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ACKNOWLEDGEMENT
My sincere thanks to Faculty Guide under whose able guidance and kind cooperation I was able to complete the project work titled "Consumer Behaviour in the Indian Retail Sector" .
Also, I do thank and remember my friends for their effort and helping hand. Every effort has been made to enhance the quality of work. However, I owe the sole responsibility of the shortcoming, if any, in the study.
TABLE OF CONTENTS
INTRODUCTION REVIEW OF LITERATURE Retailing in India Unorganized Retailing Organized Retailing The macro picture of retailing Present Indian scenario Traditional retail scene in India
OBJECTIVES SCOPE OF STUDY RESEARCH METHODOLOGY Methodology adopted Sources of data collection Sample size Demographic profile of sample
FUTURE PLANS OF VARIOUS RETAILERS POPULAR RETAIL STORES IN INDIA RETAIL AS AN EMPLYOMENT GENERATOR EMERGING TRENDS IN MODERN RETAIL DELHI/NCR CURRENT RETAIL SCENARIO FACTORS FOR DEVELOPMENT OF RETAIL IN INDIA
CHALLENGES FOR RETAILING For retailing industry For Indian retail industry
QUESTIONNAIRE FINDINGS AND ANALYSIS FACTORS AFFECTING SHOPPERS BEHAVIOUR KEY OBSERVATIONS CONCLUSION A COMPARISON CASE 4
REFERENCES
INTRODUCTION
Retail Sector
The word "Retail" originates from a French-Italian word retaillier which means to break bulk. Retailing is the set of activities that markets products or services to final consumers for their own personal or household use. It does this by organizing their availability on a relatively large scale and supplying them to customers on a relatively small scale. Retailing is the last stage in the movement of goods and services to the consumer. Retail therefore consists of all activities involved in the marketing of goods and services directly to the consumers for their personal, family or domestic use. Retailer is a person or Agent or Agency or Company or Organization who is instrumental in reaching the goods or merchandise or services to the end user or the ultimate consumer. Retailing involves all activities incidental to selling to ultimate consumer or the end user for their personal, family and household use. It does this by organizing their availability on a relatively large scale and supplying them to users on a relatively small scale. Retailer is any person or an organization instrumental in reaching the goods or merchandise or services to the end users. Retailer is a must in the process and cannot be eliminated. The Indian retailing industry is becoming extremely competitive, as more and more players are targeting for the same set of customers. The major retail players are Pantaloon Retail, Shoppers Stop, Reliance, etc.., Retailing is one of the biggest sectors and it is witnessing revolution in the Indian market. The new entrant in retailing in India signifies the beginning of retail revolution. India's retail market is expected to grow tremendously in next few years. According to AT Kearney, The Windows of Opportunity shows that Retailing in India was at opening stage in 1995 and now it is in growth stage in 2008. India's retail market is expected to grow tremendously in next few years. Retail market is expected to grow 10% a year, with modern retailing just beginning. This window of opportunity is useful for executives who plan their market-specific strategies; the four stages or the lifecycle of this industry are as follows: 7
Introduction: An introduction is the opening phase of a market and is one that is just entering Global Retail Development Index (GRDI). This index is based on more than 25 macro-economic and retail specific variables for instance, the country risk includes parameters like political risk, economic risk, performance risk, financial risk and business risk. The market attractiveness covers retail sales per capita, urban population, laws and regulations and business efficiency. At this stage, retailers should monitor and performing high-level assessments, they should plan for their entry strategies in the market. India in the late 1990's is a good example in the opening stage, while in 2007; Kazakhstan was the country in introduction stage. Strategy suggested: A rapid penetration strategy is suggested at this stage that is low price and high promotion.
Growth: In growth stage, the market is developing quickly and also is ready for modern retailing. Countries, which are in Peaking stage such as India. Retailers who are entering this stage have the best chance for long-term success. Retailers at this stage should enter through local representations, sourcing offices and new stores. Strategy suggested: The strategy of adopting quality and styled products with new models and shift of advertising from product awareness to product preference .The idea behind adopting this strategy is to strengthen against competitors.
Maturity: In this stage the market is still big and growing, but the space for new entrants will become tighter and retailers should act promptly at this stage because retailers at this stage have limited time to explore, and also their margin for error is less. In general, they should act in accordance to the established rules and should be open to face the competition from international retailers. This stage generally lasts longer than the previous two stages. Strategy suggested: Enter new market segments, that is, either enter new geographic areas or introduce new and innovative products and offers. Decline: The window of opportunity is closing fast and modern retail share is reaching 40 to 60 percent. Though the opportunity is closing the existing retailers can enter with new formats such as discount models or non-food formats such as consumer electronics and apparel. Window of opportunity ends for about 5 to 10years before a market enters the closing phase and reaches saturation level. India for example, was in the opening stage in 1995 and entered peaking stage in the year 2003 and reached number 1 rank in2005. Strategy suggested: Identifying weak segments, maintaining investment level selectively.
REVIEW OF LITERATURE
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RETAILING IN INDIA
Retailing is the most active and attractive sector of the last decade. While the retailing industry itself has been present since ages in our country, it is only the recent past that it has witnessed so much dynamism. The emergence of retailing in India has more to do with the increased purchasing power of buyers, especially post-liberalization, increase in product variety, and increase in economies of scale, with the aid of modern supply and distributions solution. Indian retailing today is at an interesting crossroads. The retail sales are at the topmost point in history and new technologies are improving retail productivity. Though there are many opportunities to start a new retail business, retailers are facing numerous challenges. India has witnessed a frenetic pace of retail growth over the past five years. Goldman Sachs has estimated that the Indian Economic growth could actually exceed that of China by 2015. It is believed that the Country has potential to deliver the faster growth over the next 50 years. As we all know that India has been a nation of Dukandars, having around 12 million retailers. Obviously retailing is in our blood either as a shopkeeper or as a shopper. The Indian Retail market is estimated to grow from the current US $ 330 billion to US $ 427 billion by 2010 & U. S. $ 637 by 2015. Retail which contributes 10% of our GDP is the largest source of employment after agriculture. In the year 2004, ratio of organizedUnorganized retail was 3:97 which is expected to be 9:91 by 2010. (Annexure: 9 It is not just the global players like Wal-Mart, Tesco and Metro group are eying to capture a pie of this galloping market but also the domestic corporate behemoths like Reliance, NeelKamal, KK Modi, Aditya Birla group, and Bharti group too are at the same stage of retail development... There is augmented sophistication in the shopping pattern of customers, which has resulted to the emergence of big retail chains in most metros; mini metros and towns being the next target. Customer taste and preferences are changing leading to radical transformation in lifestyles and spending patterns which in turn is giving rise to new business opportunities.
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The generic growth is likely to be driven by changing lifestyles and by strong surge in income, which in turn will be supported by favorable demographic patterns. Development of mega malls in India is adding new dimensions to the booming retail sector. There is significant development in retail landscape not only in the metros but also in the smaller cities. Even ITC went one step ahead to revolutionize rural retail by developing Choupal Sagar; a rural mall, for the Rural India. On one hand there are groups of visionary corporate working constantly to improve upon urban shopping experience and on the other hand some companies are trying to infuse innovative retail experience into the rural Set up. Given the situation we can say that Indian Retailing is at boom. India has sometimes also been called a nation of shopkeepers. This epithet has its roots in the large number of retail enterprises in India, which totaled over 12 million in 2003. About 78% of these are small family businesses utilizing only household labor. Even among retail enterprises that employ hired workers, the bulk of them use less than three workers. India's retail sector appears backward not only by the standards of industrialized countries but also in comparison with several other emerging markets in Asia and elsewhere. There are only 14 companies that run department stores and two with hypermarkets. While the number of businesses operating supermarkets is higher (385 in 2003), most of these had only one outlet. The number of companies with supermarket chains was less than 10. In a developing country like India, a large chunk of consumer expenditure is on basic necessities, especially food related items. Hence, it is not surprising that food, beverages and tobacco accounted for as much as 71% of retail sales in 2002. The remaining 29% of retail sales are nonfood items. The share of food related items fell over the review period, down from 73% in 1999. This is to be expected as, with income growth, Indians, like consumers elsewhere, spent more on non-food items compared with food products. Sales through supermarkets and department stores are small compared with overall retail sales. However, their sales grew much more rapidly (about 30% per year during the review period). As a result, their sales almost tripled during this time. This high acceleration in sales through 12
modern retail formats is expected to continue during the next few years with the rapid growth in numbers of such outlets in response to consumer demand and business potential.
