to 20% to 25% to 50% to 75%
Interpretation:-
In Udaipur and Metros city 37% people spend, 10% to 15% of their Income on retail outlets.
26% people spend, 15 to 20% of their income on retail outlets.
13% people spend, 20% to 25% of their income on retail outlets.
16% people spend, 25% to 50% of their income on retail outlets and so on…….
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3.Areyou aware about the Retail outlets in your city
yes93%
no7%
yesno
Interpretation:-
In the Udaipur and Metros city the people who goes to retail outlets aware the concept about the retail outlets.
According to research 93% people are aware about the retail.
4. Have you ever visited in any of these Retail outlets?
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Visit in Retail Outlets
77
37
67
24
80 63
0102030405060708090
Name of retail outlets
No.
of r
espo
nden
ts
Series1
Interpretation:-
According to the survey majority of people are aware about the concept of Retail outlets.
Most of the people have visited in different Retail outlets people says they are know about all the retail outlets like Vishal Mega Mart, Ebony, Ansal Plaza, Elite’s Arcade, Subhiksha. But 80 people say they have visited the Vishal Mega Mart, 63 people say they have visited to Ebony, 77 people says they have visited Ansal Plaza and so on………….
5. Do you prefer to buy from Retail outlets?
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Preference Of customer
79%
21%
yes
no
Interpretation:-
Different people have different perception about the retail but the people who go to retail outlets in between 79% people are like prefer to purchase from the retail outlets.
Remaining 21% people goes to retail outlets to see the new trends, for entertainments.
6. How frequently you visit there?
How Frequently customer visit In Retail Outlets
5%
19%
15%
31%
7%
23%
Daily
Once a week
Twice a week
Once a month
Twice a month
More than that
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S1
Wholesaler 32
Retail Outlets 67
Company Outlets 37
Any others 41
Customer Regular Purchase
No of user
Series1 32 67 37 41
Wholesaler Retail outlets
Company outlets Any others
287
Interpretation:-
Most of people like to go for Retail outlets once in the month and these people like to go on generally on Sunday or holidays. Percentages of these people are 31%.
Then the people like twice a month the Percentages of these people are 23%.
19% people goes to retail outlets once a week, 15% people goes to retail outlets twice a week and so……..
7. From where you make the regular purchase?
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Interpretation:-
According to research study 67% people says they like to purchase from retail outlets regularly and 37% people prefer to purchase from company outlets, 32% from wholesaler and 41% people prefer to purchase from small retail shops.
8. Do you think that by purchasing from Retail outlets reduce duplicacy?
Reduction of duplication
11
43
26
15
5
0
10
20
30
40
50
Factors
No.
of re
spon
dent
s
Series1
Series1 11 43 26 15 5
Strongly Agree
Agree Neither Agree Nor
Disagree Strongly DisAgree
Interpretation:-
According to research, People rate factors on the matter of reduction in Duplicacy, the factors which are strongly agree, agree, neither agree nor disagree, disagree, strongly disagree in which 43% people are agree, 26% are neither agree nor disagree, 15% people are disagree and 11% people are strongly agree.
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9. What do you like the most about the Retail outlets?(Please give the rank from 1 to 8)
Mean:- ∑ Total number of respondents / Sample size. Interpretation:-
According to survey about what people like most about the retail outlets. I have asked the people to give the rank according to their liking about the Retail.
In statement I included Eight factors which are Latest trend, Branded product, Quality product, Infrastructure, Services, Window shopping, Family shopping and Time saving.
According to the survey the respondents given first preference to the Branded product as compare to the Quality product, Infrastructure, Services, Window shopping, Family shopping and Time saving and given
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second preference to the Latest trend as compare to the Quality product, Infrastructure, Services, Window shopping, Family shopping and Time saving. I have given the higher rating to the first preference rating as 8 and second preference as 7 and third preference as 6 and so on…. Then I have multiplied these rating to their preference and got total rating. Then I have divide the Total by the total number of respondents (100) and I got the mean value and then given the rank. I gave the first rank to the Branded product which is having highest mean value and second rank to the Latest Trend and third rank to the Quality product and so on…………..
10. What do you think about the pricing of Retail outlets?
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Pricing of retail outlets
5
17
42
26
10
0
10
20
30
40
50
Factors
No.
of re
spon
dent
s
Series1
Series1 5 17 42 26 10
Very poor Poor Average Good Very good
Interpretation:-
According to research, thinking of People about the pricing of retail outlets, the factors very poor, poor, average, good, very good in which 42% people have average, 26% have a good ,10% people have very good, 17% people have poor and 5% people says very poor.
11. Are you satisfied with the services provided by them?
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Satisfaction level
19
51
1611
30
10
20
30
40
50
60
Factors
No.
of r
espo
nden
ts
Series1
Series1 19 51 16 11 3
Highly satisfied Neither Dissatisfie Highly
Interpretation:-
According to research, People rate their satisfaction level with the factors which are Highly satisfied, Satisfied, Neither satisfied nor dissatisfied, Dissatisfied, highly dissatisfied in which 51% people are Satisfied the service provided by the retail outlets, 19% people are saying they are highly satisfied with the service,16%people are neither satisfied nor dissatisfied, 11% people are dissatisfied the service and 3% people are highly dissatisfied the service.
12. Which factor do you most consider while purchasing the domestic needs?
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
Mean:- ∑ Total number of respondents / Sample size.
Interpretation:-
In the Question I have try to cover all the factors which generally people consider while purchase the domestic needs.
