Retail Sector in India
Prepared By: Shaikat Mallick PGDBM (2007-2009) Under the guidance of: Prof. Nandita Mishra. Academic Chairperson ISB&M Kolkata
Submitted in partial fulfillment of the requirement for Post Graduate Program in Business Management
International School of Business & Media, Kolkata
CERTIFICATE
This is to certify that the present study “Retail Sector In India” has been carried out by Shaikat Mallick, Batch 07-09, under my direct supervision. I am glad to forward this for the partial fulfillment for PGPBM.
Project guide: Prof: Nandita Mishra
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Acknowledgement I would like to heart fully acknowledge my gratitude and thanks to all the panelists who took active part in accomplishing my project. At the very outset, I wish to thank Prof. Nandita Mishra, who helped me to choose such an interesting topic to work upon as a full fledged project and guiding me at each step interacting with him gave me a completely different view to look at a subject, throughout its completion. I am also thankful to all the faculty of my institute, who helped me in giving all the required information in a very cooperative manner. The project would not have been possible without the help of my friends and colleagues who have been patient enough with me.
Shaikat Mallick International School of Business & Media Kolkata
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TABLE OF CONTENTS
1. Industry Overview
5
2. Organized Retail Sector – Product Segments
9
3. Origin of retail
10
4. Indian Retail Industry
15
5. Retail Formats in India
19
6. Speciality stores
20
7. Major Industry Players
25
8. The growth Drivers
33
9. Challenges in Retail location planning
41
10. Competitor Analysis
47
11. Future Outlook
49
12. Merger and Acquisition
50
13. Technology in retail
54
14. Government initiatives and regulation
57
15. Conclusion
60
16. Consumer survey questionnaire
62
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Industry Overview Industry analysis of the Indian retail sector: Modern retailing has entered India in form of malls and huge complexes offering shopping, entertainment, leisure to the consumer as the retailers experiment with a variety of formats, from discount stores to supermarkets to hypermarkets to specialty chains. However, kiranas still continue to score over modern formats mostly due to the convenience factor i.e. near to their house. This organized segment typically comprises of a large number of retailers, greater enforcement of taxation mechanisms and better labour law monitoring system. It's no longer about just stocking and selling but about efficient supply chain management, developing vendor relationship quality customer service, efficient merchandising and even the labour class is also in the working process timely promotional campaigns. The modern retail formats are encouraging development of well-established and efficient supply chains in each segment ensuring efficient movement of goods from farms to kitchens, which will result in huge savings for the farmers as well as for the nation. The government also stands to gain through more efficient collection of tax revenues. Network marketing has been growing quite fast and has a few large players today. Gas stations are seeing action in the form of convenience stores, ATMs, food courts and pharmacies appearing in many outlets. In the coming years it can be said that the hypermarket route will emerge as the most preferred format for international retailers stepping into the country. Estimates indicate that this sector will have the potential to absorb many more hypermarkets in the next four to five years
List of retailers that have come with new formats: Retailer
Current Format
New Formats
Shoppers’ Stop
Department Store
Quasi-mall
Crossword
Large Bookstore
Corner shop
Piramyd
Departmental Store
Quasi-mall, Food retail
Pantaloon
Own brand store
Hypermarket
Subhiksha
Supermarket
Globus
Department Store
considering moving to self service Small fashion stores
Traditionally, the kirana retailing has been one of the easiest ways to generate self-employment, as it required minimum investment in terms of land, labour and capital. These store are not affected by the modern format of retailing. In order to keep pace with the modern formats, kiranas have now started providing more value-added services like stocking ready to cook vegetables and other fresh produce. They also provide services like credit, phone service, home delivery etc. The organized retailing has helped in promoting several niche categories such as packaged fruit juices, hair creams, fabric bleaches, shower gels, depilatory products and convenience and health foods, which are generally not found in the local kirana stores. Looking at the vast opportunity in this
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sector, big players like Reliance has announced its plans to become the country's largest modern retainers by establishing a chain of stores across all major cities. Apart from metro cities, several small towns like Nagpur, Nasik, Ahmedabad, Aurangabad, Sholapur, Kolhapur and Amravati has seen the expansion of modern retails. Small towns in Maharashtra are emerging as retail hubs for large chain stores like Pantaloon Retail because many small cities like Nagpur have a student population, lower real estate costs, fewer power cuts and lower levels of attrition. However, retailers need to adjust their product mix for smaller cities, as they tend to be more conservative than the metros. In order for the market to grow in modern retail, it is necessary that steps are taken for rewriting laws, restructuring the tax regime, accessing and developing new skills and investing significantly in India.
India is rated as the most attractive retail markets
Country Risk
Market Attractiveness
Market Saturation
Time Pressure
Country
25%
25%
30%
20%
India
62
34
91
80
1st
Russia
52
58
71
92
2nd
China
68
40
53
90
4th
Turkey
51
56
66
65
9
Thailand
64
41
59
71
12
Malaysia
70
49
58
40
18
Egypt
51
35
85
30
25
Brazil
52
56
57
20
29
India’s Rank
24th
14th
1st
7th
1st
Rank
6
Socio demographic factors will lead to faster growth of Organized retail in India:
100%
9%
9%
10%
11%
12%
80%
19%
19%
20%
22%
23%
60%
25%
24%
24%
26%
27%
47%
47%
45%
42%
39%
1991
1996
2001
2006E
2010E
40% 20% 0% 0-19 Yrs
20-34 Yrs
35-54 Yrs
55+ Yrs
7
Entertainment Durable 10% 1% Home 3%
Pharma 2%
Clothing and Textile 36%
Food & Grocery 14%
Health & Beauty 1% Books, Music & Gifts 3%
Watch & Jewellery 17%
Footwear 13%
ORGANIZED RETAIL: 8
Emerging Retail Markets: India, Russia, China and Vietnam top the list of the most attractive emerging markets for retailers' investment in 2007, While India and Russia have held the top two spots since 2004, China's booming consumer spending, together with retailers moving into second-tier cities, helped it rise to No. 3 from its No. 5 spot last year, according to the 2007 Global Retail Development Index from management consultant firm A.T. Kearney. The study based its results on four variables: 'country risk', measuring political risk, debt and credit ratings; 'market attractiveness', encompassing retail sales per capita, population, infrastructure and regulations; 'market saturation'; and 'time pressure'. The higher the ranking, the more urgency for retailers to enter the market, according to the study, which ranks the top 30 emerging countries for retail development and focuses on mass-merchant and food retailers. "If you want to be an international player in retail, these are the markets that demonstrate the characteristics (where) you can be successful," said Laura Gurski, a co-author of the study and partner in A.T. Kearney's consumer and retail practice. India has already attracted the attention of global retailers like Wal-Mart Stores Inc., which is working with India's Bharti Enterprises to set up a joint venture for a cash-and-carry business. In India, foreign multiple-brand retailers, which sell diverse brands under one roof, are limited to cash-and-carry and franchise or license operations. "India's window of opportunity continues to be wide for retail investment and development," the report said. "Once India's window closes for grocery retailers, there will be little opportunity for market domination in the main cities." The country's growing population of young urban professionals with disposable incomes and the nouveau riche has also made India attractive for luxury retailers. India has attracted "the low end and the high end because of the breadth of the consumer segments that are available," said Gurski. When variables stay constant, Gurski said, do-it-yourself, apparel and electronics retailers usually enter emerging markets some two years after international grocers establish themselves. Middle Eastern countries are also represented on the list, with Saudi Arabia ranking No. 10 India has emerged as the world's most attractive destination for mass merchant and food retailing, maintaining its 2005 position in an annual study of retail investment attractiveness among 30 emerging markets. India was given the top ranking in management consulting company AT Kearney's 2006 Global Retail Development Index (GRDI). "The Indian retail market is gradually but surely opening up, while China's market becomes increasingly saturated," said Fadi Farra, a principal in AT Kearney's Consumer Industries and Retail Practice and leader of the GRDI study. Much to the surprise of market observers, China was ranked fifth in this year's tally, declining one more place since 2005. While China remains very attractive, the market is becoming increasingly saturate as and United Arab Emirates No. 18. Gap Inc announced last week it had struck a deal with two franchisees to open Gap stores in Saudi Arabia starting at the end of this year. Dubai has capitalized on consumer desire for a more Western lifestyle and has established itself as a retail mecca, Gurski said. Despite its focus on luxury, Dubai is "just beginning to be populated by the bread-and-butter retailers of the United States and the Western world," she said. Retailers that have already established a presence in major Chinese cities like Shanghai and Beijing, or those that have been slow to gain a foothold there, are now looking at less
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developed markets in second-tier cities, the study found. "If the markets are saturated, they're looking to make profits in the second-tier cities," Gurski said. But she cautioned that a separate strategy is needed for the smaller markets since consumer tastes, ability to spend and willingness to embrace new formats may be different than in larger urban areas. International retailers rush to establish a presence and build market share, the study reveals. According to the study, Asia with a large 40 per cent of the top 20 markets has surpassed Eastern Europe as the 'dominant region for global retail expansion.' "The learning is that timing is the most important source of competitive advantage for global and regional retailers in the globalization race. Knowing when to enter emerging retail markets is the key to success," said Farra. Powering Asia's charge are Vietnam, which has risen five places to third place, and countries like Thailand, South Korea and Malaysia, all of which are in the top 15, After topping the ranking for two consecutive years in 2003 and 2004, Russia slipped to second place behind India last year and remained there in 2006 too.
Origin of Retail Sector: Early Trade: When man started to cultivate and harvest the land, he would occasionally find himself with a surplus of goods. Once the needs of his family and local community were met, he would attempt to trade his goods for different goods produced elsewhere. Thus markets were formed. These early efforts to swap goods developed into more formal gatherings. When a producer who had a surplus could not find another producer with suitable products to swap, he may have allowed others to owe him goods. Thus early credit terms would have been developed. This would have led to symbolic representations of such debts in the form of valuable items (such as gemstones or beads), and eventually money.
HOW RETAIL DEVELOPED: Peddlers and Producers: The Retail Trade is rooted in two groups, the peddlers and producers. Peddlers tended to be opportunistic in their choice of stock and customer. They would purchase any goods that they thought they could sell for a profit. Producers were interested in selling goods that they had produced.
General Store: This division continues to this day with some shops specializing in specific areas, reflecting their origins as outlets for producers (such as Pacific Concord of Hong Kong), and others providing a broad mix, known as General Store (such as Casey's in the Midwest of the U.S.A.). Although specialist shops are still with us, over time, the general store has increasingly taken on specialist products. Customers have found this to be more convenient than having to visit many shops - thus the term "Convenience Store" has also been applied to these shops. As the popularity of general stores has grown, so has their size. This combined with the advent of Self-Service has lead to the Supermarket, or Superstore.
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Early Markets: Over time, producers would have seen value in deliberately over-producing in order to profit from selling these goods. Merchants would also have begun to appear. They would travel from village to village, purchasing these goods and selling them for a profit. Over time, both producers and merchants, would regularly take their goods to one selling place in the centre of the community. Thus, regular markets appeared.The First Shop : Eventually, markets would become permanent fixtures i.e. shops. These shops along with the logistics required to get the goods to them were, the start of the Retail Trade.
The Birth of Distance Retailing: Defined as sales of goods between two distant parties where the deliverer has no direct interest in the transaction, the earliest instances of distance retailing probably coincided with the first regular delivery or postal services. Such services would have started in earnest once man had learned how to ride a camel, horse etc. When individuals or groups left their community and settled elsewhere, some missed foodstuffs and other goods that were only available in their birthplace. They arranged for some of these goods to be sent to them. Others in their newly adopted community enjoyed these goods and demand grew. Similarly, new settlers discovered goods in their new surroundings that they dispatched back to their birthplace, and once again, demand grew. This soon turned into a regular trade. Although such trading routes expanded mainly through the growth of traveling salesmen and then wholesalers, there were still instances where individuals purchased goods at long distance for their own use. A second reason that distance selling increased was through war. As armies marched through territories, they laid down communication lines stretching from their home base to the front. As well as garnering goods from whichever locality they found themselves in, they would have also taken advantage of the lines of communication to order goods from home.
Origins of Retail It is likely that, as markets became more permanent fixtures they evolved into shops. Although advantageous in many respects, this removed the mobility that a peddler or traveling merchant may still have enjoyed. For some shopkeepers, it made sense to obtain extra stock and open up another shop, most probably operated by another family member. This would recover business from peddlers and create new business and the greater volume would allow the shopkeeper to strike a better deal with suppliers. Thus the retail chain would have started. Its thought that this process would have started in china over 2200 years ago with a chain of shops owned by a trader called Lo Kass.
The First Self-Service Store: This all changed in 1915 when Albert Gerrard opened the Groceteria in Los Angeles, the first documented self-service store. This was soon followed a year later by the Piggly Wiggly® self-service store, founded by Clarence Saunders in Tennessee in the U.S.
Growth: This new type of shopping was more efficient and many customers preferred it. Although personal service stores remain to this day, this new concept started a rapid growth of self-service stores in the United States. Other countries were slow to take up the idea, but there has been a steady rise in the global amount of self-service stores ever since.
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Efficiency These entrepreneurs noticed that their staff had to spend a great deal of time taking grocery orders from customers. The groceries were stacked on shelves allowing customers to walk around and browse, collecting their shopping in a basket that was supplied. The shopkeeper would only need to tot up the final bill at the end of the process and transfer the goods from the basket to the customer and receive payment.
From Family Business to Formal Structure: Although retail chains would have been mostly run by families, as some chains grew, they would have needed to employ people from outside of their family. This was a limiting factor as there would have been a limit to the amount of trusted non family members available to help run the chain. Another, even more definite limiting factor was the distance the furthest shop would have been from the original shop. The greater the distance, the more time and effort would have been needed to effectively manage outpost shops and to service them with goods. There was, therefore, a natural barrier to expansion. That was the case until transport and communications became faster and more reliable. When this happened towards the end of the 19th century, chains became much bigger and more widespread. Many of these businesses became more structured and formalized, leading to the retail chain that we see today.