The retail sector in India is witnessing a massive revamping exercise as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Rated the fifth most attractive emerging retail market, India is being seen as a potential goldmine. A recent McKinsey study titled Indias Retailing Comes of Age has predicted a retail revolution in India. While India is the last among the large Asian economies to liberalize its retail sector, the licensing raj has well and truly passed. Hence, focusing on two aspects of retail marketing i.e. Store Retailing and Non-store Retailing. Store Retailing as the departmental store, which is a store or multi brand outlet, offering an array of products in various categories under one roof, trying to cater to not one or two but many segments of the society and Nonstore Retailing as the direct selling, direct marketing, automatic vending. Most of these stores believe in creating not just a marketing activity with its customers, but rather favour relationship building with him so as to convert first time customers into a client. A number of Indian and international retailers are entering this nascent, though dynamic market. Market liberalization and increasingly assertive consumers are sowing the seeds of a retail transformation that will bring bigger Indian and multinational players on to the scene. Buoyed by a strong increase in private consumption, retailing is one industry that is waiting to explode. Though retail may well be our next sunrise industry after Information Technology, capitalizing on the opportunities is still a formidable task for retailers. We may have made several forays into the world of international retailing, but success has only been moderate. At about 2 per cent of the total global retail market, we are still only scraping the surface. (Economic Times Knowledge Series Changing Gears: Retailing in India, 2003). Says B S Nagesh, CEO of Shoppers Stop, Indian retailing is on the threshold of growth early leaders have to take their technology and current learning into much larger scales. Companies 13
like us will lead in creating retail experiences and retail brands, whereas mall developers will lead in providing retail space. But it is for the government to make India a great shopping and travel destination through right policy decisions and direction. . Retail industry is the largest industry in India, with an employment of around 8% and contributing to over 10% of the country's GDP. Retail industry in India is expected to rise 25% yearly being driven by strong income growth, changing lifestyles, and favorable demographic patterns. It is expected that by 2016 modern retail industry in India will be worth US$ 175- 200 billion. India retail industry is one of the fastest growing industries with revenue expected in 2007 to amount US$ 320 billion and is increasing at a rate of 5% yearly. A further increase of 7-8% is expected in the industry of retail in India by growth in consumerism in urban areas, rising incomes, and a steep rise in rural consumption. It has further been predicted that the retailing industry in India will amount to US$ 21.5 billion by 2010 from the current size of US$ 7.5 billion. Shopping in India have witnessed a revolution with the change in the consumer buying behavior and the whole format of shopping also altering. Industry of retail in India which have become modern can be seen from the fact that there are multi- stored malls, huge shopping centers, and sprawling complexes which offer food, shopping, and entertainment all under the same roof. India retail industry is expanding itself most aggressively, as a result a great demand for real estate is being created. Indian retailers preferred means of expansion is to expand to other regions and to increase the number of their outlets in a city. It is expected that by 2010, India may have 600 new shopping centers. In the Indian retailing industry, food is the most dominating sector and is growing at a rate of 9% annually. The branded food industry is trying to enter the India retail industry and convert Indian consumers to branded food. Since at present 60% of the Indian grocery basket consists of nonbranded items. 14
India retail industry is progressing well and for this to continue retailers as well as the Indian government will have to make a combined effort. Retailing in India can be categorized as: Unorganized Retailing Organized Retailing
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In India, the most of the retail sector is unorganized. In India, the retail business contributes around 11 percent of GDP. Of this, the organized retail sector accounts only for about 3 percent share, and the left over share is contributed by the unorganized sector which is mostly a family owned business in India. The major challenge facing the organized sector is the competition from unorganized sector. Unorganized retailing has been there in India for centuries, theses are named as mom-pop stores. The major advantage in unorganized retailing is consumer familiarity that runs from generation to generation. It is a low cost structure; they are mostly operated by owners, has very low real estate and labour costs and has low taxes to pay.
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In late 1990's the retail sector has witnessed a level of transformation. Retailing is being perceived as a beginner and as an attractive commercial business for organized business i.e. the pure retailer is starting to emerge now. Organized retail business in India is very small but has tremendous scope. Organized retailing will grow faster than unorganized sector and the growth speed will be responsible for its high market share, which is expected to be $ 17 billion by 2010-11. Retailing will show fine prospects in cities like Mumbai, Delhi, Chennai, Kolkata, Banglore and Kanpur. After Dubai, Singapore and Hong Kong, In India Delhi will be the next big retail destination, According to Confederation of Indian Industries whose findings have shown that Delhi has the good resources and suitable conditions for the retail sector. Out of the total earnings of the Government of Delhi Rs 11,000 crore, Rs 6,500 crore is achieved from the retail sector. The organized sector is expected to grow faster than GDP growth in next few years driven by favourable demographic patterns, changing lifestyles, and strong income growth. This organized retail sector mix includes supermarkets, hypermarkets discounted stores and specialty stores, departmental stores.
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Retail industry is the largest industry in India, with an employment of around 8% and contributing to over 10% of the country's GDP. Retail industry in India is expected to rise 25% yearly being driven by strong income growth, changing lifestyles, and favorable demographic patterns. It is expected that by 2016 modern retail industry in India will be worth US$ 175- 200 billion. India retail industry is one of the fastest growing industries with revenue expected in 2007 to amount US$ 320 billion and is increasing at a rate of 5% yearly. A further increase of 7-8% is expected in the industry of retail in India by growth in consumerism in urban areas, rising incomes, and a steep rise in rural consumption. It has further been predicted that the retailing industry in India will amount to US$ 21.5 billion by 2010 from the current size of US$ 7.5 billion. Shopping in India have witnessed a revolution with the change in the consumer buying behavior and the whole format of shopping also altering. Industry of retail in India which have become modern can be seen from the fact that there are multi- stored malls, huge shopping centers, and sprawling complexes which offer food, shopping, and entertainment all under the same roof. 18
India retail industry is expanding itself most aggressively, as a result a great demand for real estate is being created. Indian retailers preferred means of expansion is to expand to other regions and to increase the number of their outlets in a city. It is expected that by 2010, India may have 600 new shopping centers. In the Indian retailing industry, food is the most dominating sector and is growing at a rate of 9% annually. The branded food industry is trying to enter the India retail industry and convert Indian consumers to branded food. Since at present 60% of the Indian grocery basket consists of nonbranded items. India retail industry is progressing well and for this to continue retailers as well as the Indian government will have to make a combined effort.
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OBJECTIVES
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SCOPE OF STUDY
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The scope of the study involved getting knowledge about the retail industry. The major part of the study focused on understanding the buying behavior and patterns of Indian customers. My approach was to get a deep insight into the sector through a study which included a comprehensive analysis of the following: Present Indian retail scenario Retail formats Indian retail and plans of Indian retailers Retail as an employment generator Emerging trends in the retail sector NCR/ Delhi current retail scenario Factors responsible for the development of the retail sector Challenges for the retail sector
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RESEARCH METHODOLOGY
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Sample Size
100 people
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RETAIL FORMATS
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Mom-and-pop stores:
These are generally family-owned businesses catering to small sections of society. They are small, individually run and handled retail outlets. Represent the small, individually owned and operated retail outlet. In many cases these are family-run businesses catering to the local community
Category killers:
Small specialty stores have expanded to offer a range of categories. They have widened their vision in terms of the number of categories. They are called category killers as they specialize in their fields, such as electronics (Best Buy) and sporting goods (Sport Authority).