In statement I included seven factors which are Convenience, Location, Discount And Sale, Credit Option, Product Availability, Branded product and More reasonable Price.
According to the survey the respondents given first preference at the time
of purchasing domestic needs to the Convenience as compare to the
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Future of retail outlets
0
10
20
30
40
50
60
Factors
N o.
of
re s p o n d e nt s
Series1
Series1 58 22 10 7 3
Strongly Agree Neither Disagree Strongly
294
Location, Discount And Sale, Credit Option, Product Availability,
Branded product and More reasonable Price and given second preference
to the Branded Product as compare to the Location, Discount And Sale,
Credit Option, Product Availability and More reasonable Price..
13. Future of Retail outlets in Jaipur is bright?
Interpretation:-
People of jaipur says the future of Retail outlets is bright in jaipur they excited to know that their are other big industry house are entered in retail business very shortly like reliance is coming in retail segment with the name of “Reliance Fresh”, Tata, Bharti are yet to come. Bharti is coming in retail segment with the tie up world largest Retail Company Wallmart, pantaloon,Bigbazaar.
According to research, the factors strongly agree, agree, neither agree nor disagree, disagree, strongly disagree, in which 58% people are agree,
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22% are Strongly agree ,10% people are neither agree nor disagree, 7% people are disagree and 3% people are strongly disagree regarding the future of retail outlets.
CONCLUSION
The name of the project “Causes and Impact Of recession In Indian retail Sector”. I did my research study in Udaipur and Metros city and people who are visit to Retail outlets and having the knowledge about retail outlets are included in sample and the sample size is100 deliberately taken by me.
I selected the people randomly and its include all age group which goes to retail outlets in this research study I included all the age group to reduce the biasness.
I conclude that people like to visit the retail outlets most probably at the end of weekend and holidays. A person who regularly goes to retail outlets is generally purchase from retail outlets and most of the people are agree that purchasing from retail outlets reduce duplicity.
Retail outlets provide better price for quality product.
According to the survey the response of the people regarding service that retail outlets provide average quality services.
People like to purchase the branded product and these retail outlets provide the different branded product according to the requirement of customers.
Most of the people like to purchase their domestic needs according to their convenience.
LIMITATION
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Although I have made my best efforts to get as accurate data as possible but
even then the data used in this report is subjected to some limitations and these
limitations.
USE OF MAGAZINES AND ANNUAL REPORTS:
The various publications magazines have been used to get the information
but sometimes the information that is presented may be inadequate.
INADEQUATE KNOWLEDGE :
Customers don’t have sufficient knowledge about the services provided
by retail outlets so that they may give wrong information also
CHANCES OF HUMAN ERROR
Some respondents have not given the proper answers, they are not aware
of the objectives undertaken for research purposes.
TIME CONSTRAINT
Time has also affected the research due to less availability of number of
days; sur vey was conducted in few days.
LACK OF CO-OPERATION OF SOME RESPONDENTS
Some Respondents do not properly Cooperated for giving answers the
basic reason they are giving for non cooperation was non-availability of
time.
“Changing face of retail and its implication on consumer behaviour”.
QUESTIONNAIRE
Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta
13. Future of Retail outlets in Udaipur and Metros is bright?Strongly agree ( ) Agree ( ) Neither agree nor disagree ( )Disagree ( ) Strongly disagree ( )
The sample comprised of hypermarket,supermarket,departmental stores and kirana stores. It constituted more of kirana stores as shown in Figure 1. Thevarious retail outlets in the sample included Pantaloons, Shoppers Stop,
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Spinach, Westside, Big Bazaar, Food Bazaar etc.
Footfall in FIGURE 2 means the number of people visiting these stores. It has been found that according to 72% of the retailers there has been a decrease in footfall. No change observed in footfall of kirana stores.
FIGURE 1
FIGURE 2
Frequency of regular customers in FIGURE 3 implies that most of the regular customers used to shop for more than once a week before recession.
Change in frequency of shopping as shown in FIGURE 4 suggests that 60% of
the retailers found that their regular customers have been less frequent now for shopping. Hence people have changed their frequency of shopping.
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FIGURE 3
Change in frequency of shopping
FIGURE 4
Customer response towards sales, discounts and schemes as in FIGURE 5 shows that most of the retailers find that their sale boosts up during sales, schemes and discounts. This is because people are cautious of spending money now.
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FIGURE
Purchase of luxury Items This is evident from FIGURE 6 that the sales of luxury items have decreased during the past few months. This shows that customers have cut their expenses on luxury items.
It has been found as shown in FIGURE 7 that 60% of the customers spend their money on household items. Customers spend their money on necessity items like grocery etc which means recession has not affected the sale of necessity items.
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It may be observed from Table 1 that a very high positive correlation of 0.721 significant at 0.01 levels exists among the Type of retail format and the change in frequency of shopping. This suggests that Hypermarkets, supermarkets witness a greater change in shopping behavior than the kirana stores. Hence, Hypothesis 1 stands proven. Also the type of retail format has a very high negative correlation with footfall in consumers which has been estimated at -0.524 (significant at).01 levels). Hence, Hypothesis 2 is proved.
Correlation Analysis: TABLE 1
TypeBusiness footfal Freque
nc y
Changein freque
Response
Change in
Most spend
Change in
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In case of Hypothesis 3 i.e. Customers who shop frequently are more likely to respond to discounts vis-à-vis others is proved since the correlation coefficient 0.509 found is highly significant at 0.01 levels.