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Indian Retail Industry: UNORGANISED RETAIL SECTOR: Today, retailing doesn’t involve just dealing or marketing from shops, it includes analyzing the market in an effort to provide reasonable prices together with an array of options and experience to customers. The sole purpose of all this is retaining the brand loyalty of customers. Indian retail is currently a US$ 245 billion market and is anticipated to extend to almost US$ 385 billion mark by the next five years. The Indian retail sector is currently sporting a brand new look and together with a 46.64 per cent three-year Compounded Annual Growth Rate (CAGR), Conventional marketplaces are paving way for new shopping malls, the likes of superstores, shopping plazas, supermarkets and brand label stores. International style shopping centers have started dotting the skyline of cities and smaller towns, acquainting the Indian customer to a unique shopping experience. The retail industry in India is split up into the unorganized and organized retail segments. The unorganized retail sector includes the big, average and modest grocery stores and the chemist shops. A changeover is taking place from the conventional retail sector to organized retailing. But the unorganized segment still dominates and leads the industry. By 2010, the Indian retailing sector is anticipated to become an Rs12.5 trillion market. The share of organized retailing is supposed to jump to about 10 per cent from the existing three per cent. The anticipated staggering growth in organized retailing provides an opportunity to expand the market for both established and new players. According to the latest report India Retail Sector Analysis (2006ñ07)I by RNCOS, the total retail market is primarily focused in rural regions, which makes up 55 per cent or US$ 165 billion of the overall retail market as opposed to urban segment, which represents 45 per cent or US$ 135 billion of the gross retail market. The rural market is spread over 627,000 villages, even though its centre of attention is focused around a core group of 100,000 villages that makes up 50 per cent of the rural population. India represents the most compelling international investment opportunity for mass merchant and food retailers looking to expand overseas, according to management consulting firm AT Kearney's 2005 Global Retail Development Index (GRDI), an annual study of retail investment attractiveness among 30 emerging markets. India is rated as the fifth largest emerging retail market and is seen as a potential goldmine. Driving global brands into India is the greatly improved investment climate due to the recent relaxation of direct ownership restrictions on foreign retailers. The country's retail market totals $330 billion, is vastly underserved and has grown by 10 per cent on an average over the past five years. The message for retailers on India is clear – move now or forego prime locations and market positions that will soon become saturated. Global retailers that missed opportunities to capture first-mover advantage in China will make up for it in India. Though India has more than five million retail outlets, they are greatly unorganized. There is no supply chain management perspective. In fact, out of the entire retail sector in India, the organized sector is only 25 per cent and the rest is unorganized. 96 per cent of the retail outlets are smaller in area than the standard norms. The retail industry is divided into organized and unorganized sectors. Organized retailing refers to trading activities undertaken by licensed retailers who are registered for sales tax and income tax. These include corporate backed hypermarket and retail chains and so on. Unorganized retailing is the traditional low-cost shops, handcarts and pavements and is by far the prevalent form of trade in India. The efficiency of organized sector in retailing is manifested in some of the newer supermarkets in urban/metropolitan India – the produce is cleaner, fresher, well packed and often cheaper than the local shopkeeper. This is possible because of the far more efficient distribution system, which organized retail chains are employing, by cutting the layers of middlemen involved. There are other benefits too, of transforming the unorganized retail sector into an organized sector. Firstly, a number of new jobs will be created, far better paid than the underage labor working in the local shops. Secondly, the benefits to the producer and consumer through better prices and lesser wastage; throwing up exportable surpluses, which will also benefit the economy as a whole. Thus one can see that allowing FDI in retailing is beneficial to all the stakeholders involved
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The Big Bazaars and Spencer’s, the huge unorganized retail sector is finally beginning to see the merit of logging on, even if at a model scale. Taxation policies also push you to automate and the push is even harder for those looking to expand beyond their single store existence. Though it’s early days yet to measure it penetration in the unorganized retail industry, interest levels are surely raising fast. “It’s good to at least answer their questions. Though the interest is more with retailers who register good sales and volumes. Software available to the retailers is ShawMan’s RetailMagiK, which takes care of the front-end store needs, as well as the back-end warehouse requirements. “It would surely help the unorganized sector to get into technologies like bar-coding, which will make their operations more efficient. Some other features are a user-defined billing screen and discount with control mechanism from the head-office, delivery order management, batch control and quick information search, among others. The product is a simple to use. The screen design and the functionality are designed in such a way that the user need not press too many keys to get things done,” says Khushroo Bagwadia, business development manager, Shawman Software. To begin with, most retailers look at decent entry-level solutions starting at Rs 25,000. However, there are cheaper quick-fix solutions available too. One can even deploy a computer and start with financial accounting programmers like Microsoft Excel, FoxPro and Tally. Small retailers seem next in line and vendors are also warming up to the opportunity. At the low-end however, smart inexpensive solutions are the need of the hour. And solutions providers like Microsoft, Polaris and Shawman are now working on developing smart tools for the retail enthusiasts. For small players with just one store, the investment on retail solutions go really low, anywhere between Rs 10,000 to Rs 25,000. Most of the time these solutions are developed by local firms, who at times compete with the big names in the industry. According to Oberoi of Polaris, generally the mom-and-pop stores like to go for technology, which will get their work done at a reasonable cost. They avoid the high-end technology, and consider these as frills. “They are not even bothered about upgrading, so the cheap systems are more than welcome. These solutions might not work for the mid-sized retailers with five stores, as then one need to scale it up and take care of inventory and supply chain management,” he says. Comparing the case with China, Vedamani suggests India is on the right track. “In China, we find the organized sector to be 20-23% of the total industry. Here, the technology has advanced in phases, and so is the case in India.
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Format
Description
The Value Proposition
Branded Stores
Complete range available for a Exclusive showrooms either owned or franchised out given brand, certified product by a manufacturer. quality
Specialty Stores
Greater choice to the consumer, Focus on a specific consumer need, carry most of comparison between brands is the brands available possible
Department Stores
Large stores having a wide variety of products, organized into different departments such as One stop shop catering to varied/ clothing, house wares, furniture, appliances, toys, consumer needs. etc.
Supermarkets
Extremely large self-service retail outlets
One stop shop catering to varied consumer needs
Stores offering discounts on the retail price through Discount Stores selling high volumes and reaping economies of Low Prices scale Hyper- mart
Larger than a supermarket, sometimes with a Low prices, vast choice available warehouse appearance, generally located in quieter including services such as parts of the city cafeterias.
Convenience stores
Small self-service formats located in crowded urban Convenient location and extended areas. operating hours.
Shopping Malls
Enclosure having different formats of in-store Variety of shops available to each retailers, all under one roof. other.
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Formats adopted by the Retail Players in INDIA.
Retailer
Original formats
Later Formats
RPG Retail
Supermarket (Foodworld)
Hypermarket (Spencer's)Specialty Store (Health and Glow)
Piramal's
Department Megastore)
Discount Store (TruMart)
Store
(Piramyd
Small format outlets (Shoppe) Supermarket(FoodBAZAR) Hypermarket (Big Bazaar) Mall (Central)
Pantaloon Retail Department Store (Pantaloon)
Department Store (shopper's
K Raheja Group stop)
Supermarket Hypermarket (TBA)
Tata/ Trent
Department Store (Westside)
Hypermarket (Star India Bazaar)
Landmark Group
Department Store (Lifestyle)
Hypermarket (TBA)
Others
Discount Store (Subhiksha, Margin Free, Apna Bazaar), Supermarket (Nilgiri's), Specialty Electronics
Specialty Store (Crossword)
Retailing formats in India: 1.
Malls:
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The largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof. Examples include Shoppers Stop, Pyramid, Pantaloon. 2.
Specialty Stores: Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword, RPG's Music World and the Times Group's music chain Planet M, are focusing on specific market segments and have established themselves strongly in their sectors. 3.
Discount Stores: As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in bulk reaching economies of scale or excess stock left over at the season. The product category can range from a variety of perishable/ non perishable goods.
4.
Department Stores: Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs. Further classified into localized departments such as clothing, toys, home, groceries, etc
5.
Department Stores: Departmental Stores are expected to take over the apparel business from exclusive brand showrooms. Among these, the biggest success is K Raheja's Shoppers Stop, which started in Mumbai and now has more than seven large stores (over 30,000 sq. ft) across India and even has its own in store brand for clothes called Stop!. 6.
Hypermarts/Supermarkets: Large self service outlets, catering to varied shopper needs are termed as Supermarkets. These are located in or near residential high streets. These stores today contribute to 30% of all food & grocery organized retail sales. Super Markets can further be classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales. 7.
Convenience Stores: These are relatively small stores 400-2,000 sq. feet located near residential areas. They stock a limited range of high-turnover convenience products and are usually open for extended periods during the day, seven days a week. Prices are slightly higher due to the convenience premium.
8.
MBO’s : Multi Brand outlets, also known as Category Killers, offer several brands across a single product category. These usually do well in busy market places and Metros.
SPECIALITY STORES: Food retail : 18
Food dominates the shopping basket in India. The US$ 6.1 billion Indian foods industry, which forms 44 per cent of the entire FMCG sales, is growing at 9 per cent and has set the growth agenda for modern trade formats. Since nearly 60 per cent of the average Indian grocery basket comprises nonbranded items, the branded food industry is homing in on converting Indian consumers to branded food.
The mobile revolution: The retail market for mobile phones -- handset, airtime and accessories -- is already a US$ 16.7 billion business, growing at over 20 per cent per year. In comparison, the consumer electronics and appliance market is worth US$ 5.6 billion, with a growth rate that is half of the mobile market.
Kids retail: When it comes to Indian children, retailers are busy bonding--and branding: Monalisa, the Versace of kids is coming to India. Global lifestyle brand Nautica is bringing Nautica Kids. International brand Zapp tied up with Raymond to foray into kids' apparel. Disney launched exclusive chains which stock character-based stationery. Pantaloon's joint venture with Gini & Jony will set up a retail chain to market kids' apparel. Swiss kidswear brand Milou is collaborating with Tirupur-based Sreeja Hosieries. Turner International India Pvt Ltd. will launch Cartoon Network Townsville and Planet POGO-two theme parks designed around its channels--in the National Capital Region. Sahara One Television has also signed a Memorandum of Understanding to source content from Spacetoon Media Group, Middle East's largest kids' entertainment brand for animation and live action content. Leading the kids' retail revolution is the apparel business, which accounts for almost 80 per cent of the revenue, with kids' clothing in India following international fashion trends. According to research firm KSA Technopak, the branded segment comprises US$ 701.7 million of the total kids' apparel marketsize of over US$ 3 billion. Industry experts say kids' retailing will touch annual growth of 30-35 per cent. Toys, stationary, sportswear, outerwear, tailored clothing, eyewear, watches, fragrance, footwear, theme parks, TV channels… the segment is growing rapidly at 10 per cent per annum. Margins are in the range of 2025 per cent (for dealers and distributors), while companies enjoy an average gross margin of about 10 per cent.
Agricultural retail: Agriculture across India is heralding the country's second Green Revolution. 14 states, including Maharashtra, Punjab, Andhra Pradesh and Rajasthan amended the Agricultural Produce Marketing Committee (APMC) act this year, along the lines of the Model APMC Act, '02, which allows farmers to sell their produce directly to buyers offering them the best price. Agricultural sectors such as horticulture, floriculture, development of seeds, animal husbandry, pisciculture, aqua culture, cultivation of vegetables, mushroom under cultivated conditions and services related to agro and allied sectors are open to 100 per cent FDI through the automatic route. For its e-Choupal scheme, ITC built internet kiosks in rural villages so farmers can access latest information on weather, current market prices, foods-in-demand, etc. With a US$ 5.6 billion, multi-year investment in agriculture and retail, Reliance Retail will establish links with farms on several thousand acres in Punjab, West Bengal and Maharashtra. FieldFresh, planning
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to become India's first large-scale exporter of produce, will annually pay farmers over US$ 30,000 to lease land for vegetables, to hire tractors and to pay their workers. Besides a five-year program with the Punjab government to provide several hundred farmers with four million sweet-orange trees for its Tropicana juices by 2008, PepsiCo--with agriculture exports worth US$ 40 million--also introduced farmers to high-yielding basmati rice, mangoes, potatoes, chilies, peanuts, and barley for its Frito-Lay snacks. Export potential and a rapidly growing domestic demand for reliable produce from new supermarket chains is driving change. With 77 per cent of India's population relying on agriculture for a living, improved efficiency and new markets can benefit a large number of people.
International retailers : The Australian government's National Food Industry Strategy and Austrade initiated a test marketing food retail in India wherein 12 major Australian food producers have tied up with India-based distributor AB Mauri to sell their products directly at retail outlets. The largest-ever 150-member British business delegation in India committed investments in the areas of food processing, agri retail and manufacturing. It is also likely to press for the liberalisation of sectors like financial & legal services and retail. US-based home delivery and logistics company, Specialised Transportation Inc, will enter the Indian market through a strategic alliance with Patel Retail, a subsidiary of Patel Integrated Logistics. Among other big international players, Wal-Mart has announced its plans for India in partnership with Bharti, Tesco is sure to try again, and Carrefour too might finally find the right partner.
Supermarkets:
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Large self service outlets, catering to varied shopper needs are termed as Supermarkets. These are located in or near residential high streets. These stores today contribute to 30% of all food & grocery organized retail sales. Super Markets can further be classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales. Supermarkets are relatively new entrants in the market. They are so called pioneers in organized food retailing and go by the western model in look and feel and format. This is what everybody means when they say organized food retailing.
Franchise outlets: Like Tommy Hilfiger and Wal Mart, other US retailers are firming up their India entry strategies and if they are already in, they are undergoing rapid expansion. Fashion brands DKNY is also al set to foray into the Indian fashion Industry through a franchisee agreement with Indian company, S. Kumar Starbucks recently expressed their interest in entering Indian company
Like Tommy Hilfiger and Wal-Mart, other US retailers are firming up their India entry strategies and if they are already in, they are undergoing rapid expansion. Fashion brand DKNY is also all set to foray into the Indian fashion Industry through a franchisee agreement with Indian company, S Kumar’s.Starbucks recently expressed their interest in entering India through the franchise route, like their AmericanF&B counterparts Pizza Hut, Subway, and the very successful McDonald’s. McDonald’s has major expansion plans lined up; in the next 3 years, it plans to open another 100 outlets in cities across India.