Department stores:
These are the general merchandise retailers offering various kinds of quality products and services. Large stores having a wide variety of products, organized into different departments such as clothing, house wares, furniture, appliances, toys, etc. One stop shop catering to varied/ consumer needs. These do not offer full service category products and some carry a selective product line. K Raheja's Shoppers Stop is a good example of department stores. Other examples are Lifestyle and Westside. These stores have further categories, such as home and dcor, clothing, groceries, toys, etc. These retailers are general merchandisers offering mid-to-high quality products and strong level of services, though in most cases these retailers would not fall into the full-service category. While department stores are classified as general merchandisers some carry a more selective product line. For instance, while Sears carries a wide range of products from hardware to cosmetics, Nordstroms focuses their products on clothing and personal care products.
Malls:
These are the largest form of retail formats. They provide an ideal shopping experience by providing a mix of all kinds of products and services, food and entertainment under one roof. 30
Examples are Sahara Mall, TDI Mall in Delhi. An enclosure having different formats of in-store retailers, all under one roof. Variety of shops available to each other.
Specialty Stores:
The retail chains, which deal in specific categories and provide deep assortment in them are specialty stores. Examples are RPG's Music World, Mumbai's bookstore Crossword, etc. Focus on a specific consumer need, carry most of the brands available. Greater choice to the consumer, comparison between brands is possible
Discount stores:
These are the stores or factory outlets that provide discount on the MRP items. They focus on mass selling and reaching economies of scale or selling the stock left after the season is over. These retailers can be either general or specialty merchandisers but either way their main focus is on offering discount pricing. Compared to department stores, mass discounters offer fewer services and lower quality products.
Hypermarkets/ Supermarkets:
(3,500 - 5,000 sq. ft) These are generally large self-service outlets, offering a variety of categories with deep assortments. These stores contribute 30% of all food and grocery organized retail sales. Example: Big Bazaar. Extremely large self-service retail outlets. One stop shop catering to varied consumer needs
Convenience stores:
(7,50 - 1,000 sq. ft) They are comparatively smaller stores located near residential areas. They are open for an extended period of the day and have a limited variety of stock and convenience products. Prices are slightly higher due to the convenience given to the customers. As the name implies these general merchandise retailers cater to offering customers an easy purchase experience. Convenience is offered in many ways including through easily accessible store locations, small store size that allows for quick shopping, and fast checkout. The product selection offered by these retailers is very limited and pricing can be high. Small self-service formats located in crowded urban areas. Convenient location and extended operating hours
E- tailers:
These are retailers that provide online facility of buying and selling products and services via Internet. They provide a picture and description of the product. A lot of such retailers are 31
booming in the industry, as this method provides convenience and a wide variety for customer. But it does not provide a feel of the product and is sometimes not authentic. Examples are Amazon.com, Ebay.com, etc. Possibly the most publicized retail model to evolve in the last 50 years is the retailer that principally sells via the Internet. There are thousands of online-only retail sellers of which Amazon.com is the most famous. These retailers offer shopping convenience including being open for business all day, every day. Electronic retailers or e-tailers also have the ability to offer a wide selection of product since all they really need in order to attract orders is a picture and description of the product. That is, they may not need to have the product on-hand the way physical stores do. Instead an etailer can wait until an order is received from their customers before placing their own order with their suppliers. This cuts down significantly on the cost of maintaining products in-stock.
Vending:
This kind of retailing is making incursions into the industry. Smaller products such as beverages, snacks are some the items that can be bought through vending machines. At present, it is not very common in India. Within this category are automated methods for allowing consumers to make purchases and quickly acquire products. While most consumers are well aware of vending machines allowing customers to purchase smaller items, such as beverages and snack food, newer devices are entering the market containing more expensive and bulkier products. These systems require the vending machine have either Internet or telecommunications access to permit purchase using credit cards.
Warehouse Stores
This is a form of mass discounter that often provides even lower prices than traditional mass discounters. In addition, they often require buyers to make purchases in quantities that are greater than what can be purchased at mass discount stores. These retail outlets provide few services and product selection can be limited. Furthermore, the retail design and layout is as the name suggests, warehouse style, with consumers often selecting products off the ground from the shipping package. Some forms of warehouse stores, called warehouse clubs, require customers purchase memberships in order to gain access to the outlet.
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Format Mom-andPop Mass Discounter Warehouse Store Category Killler Department Store Boutique
Promotion Distribution Service Ownership Emphasis Level Structure individually o/o corp. chain corp. chain corp. chain corp. chain individuallly o/o chain corp. structure corp. structure contractual
mass general competitive advertising stand-alone assorted specialty specialty direct mail strip center shopping area mass general discount advertising stand-alone self strip-center mass general discount advertising stand-alone self mass specialty discount advertising stand-alone assorted competitive strip center specialty general competitve advertising shopping areaassorted shopping mail speciatly specialty Full selling stand-alone full exclusive strip center shopping area mass general discount direct mail direct assorted specialty specialty competitive marketer mass general discount advertising online seller self specialty specialty competitive full mass specialty competitive advertising stand-along assorted strip center
Catalog e-tailer
Franchise
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Convenience mass
general
full
advertising stand-alone
self
Vending
mass
specialty full
none
vending
self
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Retailer
Original formats
Later Formats Hypermarket (Spencer's)Specialty Store (Health and Glow) Supermarket (Food Bazaar) Hypermarket (Big Bazaar) Mall (Central) (TBA)
Department Store (Piramyd Megastore) Discount Store (TruMart) Small format outlets (Shoppe) Department Store (Pantaloon)
K Raheja Department Store (shopper's Group Specialty Store (Crossword) Tata/ Trent Department Store (Westside) Landmark Group Others Department Store (Lifestyle)
Discount Store (Subhiksha, Margin Free, Apna Bazaar), Supermarket (Nilgiri's), Specialty Electronics
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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 mn sq.ft by 2010.
LIFESTYLE :
Investing Rs.400 crore-plus ($90 mn) 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 space through 150 stores in next five years.
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BIG BAZAAR LIFESTYLE MARKS & SPENCER PANTALOONS SHOPPER'S STOP SPENCERS RELIANCE MORE... SUBHIKSHA VISHAL MEGA MART WESTSIDE 6 TEN RETAIL STORE
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The retail sector can generate huge employment opportunities, and can lead to job-led economic growth. In most major economies, services form the largest sector for creating employment. US alone have over 12% of its employable workforce engaged in the retail sector. The retail sector in India employs nearly 21 million people, accounting for roughly 6.7% of the total employment. However, employment in organised retailing is still very low, because of the small share of organised retail business in the total Indian retail trade. The share of organised retailing in India, at around 2%, is abysmally low, compared to 80% in the USA, 40% in Thailand, or 20% in China, thus leaving the huge market potential largely untapped. A modern retail/retail services sector has the potential of creating over 2 million new (direct) jobs within the next 6 years in the country (assuming only 8-10% share of organised retailing). Retail can create as many new jobs as the BPO/ITES sector in India. A strong retail front-end can also provide the necessary fillip to agriculture & food processing, handicrafts, and small & medium manufacturing enterprises, creating millions of new jobs indirectly. Through its strong linkages with sectors like tourism and hospitality, retail has the potential of creating jobs in these sectors also. Though the Planning Commission has identified retail as a prospective employment generator, in order to strengthen the multiplier effect of the growth in organized retailing upon the overall employment situation, a pro-active governmental support mechanism needs to evolve for nurturing the sector. Issues like FDI in retail, allocation of government-controlled land on more favorable terms, strong political and bureaucratic leadership, etc., need to be addressed adequately.
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It is difficult to fit a successful international format directly and expect a similar performance in India. The lessons from multinationals expanding to new geographies also point to this. For example, Wal- Mart is highly successful in USA but the story is different in Asian countries like China. Therefore, it is important for a retailer to look at local conditions and insights into the local buying behavior before shaping the format choice. Considering the diversity in terms of taste and preferences prevailing in India, the retailers may go for experimentation to identify the winning format suited to different geographies and segments. For example, the taste in south is different from that in north and this brings challenges to the retailers. Therefore, most of grocery retailers are region centric at this point in time. The available research findings on retail indicate the following trends in Modern Retail formats. 1)Trial & Error: Now a number of retailers are in a mode of experimentation and trying several formats which are essentially the representation of retailing concepts to fit into the consumer mind space. Apart from geography even rural and urban divide poses different kind of challenge to the retailer. Pantaloon Retail India is experimenting with several retail formats to cater to a wide segment of consumers in the market. 2) Emergence of Wholesale Clubs: Since retailers are trying to segment the market with the help of formats, they developed another new format in the form of Wholesale Club to sell a segment of consumers, who purchase on bulk and look out for substantial discounts and offers. The new format is going to be a kind of wholesale club which is likely to be located close to Food Bazaar. Consumers who are interested to purchase on bulk can take benefit from this format. Similarly the Land mark group also operates multiple formats such as hypermarket (Max), departmental store (Lifestyle), Shoe mart and Funcity etc. Such experimentation and identification of an appropriate format for the local conditions would separate winners from losers in India, possibly implying multiple formats
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could be the reality in the long run. Pantaloon Retail India Ltd is a live example of that in Indian scenario.