It may further be observed from the same Table 1 that Customers who shop frequently are more likely to spend a higher amount for shopping which is found to be as 0.578, is highly significant at 0.01 levels. Hence the hypothesis 4 is proved. The above Table 1 also suggests that Customers who shop more frequently are likely to witness higher fluctuations for luxury items than for regular items as a very high negative correlation coefficient of -0.623 has been found. It indicates that shopping for luxury items faces more fluctuations than regular shopping items, which indicates that customers shopping for luxury items may be postponed in times of recession but they continue to shop for regular items.
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Conclusion
The research showed that recession has affected the sale of luxury items while there has been no effect on the sale of necessary items.The major reason is that the numbers of people visiting the malls have decreased and there is a change in the shopping pattern of the customers. People have not cut down their expenses on grocery items and personal care products. The luxury brands are the ones that have been the most affected. Also retailers are reducing their inventories considering the drop in sales. In order to increase the footfall, various promotional events are carried out by the retailers. Retailers are cutting down prices to boost up the sales. Customers are switching from their regular brands to others brands that cost them less.
Recommendations for the retailers
The retailers should spend on Online Marketing during Recession. They should also indulge in cost cutting, reach their customers, target markets, build long term relationships, available at all hours, low cost for inventory, and increase sales promotion schemes. Lastly, creating value along with delivering delight to the customer is what is most important.
TOPIC 9Causes and Impact Of Recession In Indian retail Sector
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IMPORTANCE OF STUDY RESEARCH
Liberalization of the Indian of the Indian economy and rationalization of business procedures have already ensured a high economic growth with a rapidly expanding base for the manufacturing and hi-end services sectors. Fresh avenues for gainful employment to a predominantly young and talented population have created disposable incomes that translate in to higher consumption and thus better opportunities for all verticals of Retail to flourish.
Slowdown in Indian Economy – myth or reality for retail players?
The current slow down in the Indian economy notwithstanding, the retail segment in the country seems to be in for a big time expansion led by most major Indian business majors and global players. Even though the CB Richard Ellis report released in April 2008, placed India at a dismal number 44 in the list of preferred destinations for global retailers looking to expand, fresh announcements in the media belie this fact. However, going through these years of learning nearly all stake holders in the industry are re-considering their retail plans. A need for consolidation in retail business is evident and to give it effect many have hit the drawing boards again – not necessarily means that there is any down turn in the industry. In spite of the fast track growth of the retail industry, India is still undergoing through the initial development phase of modern retail.
Private consumption & RetailThe country’s dynamic retail landscape presents a grand opportunity to investors from across the globe, to use India as a strategic business hub. With the changing face of retail, the Indian consumer is in for a rapid transformation. With retail spending growing at double digit, Private Final consumption Expenditure (PFCE) at current prices was estimated at Rs. 26,07,584 crore in 2007-08 as against Rs. 23,12,105 crore in 2006-07.
INDIA RETAIL MARKET (at prevailing market prices)Causes and Impact Of Recession In Indian retail Sector
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Retail Segment INDIAN RETAILMARKET (Rs. Crore)2006 2007
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15.6 40.0
Consumer Durables, Home
Appliances/equipments
48,100
57,500
19.5
5,000
7,100
42.0
Mobile handsets. Accessories
& Services
21,650
27,200
25.6
1,740
2,700
55.2
Foot Wear 13,750
16,000
16.4
5,200
5,750
49.0
Furnishings, Utensils,
Furniture-Home & Office
40,650
45.500
11.9
`3,700
5,000
35.1
Food & Grocery 743,900
792,000
6.5
5,800
9,000
55.1
Out-of-Home Food
(Catering) Services
57,000
71,300
3,940
5,700
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25.1 44.7
Books, Music & Gifts L13,300
16,400
23.3
1,680
2,200
30.9
Entertainment 38,300
45,600
20.0
1,560
2,400
53.8
Total
IMAGES F&R Researh
1,200,000
1,330,000
10.8
55,000
78,300
42.4
As per the Images F&R Research estimates for India Retail Report the Indian
Retail market stood at Rs. 1,330,000 crore in 2007 with annual growth of about
10.8 per cent. Of this, the share of organized Retail in 2007 was estimated to be
only 5.9 per cent, which was Rs. 78,300 crore. But this modern retail segment
grew at the rate of 42.4 per cent in 2007, and is expected to maintain a faster
growth rate over the next three years, especially in view of the fact that major
global players and Indian corporate houses are seen entering ;the fray in a big
way. Even at the going rate, organized retail is expected to touch Rs. 2, 30,000
Cr (at constant prices) by 2010, constituting roughly 13 per cent of the total
retail market.
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The consumer spending is ultimately pushing the economic into a growth-and-liberalization mode. The Indian market is becoming bolder by the day, with the economy now expected to maintain its growth at over 8-9 per cent and average salaries being hiked by about 15 percent, there will be lot more consumption.
A short recount of the factors that have earned India the top spot among the favoured retail destination.
HEALTHY INVESTMENT CLIMATE
A ‘Vibrant Economy’ India topped A T Kearney’s list of emerging markets for retail investment for three consecutive years and stood 2nd only being Vietnam this year. The 2nd fastest growing economy in the world, the 3rd largest economy in terms of GDP in the next 5 years and the 4 th largest economy in PPP terms after USA, China & Japan. India is rated among the atop 10 FDI destinations. Barring recent political disturbances, India has been sailing smooth ;with 2nd
stage reforms in place, India can be reasonably proud of having put in place some of the most widely accepted Corporate Ethics (Labor Laws, Child Labor Regulations, Environmental Protection Lobby, Intellectual Property Rights, and Social Responsibility) and major tax reforms including implementation of VAT, all of which make India a perfect destination of business expansion.