Hypermarket: A very large commercial establishment that is a combination of departmental store and a supermarket. The specific features of a hypermarket are the wide range of goods offered, quality service, quality display of goods on the shelves and complex systems providing for customers loyalty. Hypermarket is known for a wide range of goods offered. It consist of dozens of thousands of items, while similar goods can be offered in several forms. In order to work with such an assortment it is necessary to group it into categories and sub categories that would unite goods according to this or that criteria.
Shopping Malls: The new shopping malls that have been expanding their footprint across Indian cities are well designed, built on international formats of retailing and integrated with entertainment and restaurants to provide a complete family experience. Over 300 malls are expected to be built over the next two years and most Indian cities with over a million populations will be exposed to this modern method of retailing. Shopping malls have existed in India since several decades but were designed and built to house several shops in a single facility. These malls also known as Shopping Arcades offered only rows of shops, most of which were small stores that promised bargains for their various wares. These Shopping Arcades tried to maximize on their store space and did not offer any areas for recreation and entertainment.
The present day malls are a creation of the past few years post 2000. They are designed
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professionally using a lot of international experience and combine shopping with a lot of brand building, recreation, food and entertainment. Malls also have a large format store that serves as their anchor for shopping and a prominent restaurant that anchors the food needs of visitors. Most malls also feature a multiplex cinema that offers entertainment to the visitors of the mall. Finally the mall has large atria and open spaces to allow visitors and families to hang-out.
Organized Retail Sector – Product Segments: The organized retail business in India is very small. This is despite the fact that India is one of the biggest markets. Retail business contributes around 10-11 per cent of GDP. India also has the largest number of retailers, about 12 million, though they are mostly small. Most of the organized retailing in the country has just started recently, and has been concentrated mainly in the metro cities. Organized retailing in India has a huge scope because of the vast market and the growing consciousness of the consumer about product quality and services. Organized retail only accounts for 3% of the total retail industry as yet and is estimated to grow to $64 billion by the year 2015. As a result, the retailing space in the country will also rise by 15-20% by 2010. 50 million sq ft of quality space under development 7 major cities to account for 41 million sq ft development 300 malls, shopping centre and multiplexes under construction To open 35 hypermarkets, 325 large department stores, 1500 supermarkets and over 10,000 new outlets To add US $ 10 billion of business to organized retail. ASSOCHAM president, Anil K Agarwal says:” The organized sector retailing is all set to grow at much faster speed than unorganized sector and the higher growth speed will alone be responsible for its higher market share which has been projected for $17 billion by 2010-11. Cities and metropolis in which retailing will show booming prospects include Mumbai, Delhi, Chennai, Kolkata, Bangalore and Kanpur, said Agarwal adding that the popular mode adopted for building shopping malls in these cities will be based on build, operate, lease and sell basis". The 4 major organized retail sectors are Food & Grocery, Clothing, Consumer Durables and Books & Music. In 2003-04, private consumption expenditure in India amounted to Rs 1,690,000 crores (USD 375 billion) of which, retail sales constitute about 61% (USD 230 billion).In terms of penetration by the organized retail sector, footwear is the highest category, followed by clothing. Footwear is driven by the dominance of home –grown players like Liberty as well as the 15% market share that MNC retailer Bata Commands. Foreign Presence, especially through the franchisee route, e.g. Adidas, Reebok, Nike etc. adds to this slice of the pie. Franchisee activity in this category, especially in Tier II Cities, is pegged to rise.
Estimated Growth in Organized Retail:
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2002
2007
CAGR (%)
Large Segments
1,924
5,024
21%
Other Segments
1,315
2,645
15%
Non-store 239 Retailing Total Organized 3,478 retail The Four Large Segments:
422
12%
8,091
18%
Food -Chain Stores -Single Large Stores Clothing -Manufacturer retailers -Chain stores -Single Large Stores
391 326 65
1,624 1,462 162
33% 35% 20%
1,075 293 315 467
2,266 590 852 824
16% 15% 22% 12%
Consumer durables Manufacturer retailers -Chain stores -Single Large Stores Book and Music -Chain Stores -Single Large Stores
359 141 98 120
822 284 298 240
18% 15% 25% 15%
97 54 43
310 202 108
26% 30% 20%
($)
Retail is amongst the fastest growing sectors in the country. Indiaranks First, ahead of Russia, in terms of emerging markets potential in retail and is deemed a ‘Priority’ market for International retail.
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Major Industry Players: Nanz in North India, Nilgiris in the South, Pantaloon in the East and Crossroad in the West were the pioneers of the retail revolution in India. Nanz faced several obstacles (See Case Study) in their business and had to finally down their shutters. Nilgiris, due to some strange reason, did not see any logic to expand beyond the southern frontiers. Pantaloon went to scale up and become bigger and bigger to form the Future Group, that is now omnipresent in almost all formats right from small groceries to e-tailing. Crossroads in Mumbai imparted some valuable lessons to their parent, the Piramyd Group, who has since then gone on an expansion drive with other formats of retailing in different cities. The big players in Indian retail landscape now are the Future Group, Shoppers Stop, Westside, Subiksha and RPG Spencer. The newcomers who are knocking at the gates are Reliance Retail, Bharti Walmart and Aditya Birla Trinethra. Here, we intend to do a brief profiling of the major players in order to understand the retail business in a better manner. 1
The Future Group
The Future Group, which was earlier known as PRIL (Pantaloon Retail India Limited) began as a trouser manufacturer in the mid 1980s. The Future Group is divided into six verticals – Future Retail, Future Capital, Future Brands, Future Space, Future Media and Future Logistics. The Future Group started operations in the mid 1987s by incorporating the company as Manz Wear Private Limited. The company went on to manufacture ready made trousers under the “Pantaloons” brand name. It came out with a public issue in 1991 and later changed their name to Pantaloon Fashions (India) Limited (PFIL). The first exclusive men’s store called Pantaloon Shoppe was inaugurated in 1992. Pantaloons went for a franchisee route to expand the number of retail outlets and by 1995, it had reached to a crucial number of 70. The first departmental store called Pantaloons was opened in Kolkata in 1997 with an investment of Rs 0.7 million. The store was a success and recorded revenues of Rs 100 million within the first year of operations. In 1999, the company’s name was changed to Pantaloon Retail (India) Limited (PRIL). The success of Pantaloons departmental stores encouraged PRIL to come up with other retailing formats such as “Big Bazaar” to retail low cost general merchandising, and “Food Bazaar” to retail food products. As of 2005, the Future Group has 3.5 million sq ft of retail space and over 100 stores across 25 cities in India. It employs more than 12,000 people and has a customer base of more than 120 million. Kishore Biyani, the promoter of the group who likes to address himself as “Chief Knowledge Officer” has plans to launch 18 formats and over 3,340 stores, thereby turning the Future Group into a US$7 billion company with over US$1 billion in profits by the year 2010.
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2
Shoppers Stop
Shoppers’ Stop, promoted by the real estate group K Raheja, was one of the first movers to have set up a large retail outlet in New Delhi with international ambience. Shopper’s Stop Ltd now has a considerable presence all over the country with overr 7 lakh square feet of retail space and stocks over 200 brands of garments and accessories. The stores are spread all over India with presence in Mumbai, Delhi, Bangalore, Hyderabad, Jaipur, Pune , Kolkata, Gurgaon, Chennai & Ghaziabad. Shoppers’ Stop is also very well known for having pioneered several quality retailing concepts in India like CROSSWORD, HyperCITY and Mothercare. They are the only retailer from India to become a member of the prestigious Intercontinental Group of Departmental Stores (IGDS). Shoppers’ Stop is positioned as a family store delivering a complete shopping experience. With its wide range of merchandise, exclusive shop-in-shop counters of international brands and world-class customer service, Shoppers’ Stop brought international standards of shopping to the Indian consumer providing them with a world class shopping experience. Shoppers’ Stop’s core customers represent a strong SEC A skew. They fall between the age group of 16 years to 35 years, the majority of them being families and young couples with a monthly household income above Rs. 20,000/- and an annual spend of Rs.1,50,000/-. A large number of Non - Resident Indians visit the shop for ethnic clothes in the international environment they are accustomed to.
The stores offer a complete range of apparel and lifestyle accessories for the entire family. From apparel brands like Provogue, Color Plus, Arrow, Levi’s, Scullers, Zodiac to cosmetic brands like Lakme, Chambor, Le Teint Ricci etc., Shoppers’ Stop caters to almost every lifestyle need. Shoppers' Stop also retails its own line of clothing namely Stop, Life , Kashish, Vettorio Fratini and DIY. The merchandise at Shoppers’ Stop is sold at a quality and price assurance backed by its guarantee stamp on every bill. Shoppers’ Stop’s customer loyalty program is called “The First Citizen”. The program offers its members an opportunity to collect points and avail of innumerable special benefits. Currently, Shoppers’ Stop has a database of over 2.5 lakh members who contribute to nearly 50% of the total sales of Shoppers’ Stop. The Organisation, in 2000, along with ICICI ventures also acquired the reputed bookstore, “Crossword”, which offers the widest range of books along with CD-ROM, music, stationery and toys. Services like Dial-a-book, Fax-a-book and Email-a-book enable customers to shop from their homes. Crossword currently has 18 Stores. Realising the role of IT way back in 1991, Shoppers’ Stop was among the first few retailers to use scanners and barcodes and completely computerise its operations. Today it is one of the few stores in India to have retail ERP in place, which is now being integrated with Oracle Financials and the Arthur Planning System, the best retail planning system in the world. With the help of the ERP, they are able to replicate stores, open new stores faster and get information about merchandise and customers online, which reduces the turnaround time in taking quick decision.
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Shoppers Stop has been very keen to understand the importance of distribution and logistics in ensuring that merchandise is available on the shop floors. This has led the retail chain o streamline its supply chain. The company has developed process manuals for each part of the logistics chain. These modules include vendor management, purchase order management, stock receiving systems, purchase verification and inventory build up, generation and fixing of price and store tags, dispatch of stocks to the retail floor and forwarding of bills for payment. Shoppers’ Stop has a grand ambition to position itself as a global retailer. The company intends to bring the world’s best retail technology, retail practices and sales to India. Currently, they are adding 4 to 5 new stores every year.
3
Trent – Westside
Established in 1998, Trent operates some of the nation's largest and fastest growing retail store chains. A beginning was made in 1998 with Westside, a lifestyle retail chain, which was followed up in 2004 with Star India Bazaar, a hypermarket with a large assortment of products at the lowest prices. In 2005, it acquired Landmark, India's largest book and music retailer. In a recently signed deal, Trent has agreed to anchor 12 malls set up by DLF Universal Ltd across the country, at its Westside, Landmark and Star India Bazaar outlets. This amounts to about 27 locations, totaling to about a million square feet of space. Trent retails garments and household accessories for men, women and children, cosmetics and perfumes at Westside, food, beverages, health and beauty products, vegetables, fruits, dairy products, consumer electronics and household items at Star India Bazaar and books, music and stationery at Landmark. Westside has 25 outlets across 17 cities in India offering a variety of designs and styles in garments, footwear and accessories, as table linens, artifacts, home accessories and furnishings. Well-designed interiors, sprawling space, prime locations and coffee shops enhance the customers' shopping experience. Trent also runs another chain of retail stores called Star India Bazaar. Launched in 2004, Star India Bazaar provides a large assortment of high quality products made available at the lowest prices coupled with a unique shopping experience. Star India Bazaar is located in Ahmedabad and offers a wide choice of staple food, beverages, health and beauty products, vegetables, fruits, dairy products, consumer electronics and household items at the most affordable prices. Trent has also recently acquired a 76 per cent stake in Landmark, one of the largest books and music retail chains in India. Landmark commenced its operations in 1987 with its first store in Chennai, and now has nine stores in the major metros of the country. Earlier Landmark was focused on books, stationery and greeting cards. In 1996 it added music to its product portfolio and also started the trend of stocking curios, toys, music, CDs and other gift items.
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4.Piramyd Piramyd Retail is part of the Piramal Group, which has presence in diverse sectors spanning Pharmaceuticals, Textiles, Real Estate, Engineering, Family Entertainment and Retail with manufacturing operations in 19 locations across five states and employing over 18,000 people. The promoters launched the apparel business in 1999 under Piramyd Retail and Merchandising Pvt. Ltd. (PRMPL) while its food; home & personal care businesses (FHPC) were housed under Crossroads Shoppertainment Pvt. Ltd. (CSPL). As the apparel and food businesses individually reached a critical mass the management merged the two companies into Piramyd Retail Ltd. due to distant synergies in two businesses in March 2005. Pyramid also has a smaller format of stores called TruMart that caters to Food and Personal Care products. Piramyd Retail currently has 5 Mega stores and 8 TruMart stores mainly in Maharashtra . The company plans to increase these numbers to 17 Mega stores and 69 TruMarts by 2008. The floor space is expected to be 5 times on successful expansion. The FHPC (Food & Personal Care) business is volume driven while the Lifestyle store is a margin driven business. Piramyd Retail plans to increase the contribution of private labels from existing 7% to 18-20% of the revenues by 2010. Gross margins from private labels are over 40% and hence the company is planning to increase this business. Most of the stores are on the lease format and the company is prone to higher lease rentals due to the overall increase in real estate prices. This may bring the profit levels down substantially. Piramyd Retail did have a first mover advantage in many locations but it has actually failed to capitalise over this advantage. Its competitors like Pantaloon, Shoppers Stop and Trent gained larger benefits of their far more aggressive business & marketing strategy in the retail space.
5.