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3) Increasing Acceptance of Rural Markets: Mall-mania is phenomenal in India and is spreading fast and entering even the second tier cities in India. Real estate developers are jumping very fast to take this further from Metro cities to smaller cities and corporate houses like ITC and Sriram group are making steady progress to make this phenomena feasible in rural markets as well. There is no denying that the top notch cities like Mumbai, Delhi, Bangalore, Hyderabad, Kolkata, Chennai and Pune are leading the way but the second tier cities like Ludhiana, Chandigarh, Nagpur and Surat are also catching the eye of allretailers. Retail developers are in such a mood that they may over ride the requirement in a specific city.
4) Govt. is also promoting the Development of Modern Retail Formats: Large format malls are increasingly getting prominence with adequate retail space allocated to leisure and entertainment. Some states like Punjab have lifted entertainment tax on multiplexes till 2009. This boosted the confidence of the mall developers to accommodate entertainment players like PVR, Waves, Adlab and Fun Republic in large malls. 5) Efficient Buying: Increasing Importance of Supermarkets & Discount Stores:
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Such a format provides the greatest selection of any general merchandize and very often serves as the anchor store in shopping mall or shopping centre. In India, the number of department stores is less as compared to other retail formats such as supermarkets and discount stores. Shoppers' Stop is the first one to open a department store in the early 1990s and currently operates 19 stores in 10 different cities in India.The store strongly focuses on lifestyle retailing and mainly divides into five departments such as apparel, accessories, home dcor, gift ideas and other services. Shoppers Stop is getting stronger and stronger year after year. It attracts more than 12 million shoppers every year with a conversion rate of 38 per cent. Another operator Lifestyle India began operations in 1998 with its first store in Chennai in 1999 and in March 2006 it opened one of the largest department stores in the same city. The store spreads over 75,000 sq. ft and store provides customers a great shopping experience with three floors of apparel, footwear, products for children, household furniture and decor, health and beauty products. 6) Hypermarkets: The Biggest Crowd Puller: Hypermarkets have emerged as the biggest crowd pullers due to the fact that regular repeat purchases are a norm at such outlets. Hypermarkets not only offer consumers the most extensive merchandise mix, product and brand choices under one roof, but also create superior value for money advantages of hypermarket shopping. With product categories on offer ranging from fresh produce and FMCG products to electronics, value apparels, house ware, do it yourself (DIY) and outdoor products, the hypermarkets are emerging as one of the popular formats in India.. Number of players operating hypermarket format are increasing day by day. One of the leading players in this format is Pantaloon Retail India Limited which operates 32 Big Bazaars in twenty cities. In early 2006, the K. Raheja Corp (C.L. Raheja Group) has introduced its value retail concept hyper city which is the countrys largest hypermarket at 118000 sq ft. hyper city Retail plans to open 55 hypermarkets by 2015. As the market is expanding and consumers are in a mood to accept changes, hypermarkets are getting overwhelming response from consumer. Currently there are about 40 odd hypermarkets in India but this format holds a great potential for growth.
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7) Customers still rely on traditional concepts: A supermarket normally sells grocery, fresh, cut vegetables, fruits, frozen foods, toiletries, cosmetics, small utensils, cutlery, stationery and Gift items. In India Food World, Food Bazaar, Nilgiri (30 plus stores), and Adani are the leading super market operators .One of the biggest super market operators in the western India is Adani Retail Limited which operates Adani super market plans to continue its journey to reach total 19 cities with the store strength of 60 plus in the state of Gujarat. ARL also plans to expand its operation in the neighboring states of Rajasthan, Madhya Pradesh, Maharashtra and Chhattisgarh. Subhiksha is one of the leading super market operators, who largely operates in the southern part of India is expanding to western India. One more retailer Reliance Retail is on the move and this retailer opened its Reliance Fresh-a super market chain with 11 stores in Hyderabad and is planning to enter 70 more cities within 2 years. 8) Emergence of Private-Label Brands: The private labels are offering flexibility to both the retailer and the consumer on price front. The objective of the store is to offer variety at affordable price in each category. Food Bazaar have made the transition from just a grocery retailer to developing emotional bonding with shoppers by providing some value added services to the shoppers. Some of these initiatives include : ( Jo Dikhta Hai wo hi Bikta Hai ) Live chakki: which allows customers to buy fresh wheat and have it grinded there at the store Fresh Juice counter: This provides customer to have fresh juices. Live dairy: This provides customers with fresh milk and milk products.
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Live kitchen: Customers have the option of buying vegetables,getting them chopped, cooked fully or partly. Soups, salads and sandwiches are also available at live kitchen.
9) Ease of Shopping & Customized Services: Order of the Day: To activate it a new format has emerged in the name of Convenience Store. A Convenience store offers locational advantage to the shoppers and provides ease of shopping and customized service to the shoppers. It charges average to above average prices, depending on the product category and carries a moderate number of stock keeping units (SKUs). Normally it remains open for long hours and shoppers use it for buying fill-in merchandize and emergency purchases. In India, Convenience stores occupied 23 thousand sq. meter of retail space with sales of about Rs 1347 million in 2005 and are expected occupy 85 thousand square meter of selling space by 2010 .
10) Magnetic Effect: Discounters not Shopkeepers: Wal-Mart, the largest retailer in the world is a discounter. Practically the discounters offer several advantages such as lower price, wider assortment and quality assurance. The discounters like Wal-Mart and Aldi were able to quickly build scale and pass on the benefits to the consumer. However, in the long run success depends on the operational efficiency and consistent value delivery to the consumer. The same retailer Wal-Mart struggles in Asian countries like China but extremely successful in USA. It is believed that the average Indian consumer is highly pricesensitive and looks for savings in term of money in their grocery purchase. So price-value equation is a critical component in most of the grocery purchases. 11) Category Killer: A New Concept imported from U.S.:
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The category killer concept originated in the U.S. due to abundance of cheap land and the dominant car culture. Category Killer is a kind of discount specialty store that offers less variety but deep assortment of merchandise. By offering a deep assortment in a category at comparative low prices, category specialist can be able to kill that specific category of merchandize for other retailers. Generally such kind of retailers uses a self service approach. They use their buying power to negotiate low prices, excellent terms and assured supply when items are scarce. In India this kind of retail stores are not prevalent at this point of time. But there is scope for such kind of format. In India, MegaMart is one sort of category killer which sells apparel products. 12) Dollar Stores: Dollar stores have their roots in America's homey five-and- dimes, the general stores that offered a range of products at low prices. But modern dollar-store retailers are having more sophisticated operations; leveraging their growing buying power to strike special deals with vendors and continuously striving for unique advantage of both convenience and price. Some chains sell all their goods at $1 or less. Others offer selected items at higher prices. Most sell a combination of paper products, health and beauty supplies, cleaning products, paper and stationery, household goods, toys, food and sometimes clothing. Both private-label and brand-name goods fill the shelves. They are looking for employing technology to manage large distribution networks. Store 99 is the example of it in Indian Scenario.
13)Retail Development in Rural India: A Market with Silver lining: Chennai based market research firm Francis Kanoi estimated the size of the rural market to be INR 1, 08,000 crore annually. During the survey in 2002 the firm took into account four categories - FMCG, durables, agri-inputs, and two- and fourwheelers 46
for their estimation. Rural incomes are growing steadily as well. NCAER data shows while the number of middle-class households (with annual income between Rs 45,000 and Rs 2.15 lakh) is at 16.4 million in urban India, the figure stands at 15.6million in the rural areas, data from. Largely this rural market is untapped and there is huge opportunity for retailers.