In terms of international tourist spending, India is the fastest-growing market in Asia Pacific, according to the Visa Asia Pacific release. The economic has been growing at about 9 per cent a year, which shows that India’s growth rate can actually exceed that of China by 2015. The Indian economy is expecte to grow larger than Britain’s by 2022 and Japan’s by 2032, to become the third-largest economy in the world after China and US, and finally become the second largest economy after China by 2050, so the global forecasts say.
A report by investment banker Goldman Sachs, credits India with the potential to deliver the fastest growth over the next 50 years with an average rate of more that five per cent a year for the entire period. All these are clear portends in terms of investments and returns. Total FDI (foreign direct investment) inflow in 2007-08, was to the tune of USD25 billion – up 56% over previous year –
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with investments in infrastructure development and capital market continuing to flow in at a rapid pace.
To sustain an ambitious GDP growth target of nine per cent per annum, India needs to invest around USD 500 billion in development of infrastructure over the next five years. Of this, about USD 150 billion is expected to come from foreign investment. Indian retail industry itself has attracted total investment of over Rs. 20,000 crore in creating infrastructure, systems & shop-fit.
At the heart of the India growth, story is its population, the generators of wealth, both as producers and consumers. With the largest young population in the world – over 890 million people below 45 years of age, India indeed makes a resplendent market. The country has more English speaking people than in the whole of Europe taken together. Its 300 million odd middle class, the “ Real” consumers, has attracted th attention of the world, and as the economy grows so whole of Europe taken together. Its 300 million Indians earn a salary of over USD 19,500 a year, a figure that is set to rise to 140 million by 2011. The number of effective consumers is expected to swell to over 600 million by this time – sufficient to establish India as one of the largest consumer markets of the world.
India’s consumers are in a metamorphosis. As spending powers and habits change in India these voices are becoming more difined, more demanding and more adventurous. The retail boom in India is driving three categories of retail product investment, namely consumer brands, retail formats and shopping centers. Each of these product categories is undergoing massive attention.
THE RETAIL REVOLUTION
In this land of 15 million retailers, most of them owing small mom and pop outlets, we also have a modem retail flourishing like never before. There is little room for conflict as evidenced from the fact that India presents a unique case of consumption-driven economy: while the US reels under recession, where supply clearly outstrips demand. India confronts inflation, where Industry and retailers are as yet unable to provide what the consumer demands.
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Over the last few years Indian retail has witnessed rapid transformation in many areas of the business by setting scalable and profitable retail models across categories. Indian consumers are rapidly evolving and accepting modem retail formats. New and indigenized formats such as departmental stores, hypermarkets, supermarkets, specialty and convenience stores, and malts, multiplexes and fun zones are fast dotting the retail landscape.
THE INDIAN RETAIL MARKET SEGMENTS
The Indian retail market has been gaining strength, riding on the sound vibes generated by a robust economy that has given more disposable incomes in the hand over the consumer who will keep demanding better products and services, and a better shopping environment.
SHARE OF ORGANIZED RETAIL TO TOTAL MARKETRetail Segment % organized
2004 2005 2006 2007
Clothing, Textiles & Fashion Accessories
13.6% 15.8% 18.9% 22.7%
Jewellery
2.0% 2.3% 2.8% 303%
Watches
39.6% 43.5% 45.6% 48.9%Causes and Impact Of Recession In Indian retail Sector
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Foot Wear
25.0% 30.3% 37.8% 48.4%
Health & Beauty Care Services
6.0% 7.6% 10.6% 14.3%
Pharmaceuticals
1.8% 2.2% 2.6% 3.2%
Consumer Durables, Home Appliances/equipment
7.8% 8.8% 10.4% 12.3%
Mobiles handsets, Accessories & Services
6.5% 7.0% 8.0% 9.9%
Furnishing, Utensils, Furniture-Home & Office
6.7% 7.6% 9.1% 11.0%
Food & Grocery
0.5% 0.6% 0.8% 1.1%
Out-of-Home Food (Catering) Services
5.7% 5.8% 6.9% 8.0%
Books, Music & Gifts
9.8% 11.7% 12.6% 13.4%
Entertainment
2.6% 3.3% 4.1% 5.3%
Total
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In the overall Retail pie Food and Grocery was the dominant category with 59.5 per cent share, valued at Rs. 792,000 crore, followed by Clothing and Accessories with a 9.9 per cent share at Rs. 131,300 crore. Interestingly, out-of-home food (catering) services (Rs. 71,300 crore) has overtaken Jewellery (Rs.16,000 crore) to become the third longest retail category, with a 5.4 per cent market share-this largely reflects the massive employment appointments to youngsters in the services sector and accompanying changes in consumer lifestyles.
Consumer durables (Rs.57,500 crore) is the fifth largest retail category followed by Health & Pharmaceuticals (Rs.48,800 crore), Leisure retail (Rs.16,400 crore). Footwear (Rs.16,000 crore) Health & Beauty Care services (Rs.4,600 crore) and Watches & Eyewear (Rs.4,400 crore) in the order.