Subiksha
The Chennai based Subiksha grocery chain runs around 200 outlets all over the country and it’s current turnover stands at Rs 224 crores. Their target customer is the middle income value conscious buyers. The main aim of Subiksha is to offer a functional and transactional shopping experience. This retail chain has no qualms and spends almost no money on creating a pleasant shopping experience, and all stores are non-air conditioned. There is no false roofing or sparkling vitrified tiles on the floor. A few years ago, Subiksha did not even offer shoppers self service. The customer had to place an order at a computerized teller and the goods were billed and delivered after cash is collected.
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Customers had to bring their own carrybags or pay to buy them from the store. Subiksha even attempted to charge the customers for home delivery. However, now Subiksha has slightly tweaked their business model in order to create a better appeal to customers who were defecting to the competitors. The store formats are still small and nonairconditioned. But customers have the option to pick from shelf spaces. They also get shopping bags and free home delivery. But the selling USP(unique selling proposition) remains the same --- Subiksha tries to be as close to the customer as possible and offers the lowest price and huge savings in comparison to competitors. It’s slogan happens to be --- bachat mera adhikar hain (saving is my fundamental right). 6.
RPG Spencer
RPG’s Spencer presently has 125 stores across 25 cities covering a retail trading area of half a million square feet and with a clientele of 3 million customers a month. Spencer's has a national footprint with seven hypermarkets, three supermarkets and 70 daily use outlets, called Dailies. All the newly opened Spencer's stores stock every conceivable product that is required by a household on a daily basis. At Spencer's Daily shoppers can get fresh fruits, vegetables, fast-moving consumer goods, household items, groceries, with regular offers and discounts. Spencer's outlets are divided in to three retail formats. These are, Spencer's Hyper, the over 25,000-sq ft hypermarkets stocking over 25,000 items. The 8,000sq ft to 15,000-sq ft mini hyper stores, branded as Spencer's Super and the daily purchase 4,000-sq ft to 7,000-sq ft Spencer's Daily for groceries, fresh food, chilled and frozen products, bakery and weekly top up shopping. 7.
Reliance Retail
On June 26, 2006, Mukesh Ambani, Chairman and Managing Director, Reliance Industries Limited, announced a Rs 25,000-crore investment in the retail sector. Reliance Retail started it’s retail operation with “Reliance Fresh”, a grocery store that sells vegetables, fruits, personal care items and other food products. Soon, these retail outlets will also be selling apparel and footwear, lifestyle and home improvement products, electronic goods and farm implements and inputs. They will also offer products and services in energy, travel, health and entertainment. In addition to this, partnerships would be developed to bring the best of global luxury brands to India as well. Reliance Retail plans to extend it’s footprint to cover 1,500 Indian cities and towns with outlets of a varied format, a mix of neighborhood convenience stores, supermarkets, specialty stores and hypermarkets. Reliance also plans to open restaurant outlets, financial services marts and tourism counters within it’s stores.
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Mukesh Ambani’s ultimate ambition seems to be to create the Indian equivalent of Wal-Mart by scaling up the business to unprecedented heights to reach every nook and corner of the country. With it’s retailing venture, Reliance expected a revenue target of US $20 billion through it’s retail operations by 2010. Over a span of five years, RRL expects a 20% return-on-investment. The first store christened “Reliance Fresh” opened in November 2006 at Hyderabad. Within a few months they have now opened stores in Mumbai, Pune and Ahmedabad and plans foray into other cities on a rapid scale. 8.
Bharti Wal-Mart
Bharti Retail (Pvt.) Ltd. unveiled the roadmap for its retail venture on 19th February, 2007 envisaging an investment of $2.5 billion with expectation of revenue of $4.5 billion (about Rs. 20,000 crore) from this business by 2015. The first retail outlet is expected to open somewhere in the month of August . Bharti’s plan is to invest $2.5 billion by 2015 and open stores across all major cities. This investment would be only for setting up front-end stores. The modalities for its back-end linkage, including its joint venture with the world's largest retailer Wal-Mart, are in the process of being worked out. A high-level team from Wal-Mart was visited India in the later part of February to work out the details of the back-end chain. While Bharti would manage front-end of the retail venture, Wal-Mart would be involved in the back-end, including logistics, supply chain and cash-and-carry, he added. The JV was presently scouting for 10 million sq. ft. of retail space, which would include hypermarkets, supermarkets and convenience stores and would provide employment to about 60,000 people. The company would open multi-format retail outlets in all cities with a population of about one million. Bharti is now conducting a massive consumer survey to take a final decision on branding and promotional campaign. However, Bharti and Wal-Mart have been facing stiff opposition from the left parties and other political outfits who fear that the entry of the Bentonville giant will make life difficult for the small grocers and create massive unemployment. They also expect Wal-Mart to take a tough stance on lowering prices and force farmers to sell their produce at lower rates. A lurking fear of monopolistic regime in the retail sector is also enhancing their fears. Both Bharti and Walmart are presently having a tough time in convincing the ministers, politicians, agriculturists, the NGOs and other pressure groups that their business model would serve to work in the best interests of all the stakeholders.
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9.
Aditya Birla – MORE
The Aditya Birla Group is India's first truly multinational corporation. Global in vision, rooted in values, the Group is driven by a performance ethic pegged on value creation for its multiple stakeholders. A US$ 24 billion conglomerate, with a market capitalization of US$ 23 billion and in the League of Fortune 500, it is anchored by an extraordinary force of 100,000 employees belonging to over 25 different nationalities. Over 50 per cent of its revenues flow from its operations across the world.” Our mission is to change the way people shop. We will give them more.” says Mr. Kumar Mangalam Birla, Chairman, Aditya Birla Group. The more. for you advantage: more. promises a world-class pleasurable shopping experience to Indian consumers in their very own neighborhood. more. Quality, more. variety, more. convenience and more. value are the four delivery cornerstones of the more. chain of supermarket stores. more. MORE. Value MORE. promises best in market pricing. Linking up directly with farmers to source fresh fruits, vegetables and staples ensure great quality as well as great price. Add to this, the membership program Club more. which provides convenience, customized shopping solutions and savings, and the more. value promise becomes all the more evident. More. Is an inspirational brand for an inspirational country. We have a bright and committed, enthusiastic team that represents the best experience from India and globally. MORE. also has a range of products from its own stable available across value, premium and select ranges. The products have been quality-checked and are available in attractive packaging at competitive prices. To avail additional benefits, at no extra charge, customers can also enroll for the membership program Club more.
10. VISHAL RETAIL : Vishal is one of fastest growing retailing groups in India. Its outlets cater to almost all price ranges. The showrooms have over 70,00 products range which fulfills all your household needs, and can be catered to under one roof. It is covering about 1282000 sq. ft. in 18 state across India. Each store gives you international quality goods and prices hard to match. The cost benefits that is derived from the large central purchase of goods and services is passed on to the consumer. What started as a humble one store enterprise in 1986 in Kolkata(erstwhile, Calcutta) is today a conglomerate encompassing 51 showrooms in 39 cities. India’s first hyper-market has also been opened for the Indian consumer by Vishal. Situated in the national capital Delhi this store boasts of the singe largest collection of goods and commodities sold under one roof in India. The group’s prime focus is on retailing.
The Vishal stores offer affordable family fashion at prices to suit every pocket. The group’s philosophy is integration and towards this end has initiated backward integration in the field of high fashion by setting up a state of the art manufacturing facility to support its retail endeavors. Company has
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already tied up for 5-lakh sq ft space and is looking for more. Company will come up with 32 new stores this year. Company is doing research on more formats. Company is looking for opportunities of expansion in the South. Contribution of apparels business at 53% may slightly come down to 50%. India is a big country and there is huge space for four-five big retail players. Vishal can always sustain growth in this big market. Company can sustain margins as it is going for backward integration. Currently manufacturing contributes 10% of the business, which in the next two to three years, will go up to 25%. Company is increasing its focus on the non-apparel and FMCG segment. The current share of FMCG at 15% could go up to 20-25%. Apparel sales currently at 63% in the next 2-3 years should come down to 50% as the company is now also focusing on different segments. With growth in volumes, the cost of sourcing will come down in the near future. Company will venture wherever it gets real estate space. Currently, it has very little space in the south India. Eventually, it will have a panIndia set up. 11. METRO – CASH & CARRY INDIA METRO Group today, is the third largest trading and retailing group in the world. The company employs over 2,50,000 staff in 30 countries. In the year 2005 METRO Group had generated sales of over €55.7 billion; 53% of total sales came from outside Germany. METRO Cash & Carry started operations in India in 2003 with two Distribution Centres in Bangalore. With this METRO introduced the concept of Cash & Carry to India. These Centres offer the benefit of quality products at the best wholesale price to over 150,000 businesses in Bangalore. METRO offers assortment of over 18000 articles across food and non food at the best wholesale prices to business customers such as Hotels, Restaurants, Caterers, Food and Non-food Traders, Institutional buyers and professionals. METRO's Cash & Carry business model is based on a Business to Business (B2B) concept and focuses on meeting all the needs and requirements of business customers. It is a modern format of wholesale trading, catering only to business customers.
12. Viveks- The Unlimited Shop
Vivek Limited is a professionally managed public limited company carrying three retail brands - Viveks, Jainsons, Premier and continuously adding to the formidable strength of 1000 employees. Vivek Ltd is the largest consumer electronics & home appliances retail chain in India. Viveks popularized several brands by creating visibility and have the distinction of being market leaders and trendsetters with continuous support from the principal companies. Viveks evolved its strategies to suit the larger scene where there was a stigma attached to borrowing. Very few hire purchase options were available and hence Viveks started Vivek Hire Purchase and Leasing Ltd to finance consumer durables, which
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enhanced the core retailing business also.Viveks grew from 3 stores to more than 52 stores and turnover increased to over Rs. 350 crores (USD 80 million) and also become a public limited company from a family run enterprise. In this process, 14 store Jainsons was bought over in 1999, 2 store Premier in 2001 and Spencers in 2002 and have recently absorbed Spencers into the Premier brand. With the liberalization of economy and other changes in the global scene, Viveks streamlined the marketing and advertising activities and shopping ambience was improved.
THE GROWTH DRIVERS: Drivers of Retail Industry •
The Demography Dynamics: Approximately 60 per cent of Indian population below 30 years of
•
age. Double Incomes: Increasing instances of Double Incomes in most families coupled with the
•
rise in spending power. Plastic Revolution: Increasing use of credit cards for categories relating to Apparel, Consumer
•
Durable Goods, Food and Grocery etc. Urbanization: increased urbanization has led to higher customer density areas thus enabling
•
retailers to use lesser number of stores to target the same number of customers. Aggregation of demand that occurs due to urbanization helps a retailer in reaping the economies of scale. Covering distances has become easier: with increased automobile penetration and an overall improvement in the transportation infrastructure, covering distances has become easier than before. Now a customer can travel miles to reach a particular shop, if he or she sees value in shopping from a particular location.
DRIVERS FOR GROWTH: Indian consumers are rapidly evolving and accepting modern formats overwhelmingly. Retail Space is no more a constraint for growth. India is on the radar of Global Retailers and suppliers / brands worldwide are willing to partner with retailers here. Further, large Indian corporate groups like Tata, Reliance, Raheja, ITC, Bombay Dyeing, Murugappa & Piramal Groups etc and also foreign investors and private equity players are firming up plans to identify investment opportunities in the Indian retail sector. The quantum of investments is likely to sky-rocket as the inherent attractiveness of the segment lures more and more investors to earn large profits. Investments into the sector are estimated at INR 20 – 25 billion in the next 2-3 years, and over INR 200 billion by end of 2010. Stocks in the retail sector are also becoming increasingly attractive from an investor's point of view. Successful development of value based concepts as well as development of retail space in smaller cities and towns shall drive the organized retail into the next levels of cities. Retailers have responded to this phenomenon by introducing contemporary retail formats such as hypermarkets and supermarkets in the new pockets of growth. Prominent ‘tier-II' cities and towns which are witnessing a pick-up in activity include Surat, Lucknow, Dehra Dun, Vijaywada, Bhopal, Indore, Vadodara, Coimbatore, Nasik, Bhubaneswar, Varanasi and Ludhiana among others. With consumption in metros already being exploited, manufacturers and retailers of products such as personal computers, mobile phones, automobiles, consumer durables, financial services etc are increasingly targeting consumers in tier II cities and towns. In addition, petro-retailing efforts of
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petroleum giants scattered through out the country's landscape have also ensured that smaller towns are also exposed to modern retailing formats. On the supply side, mall development activity in the small towns is also picking up at a rapid pace, thereby, creating quality space for retailers to fulfill their aggressive expansion plans. Thus, the ‘retail boom', 85% of which has so far been concentrated in the metros is beginning to percolate down to smaller cities and towns. The contribution of these tier-II cities to total organized retailing sales is expected to grow to 20-25%. GROWING CONSUMER CLASS: Favorable demographic and psychographic changes relating to India's consumer class, international exposure, availability of increasing quality retail space, wider availability 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 and international shopping experiences and the increased availability of retail real estate pace. Development of India as a sourcing hub shall further make India as an attractive retail opportunity for the global retailers. Retailers like Wal-Mart, GAP, Tesco, JC Penney, H&M, Karstadt-Quelle 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 as 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 the latter 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 are beginning to acknowledge them as channel members to be partnered with for providing solutions to the end-consumer more effectively. The next level of opportunities in terms product retail expansion lies in categories such as apparel, jewellery and accessories, consumer 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 Books, Music and Gifts offer interesting opportunities for the retail players. Indian consumer goods market is expected to reach $400 billion by 2010. India has the youngest population amongst the major countries. There are a lot of young people in India in different income categories. In India they do not have to face this dilemma largely because rapid urbanization, increase in demand, presence of large number of young population, any number of opportunities are available . The bottom line is that Indian market is changing rapidly and is showing unprecedented consumer business opportunity. Indian consumer class can be classified according to the following criteria: 1. Income 2. Socio-Economic status 3. Age demographics 4. Geographical dispersion
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1. Income Classification
Consumer Classes
Annual Income in Rs.