14: e-Retailing: The importance of internet retailing is growing all over the world. Some internet retailers such as e Bay and rediff.com are providing a platform to vendors to sell their products online and they do not take the responsibility of delivering the product to buyer. They provide virtual shopping space to the vendors. On the other hand online retailers like amazon.com and walmart.com have to maintain their warehouse to stock products and take the responsibility of delivering products to the buyer. So, most of the brick and mortar stores are entering into online retailing as they have physical infrastructure and they can use that to capture additional consumer wallet. All the big retailers like Target, Sears and Kmart are operating online shop and some manufactures also operate online. For example Apple Inc. operates through apple.com and Dell Inc. sells its products online Through dell.com. In India internet retailing is growing by 29% CAGR and Euro-monitor report estimates that the a CAGR 48 per cent and in value term it going to touch INR 27 billion by 2010 from INR 4 billion in 2005. The report also predicts that the contribution of internet retailing to nonstore retailing to is likely to be 46 per cent by 2010.
Emerging recent developments in the Indian Mall Development scenario include the coming up of so called Gen X Malls and Central which is a Seamless Mall. Gen X Malls have been defined Chesterton Megharaj as greater than 5, 00,000 sq.ft and incorporate large entertainment area with enough space for parking and excellent infrastructural benefit that shall be passed on to the retailer . The target audience for the Gen X
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malls is tourist /out of town visitor and the person from the city looking for entertainment options. So, we can say that we are moving from a nation of Dukandars to a Nation that loves to shop. 15. Emergence of discount stores
In 2002-03, Indians in some cities got the taste of discount stores for the first time. Thanks to discount stores, the local kirana stores are under pressure and consumers are getting increasingly aware of the advantages of buying in bulk at higher discounts. With perhaps every item of daily use available at the discount stores like Big Bazaar and that too at wholesale prices, consumers easily accepted this format over local kirana stores.
The discount stores emerged as class-less stores with consumers of all income-levels shopping at these stores. We expect that there will be rapid expansion of discount stores to tier-2 and tier-3 cities and your company is already experimenting in them. The growth opportunities are highest there.
16. Rapidly changing customer behaviour From the early 1990s, the scenario in India was beginning to change. This change was coming from two sources. First, the manufacturers, lured by the almost proverbial 200 million strong Indian middle class, were continually adding to the range of products in the marketplace. Among the faster moving consumer goods, while there were 57 core categories in India in 1990, an additional 19 had entered the market by 1996 and the final figure stands at about 150+ as of now. These new categories contributed to about 2500 brands and about 5000 stock keeping units (SKUs). As the manufacturers produced more and more products and variants, focused on the specific needs of more clearly segmented consumers, the shopkeepers ability to manage his 48
Over the years, the increasing literacy in the Country and the exposure to developed nations via satellite television or by way of the overseas work experiences, the consumer awareness has increased on the quality and the price of the products/services that is expected. Today more and more consumers are vocal on the quality of the products/services that they expect from the market. This awareness has made the consumer seek more and more reliable sources for purchases and hence the logical shift to purchases from the organized retail chains that has a corporate background and where the accountability is more pronounced. The consumer also seeks to purchase from a place where his/her feedback is more valued. Indian customers are now more aware and discerning, had been exposed for some years to a rapidly proliferating media, and were beginning to demand benefits beyond just availability of a range of products that came from trusted manufacturers. In a retailing context this change in consumer consciousness is reflected in their desire for:
1. the opportunity to see, evaluate and buy from a large assortment of products at one location; 2. a shopping experience, which is pleasurable, and if possible, even exciting; and 3. a shopping experience that is inexpensive, well presented and durable
In other words, the Indian consumer is beginning to accept shopping to be a pleasurable experience, but is unwilling to pay a price premium.
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The retail sector in Delhi/NCR is witnessing a huge revamping exercise with traditional markets making way for new, organized retailing formats like departmental stores, hypermarkets, supermarkets and specialty stores. By end-2009, NCR region is expected to witness an influx of about 19.5 mn.sq.ft. of additional mall space. This will result in a cumulative stock of 23.2 mn.sq.ft. as against 3.7 mn.sq.ft. available presently. Of the total space being developed in the NCR and its surroundings, Gurgaon and Noida will account for 35% of the additional retail space. Land auctioning by DDA & MCD in prime residential and upcoming retail locations in Delhi has released new space for mall developments. Currently, only about 0.36 mn.sq.ft. of land is under new format retail activity in Delhi. A total of 31 new malls have been proposed that will add up to an estimated 6.0 mn.sq.ft. of organized retail space. The concept of destination shopping still remains popular in Delhi with Connaught Place and South Delhi (Greater Kailash, South Extension & Lajpat Nagar) still being the hub of retail activity. Rentals in these locations range from Rs.125-300/sq.ft. per month, depending on location, visibility and size. brought about an increase in income for the 20-25 year age group and this has altered the expenditure and consumption patterns in the city. Malls have emerged as a preferred development option for property developers due to better returns on their real estate investment. Also, mixed-use developments ensure better land use, diversification of risks and better rates for adjoining residential and commercial developments. MMR will have an estimated 20 mn.sq.ft. of total retail space by end-2007. With such quantum of new format retail space in the pipeline, innovation, striking the right tenant mix, effective mall management and provision of ample parking space are components that will decide the future success of mall developments. With approximately 15 mn.sq.ft. on new retail space on the anvil, the demand for new retail space is equally strong with most retail chains like Pantaloons and Shoppers' Stop having aggressive expansion plans.
Hypermarkets have emerged as the biggest crowd pullers due to the fact that regular repeat purchases are a norm at such outlets.
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The lifestyle of the city residents directly affects the retail scenario in the city. The new generation of consumers is increasingly becoming more discerning towards brands and this is promising for the organized retail industry.
Distribution of current retail space in NCR Gurgaon Delhi Faridabad Ghaziabad Noida Greater Noida Total space : 43% 21% 11% 21% 13% 12% 3.7 mn.sq.ft.
Large format retail space is not readily available in Connaught Place, South Extension, Greater Kailash and no new malls are being planned in these locations. North West Delhi is also undergoing considerable change in retail activity. Locations like Rohini, Pitampura, Shalimar Bagh and Rajouri Garden have witnessed an influx of over 2.0 mn.sq.ft. of additional retail space. Emerging retail pockets of South Delhi like Saket and Vasant Kunj are also witnessing substantial retail activity with a number of new developments being planned by real estate developers like Sun City and the DLF Group. DLF Group has proposed a 0.95 mn.sq.ft. mall in Vasant Kunj that will house an 11-screen multiplex besides having retail and F&B segments. In the recent times, Gurgaon has seen rapid real estate development (commercial, retail and residential) chiefly on account of ready availability of comparatively cheaper land, increased job creation and good a catchment of upwardly mobile population. Gurgaons retail real estate supply, which currently stands at approximately 1.6 mn.sq.ft., is expected to reach approximately 5.6 mn.sq.ft. by end-2008. The completion of new malls like DLF Mega Mall (275,000 sq.ft.), Gold Souk (180,000 sq.ft.), Regent Plaza (75,000 sq.ft.), and Galaxy Mall (80,000 sq.ft.) added a total of 0.60 mn.sq.ft. to the existing retail stock in 2007. Presently, Gurgaon has 8 malls that are operational.