In the Organized retail segment the picture is different altogether. Clothing & Fashion Accessories is the largest category with 38.1 per cent of the market share, valued at Rs. 29,800 crore, followed by Food & Grocery accounting for 11.5 of the organized retail market at Rs. 9,000 crore. Footwear with 9.9 per cent of the organized retail market share at Rs. 7,750 crore, Consumer Durables with 9.1 per cent market share at the foruth place (Rs.7,100 crore), and Out-of-home food (catering) services and Furniture, Furnishings & Kitchenware retail in the order.
The mobile & accessories retail market has shown fastest growth in 2007 (25.6%) over the previous year, the other two prominent categories being out-of-home food (catering)j services where growth was 25.1 per cent and books, music & gifts leisure category which achieved 23.3 per cent growth.
India’s biggest USP and asset base is its youthful population, whose appetite for leisure and entertainment is galloping at 14 per cent p.a. With the rapid addition
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of malls with multiplexes there is a coming together of leisure retail, cinema and gaming. It is indeed difficult to analyze each of these components in isolation. All players are after all trying to get to capture a share of consumer’s mind – his time and money. As the consumer’s spend on leisure and entertainment increases, the mix of his spends is going through a churn like never before. Leisure and entertainment are recession proof. The affluence across the country has touched a large part of the population and there is no looking back. Multiplexes, leisure retailers across books, music, gaming all form a shared existence and whilst the shares of the pie keep shifting the overall leisure and entertainment business is well on its way to a Rs. 60,000 Crore mark by 2010-11.
In the organized retail segment, however, the fastest growth was recorded in the tiny health & beauty care services category (660 crore), which grew at the rate of 65 percent in 2007 over the previous year – again a reflection of rise in sevices sector employment that demands proper grooming. The second fastest growing organized retail category is that of Entertainment (53.8%), followed by the mobile phones & accessories and the food & grocery retail categories, both of which achieved 55.2 per cent growth in 2007.Much of the stupendous growth opportunity in Catering services (25.1%) and leisure retail (23.3%) categories was utilized by the unorganized retailers because organized players could not keep up to the desired growth momentum. A closer study of the retail growth story at constant prics shows that in both these categories growth of organized retail was higher in 2006 (41.7% and 26.1% respectively) as compared to 2007 (37% and 25%).
At constant prices, growth in the fashion & accessories retail category, both in the overall market and the organized retail segment, have been consistently positive since 2004: while the overall market grew 12.8 per cent in 2007, the organized segment grew 35.5 per cent.
In jewellery retail, the overall market growth was higher in 2007 (9.6%) as compared to the previous year (9.2%) but growth in organization
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The overall market growth in the time wear category has declined from 10.7 per cent in 2005 to 9.7 per cent in 2006 and further down to 8.9 per cent n 2007. However, growth in organized retail was higher in 2007 (16.6%) as compared to 2006 (14.8%). Popularity of mobile phones is to a large extent responsible for the dampening of the overall market growth in this category while the renewed enthusiasm in the organized segment is on account of the fillip from luxury brands and offerings that are positioned more as a hi-end lifestyle statement than in the functionality aspect of the product.
Foot Wear retail, the overall market a well as its organized segment, has grown faster year after year but growth 2007 was especially remarkable: the overall market grew 12 percent in 2007 as against a 9.0 per cent growth in 2006 while the organized segment grew 42.3 per cent and 36.4 per cent respectively for the two years. The global brands have actually turned he heat on, and the domestic brands too appear to have accepted the challenge n the true spirit.
Growth in the health and beauty care category has been remarkable in 2007, though the organized segment growth in 2007 (57.5%) was slightly lower as compared to 2006 (59.1%). The demand is stupendous built organized players have hardly much to boast of in terms of innovative concepts and global standards when it comes to providing the customers with an experience ;that is superior and radically different from what the unorganized segment offers. This pharmaceuticals and specialized clinical services – all at one place.
Another category that merits special mention is Furnishings and Furniture retail, where the overall market grew at seven per cent 2007 a compared to just 3.2 per cent in 2006 –m thanks to the housing sector boom. The organized segment also grew faster at 29.7 per cent in 2007 as compared to 23.1 per cent the previous year, but this Rs. 45,500 crore category calls for better attention from organized players. Is India ready for ready-to assemble furniture? May be not but surely the market will change in next couple of years. Global players need to understand that Indian homes are different and so are the Indian environments, maintenance standards. At present most large players entering this segment are busy experimenting and in the process have lost monies too.
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Consumer durables and the mobile phone & accessories categories have both grown faster in 2007 as compared to 2006. At constant prices, the overall food & grocery retail market grew slightly higher at 2.3 per cent I 2007 as compared to a 2.2 per cent annual growth in the previous two years But the organized retail segment in this category is simmering in the true sense – a 50 per cent growth in 2007 as compared to 42.9 per cent in 2006, and lot moe fireworks can be expected this year and the years ahead. Valued at Rs. 9,000 crore, this organized market constitutes barely 1.1 per cent of the total food & grocery retail market.
Time wear (48.9%) and Footwear (48.4%) are the most organized of all organized of all retail categories. Clothing & fashion accessories retail comes next with the organized segment controlling 22.7 per cent of the market.
With the given rapid pace of retail growth, it is expected that Indian retail market (estimated at current prices) will be excess of Rs. 18,10,000 crore by year 2010: organized retail will likely exceed Rs. 2,30,000 crore, accounting for nearly 13 percent of the total market 2010. This growth will call for a greater availability of quantity retail space in the country.