1996
2001
2007
Change
The Rich
Rs. 215,000 and more
1.2
2.0
6.2
416%
The Consuming Class Rs 45- 215,000
32.5
54.6
90.9
179%
The Climbers
Rs. 22-45,000
54.1
71.6
74.1
37%
The Aspirants
Rs. 16-22,000
44
28.1
15.3
-65%
The Destitute
Below Rs. 16,000
33
23.4
12.8
-61%
164.8
180.7
199.2
21%
Total Source:NCAER 2. Socio-Economic Classification:
In addition to income classification and consumer classification, Indian households can also be segmented according to the occupation and education levels of the chief earner of the household (the person who contributes most to the household expenses). This is called as Socio-Economic Classification (SEC), which is mainly used by market planners to target market before launching their new products. SEC is made to understand the purchase behavior and the consumption pattern of the households 3. Age Demographics: India is a very young nation, if compared with some advanced and developed countries. Nearly twothirds of its population is below the age of 35, and nearly 50 % is below 25. Age distribution if Indian population (In Millions) Year/ 2006
2001
1996
Below 4 yrs
113.5
108.5
119.5
5-14 yrs
221.2
239.1
233.2
15-19 yrs
122.4
109.0
90.7
20-34 yrs
279.1
246.8
224
35-54 yrs
239.2
207.3
178.1
55 & above
118.7
101.7
88.7
Total
1094.1
1012.4
934.2
Age
Marketers explain that the boom in the consumption level and leisure related expenditure is because of this young population. It will have a significant impact over the consumer goods market. In addition to that, it is expected that this will generate trade opportunities and continuous investment in the economy.
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There is huge potential for further consumption of goods and services due to the increased level of disposable income. The expenditure on essential goods and services has a higher share in developing countries as compared with that of developed countries. Consumption Trends Food Essentials
45.68%
Essential Services (water, power, rent, and 10.1% fuels) Clothing
4.9%
Footwear
0.63%
Medicare
4.25%
Transport & Communication
14.51%
Recreation, Education, and Culture
Less than 4%
Home Goods
3.25%
4. Geographical Dispersion of market potential There is large difference in economic prosperity levels among several states in India, linked to the wealth creation from trade, industrial, and agricultural development. There are poor districts in many states, classified according to their market potential. India has 500 districts, out of which 150 districts (category A) and next 150 districts (category B) account for 78% and 15% of the national market potential respectively. Remaining 200 districts (category C) are backward and account for only 7% of national market potential. Category C districts have 40% of the geographical share. GROWING ECONOMY Potential for all Formats to Thrive : Most of the global powerhouses in the retailing sector such as Wal-Mart, Carrefour, Tesco etc have adopted multi-format and multi-product strategies in order to customize their product offering for distinct target segments. Similar trends Identifying the future The important thing is to identify the 'future that has already happened' - Peter Drucker
The important and distinctive are always the result of changes in values, perceptions and goals of people. Identify the changes that have already happened, exploit the changes that have already occurred and use them as opportunities. Dr William T Wilson, Chief Economist for Keystone India ñ a Chicago-based firm providing cross-border trade facilitation and asset management services in US are likely to be exhibited in India as all formats present prospects for growth, the Report says. Further, with the emergence of larger store formats like superstores and hypermarkets in countries like UK, France, Germany, Spain since the 1980s and Eastern Europe more recently, traditional food retailers have been able to stock more extensive non-food ranges. In fact, Tesco, UK's leading grocer, has become the number one apparel retailer in the Czech Republic and also a major player in Hungary apart from being one of the fastest growing clothing retailers in the UK. Together with its rival, Wal-Mart-owned ASDA, Tesco is one of the food sector's most successful exponents of clothing in Europe
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DISPOSABLE INCOME There is no point complaining, accusing or justifying that retailing business is only for larger players and multinational retailing companies. That's total rubbish and rather an assumed limitation. Recent research finding is that by the year 2010, India will have at least three million people with an annual income of over Rs 4,000,000. Mind you, this is the official, declared and straight income meaning there will be a considerable number of consumers with other sources of income! (I suppose). One could comfortably presume that one fourth of the three millions would reside in Bangalore. Considering the third successive year with great economic growth in India, it is obvious that we shall have more people with higher disposable income. With higher disposable income, the discerning Indian consumers are not going to be conscious about price alone. This emerging consumers would want something special, unique, different, better, customized and more. Find the synonyms and transliterate these into value offerings in your field of business and you have a gold mine, especially when you manage to connect with the customers' value and perception and India, said that after significant accelerations in economic growth recently, India's economy is expected to equal or surpass Japan as the world's third largest sometime in the year 2006. Dr Wilson also added that India's economy measured in PPP (purchasing power parity) terms will eclipse the US$ four trillion mark in 2006, making it equal to or greater than Japan's. Indian consumers are getting richer noticeably leading to higher disposable money. RISING INCOMES Over the past deacde , India’s middle and High Income group has grown at a rapid pace of over 10% per annum . Though this growth is most evident in urban areas, it has also taken place in rural markets. Further, the number of house holds earning above Rs.150,000 per annum is about 30 million today and is expected to grow to 80 million by 2007. This growing high-income population is triggering the demand for consumer goods, leading to the proliferation of Higher quality/higher priced products.
EXPLOSION OF MEDIA There has been an explosion in media as well during the past decade . Kick-started by the cableexplosion during the gulf war, television has accelerated to a pint where there are more cable connections than telephones in Indian homes and more than 100 channels are being aired at all times .This media bombardment has exposed the Indian consumer to the lifestyles of more affluent countries and raised their aspirations from the shopping experience – they want more choice , value , experience and convenience.
Private Labels Brands, store labels, private label brands, store brands. These terms may seem to be synonyms of each other. However, when it comes to retailing, each of these terms has a different meaning. While we all know what a brand is, a private label and a store label are different from any other brand because they are product lines that are owned, controlled, merchandised and sold by a specific retailer in its own stores. Among Indian retailers, Stop, Life and Kashish by Shoppers' Stop, and ETC by Ebony are private label brands. According to Synovate, is the market research arm of global communications specialist Aegis Group, the growth of private labels is about 2-3 times more than that of advertised brands .Among the product lines launched by retailers, the ones whose nomenclature is the name of the store itself are called store labels. Foodworld and Nilgiris have launched their own brand of supermarket products under the "Foodworld" and "Nilgiris" brand names. There is a distinct advantage in naming the brand launched by the retailer after the same name as that of the store. But at the same time, the store label also carries the burden of not only the success of the brand, but also the failure, which may have a negative rub-off effect on the retailer's image. A store brand on the other hand is a brand name the retailer carries. Each retailer, because of its unique offering, is a brand in itself, which is what the store brand signifies. Nallis, Modern Bazaar and The Home Store are store brands since each of them stands for a certain retail offering.
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Retailers are now aggressively moving into developing their own private labels as it not only makes economic sense in the form of retailers achieving higher margins, it also helps them to plug gaps in their product portfolio. For instance, in menswear, retailers say that gross margins on branded products vary from 25-38 per cent. Compared to that, the retailers can earn whopping margins of around 55-60 per cent on private labels. Private label products contribute to a retail brands differentiation. A retailer can achieve differentiation through a large (but not necessarily exclusive) portfolio of private label products. Service adds to the differentiation, and together with a unique product range, results in a strong retail brand. They are not perceived as being interchangeable with similar private label products launched by other retailers (unlike manufacturers of branded products, which are the same regardless of the retailer). Introduction of an in house brand of products helps the retailer to have means with which they can compete head on with the other branded products. An established private label brand provides the retailers a platform to negotiate with suppliers, and the retailers are thus self-sufficient in a certain category. They have more control over the merchandise and are able to make the required changes and modifications to suit the changing customer profile much quicker. This brings about a more consistent and acceptable product portfolio, which also helps reduce mark-downs. A retailer can create a stronger emotional connect with the consumer as the experience is not just the store experience but also the product experience. An outside brand could be purchased from any outlet. This is not so in the case of private labels, so the product experience keeps bringing the consumer back The question is: why would retailers want to get into the trouble of launching an own brand when there are "n" number of local, regional and national brands for practically all kinds of products? The reasons are multifold.
CHALLENGES Retailing in its traditional form has been existing in India for decades. But retail management in the true sense (as retailing is known in the west) is a relatively new discipline in India. It is unlike other forms of marketing and the traditional marketing rules do not apply. In retailing, as in service, there is a fifth P added to the existing 4 of marketing, the People. Therefore the contact person (whom the
37
consumers interact with) becomes a doubly important entity. The most important difference is that where marketing has the classic 4 Ps (Product, Promotion, Price and place), in retailing a fifth P, people is added which is critical. They are critical to a service business like retailing both as employees who execute the business and the customers with whom retailers must interact. The following are the key challenges of retailing: • Large transactions: Retailers need to handle smaller transactions in large numbers and still be able to make money. • Low price strategy: The Indian consumer being value-conscious, a key to success for many retailers is the ability to attract customers by offering low price guarantee. • Aggressive sales, discount and collection schemes (say, credit facilities.) and thus keep the enthusiasm going. • Indian consumer behaviors - Retailers need to conduct MRs and behavioral studies into the Indian psyche simply because he is so different from those in the west and in fact, different from other Indian consumers. His shopping patterns need to be analyzed in detail. • Location: A prime location in the city/town so a big plus. Things such as waiting and parking areas need to be taken care of. • Use of information technology (IT) in developing a supply chain and integrating all the retailing processes from procurement to after sales. As somebody rightly pointed out, India remains one of the last frontiers of modern retailing. Conquering the retailing in India will be a major challenge, given the complications that the unorganized sector poses those of the supply chain and consumer behavior as well as the glaring complexities of such a vast a market with all kinds of consumer segments thrown in. A wise retailing hawk would set up special cells; committees to track retailing industry throughout the country. Benchmarking the best in the country and seeing oneself as to where exactly he wants to be in the complicated perceptual map would be a fine starter. Any retail chain needs to experiment and re-orient to cater to the local needs and preferences. Given that these chains come with huge asset bases and financing from their international operations, this is not a difficult task. While Indian markets still beckon a large retail chain, the success of anyone foraying into the land of snake-charmers and maharajas ultimately depends on how well and in-depth understanding they have of the conditions, the people, the supply Retailing in India chain dynamics, the poorer (but strong) unorganized cousins and of course, the local Gods!
HR… a critical business process: The Industry is facing a severe shortage of talented professional, especially at middle-management level. Areas gradually becoming critical are technology, supply chain, business development, marketing, product development and research. Successful Indian retailers are creating a robust second and third level of management by hiring aggressively for these key roles. There is also an increase in number of retail management programmes and institutes. This will bridge the gap in availability of talented professionals at the middle and lower levels. There is also an increasing trend towards hiring hotel management graduates in the retail sector. The retail industry is expected to create 2 million jobs between now and 2010.However, talented professionals will put increased pressure on wage costs. Therefore, operating margins, especially for mid-sized retailers will shrink. There is also a huge risk for Indian retailers becoming a poaching ground for international retailers once they enter India.
An agile and adaptive supply chain is key
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Logistical challenges, constant changes in consumer preferences and patterns, crowded marketplaces, efficient customer responsiveness and swiftly evolving retail environment in India. These factors pose a huge challenge for that all important key to pushing growth in this kind of an environment- an efficient and adaptable supply chain. In the last 2-3 years ,several retailers ranging from F&B operators to discount clothing, have implemented Supply chain management (SCM) solutions to improve core business processes such as global sourcing,distribution,logistics,innovation,transparency and visibility in financials and inventory, compliance and management of point of sale(POS) data. Going ahead, India’s FMCG and retail sectors are likely to see an increase in adoption of SCM. However, most Indian retail players are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. As Indian and International retailers continue to grow their presence regionally, there will be a pressing need for a single, enterprise-wide IT platforms to manage operations, which will become increasingly complex.
Fraud in retail is expensive We feel that fraud in going to be one of the retail sector’s primary challenges in the future. Fraud and theft, including employee pilferage, shoplifting, vendor frauds and inaccuracy in supervision and administration costs the Indian retail industry about Rs 550-600 crores every year. This is despite the fact that most large modern format retailers use standard security features such as CCTV’s, POS systems and anti shoplifting systems for greater control over fraud and theft. In financial terms, cost of this fraud constitutes about 2% of the organized retail sector’s revenues. We believe that the implications and size of this loss will be more significant as retailers continue to scale up and increase product lines.
Improvement in infrastructure and logistics needed India is a large and highly fragmented country, with 29 states and 18 officials’ languages. A bulk of its population, 66.1%, lives in rural retail potential We feel that private logistics companies offering specialized services, refrigerated transport and ware house facilities across the country, along with timely distribution of supplies to retail outlets will.
LOCATION PLANNING – TYPES OF LOCATIONS A) High – Street Location: a. Very busy with high customer traffic.
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b. Has an array of retail stores in small sizes. areas. The lack of adequate infrastructure makes it virtually impossible to reach this virtually untapped market. Distribution, or lack of it, is a major hindrance for retailers in India. The lack of quality infrastructure across the country and a non- existent distribution sector results in inefficient logistics systems. Infrastructure is the weakest link in India’s path to progress and there is urgent need to address issues plaguing this area. Urbanization is driving an increasing need to upgrade or create infrastructure facilities. An indicator of the urgent need for highway development, for instance, is the fact that average daily traffic volume on highways of 39,000 Passenger car units (PCU’s) far exceeds the highway capacity of 15,000 PCU’s. Transport is a major concern, with a deteriorating railway system and a limited highway network .In contrast to the global standards, the average load carried by trucks in India around 7 tons_ is very low. However, the Indian Government is presently investing heavily in the state highway system. This will help in an overall decline in logistics a cost which is currently 10-12% of total GDP. 10,000 MW of power needs to be added every year for next decade. Growth in air passenger traffic, estimated at 20% p.a. for next two years, necessitates quadrupling of airport capacities. Ports will witness 38% increase in tonnage in next -3 years and hence, port infrastructure cannot be ignored. c. Has stores that are generally found in clusters based on product categories. d. High real-estate rentals. Eg: Linking road in Bandra, Brigade Road in Bangalore (B)Destination / Freestanding Location
a.