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With more than 15 new malls coming onto the market, Gurgaon will account for 24% of the total 23.2 mn.sq.ft. of retail stock slated to be in NCR market by end-2008. Over 70% of the space in the upcoming malls has already been leased out to retailers. Noida is forecasted to see an exponential growth with the mall market increasing in size from the current 0.5 mn.sq.ft. to 2.5 mn.sq.ft. With 5 new malls entering the market, Noida will take up 11% of the total new retail space scheduled to be in the NCR region. The prime areas in Sector-18 command rentals of Rs.100-150/sq.ft. per month. The sale prices range between Rs.8,000-15,000/sq.ft. Other individual sector markets like Sector-27 & 29 have also been doing prolific retail business. The rentals in these sectors range from Rs.20-35/sq.ft. per month (Grade-B properties) to Rs.5580/sq.ft. per month (Grade-A properties). Greater Noida, Faridabad, and Ghaziabad together will have 40% of the total retail space predicted to be added in the NCR region by the end of 2008. With the Commonwealth Games scheduled to be held in Greater Noida in the year 2010, tremendous construction activity is underway in this micro-market. From the present 0.06 mn.sq.ft., a cumulative 3.8 mn.sq.ft. of retail space is slated to be available in this market by end2008. Presently, Faridabad has only three malls namely, Ansal Plaza, SRS World, and Destination Point, which occupy 0.4 mn.sq.ft. of space. It is predicted that Faridabad will have 8 malls occupying 1.2 mn.sq.ft. of retail space. Faridabad is going to house 7% of the total retail development in Delhi/NCR by 2009. Ghaziabad, which currently has about 0.8 mn.sq.ft. of new format retail space, has 9 upcoming malls which will total to approximately 3.6 mn.sq.ft. of retail space by 2009. Due to reasonable real estate costs, availability of land and low cost labour, developers are now moving to Ghaziabad and it will have 16% of the additional retail space predicted for the entire Delhi/NCR market. Rentals in Ghaziabad high street are around Rs.30/sq.ft. per month whereas in malls it is as high as Rs.50/sq.ft. per month. With more than 75 malls (total stock of 23.2 mn sq.ft.) slated to in the Delhi/NCR market by 2009, the developers are vying to differentiate their malls on the basis of product mix. Amusement parks, convention centers, service apartments and hotels are some concepts which are being combined with retail to present a complete product offering. Noida is forecasted to witness a dynamic retail market with demand being fueled both by Delhi as well as Noida residents. Malls are expected to do well in Noida on account of its proximity and better connectivity to Delhi. 53
Faridabad, Greater Noida and Ghaziabad are together going to have 25 malls by the end-2008, thus lowering the gap between demand and supply. The rentals are expected to be stable till all the new malls become operational. High street retail in places like South Extension, Connaught Place, Greater Kailash, Vasant Kunj, etc., would continue to command high prices due to lack of fresh supply. However, some micromarkets like Defence Colony will have addition to the existing stock. A new trend of developing larger format malls (over 300,000 sq.ft.) will catch up with the new mall developers and promoters. Kaushambi Mall (500,000 sq.ft.)
Distribution of retail space in NCR by 2009 Ghaziabad 26% Gurgaon 45% Noida 16% Faridabad 15% Delhi 25% Greater Noida 17%
. Delhi presently is witnessing growth of hypermarkets which are large sized retail formats offering all kinds of products under one roof. Buyers find them attractive because they sell products at heavy discounts. Hypermarkets are able to offer these reduced prices as they source their supply in bulk directly from the manufacturer. It is expected that as retail markets mature, real estate developers would enter into revenue sharing arrangements instead of fixed rentals with retailers to increase the occupancy of their malls, share the risk of operations and also benefit from positive consumer response.
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THE FACTORS RESPONSIBLE FOR THE DEVELOPMENT OF THE RETAIL SECTOR IN INDIA CAN BE BROADLY SUMMARIZED AS FOLLOWS:
Rising incomes and improvements in infrastructure are enlarging consumer markets and accelerating the convergence of consumer tastes. Looking at income classification, the National Council of Applied Economic Research (NCAER) classified approximately 50% of the Indian population as low income in 199495; this is expected to decline to 17.8% by 2006-07. Liberalization of the Indian economy which has led to the opening up of the market for consumer goods has helped the MNC brands like Kellogs, Unilever, Nestle, etc. to make significant inroads into the vast consumer market by offering a wide range of choices to the Indian consumers. Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc. The internet revolution is making the Indian consumer more accessible to the growing influences of domestic and foreign retail chains. Reach of satellite T.V. channels is helping in creating awareness about global products for local markets. About 47% of Indias population is under the age of 20; and this will increase to 55% by 2015. This young population, which is technology-savvy, watch more than 50 TV satellite channels, and display the highest propensity to spend, will immensely contribute to the growth of the retail sector in the country. As India continues to get strongly integrated with the world economy riding the waves of globalization, the retail sector is bound to take big leaps in the years to come.
Favorable demographic and psychographic changes relating to Indias consumer class, international exposure, availability of increasing quality retail space, wider availability of 56
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 space. 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 n attractive retail opportunity for the global players.
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great extent, with the influencing the retail industry to a great extent, a variety of other factors also seem to fuel the retailing boom. 5) SCALE OF OPERATIONS: Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of business operations is very high in India.
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The retailers in India have to learn both the art and science of retailing by closely following how retailers in other parts of the world are organizing, managing, and coping up with new challenges in an ever-changing marketplace. Indian retailers must use innovative retail formats to enhance shopping experience, and try to understand the regional variations in consumer attitudes to retailing. Retail marketing efforts have to improve in the country - advertising, promotions, and campaigns to attract customers; building loyalty by identifying regular shoppers and offering benefits to them; efficiently managing high-value customers; and monitoring customer needs constantly, are some of the aspects which Indian retailers need to focus upon on a more proactive basis. 61
Despite the presence of the basic ingredients required for growth of the retail industry in India, it still faces substantial hurdles that will retard and inhibit its growth in the future. One of the key impediments is the lack of FDI status. This has largely limited capital investments in supply chain infrastructure, which is a key for development and growth of food retailing and has also constrained access to world-class retail practices. Multiplicity and complexity of taxes, lack of proper infrastructure and relatively high cost of real estate are the other impediments to the growth of retailing. While the industry and the government are trying to remove many of these hurdles, some of the roadblocks will remain and will continue to affect the smooth growth of this industry. Organized retailing in India is gaining wider acceptance. The development of the organized retail sector, during the last decade, has begun to change the face of retailing, especially, in the major metros of the country. Experiences in the developed and developing countries prove that performance of organised retail is strongly linked to the performance of the economy as a whole. This is mainly on account of the reach and penetration of this business and its scientific approach in dealing with customers and their needs.
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Consolidation
Consolidation and retrenchment are inevitable as department-store market shares continue to decline. Department stores are caught between escalating competition from mass-channel, lifestyle-focused specialty retailers and category-killer superstores. Supermarkets are expanding their one-stop shopping appeal with the addition of fuel pumps, more non-food items and mealtime options (often in partnership with other retailers) in order to become the new convenience store, or at least a more convenient store. In essence, the lines between the different formats are fast disappearing and the emphasis is now on consolidation.
Diversification
Consumer ecosystems are the emerging trend. These ecosystems address the inter-related requirements of consumers for speed and efficiency; they also provide retailers with the opportunity for growth. Retailers are using their negative working capital scenario (on account of cash sales and deferred supplier payments) to get into finance, banking and insurance services. In effect, what we are witnessing is Darwinism in the retail industry; this is a concern for all players, large and small. Large retailers like Wal-Mart are putting smaller retailers out of business through multiple formats, a larger range of merchandise, lower prices, and consistent enhancement of the customers overall retail experience. Driving prices down is the key to WalMarts success. They achieve this through a passion for cutting down costs in all aspects of the business. This is referred to as the EST model for growth and overall dominance of the retail industry, the CPG manufacturers and various suppliers. Lets take a closer look at this model.
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PROCESSES
Internal processes refer to processes within the four walls of the retailer in terms of operations management, merchandising strategy, cost reductions, pricing discipline, human resources and financials. External processes are focused towards integrating operations between manufacturers, suppliers and retailers to bring about cost reductions and better visibility throughout the retail supply chain through inter-firm collaboration.
Before we explore some of the productivity measures that can help retailers survive and grow, let us understand productivity and why it needs to be measured What is productivity?
Simply put, productivity means quantifiable output derived from the application of a quantifiable resource or input for a unit of time. To increase productivity one has to increase the output derived from the same input or get the same output with decreased input. More for lessthat is what retailing is all about now. Consumers want more variety, more payment options, more convenience and more servicebut at reduced prices. Higher productivity and its consistent increase not only ensures survival but also creates opportunities for growth.