SPACE – AND THE FREEDOM TO GROW
Each time one takes stock of the country’s retail estate scenario, one invaariao, one invariably comes across statistics to show that every city in the country is bursting at the seams with shopping centre activity. If mall space were to be taken as an indication of the level of activity, we find that the country has witnessed nearly 12- fold growth in the last five years, with total mail space having increased from just about 3.7 million square feet in 2002 to ever 47 million square feet in 2007. Also, the opening up of the real estate sector to FDI
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has brought India in the international investment spotlight. FDI inflow in to the sector has propelled the realty sector growth at over 30 per cent per annum. There is yet a lot more to unfold on India’s retail landscape in the years ahead.
Shopping centers
Currently, there are about 280 operational shopping centers in various formats and sizes (including some partly operational), and this number is expected to rise to almost 500 by end-2010. Of the new malls coming up, 40 per cent are concentrated in the smaller cities. Shopping centre business alone is estimated to become a Rs. 40,000 crore business by 2010-11.
By 2011 India will have an additional 280 hypermarkets, 3200 supermarkets, 400 department stores, and approximately 1,200 mega speciality stores & category killers and 20,000 exclusive brand outlets across the various retail categories. Malts alone will provide an additional 200 million square feet of gross leasable quality retail space (GLA) by year 2011.
The emergency of Shoppi9ng Centers is already beginning to define a new lifestyle for India. There is no doubt a huge demand for clean, contemporary shopping and entertainment complexes that will house India’s brands and retail formats and offer New India an exciting and rewarding shopping experience for the whole family. A number of winning solutions will doubtless emerge over the next few years but the dominant centers for the long term will be those that are designed around the Indian consumer and cater to the long term specific needs of a particular location. A shopping center doesn’t serve all India. It serves consumers living largely within a five to fifteen kilometer radius of that center So a successful shopping center in Trivandrum will be designed differently to one in Udaipur and Metros. The tenant mix will be different. The food court will have a different menu offer and local services such as transport and logistics will be tailored to the needs of the local community.
Organized retailing in small-town India is already growing at over 50-60 per cent a year, compared to 35-40 per cent growth in the large cities. About 200
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tier III cities with population of less than 2 million and another 500 rural towns have the potential to be the hub for rural markets, where organized retailing can effectively set base – each of theses 700 centers will on an average be catering to about 1,000 villages.
Supply chain, Logistics & Infrastructure
Organized retail is a function of strong supply chain and robust physical infrastructure. Basic supply chain framework takes care of operational performance at each nodal point – fro order to delivery. In view of this, major retailers will have to continuously upgrade their back-end, front –end and supply chain dynamics in order to provide a standard of value and services to their customers.
Corporate bigwigs such a Reliance, AV Birla, Tata, Goderej, Bharti, Mahindra, ITC, RPG, Pantaloon, Raheja and Wadia Group are expected to invest close to ERs. 1 trillion in the business of retail overt the next five years. Reliance Retail is investing Rs. 30,000 crore in setting up multiple retail formats backed by a 68- strong distribution network, with expected sales of over Rs. 100,000 crore by 2010. The Future Group’s Pantaloon Retail and RPG’s Spencer’s are also going all out to maintain their dominant position on India’s retail horizon. Subhiksha has earned global accolades for its fast-track growth. The Lifestyle India, India bulls, Wash wan Group, Vishal Retail, petroleum majors IOCL, BPCL & HPCL, and others are firming up more and more ambitious retail expansion plans by the day. While global retailers Metro AG and Shoprite Holdings increase th3ir presence on the Indian retail landscape, the Bharati-wal-mart combines is scouting locations fro their joint retail venture. The recent tie-up between Tata and Tesco further adds to the action in retail.
Regional Retailers
Realizing the big picture of retail regional retailers too are waking up to position themselves strong against MNCs and Indian Corporate big wigs jumping into the ring. But the match has only just begun and promises to be a show stealer. Some of the larger regional players are looking to ite up with international
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retailers. Although multinational and large Indian retailers clearly have he advantage of size and power, local companies have survived by adapting. As the big guns introduce new branding strategies, improved merchandising and management techniques, local retailers are fast to catch up and emulate to co-exist.
The big players in what has traditionally been a fragmented market makes existing food retailers look really tiny, even in the case of large regional chains that have been around for years. The South particularly has a large concentration of such businesses which are giving the MCN / Corporate Retailers a run for their money.
Even as multinational retailers are firming up their India strategies, franchising is emerging as the preferred option. Franchise activity is expected to pick up I tier-II cities as well. According to a Frost &Sullivan Research, the overall Indian third-party logistics (3PL) market, estimated at about USD 890.3 billion in 2005, retail support sectors that offer immense opportunity for investment and growth.
Need to give Indian retail – a face of India
India Brand Story can travel across the globe with ‘Delhi Hat’ type hopping cum entertainment centers opening not only across India but all over the world Public private partnership can revitalize the formats like KVIC run Khadi Bhawans, one of the largest retail networks I the world, and also govt. state run emporia.
As India emerges as one of the most potential markets for global brands and retailers and retail reinvents the way modem Indians celebrate heir spending
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power, India that takes pride in its rich culture, heritage, art, craft, and variety or ware must capitalize on this ever escalating consumerism and channelize the spending towards healthy consumption of overall development of the country.
Employment Generation
Modernizing retail will se some 15 million people engaged in retail and retail
support activities by 2010 – including front end retail operations, supply chain,
logistics, process & infrastructure development and supplies.