Does not have a high footfall rate (customer traffic needs to be pulled I through the store’s marketing efforts or products/services/process differentiations)
b. May not be a commercial retail area at all. c. Low real-estate rentals. d. May have a large parking area. Eg :Phoenix Mills Compounds and Shopper’s Stop in Mumbai. (C)Shopping Centre/Mall Location a .Has an Existing mall traffic. b .Has a clean Environment. c. Has a designated parking area. d .Medium to High rental cost. Eg: DLF Mall in Delhi, Crossroads in Mumbai
Location, store design and layout: Once a geographical market has been chosen, the next step in formulating the retail business plan is to select a site for the store. The importance of this decision is summarized by a favorite saying of retailers: "There are three vitally important things in retailing - location, location, and location." In assessing the desirability of various available locations, note the positive and negative aspects of each. Once again, analysis of trends is important. No location is static; it is either improving or declining in such things as traffic flow and potential market area. Store design and layout of the store's interior and exterior help determine the store's image and character. In planning a new store or remodeling of an old one, there is plenty of room for creativity. This part of the plan takes a lot of thought and consideration. Some bad decisions made in the planning stage can be corrected, but mistakes made in the area of store design and layouts are usually quite costly to correct.
40
Retailers can get specialized assistance from merchandise suppliers, local architects, and store planning consultants. Display windows, fixtures, lighting, and storage are examples of areas covered in this part of the retail business plan. Store layout involves such considerations as allocation of space, customer traffic flow throughout the store, and maximizing profit per square foot. Planning a retail business has several advantages. A well thought out plan not only makes the best of the present, but also anticipates future contingencies Retailing is a challenging and dynamic field. The retailer draws on knowledge from such areas as marketing, psychology, finance, accounting and management. From the field of management, we learn that planning is one of the most important functions of the retailer. It is a function often neglected under the pressure of day-to-day business activity, but it is so important that the successful retailer must give it top priority. Retailers must decide how to make the best use of limited resources, such as people, funds, and inventories. In order to use these resources in the most productive way, the retailer plans for the future. The most important planning occurs before a retail store even opens for business. Careful planning at this time can greatly enhance a store's chances of success. By gathering and synthesizing the relevant information into a retail business plan, the retailer can make better decisions. A workable retail business plan should be detailed, specific, and in writing. Indeed, a major advantage of planning is that it forces the retailer to put ideas in writing. Without planning, there is no predetermined course of action, and with out some predetermined course of action, retailers do not know what to do, where to do, or why it should be done. They waste their own energies and the resources of the store. Planning involves selecting objectives and developing specific program’s, policies, and procedures for achieving them.
Steps in formulating the retail business plan: Setting objectivesPlanning begins with objectives. Stores can have many different objectives: survival, growth, market share increase, high return on investment, and development of a good store image. Some objectives are more important than others. Profit, of course, is a primary objective for any retail organization. Social concerns, however, must often be given consideration, too, if the store is to be a "good citizen" of its business community Objectives are difficult to apply to real situations and decisions if they are stated in vague terms. An objective should establish a measurable goal - a yardstick to compare results with efforts. Goals or objectives such as "to increase sales by 18 per cent this year" or "to break even in the first year of operation" are examples of clearly defined and measurable objectives. They must be supported with concrete plans that are specific for reaching these goals. In forming the retail business plan, be as specific as possible. Remember to be customeroriented while setting objectives; it is one of the keys to successful retailing. Do not lose sight of these objectives once they are formulated. Schedule quarterly, or if appropriate, monthly reviews of progress. Revise and update your objectives periodically as well.
Financial planning: Financial planning is an important part of the retail business plan. In fact, inadequate financial planning is a frequent cause of store failure.
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Financial statistics on the type of business under consideration are often available from trade associations. This information can be invaluable to the manager in the initial planning stages. The retailer must make a sales forecast, calculate a break-even point, and estimate the capital requirements of the business. Asset planning, another essential part of financial planning, involves inventory, accounts receivable, equipment and fixtures, and cash. Often, these assets must be financed in part with funds obtained from outside sources - banks, relatives, and so on.
Assessing available resources: What are the strengths and weakness of the business? By assessing these factors, a retailer can maximize the use of all available assets and can limit or eliminate the handicaps imposed by the inherent weakness of these resources. Experienced, creative management is a strong resource. Sufficient working capital to meet the costs of doing business the first year is another. At least as important as knowing the strengths of the business is analyzing its weaknesses. Awareness of weak areas is the first step in overcoming them. Some weaknesses can be overcome by hiring an outside expert in areas in which the retailer's knowledge and experience are limited. Additional training and outside reading are other answers to many weak areas. A retailer with general retailing experience but little knowledge of, say, the shoe business, could benefit greatly by hiring experienced shoe salespeople if she is planning to open a shoe store. A retailer who is weak in the areas of financial planning and control needs to work closely with a good accountant. Even during the planning stage, an accountant can be helpful in setting up an appropriate bookkeeping system.
Assessing market potential What type of customer, or what segment of the market, does the store cater to? Is there enough demand for the products to provide sufficient sales volume? These are some of the main questions the retailer tries to answer by assessing market potential. The key factors in market assessment are: first, the number of people living in the trade area, and second, the buying power of these people. An extreme example of poor market assessment would be trying to sell expensive fur coats in a poor mining town. Even the age distribution of the population can affect a store's market potential. Assessing the competitive situation Competition is a good thing. It leads to better products and services at lower prices. It can inspire a retailer to do a better job. However, numerous and / or aggressive competitors are costly to the retailer in many ways. Price wars eat away profits. Too many similar stores serving too few consumers cause the sales volume of each store to suffer. For some types of stores, however, the best strategy can be to locate as close as possible to the competition. Competing stores located in the same area may increase customer traffic. Some cities, for example, have an area with many antique shops. Customers are drawn to the area because of this convenience, and each store's traffic helps the other stores. Retailers should not be afraid of competition, but they should try to find a market where there is an unfilled demand for the type of store they are planning. Other assessments: Local laws, tax rates, and the labour force are other areas that can affect the retail store. The planner should investigate these uncontrollable environmental factors.
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In this preliminary work, be aware of trends as well. For example, demand for the products may look very promising in a certain area, but the population of this area might be declining. On the other hand, an area with slightly lower market potential at present could be growing very fast and provide a better long-run market for a particular store. These assessments are often difficult to make, but the effort put into planning at this stage will pay off handsomely when store operations get under way. Location, store design and layout: Once a geographical market has been chosen, the next step in formulating the retail business plan is to select a site for the store. The importance of this decision is summarized by a favorite saying of retailers: "There are three vitally important things in retailing - location, location, and location." In assessing the desirability of various available locations, note the positive and negative aspects of each. Once again, analysis of trends is important. No location is static; it is either improving or declining in such things as traffic flow and potential market area. Store design and layout of the store's interior and exterior help determine the store's image and character. In planning a new store or remodeling of an old one, there is plenty of room for creativity. This part of the plan takes a lot of thought and consideration. Some bad decisions made in the planning stage can be corrected, but mistakes made in the area of store design and layout are usually quite costly to correct. Retailers can get specialized assistance from merchandise suppliers, local architects, and store planning consultants. Display windows, fixtures, lighting, and storage are examples of areas covered in this part of the retail business plan. Store layout involves such considerations as allocation of space, customer traffic flow throughout the store, and maximizing profit per square foot. Organization and supervision Planning is an example of a management function. Other management functions performed by the retailer are organizing, staffing, leading, and controlling. By organizing, the retailer establishes relationships among people, materials, and other resources to get a job done. Labour is organized and divided, and responsibility is delegated. Staffing entails the recruitment and selection of employees. It is a vitally important function because the employees of a store represent that store to the public. People can really be the most important asset of a retail firm. Every retailer is in a leadership position. Leadership means motivating employees to achieve their maximum potential, while at the same time accomplishing the goals of the organization. Because leadership means understanding people, it is one of the most creative and challenging aspects of a retailer's job. The retailer's professionalism and attitudes set the tone for employees' attitudes and performance. Controlling is the follow-up function of retail management. Actual performance is compared with planned performance to spot and evaluate deviations. Knowledge on buying For established retail operations, past sales data are very helpful in knowing how much to buy. For a new retail business, these past data are not available. However, if a sales forecast and desired inventory turnover rate have been determined, the beginning inventory figure can be calculated. A balance between meeting customers' needs and high inventory carrying costs must be found. Knowing how much to buy goes hand in hand with knowing what to buy. Successful retailing involves having the right merchandise in the right place, at the right time, and at the right price for the customer.
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Information from store records is a valuable aid in knowing what to buy. In the absence of this information, an understanding of the target customer's shopping habits and motivations, is helpful. Information from suppliers can provide valuable input for the store buyer. Once the inventory has been obtained, a unit control system must be set up to keep track of the stock. Pricing The goals of retail pricing are fourfold. First, the goods must sell at a satisfactory rate. Second, inventory costs and expenses must be covered. Third, a desired profit must be made, and fourth, prices should be fair to customers. There are different pricing strategies for different types of stores, from the discount store to the exclusive shop with quality merchandise and expanded customer services. Pricing in retailing is both a science and an art. Retailers have special terms to describe various pricing operations, such as markup, markdown, and psychological pricing. Pricing is, naturally, closely related to financial planning. Advertising and promotion A store's location, layout, design, and product lines affect its overall image. Advertising is another key element of the store's image in the minds of customers. Advertising can be thought of as communicating with customers. The objective of an advertisement is to stimulate the customer to want what the retailer has to offer, and to persuade the customer to take action to satisfy the stimulated want or need. Besides advertising, retailers send messages to customers through personal selling, sales promotion, and packaging. Information channels beyond the direct control of the retailer are publicity and word-of-mouth communication. By giving careful consideration to defining who the advertisement is directed at (the "target customer"), retailers can get more mileage out of advertising spend. The content of an advertisement should focus on benefits desired by the target customers. Sales promotion and display techniques are a major promotional tool. Sales promotions can have various objectives, such as generation of immediate sales, attracting customers to the store, and building goodwill. Window displays can serve to attract customers, to show customers the kind of merchandise the store carries, and to project the image of the store. Because window displays are so visible, they should be given the attention, care, and creative input they deserve. Interior displays can be informative, can stimulate impulse buying, or can suggest uses of a product. In addition, they can enhance the store's image. Other sales promotion strategies include special events, sales, coupons, and trading stamps. Employee selection and training The salesperson is a communicator: This person translates product features into benefits and satisfactions for the customer. But most important, the salesperson is the representative of the store to its customers. The unique quality that distinguishes personal selling from other promotion activities is the opportunity for feedback between customer and salesperson. Good advertising and promotion can get people into a store. Good salespeople and good value keep them coming back. The importance of employee selection and training cannot be overstated. Many retailers are surprised to learn that monetary compensation, although important to employees, is usually not their most important concern. Fairness, security, honesty, and opportunity are often more important than pay.
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Services An enlightened retailer realizes that the customer is the pivot around which all retailing activities revolve. This attitude is expressed to the customer through shopping conveniences, services, employee attitudes, and fair values. As part of the retail business plan, decisions must be made about the types of services to be offered. Services, and handling of credit policies and customer complaints, deserve the ongoing attention of the manager. Accounting and financial management Information and control play an important role in the internal operation of a retail business. Good records are the basis for guiding and controlling a retail business. They are the tools a manager uses to control inventory, expenses, and ultimately, profits. Financial statements, such as balance sheets and income statements, are summaries of the financial strength and profitability of the retail business. They tell how well a business is doing, and give evidence about the quality of management decisions. Financial planning in the form of budgets helps retailers to spot problems before they occur. Information One information tool in particular has been a real boon to retailers, and that is the computer. More and better information is available to the retailer now than ever before, because of computers. This means that better and faster decisions can be made. Computers offer speed and accuracy of information processing that is especially helpful in inventory management. Information is important for intelligent decision-making. Much of this information evolves from basic store records or is provided by a computer system. Another source of information for the retailer is marketing research, such as the market assessment. Most of the research involved in formulating the retail business plan is in fact, marketing research. Research can also help answer questions in such areas as pricing, promotion and distribution.
COMPETITOR ANALYSIS The table below outlines some of the strategic moves being planned to change the competitive structure of Retail business in India.
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Early Birds Retailer
Brands
Plans
Strengths
Challenges
Threats
K Raheja Group
Shopper’s Stop, Crossword, Inorbit Mall Hyper City, Café Brio/Desi Café
310 Shoppers’ Stop Outlets by 2010, 60-70 new Crossword outlets within two years, 100 Café Brio/ Desi Café and 14 new Hypercity
Pulse on customer tastes with vast local retailing experience
Keeping up brand loyalty
Could get bogged down in positioning itself right
Future Group
Pantaloon, Big Bazaar, Food Bazaar, Fashion Station, Blue Sky
A store a day for the next three to four years – 3,300 planned by 2010
Can evolve on vast customer experience and existing models
Expanding customer base, sourcing products at cheaper rates
Straddling with too many retail formats
Tata Trent
Westside
Looking to register it’s presence in hypermarkets; currently operates 21 stores
Already has an established brand like Westside
Sprucing up product offerings, opening more outlets, and introducing new retail formats
It’s smaller retail operations
RPG
Spencer’s, Music World
Expansion into other major cities at prime locations; BCities next on list
Still considered a southern brand
Establishing itself into newer regions, sourcing products at competitive prices
Source : Indian Management, Volume 46, Issue 1, January 2007, Page 16
Debutantes Retailer
Brands
Plans
Strengths
Challenges
Threats
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Reliance
Reliance Fresh
Plans to set up a range of different store formats, convenience stores and hypermarkets as well as create a back-end retailservices business
Strong back end, nationwide fuel retailing platform
Getting the retail portfolio right for Indian tastes
Product pricing, infrastructure, manpower, brands
Bharti Walmart
Field Fresh
Pan-Indian operations expected
Bharti’s local expertise and Wal-Mart’s back-end make it a lethal combo
Wooing the price sensitive Indian consumer
Product pricing, shelf and overall offerings
Challenges
Threats
In the Pipeline Retailer
Brands
Plans
Strengths
Aditya Birla
Madura Garments, Birla Sun Life Insurance and Idea Cellular, Planet Fashion and Trouser Town
To roll out it’s retail business within the next 7-8 months with a combination of large and small stores
Extensive experience in supply-chain management, vendor development with premium brands like Louis Phillippe, Van Heusen and Allen Solly
Gaining a national footprint
Building retail formats from scratch
Hero Group
Easy Bill
Floated Aero Infrastructure Ltd announcing foray into retail. Currently developing two industrial parks at Haridwar and Uttaranchal
Strong background in several manufacturing sectors; sound financial base
Creating retail operations from scratch
Little experience in everyday consumer retailing.