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Average transaction value and spend range analysis. Items per receipt. Conversion rate. GMROII.
The average transaction value, items per receipt and conversion rate, if monitored, tracked and rewarded, can bring about an increase in sales and profits of at least 15 percent.
As busy as it may get, retailers should never miss the opportunity to make the most of every sale by adding on. These add-on sales must be measured, tracked and rewarded by store, sales person and/or cashier.
Conversion rate
The conversion rate, also known as the conversion ratio, basically represents the number of customers that make a purchase out of every 100 that walk into the store. Whilst footfall represents the retailers ability to draw potential customers into the store, the conversion ratio measures how well he converts shoppers to buyers. Higher conversion ratios translate into higher sales. While footfall can be attributed to various marketing activities, the actual conversion ratios depend on various factors like merchandise range, pricing, promotions, display, store layout, suggestive selling, service and product availability. This key measure, if monitored, tracked, analysed and acted upon, has the potential to deliver significant growth in sales and profits. An example follows.
GMROII
GMROII (Gross Margin Return On Inventory Investment) measures how effectively the money allocated for inventories is invested. It is the only return on investment (RoI) formula to show returns as a currency value and not as a percentage, so its importance to retailers cannot be overstressed. GMROII is often used to compare the performance of different categories for a retailer. The buyers are allocated money for purchasing stock, and the money spent is measured against the returns they have achieved on this investment. It effectively translates into identifying the returns on every dollar invested in inventories. GMROII can be computed by dividing the gross margin value by the average inventory value (stock on hand) at cost. It is very sensitive to inventory turns and the gross margin. It helps in Identifying profitable categories. Identifying problem categories. Making comparisons between categories. The allocation and management of open-to-buy budgets. GMROII figures, when compared across stores of a retailer, also give valuable insights into potential areas of improvement in store operations, staffing and employee productivity. So while Darwinism is really at play on the global scene, there are still opportunities for retailers to not only survive but actually grow. They need to constantly improve in key areas by constant monitoring and measurement. They have to set realistic targets, measure productivity, and provide the right systems to bring about improvements in the same. The author is practice head, Retail, at Zensar Technologies. He has extensive experience planning and executing domain-led technology solutions for large and medium-size companies in the retail, pharmaceutical and CPG industries. 66
The problem with Wal-mart is that they truly have colossal resources and when they make up their mind to enter a market, they do so with gusto. Add to that their unbelievably large buying power which drives their costs so low and allows them to sell everything at rock-bottom prices and you have a very formidable opponent for the local folks. That said, there are strategies that can be employed against them. You can look at Target as an example. OK, I know Target is not a "mom & pop" store, but they are competing with Wal-mart and the reason I think their strategy is effective is that they are still in the game (Wal-mart competitors usually don't last long unless they are doing something right). In Target's case, they have focused on retaining their customer base as much as possible and have raised the bar on Wal-mart's "always the lowest price" strategy by focusing on Design and Brands, which may be a little more expensive than Wal-mart's, but which are also more fashionable. Target's advertising is always fresh, always cutting edge and has a very "feel-good", as well as "design you can afford" quality to it. I think the local merchants in India could adopt a similar attitude and undertake as massive a campaign as they can muster to show their clientale what differentiates them from Wal-mart and why the customers should remain loyal to them. Make no mistake, some people will be drawn to "always the lowest price". However the acid test is to see how many customers will resist the siren song and stick with the local merchants.
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QUESTIONNAIRE
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Respected Sir / Madam, I here by, assure that the collected information will be used only for this project and will not be disclosed.
Big Bazaar Marks & Spencer Pantaloons Westside Shoppers Stop Lifestyle
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Other (please mention) --------------------------------------------------------------Q2. Why do you prefer to shop in Retail Outlet?
Brand Variety Ambience Location Time Saving Services
Q7. Do you have any planned list before moving in to Retail Outlet?
Definitely Mostly Rarely
Never
Q8. Rank the following factors of retail shopping on a scale of 1 to 10 where 10 denotes the most important and 1 denotes the least important. Quality Prices Brand availability Services Advertisements __________ __________ __________ __________ __________
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__________ __________
Sales promotion offers __________ Q9. Does the recommendation of your family & friends influence your decision to visit Retail Outlet?
Yes No
Q10. Rank the retail outlets on the following factors on a scale of 1 to 10 where 10 denotes excellent and 1 denotes poor. Quality Prices Brand availability Big Bazaar Marks & Spencer Pantaloons Westside Shoppers Stop Lifestyle Services Advertisements Member Offers facilities
__Below 21
Gender:
____Male
____Female
72
73
74
30 25 20 15 10 5 0 1 2 3 4 5 Series1
75
yes no
76
77
78
79
Q7. Do you have any planned list before moving in to Retail Outlet?
Never
Definitely
10
20
30
40
80
Q8. Rank the following factors of retail shopping on a scale of 1 to 10 where 10 denotes the most important and 1 denotes the least important.
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Q9. Does the recommendation of your family & friends influence your decision to visit Retail Outlet?
yes no
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Q10. Rank the retail outlets on the following factors on a scale of 1 to 10 where 10 denotes excellent and 1 denotes poor?
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1. Greed
Drives a customer to purchase more than what he or she need. A wide range of options, better products, and lower prices generate the increased desire to purchase.
4. Price-value Equation
It is believed that Average Indian customer is highly Price-Sensitive and looks for savings in terms of money in their grocery purchase.
5. Private-Label Brands
In India the concept of Private-Label Brand is in its nascent stage and customers still rely on branded product
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KEY OBSERVATIONS
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Key observations about customers shopping behaviour in Indian scenario among the modern retail formats are:
Master and serving class employee, never shop at the same store, though lower middle class visits hyper markets and discount stores, the upper middle class frequents department stores, specialty chains and super market. For lower income Indians, the clean and shiny environment of modern retail stores creates the perception that such stores are too expensive and exclusive, so they are not meant for them. They tend to feel alienated in the environment. Lower income Indians move and find lot of comfort in crowds, so they normally hesitate in visiting the stores having broader area coverage. It is observed during the research that given the right environment and a correct emotional connect with customers, anything is possible , as Big Bazaar did by celebrating Sabse Sasta Din , on 26th January and attracted the unexpected crowd. Customers feel conservative to buy fruits & Vegetable from air-conditioned supermarkets. They still prefer to buy these kinds of products either from the local mobile vegetables sellers or from the nearest sabji mandi. Probably this is working as deterrent factor for the growth of Supermarkets in India in a sense that they are able to attract visitors rather customers. Customers looked into Price-Value equation. Most of the retailers report that customers were very much conscious for the value, and they usually compared the value sacrificed & received. It played a very key role in their buying decision process. Retailers often overlook the schemes & offerings expected by the customers and tried to impose their own offerings upon customers which ultimately cause the dissatisfaction. Shopkeepers dealing in apparels, accessories, & other items reported that they were able to attract the Customers but conversion rate is not more than 30-40% which is again very alarming and a matter of high concern. Shopkeepers dealing in food items & Vegetables report that:
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o Customers for food items always expect hyper discounts & offers. o Where as customers for vegetables still believe in the past notion that vegetables sold in the open market are fresh. Shopkeepers dealing in jewellery items reported that in case of unbranded jewellery items Indian customers still rely on their traditional jewellery merchant only. Shopkeepers in every category report that female customers proved to be great bargainers than their male counterparts.
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CONCLUSION
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understand what their customers want. So ultimately it can be said that for a retailer understanding the customers is just like climbing the Greased Pole.