Retail Formats
There is strong emergence of India specific retail formats irrespective of the size. For example, hypermarkets, super markets or convenience stores that are emerging in India today are specifically designed for the Indian consumer. A store in India will have non-vegetarian section sealed-off from the rest of the store out of respect for group of consumers. Spices, vegetables and grains are seen stacked high in a special section. Retailers in India have realized he relevance of designing and executing world-class hypermarket formats in India, specifically catering to the Indian consumer yet offering world-class products at prices that India can afford.
Indian department stores stock brands that Indian consumers want and design their store layouts based on their few years of experience. But this experiences us unique to them alone. A new entrant has all those lessons to learn. The existing players are developing a sophisticated knowledge base on consumption patterns and preference that are a critical tool in defining competitive positioning going forward.
Public Private Partnership (PPP)
As there is not must scope in creating more high street within cities, Govt. needs to explore public private partnerships for regenerating district centers, office complexes, railway spare land, post offices etc.
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There should be restriction of developing multi-storied malls in new cities and new city planning needs to create paces for more high street concepts for future developments.
PPP can effective work for revitalizing:
Co-operatives with Facelift & Vendor Management Khadi Bhawans & State EmporiaNeighborhood Markets Corporation and state authorities owned/managed district centers & office complexes Collaboration to use spaces and resources of Post Offices, Banks, Railways (Railway Land, Platforms, In-train Shopping Marts, Restaurants, Entertainment)
JUST THE RIGHT TIME TO THINK RETAIL
Developments indicate that this is just the right time to think retail. Fuel and passenger vehicles are two of the mega businesses that can tremendously gain in the evolving scenario.
ENTERING THE RETAIL DRIVEWAY
The auto sector needs to explore innovative collaborative opportunities with the retail sector to add value to the shopping experience of passenger vehicles. So far operated through dealership net work with showrooms mostly in net-so-happening premises, auto showrooms are now beginning to move to retail centers to grab attention of new generation upwardly mobile customers. With increasing income, easy credit facilities and ‘change every year new found attitude (initially stared with mobile handsets) Indian consumers are likely to make spontaneous decisions on automobile buys as well.
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Oil companies – unable to raise prices of transportation fuels in line with rising global crude oil prices – are now looking at alternate revenue streams a major reason why added emphasis is being placed on forecourt retailing. Fuel forecourts with 24x7 convenience retail concepts (merchandise & services retailing) within cities and on the highways offer huge scope for expansion of retail. The concept has the potential to create excitement and initiate activities in small towns and cities as well. Modem retailing in India will no more be restricted to the metros and major cities. Oil stations scattered throughout the country’s landscape can ensure that smaller towns are also exposed to modem retailing to modem retailing formats.
As more and more highways come up, linking small and big towns with villages, swank new fuel stations are innovating with retail stores, highway services, motels and entertainment. Such stations become destination points and soon open up avenues for residential and commercial development.
An emerging trend in the global retail petroleum industry is the growing entry of retail format such as supermarkets, large discount stores and mass merchandisers who are placing fuel dispensers in their parking lots to provide added value and convenience to consumers. Hypermarkets that have ventured into the retail petroleum business have met with considerable success due to competitive fuel pricing, discounted prices linked to loyalty programmers and cross-merchandising.
India’s oil majors can certainly take the lead to fuel the retail growth collaborating with real estate developers, auto companies, consumer brands, retailers and service providers. This will also facilitate travel & tourism in no small measure. This has happened across the globe and is now happening in India.
Travel and tourism are to other sectors that will immensely benefit connecting with retail. Railway worldwide offer a plethora of opportunities for the consumer products, brands, retailers, services, leisure and entertainment majors
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to connect with large number of passengers- both locals and tourists. Not only the stations, platforms and subways that railways own and operate but also 1000s of trains – passenger or goods – offer huge scope as the largest moving media for brand and public messages, in-rail retailing besides of course providing the logistics & real estate support to the retail industry.
RURAL RETAILING
With several stats in the country permitting retailers to purchase produce directly from farmers, the farmers too are adapting to the new opportunity to cultivate assigned crops and take special care of the same. This gets them instant credit at higher prices than what they received from the erstwhile traders/middlemen. Corporate retailers like ITC, Godrej, Reliance, AV Birla and many others have already established the farm linkages. Indian farmers are finally making good money, after centuries of social and economic exploitation. The Indian government too has chipped in with qa massive loan waiver works Rs. 60,000 crore to lighten the farmers’ debt burden.
India’s rural markets offer a sea of an opportunity for the retail sector. The urban-rural split in consumer spending stands at 9:11, with rural India accounting for 55 per cent of private retail consumption. Indeed the market can be tapped with focused attention and strategy.
India’s rural markets offer a sea of an opportunity for the Retail sector. The urban-rural split in consumer spending stands at 9.11, with rural India accounting for 55 per cent of private retail consumption. Currently the Indian retail market is estimated at Rs. 1,330,000 crores, and almost half of this growing retail market at present lies in rural India, which is a tremendous growth sector that needs to be tapped with care.
According to National Council of Applied Economic Research (NCAER) reports, rural India is home to 720 million consumers across 627,000 villages. Seventeen per cent of these villages account for 50 per cent of the rural population as well s 60 per cent of rural wealth. This implies that reaching up to just 100,000 plus villages will ensure access to most of the rural opportunity.