Future Outlook Retailing in India is gradually inching its way toward becoming the next boom industry. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a
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revolution in shopping in India. Modern retail has entered India as seen in sprawling shopping centers, multi-storied malls and huge complexes offer shopping, entertainment and food all under one roof. The Indian retailing sector is at an inflexion point where the growth of organized retailing and growth in the consumption by the Indian population is going to take a higher growth trajectory. The Indian population is witnessing a significant change in its demographics. A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing workingwomen population and emerging opportunities in the services sector are going to be the key growth drivers of the organized retail sector in India. Retail and real estate are the two booming sectors of India in the present times. And if industry experts are to be believed, the prospects of both the sectors are mutually dependent on each other. Retail, one of India’s largest industries, has presently emerged as one of the most dynamic and fast paced industries of our times with several players entering the market. Accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment retailing in India is gradually inching its way toward becoming the next boom industry. As the contemporary retail sector in India is reflected in sprawling shopping centers, multiplex- malls and huge complexes offer shopping, entertainment and food all under one roof, the concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. This has also contributed to large-scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. The trends that are driving the growth of the retail sector in India are
• • • •
Low share of organized retailing Falling real estate prices Increase in disposable income and customer aspiration Increase in expenditure for luxury items (CHART)
Road Ahead; Plans of Large Retailers
•
Reliance Retail: investing Rs. 30,000 crore ($6.67 billion) in setting up multiple retail formats
•
with expected sales of Rs. 90,000 crore plus ($20 billion) by 2009-10. Pantaloon Retail: Will occupy 10 mn sq.ft retail space and achieve Rs.9,000 crore-plus ($2
•
bn) sales by 2008. RPG: Planning IPO will have 450-plus Music World, 50-plus Spencer's Hyper covering 4
•
million sq.ft by 2010. LIFESTYLE: Investing Rs.400 crore-plus ($90 million) in next five years on Max Hypermarkets
•
& value retail stores, home and lifestyle centres. Raheja's: Operates Shoppers' Stop, Crossword, Inorbit Mall, and 'Home Stop' formats. Will
•
operate 55 "Hypercity" hypermarkets with US$100 million sales across India by 2015. Piramyd Retail: Aiming to occupy 1.75 million sq.ft retail spaces through 150 stores in next five years.
Merger and acquisition activity:
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India witnessed a record number of M&A deals in the first half of 2006, which were collectively worth USD 25.6 billion. A significant number of deals have being carried out in the Indian retail sector in the past few months in order to acquire a larger share in the growing domestic market and to compete against the prospective global and domestic players.13 The table below shows some recent deals that have taken place in the Indian retail sector: Consideration
Acquired/ JV Company/ Acquirer Target
Nature of Business Stake
2005
Liberty Shoes
Retail (Footwear)
51%
3
2005
Indus - League Clothing Future group
Retail clothing
68%
5
2005
Odyssey India
Deccan Chronicle Holdings
Leisure retail chain (books, music, 100% toys)
14
2005
Landmark
Tata Trent
Books, music, accessories
74%
24
Bistro Hospitality
TGI Friday's (a subsidiary of Carlson Restaurant (Food Restaurant Worldretail) wide)
25%
N/A
Year
2006
Future group
Indus League clothing 2006
Etam group, France (Future group company)
(US$ million)
Lingerie and women's wear retailing
50% 8 (JV)
Source: Price water house Coppers, Asia-Pacific M&A bulletin, mid year 2006.
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Technology – A Critical Tool Out-of-stocks are the most noticeable problem for consumers — during normal shopping experiences eight per cent of intended purchases are not on the shelf and when it comes to promotional offers, these out-of-stocks rise to 15 per cent. Faced with an empty shelf, consumers often do not substitute the same brand. They simply keep their money and leave the store in search of another product. Let's take the example of a $25-billion retailer: lost sales due to out-of-stocks added up to nearly 1 per cent of total sales — a mind-boggling figure of $1 billion! Retailers across the nation are unable to predict and master the demand-supply gap as a result of orthodox tools to measure changing consumer behavior. Considering the Indian retail industry grew by 300 per cent in the last 12 months and supply chain accounts for 50 per cent of costs, retailers are now looking at ways to enhance the supply chain and predict consumer-buying habits. High consumption patterns driven by disposable incomes, lifestyle shifts and availability of a wide range of brands are dictating the high-growth of different retail formats in India. No wonder, Indian retail players are under tremendous pressure to make the supply chain more efficient in order to deliver quality, selection and service to consumers. Retailers are now looking at creating an efficient supply-chain via a concept popularly referred to as consumer driven replenishment. What this implies is placing the consumer in the centre of the replenishment process, to allow retailers to be able to use real-time data to sense and respond to changing consumer demands. To implement consumer driven replenishment, one needs to first collect and analyze preshopping signals, which often go unnoticed today. For example, consumers may speak to store associates or call centre agents to enquire on a particular product. As this often leads consumers to purchase products, retailers and supply chain partners can use existing consumer touch points to map consumers' buying preferences. For example, Spanish retailer Zara furnishes its store employees with PDAs to help them order out-of-stock items the minute the customer brings it to the assistant's attention. This information captured via the PDAs dictates next-day replenishments at the stores. In another instance, Wal-Mart leverages weather data for replenishment. When the world's largest retailer knows about an approaching hurricane or snowstorm, the stores in that area are doubly stocked up with essential items such as bottled water and batteries. This data helps Wal-Mart align inventory with increased demand to cover unnatural events and prevent out-of-stock situations. Consumer driven replenishment will change the way the industry handles forecasting and replenishment. The major business change will start at the business process level; to respond quickly to consumer demand, retailers and their supply chain partners must redesign the current business process. All supply chain partners will become part of a cohesive architecture, enabling information to flow freely from retail functions to suppliers. Inevitably, consumer driven replenishment within the Indian retail sector will be reflected in rapid growth in sales of supermarkets, department stores and hypermarkets. And with this increased competition, retailers will look at various opportunities to maximize customer satisfaction. These will include initiatives to streamline internal back end costs so as to translate savings onto customers, maximizing mind share in a cluttered market and delivering the best in store experience. Keeping these deliverables in mind, some of the other key modules that the store of the future will look to implement will include:
Store connectivity: Stores will invest in building wide-area networks (WANs) and virtual private networks (VPNs) to access information across various sites. With visibility into every resource, stores will take advantage of up-to-the-minute data at the right time for increased strategic flexibility and informed decisionmaking for managing inventory. RFID: Widely regarded as the key defining technology to hit the retail sector, RFID tags on each piece of merchandise will enable companies to monitor their inventory at a more detailed level than
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ever before. Executives will identify when problems occur by monitoring signal readers installed at key junctures, such as loading docks, receiving points, distribution centers, backrooms and store shelves. These readers in turn will be networked to a centralized monitoring system that would give companies information they could never imagine with current operations, allowing them to identify problems as shop lifting, inventory management, and even 'gray market’ sales that can erode profits and damage distribution relationships. Let’s see the actual benefits of using RFID in the supply chain. The biggest benefit is the total visibility across the entire supply chain: What managers worry about the most? It is directly or indirectly related to uncertainty. Uncertainty is the mother of inventory and the father of stock-outs. Inventory Management • Maintain a real-time view of tagged inventory as it flows through the supply chain. • Track discrete movement of tagged inventory. • Trigger alerts around inventory movement based on business rules you construct. • Allowing just-in-time practices. Maximizing warehouse space With the high costs associated with storage real estate, the goal is to maximize warehouse space. This will improve utilization without undermining the ease with which goods can be moved in and out. Minimizing goods shrinkage Theft combined with imprecise inventory management can create a significant shortfall in actual versus expected goods available. Within the retail environment goods shrinkage is widely perceived to account for up to one per cent of stock, representing a significant dent in profit margin. Benefits to Consumers, RFID can go beyond just intangible cost savings, as RFID can play a role in food safety, counterfeit control, and warranty programs. Businesses must avoid focusing too intently on the ways RFID tags can be used and instead stay focused on how RFID can improve consumer value and address complex business issues. Minimizing errors in delivery Misdirected deliveries or incorrect orders can immediately result in on-shelf out-of-stock situations leading to reduced sales and damaged customer relationships. Indeed, for organizations relying on the delivery of specific components to fulfill their own order schedule, such errors can have a serious impact on customer satisfaction. Store Mobility: Stores will use wireless technologies at the point of sale for faster checkout and real-time product information in the store to improve operations, and throughout the supply chain to reduce costs.
IP Communications: Stores will converge their data and voice systems, providing instant communication throughout stores at significantly reduced costs. In conclusion, suffice to say that faced with poor supply chain management and a rapidly changing environment, today's retailers will most definitively look for consumer driven replenishment to simplify supply chain operations, control costs, and measure results. With networks that will enable real time updates to predict and replenish stocks, the Indian consumer will hopefully never find his shopping preferences out of stock. The Indian retail market is booming, and there are numerous applications—both business and consumer—that can be built around radio frequency identification (RFID) to deliver operational efficiencies. For instance, if a retailer is able to track shipments and high-value assets in real-time, it can minimise losses. Apart from improved and enhanced accuracy, RFID can also lead up to 80 percent savings in time spent on scanning items.
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Explains Chamaria, “RFID is a transformational technology that has the potential to change the way business is conducted. Although at a nascent stage, we expect RFID will start gaining traction around 2010. The cost of tags and readers is fairly high today; once it comes down and ROI is established, it will surely be a boon for both retailers and CPG companies.” Aggarwal of BEA elaborates. “While RFID is at a nascent stage, there are several killer applications that can utilise RFID technology across verticals. Supply Chain Visibility and Reusable Asset Tracking will emerge as key solutions that have high applicability in the Indian market, especially in manufacturing, retail, government and healthcare." But as of now, RFID has hardly any presence in India. Laments Chopra, “Indian retailers are still to adopt bar-coding completely. The level of bar-code usage is also largely due to the retailers’ initiatives of printing these codes at their warehouses, unlike in developed countries, where suppliers print barcodes. Most retailers do not have integrated IT systems today. Many retailers have few IT systems in the areas of supply chain management, vendor development, merchandising and inventory management. The annual expenditure on IT is quite negligible.”
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Technology in Retail Over the years as the consumer demand increased and the retailers geared up to meet this increase, technology evolved rapidly to support this growth. The hardware and software tools that have now become almost essential for retailing can be into 3 broad categories. Customer Interfacing Systems
•
Bar Coding and Scanners Point of sale systems use scanners and bar coding to identify an item, use pre-stored data to calculate the cost and generate the total bill for a client. Tunnel Scanning is a new concept where the consumer pushes the full shopping cart through an electronic gate to the point of sale. In a matter of seconds, the items in the cart are hit with laser beams and scanned. All that the consumer has to do is to pay for the goods.
•
Payment Payment through credit cards has become quite widespread and this enables a fast and easy payment process. Electronic cheque conversion, a recent development in this area, processes a cheque electronically by transmitting transaction information to the retailer and consumer's bank. Rather than manually process a cheque, the retailer voids it and hands it back to the consumer along with a receipt, having digitally captured and stored the image of the cheque, which makes the process very fast.
•
Internet Internet is also rapidly evolving as a customer interface, removing the need of a consumer physically visiting the store.
•
ERP System Various ERP vendors have developed retail-specific systems which help in integrating all the functions from warehousing to distribution, front and back office store systems and merchandising. An integrated supply chain helps the retailer in maintaining his stocks, getting his supplies on time, preventing stock-outs and thus reducing his costs, while servicing the customer better.
•
CRM Systems The rise of loyalty programs, mail order and the Internet has provided retailers with real access to consumer data. Data warehousing & mining technologies offers retailers the tools they need to make sense of their consumer data and apply it to business. This, along with the various available CRM (Customer Relationship Management) Systems, allows the retailers to study the purchase behavior of consumers in detail and grow the value of individual consumers to their businesses.
•
Advanced Planning and Scheduling Systems APS systems can provide improved control across the supply chain, all the way from raw material suppliers right through to the retail shelf. These APS packages complement existing (but often limited) ERP packages. They enable consolidation of activities such as long term
53
budgeting, monthly forecasting, weekly factory scheduling and daily distribution scheduling into one overall planning process using a single set of data. Leading manufactures, distributors and retailers and considering APS packages such as those from i2, Manugistics, Bann, MerciaLincs and Stirling-Douglas.
Strategic Decision Support Systems •
Store Site Location Demographics and buying patterns of residents of an area can be used to compare various possible sites for opening new stores. Today, software packages are helping retailers not only in their locational decisions but in decisions regarding store sizing and floor-spaces as well.
•
Visual Merchandising The decision on how to place & stack items in a store is no more taken on the gut feel of the store manager. A larger number of visual merchandising tools are available to him to evaluate the impact of his stacking options. The SPACEMAN Store Suit from AC Neilsen and ModaCAD are example of products helping in modeling a retail store design.
Investment Opportunities •
Potential For Investment: The total estimated Investment Opportunity in the retail sector is around US$ 5-6 Billion in the Next five years.