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The urban market undoubtedly continues to grow but with most of the retail initiatives concentrated in the metropolitan and Tier-I and Tier-II cities, these markets are fast getting saturated. Realizing this, most of the big retail companies have started targeting the Tier-III cities and the rural towns to spur their growth. The ‘bottom of the pyramid’ market is for sure now looking attractive for companies wanting to explore new turf. Hariyall Kisan Baaars (DCM) and Aadhars (Pantaloon-Godrej JV) have already set up rural retail bubs. Choupal Sagars (ITC) has done the same and so have Kissan Sansars (Tata), Reliance Frsh, andothers like the Naya Yug Bazaar.
Opportunity in Indian Retail
Favorable demographic and psychographic changes relating to India’s consumer class, intonational exposure, availability of quality retail space, wider viability of products and brand communication are some of the factors that are driving the retail in India. Over the last few years, many international retailers have entered the Indian market on the strength of rising affluence levels of the young Indian population along with the heightened awareness of global brands, international shopping experiences and the increased availability of retail real estate space.
Development of India as a sourcing hub shall further make India a an attractive retail opportunity for the global retailers. Retailers like Wal-Mart, GAP, Tesco, JC Penney, H&M, karstadt-Quelle, Sears (Kmart), etc, stepping up their sourcing requirements from India and moving from third-party buying offices to establishing their own wholly owned / wholly managed sourcing & buying offices shall further make India an attractive retail opportunity for the global players.
Manufacturers in industries such as FMCG, consumer durables, paints etc are waking up to the growing clout of the retailers as a shift in bargaining power from the former to he later becomes more discernible. Already, a number of manufacturers in India, in line with trends in developed markets, have set up dedicated units to service the retail channel. Also, instead of viewing retailers with suspicion, or as a ‘Necessary evil’ as was the case earlier, manufacturers
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initially all retailers foraying to acknowledge the channel member to be partnered with for providing solutions to the end-consumer more effectively.
Tough lucrative opportunities exist across product categories, food and grocery, nevertheless, presents the most significant potential in the Indian context as consumer spending is highest on food. Further, ‘wet groceries’ i.e. fresh fruits and vegetables is the most promising segment within food and grocery though initially all retailers foraying in to this segment had to face had wide spread protest form traders, small shop keepers.
The next level of opportunities in terms of product retail expansion lies in categories such as apparel, jewellery and accessories, consumer’s durables, catering services and home improvement. These sectors have already witnessed the emergence of organized formats though more players are expected to join the bandwagon. Some of the niche categories like Leisure and entertainment (Books, Music and Gifts in particular) offer interesting opportunities for the retail players.
Currently the fashion sector in India commands a lion’s share in the organized retail pie. This is in line with the retail evolution in other parts of the world, where fashion led the retail development in the early stags of evolution and was followed by other categories like Food & Grocery, Durables etc. Fashion across lifestyle categories makes up for over 50 per cent of organized retail and with the kind of retail space growth that India is witnessing we can certainly foresee a very healthy prospect for the fashion industry. As nations become richer, they people start appreciating luxury goods and fine dining. India has over one million such people and this number is expected to triple by 2010. A recent report divides consumers for luxury goods into four categories – luxuriated: source of affluence is largely traditional and inherited. New rich: adequate spending power and are acquiring orientation to luxury: Getting there acquiring spending power and spend mainly on education, housing and large automobiles: Mid-effluent: are also acquiring orientation to luxury but unlikely to indulge beyond a limit.
The most important categories for luxury goods consumers are housing, travel, education, higher and automobiles, electronics and other home improvement
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products besides fashion, lifestyle and fine dining. The most important reason for luxury retail not raking off in India so far has been the lack of luxury retail environment. The presence has been primarily confined to luxury hotels’ with shopping plazas.
FDI or No FDI, India needs more retailers & Increased retail
Government’s favorable talks on Foreign Direct Investment (FDI) last year ignited ambitions in many of the global players to be among the first movers into a virgin retail territory i.e. India. The issue of FDI has been debated time and again as the Indian Government has been under pressure to open up further. The policy makers continue to explore areas where FDI can be invite without hurting the interest of local retail community. The Government of India allows FDI only in the cash and carry formats and to the extent of 51 per cent in single brand retail. This brings an opportunity for Indian enterprise to collaborate either global majors and bring in global best practices in the business of retailing.
Pro-active policy making for retail industry would be welcome to ensure that the consumers benefit from choice, availability, better quality & beneficial pricing. All the current talk of retail industry growth has been buoyed by the growth of Indian macro economy over the last few years. Once the industry growth rate stabilizes, this “comfort factor” would need attention & all futuristic growth plans need to be rational about this.
Identifying growth areas, crossing barriers, creating new markets – satisfying classes as well as serving the messes, Indian enterprises need to expand the horizon of Indian retail.
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TOPIC 10
TENTATIVE CHAPTER SCHEME
The research work contains various chapters. Further it will be continued to the
core of the study i.e. research methodology. Thereby moving to a stage where
we can test our hypothesis and draw conclusion.
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TOPIC 11TOPIC 11BIBLIOGRAPHYBIBLIOGRAPHY
Journals:Journals:
1.1. Business WorldBusiness World
2.2. The Franchising World.The Franchising World.
Internet:Internet:
1.1. francchiseindia.comfrancchiseindia.com
2.2. Google.comGoogle.com
3.3. Altavista.comAltavista.com
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Causes and Impact Of Recession In Indian retail SectorSubmitted by:Deepshikha Mehta