•
Location: with modern retail formats having made their foray into the top cities namely Hyderabad, Coimbatore, Ahmedabad, Mumbai, Pune, Chennai, Bangalore, Delhi, Nagpur there exists tremendous potential in two tier towns over the next 5 years.
•
Sectors with High Growth Potential: Certain segments that promise a high growth are Food and Grocery Clothing Furniture and Fixtures Pharmacy Durables, Footwear & Leather, Watch & Jewellery
•
Fastest Growing Formats: Some of the formats that offer good growth potential are: o Speciality and Super Market Hyper Market Discount stores Department Stores Convenience Stores and E-Retailing
•
Supply Chain Infrastructure: Supply chain infrastructure in terms of cold chain and Logistics.
•
Rural Retail: Retail sector offers opportunities for exploration and investment in rural areas, with Corporates and Entrepreneurs having made a foray in the past. India's largely rural
54
population has caught the eye of retailers looking for new areas of growth. ITC launched the country's first rural mall ' Chaupal Sagar', offering a diverse product range from FMCG to electronics appliance to automobiles, attempting to provide farmers a one-stop destination for all of their needs. There has been yet another initiative by the DCM Sriram Group called the ' Hariyali Bazaar', that has initially started off by providing farm related inputs and services but plans to introduce the complete shopping basket in due course. Other corporate bodies include Escorts and Tata Chemicals (with Tata Kisan Sansar) setting up agri-stores to provide products/services targeted at the farmer in order to tap the vast rural market.
•
•
Wholesale Trading: wholesale trading also holds huge potential for growth. German giant Metro AG and South African Shoprite Holdings have already made headway in this segment by setting up stores selling merchandise on a wholesale basis in Bangalore and Mumbai respectively. These new-format cash-and-carry stores attract large volumes from a sizeable number of retailers who do not have to maintain relationships with multiple suppliers for all their needs. Cheap Consumer Credit
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Government Initiatives & Regulations There has always been a strong opposition to FDI in India’s retail sector (though 100 percent FDI is allowed in distribution companies that sell to the trade and not to the consumer). The BJP was not too keen on it early on, though towards the end of Vajpayee’s government‘s term there were noises that it would consider such a move. These days, the left parties are orchestrating a passionate opposition to allowing FDI in retail. The arguments are familiar – that global retailers will swamp the Indian markets, wipe out small kirana stores and put millions of jobs in jeopardy. They also argue that giant global retailers will squeeze suppliers and finish them off. “ The negative effects in terms of job losses and the displacement of traditional supply chains by the monopoly/ monophony power of multinational retailers far outweigh the supposed benefits…” the left observed in a recent seven-page note that summarized its arguments against FDI. Given the political clout of the small trading community, because of their enormous numbers, the government has barred FDI in retailing since 1997. Most of India’s home grown retailers also oppose FDI, though for a different reason. “What is the hurry (to allow FDI)? For 10 years, China allowed only one foreign store per province. I allowed domestic chains to build up good valuation before opening FDI, “argues Kishore Biyani, managing director, Pantaloon Retail. “ The debate is not ‘whether or not to allow FDI, but ‘when and how’,” he clarifies. Biyani is also chairman of Confederation of Indian Industry’s retail committee, which estimates that Rs.20, 000 crore will be needed in retail to scale up to its potential. Indian companies need time to mobilize at least part of the capital before the foreign players are allowed in, argues CII. In private some domestic retailers fear getting lower valuations from their global counterparts if they sell out today. But five or 10 years later, when they have built up larger business, they may get far higher valuations. Of course, the argument of asking for more time to get even better valuation may not lose its appeal even a decade later, if the approach is instinctively protectionist. INDIA’s retail industry – the fourth largest in the world – accounts for 11 per cent of the country’s GDP and employs over 40 million people (about 7 per cent of Sector retailers (Yes, they have retailing PSU’s!) had a 32 percent share and private sector retailers had 45 per cent. total employment in the country). Now, a huge majority of the retail workforce is in kiranas.This sector, in fact acts as an informal social security net – almost anyone without a job can set up a kirana. The big worry is that global retailers will quickly put these kiranas out of business, leading to millions of job losses. Is that fear justified? The answer can be found in the experience of othercountries that allow FDI in retail. In Thailand and Malaysia, global retailers have spelt doom for the traditional mom and pop stores. In fact the Thai government had to step step in to save local retailers from annihilation. It set up Allied Retail Trade, a network of franchised stores, which brought small stores together to fight the big chains. But if the Thailand story is forbidding, then the China one is inspirational. Global chains have had a 13 year run in china. In 1992, China had one supermarket. Today it has 60, 000. (Supermarkets are perceived to be kirana killers!). Four of the world’s 10 largest retailers, 35 of the top 50 and 78 of the top 250 have already opened stores in China. Hypermarkets, supermarkets, discount stores, cash & carry convenience stores every conceivable format operates in China. The globalization of china is complete. So what impact has this had? The top 100 retailers (both domestic and foreign) in China had combined sales of $60 billion in 2004, according to the China Chain Store & Franchise Association. These 100 companies have so far opened 30,416 stores with a total area of 25.8 million square metres. But – and here’s the revelation they have only 9.6 per cent share of China‘s $628- billion retail trade! That figure has grown from 2.9 per cent in 2000.
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It must be mentioned that the global giants got unfettered access into China only in 2004. Therefore their performance cannot be compared with rest of the country’s retail sector, but must be benchmarked only against the top 100 firms. When seen thus, the foreign firms account for only 23 percent sales of the top 100 retailers. China’s public Now, the question is which theory is relevant to India – China’s or Thailand’s? “India cannot be compared with Thailand and Malaysia as the scale is much smaller and economic levels are dissimilar. The right comparison would be Germany 20-30 years ago or Brazil today. China makes sense because of its similarities with India: large area, large chunk of underdeveloped population, disparity in income levels,” says Arvin Singhal, chairman of consultancy KSA Technopak. Or better still, one could also look at the US story. Its retailing industry is one of the most matures ones in the world. It is also home to some of the world’s largest retailers. But there is a less understood aspect of the US retail scene – 95 percent of all retailers in the US are single – store operations. They may not be as the Indian Kirana, but they are still small ‘mom and pop’ operations on the US scale. Despite over six decades of dominance by large chains, these small players have not find a lot of them in the vicinity of a Wal- Mart or a target. They are also under pressure and their market share in on the decline. But the fact is that the single- store operations still control a little less than 50 percent of US retail trade. Again, back home, in Chennai, where large and organised supermarket chains like FoodWorld and Nilgiri’s have grabbed a 20 percent market share, the kiranas haven’t been slaughtered. They are smarter, more efficient more customer- friendly than they were five years ago; they are matching the chains’ prices and continue to do brisk business. Even stores in close vicinity of these large supermarkets have survived. “Small businesses have their own competitive advantages. They are local; they are usually in the same block that the customers are in; and they are very convenient. They know their customers by name, so they offer great customer service. They have tailored their inventory for their customers, so they have great inventory management, and many times they give credit. Small businesses have their own model, offer a different product mix, and keep their customers happy. I think small business can grow and prosper with Wal Mart, “Menzer had argued in an inclusive interview with BW during his May visit.
Benefits of opening the Retail sector Improve competition Develop the market : Greater level of exports due to increased sourcing by major players Sourcing by Wal-Mart from China improved multifold after FDI permitted in China Similar increase in sourcing observed for Metro in India Provides access to global markets for Indian producers. Investment in technology Cold storage chains solve the perennial problem of wastage. Greater investment in the food processing sector technology Better operations in production cycle and distribution. Better lifestyle Greater level of wages paid by international players usually More product variety Newer product categories Economies of scale to help lower consumer price. Increased purchasing capacity of consumers Manpower and skill development through retail training and Greater managerial talent inflow from other countries Tourism Development : A strong retailing sector boosts tourism as seen from the experience of Singapore and Dubai. Investment in whole supply chain Improved product basket from India for exports. Long term benefits,up-gradation of agriculture, development of efficient small and medium size industries. FDI would result in market growth and expansion. Employment generated at various levels, Increased consumer demand implies employment generation across the value chain does not need very high
57
skill sets, needs high school graduates and other similar skill level. Currently this is a majorly unemployed demographic group Boom in employment similar to job generation in ITES industry. On a much larger scale But new jobs comparatively lower down the value chain Greater clarity and objectivity can be achieved if one looks beyond kiranas at the larger issue of employment, Despite the entry of organized retail – domestic and foreign – in China, its retail still employs 6 percent of the total workforce ( only marginally smaller than India). The top 100 retailers in China employ 810,000 people, a figure growing at over 25 percent every year. But compared with the US, the percentage looks paltry. In the US, almost 15 million people or 11.7 of the workforce are employed in retail. This is almost double the retail workforce in China – and much higher than in India! Many believe that organised retail actually leads to job gains rather than job losses. This is not to say that the changeover will be painless. Shifting of jobs is bound to happen. “Supermarket chains will divert business from small vendors, but they also create many jobs,” argues retail expert Gale. One reason for that is growth of organised retail stimulates consumption. And increased consumption means more production and therefore more jobs.In India, owners of large and small stores will tell you that they face stockouts – products not available when a consumer asks for it. This is lost demand. And it is due to India’s rather inefficient supply chain. One could, therefore argue that India’s consumption is actually way below actual potential – and that there is inherent job loss of jobs that exists in the economy. Here poor distribution and below-par processes is another bottleneck. “If the economy grows at 6.5 percent or so every year, we will have 5-7 years. If you do not have an efficient distribution chain, the economy cannot grow…Such inefficiency will lead to job losses. If you do not have organized distribution, you won’t have employment growth,” argues Harsh Bahadur, managing director, Metro Cash & Carry, India. Finally, if the fear of kiranas being snuffed out is true, then the government ought to be equally concerned about Indian retailers as well. Several large and influential business groups like the Tatas and Ambanis have ambitious plans that include setting up of hundreds of supermarkets and hypermarkets. Won’t these kill kiranas and lead to job losses. In reality; foreign retailers will be in a position to influence employment only several years after they enter India. But they will have an impact on the consumer almost immediately. Of course, in India the consumer is invariably forgotten when protectionist lobbies voice their concern.
58
Conclusion
Big Retail is here to stay. Assuming that improvements in infrastructure and lower real estate costs become a reality, Big Retail still has a long way to go before satisfying the highly diverse needs of the Indian population. As a result, there will be a steady-state where Big Retail will co-exist with Small Retail.
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APPENDIX CONSUMER SURVEY QUESTIONNAIRE RETAIL CHAINS The objective of this survey is to collect tangible information about shopping in Retail Chains. This questionnaire is being administered to people like you who have visited and bought products in Retail Chains. Please let us know your spontaneous response to the questions that pertain to your shopping experience in Retail Chains. All information provided by you shall be kept confidential and we shall only be publishing the outcomes. Please provide us your unbiased and frank opinions.
1. What is your monthly shopping budget? 0-2K
2-5K
5-10K
10-20K
20-50K
>50K
2. Which retail chains did you visit ? Big Bazaar Shoppers Stop Westside Piramyd Vishal Megamart Any other (Please specify) ________________________________ 3. Which retail chains do you visit often? Big Bazaar Shoppers Stop Westside Piramyd Vishal Megamart Any other (Please specify) ________________________________ 4. Which retail chain did you like most? Big Bazaar Shoppers Stop Westside 60
Piramyd Vishal Megamart Any other (Please specify) ________________________________
5. Why did you like that particular retail chain? Ambience Attractive Prices Wide range of choices Discount Schemes Free Offers Customer Service Any Other (Please Specify) ___________________________________ 6. Mark on a scale of -3 to +3 your perceptions about your shopping experience in the following retail chains (where -3 indicates inferior and + 3 indicates superior) : Feature
Big Vishal Westside Shoppers Bazaar Megamart Stop
Piramyd
Ambience Attractive Prices Range of Choices Price Discounts Freebies Salespeople Behaviour Parking Facilities Convenience Home Delivery 7. Which products do you normally buy from retail chains? _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ 8. Which products do you normally buy from your local grocery store? _______________________________________ _______________________________________
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_______________________________________ _______________________________________ _______________________________________
9. Which products do you normally buy from your chemist shop? _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ 10. Why do you like to buy from local grocery store? _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ 11. Why do you like to buy from chemist shops? _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ 12. How much time do you spend in the retail chain on every visit? 0-30 Minutes 30-60 Minutes 3-4 Hours 4-5 Hours
1-2 Hour 2-3 Hours <5 Hours
13. The emergence of retail chains will create unemployment problems: Strongly Agree
Agree
Neither Agree Nor Disagree
Disagree
Strongly Disagree
14. The emergence of retail chains will destroy social harmony: Strongly Agree
Agree
Neither Agree nor Disagree
Disagree
Strongly Disagree
15. The emergence of retail chains will cause monopolistic control over prices:
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Strongly Agree Disagree
Agree
Neither Agree Nor Disagree
Disagree
Strongly
16. FDI in Retail Sector will contribute to the Growth Momentum: Strongly Agree Disagree.
Agree
Neither Agree Nor Disagree
Disagree
Strongly
Demographics 1. Name:
______________________________________________________
2. Age:
15-20 40-50
20-30 50 & above
30-40
3. Occupation:
Student Govt. Employee Private Employee Businessman Any other (Pls specify) _______________
4. Income group:
5k-10k 40k-50k
10k-20k 20k-30k 50k & above
5. Education:
Student MBA
Graduate Post-Graduate Any other (Pls specify) ___________________
6. Number of Family Dependants: Nil One Two Any other (Pls specify)
30k-40k
Five
7. Telephone Number / E-mail:___________________________________________
________________________________ Thank You______________________________
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References:
Web Sites and Search Engines
• • • • • • • •
www.indiabiznews.com www.fashion2fibre.com www.indiainfoline.com www.equitymaster.com www.economywatch.com www.google.com www.rediff.com www.ibef.org
Newspapers • • • • • •
The Times Of India The Indian Express The Economic Times Financial Express Business Standard Business Line
Books and Magazines • • •
Business World The Indian Dream Business & Economy
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