For a start, the retailers need to invest much more in capturing more specific market. Intelligence as well as almost real-time customer purchase behavior information. The retailers also need to make substantial investment in understanding/acquiring some advanced expertise in developing more accurate and scientific demand forecasting models. Re-engineering of product sourcing philosophies-aligned more towards collaborative planning and replenishment should then be next on their agenda. The message, therefore for the existing small and medium independent retailers is to closely examine what changes are taking place in their immediate vicinity, and analyze Whether their current market offers a potential redevelopment of the area into a more modern multi-option destination. If it does, and most commercial areas in India do have this potential, it would be very useful to form a consortium of other such small retailers in that vicinity and take a pro-active approach to pool in resources and improve the overall infrastructure. The next effort should be to encourage retailers to make some investments in improving the interiors of their respective establishments to make shopping an enjoyable experience for the customer. As the retail marketplace changes shape and competition increases, the potential for improving retail productivity and cutting costs is likely to decrease. Therefore, it will become important for retailers to secure a distinctive position in the marketplace based on value, relationships or experience. Finally, it is important to note that these strategies are not strictly independent of each other; value is function of not just price, quality and service but can also be enhanced by Personalization and offering a memorable experience. In fact, building relationships with customers can by itself increase the quality of overall customer experience and thus the perceived value. But most importantly for winning in this intensely competitive marketplace, it is critical to understand the target customer's definition of value and make an offer, which not only delights the customers but also is also difficult for competitors to replicate.
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A COMPARISON CASE
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In 2007, with a floor space of 210,000 sq ft, Westside earned a revenue of Rs 50 a sq ft. Currently with a marginal increase in floor space to 220,000 sq ft, it earns Rs 70 a sq ft.
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On the other hand, Pantaloons' revenue per sq ft has declined from roughly Rs 76.7 to Rs 59 in 2007, while floor space has increased from 580,000 sq ft to 11 lakh (1.1 million) sq ft. That's where the margin game comes into play. Westside was the first to recognise the advantage of in-house labels. What's the advantage? Better margins, for starters. Private labels earn gross margins of 25 to 30 per cent, compared with 5 to 15 per cent for branded apparel. Besides, the store has better control on the brands and design and can develop unique positioning for in-house brands. Westside's leveraged its private labels well, appealing to more sophisticated, urban customers, compared to Pantaloons, which was bogged down for several years by its middle-class, budget store image (that's changed now, though). Realising the importance of in-house labels, even Pantaloons has scaled up the number of inhouse labels from 20 to 40-odd private labels currently. In contrast, almost all the brands sold at Westside are in-house, private labels. Which means the chain has better margins, and therefore better revenues, per label.The impact on operating profit margins is visible. Trent's OPMs have improved to 15.18 per cent in FY2007 from 13.27 per cent the previous year. In comparison, Pantaloons' OPMs have remained sticky at 8.41 per cent in FY2007 from 8.17 per cent in FY2006. The implication is clear: higher OPMs mean the chain is managing costs well and is better placed to build reserves, which will help future expansion. But, says Arvind Singhal, managing director of retail consultancy KSA Technopak, margins may vary because of the nature of business. He adds that it is the stock turnover that should be the benchmark of superiority. If that's the parameter, Pantaloons leads marginally: it has a stock turnover of five compared to four for Trent. Gain an extra inch 94
According to K K Iyer, partner at management consultancy Accenture, being the first mover in new markets has its own advantages. The biggest plus is in grabbing the hot seat as far as property is concerned. Once a store enters a good catchment area, its competition loses that advantage. When Westside first entered Mumbai in 2000, it opened shop in elite south Mumbai. At the time, the suburbs were ruled out because Shoppers' Stop cast a long shadow over the western suburbs. And even when Westside finally moved northwards into Andheri (where the first Shoppers' Stop outlet is located. In 2001, Pantaloons' marketing and promotion costs were 3.34 per cent of sales. As the number of outlets went up from around 20 in 2005 to 44 in 2006, the chain's spends on advertising and promotions were down to 2.84 per cent of total income in 2007. In comparison, Trent advertising and promotion spends were 11.4 per cent of total income in 2007, compared to 12.3 per cent in 2006, for a relatively smaller scale of operations.
Too much, too soon? Are Trent and Pantaloons growing too fast? "When you grow rapidly, there is a small risk of over-extension." For instance, it becomes difficult to manage manpower to ensure that quality employees are present in all stores. And it's not just about good front-end staff: expansion, especially in the multiple format model preferred by Pantaloons, has to be accompanied by adequate depth and width of a core management team.
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"Pantaloons, as it rolled out, has visibly beefed up a senior management team. Trent, however, has more or less stuck to a core team," says a competitor. From a completely top-driven approach, it has delegated the management of categories and formats to professionals. Also, of the two, it is Trent that is tightening its belt on employee costs. Which is important, considering even mammoth departmental store chains like the 8 billion Marks & Spencer has stabilized its employee costs at 7 per cent of its total revenues. Trent spent 6 per cent of its turnover on employee costs (the figure hasn't changed for two years, even though the number of stores has increased from eight to 17). On the other hand, Pantaloons' employee costs as a percentage of total income have gone up from roughly 3 per cent in 2007 to 4.17 per cent in 2007. That's not too much, especially if you consider that the number of employees has doubled in FY 2007 to 3,500, from 1,700 in 2008. (By April 2008, Pantaloons had close to 6,000 employees, mostly at the front end.).
Multiple formats Do multiple formats have a clear advantage for Pantaloons? If margins from apparel sales in Pantaloons (the lifestyle store) suffer, the company does have the option of moving stock to the discount store, Big Bazaar. Moreover, losses in margins in one category can be absorbed by profits in another. Trent, too, has recognised the advantage of multiple formats. In end 2007, it launched Star India Bazaar, a 50,000 sq ft hypermarket in Ahmedabad. How does the stock market rate the strategies of the two players? Since 2007, Pantaloons' share price has moved from Rs 30 to Rs 882 (April 25, 2007) currently. 96
Over the same period, Trent has climbed from Rs 71 to Rs 580.95. "Pantaloons' high reliance on debt to finance its growth remains a cause of concern. Pantaloons' debt-equity ratio was 1.86 as of 2006-07, compared to 2.17 in 2005-06. Trent's debtequity ratio has remained fairly stable at 0.001 per cent in the same period. Consultants refuse to give their verdict on which player will be strongest in the long run. As Biyani himself admits, "There is no ideal retailing strategy to follow."
The big debate in retailing circles these days concerns formats that can work in the marketplace. India has seen the emergence of retail along the lines of the hypermarket (Big Bazaar, Spencers, Star India Bazaar), supermarket (Subhiksha, Haiko in Mumbai, Sabka Bazaar, FoodWorld), department store (Shoppers Stop, Piramyd, Lifestyle), speciality store (Provogue, Adidas, Reebok, all branded outlets) and convenience store (Reliance petrol retail outlets). But whats making business sense at the moment are the larger formats such as hypermarkets and department stores. For a hypermarket, where the overall investment is lower than a department store, whose accent is on experience rather than discount shopping, the capital to output ratio is better, says , chief executive officer, Piramyd Worldwide, hypermarkets are a successful format as opposed to department stores, which are only doing well in Japan and South East Asian countries such as South Korea, Singapore and Malaysia. However, value-for-money shopping, which, according to analysts, is more about affordable pricing of products as opposed to offering discounts on the maximum retail price is a hit abroad. We see this format rising in the country, says Chennai-based Lifestyle International, which has nine stores (including eight department stores) in six cities taking its overall retail space to 4.5 lakh square feet. The company, backed by the Dubai-based Landmark Group, is looking at 97
exclusive value stores, hypermarkets, brand stores in addition to speciality stores targeting the home products, furniture and furnishings segment. The home segment is a big area for retailers and we have ade a start with our Home Centre in Gurgaon. Pantaloons subsidiary Home Solutions Retail already has a presence in the home segment with its Mela outlet in Mumbai. If Lifestyle is now eyeing the value segment, Delhi-based Vishal Mega Mart, a hypermarket chain, is well-entrenched in the space with its affordable range of clothing and allied products, all produced in-house. Says , managing director, Vishal Mega Mart, Our USP is that we offer fresh products at seconds (economical, that is) pricing. With a turnover of Rs 89 crore, the chain has 14 stores spread across 1.85 lakh square feet of space in 10 cities. Most of the products are sourced directly from manufacturers around the country and internationally. A lot of the garments, on the other hand, are manufactured at our facility in Gurgaon. Meanwhile Subhiksha, the Chennai-based supermarket chain, which has a string of 1,500 square feet neighbourhood grocery stores, views discounts on food products as a big driver for its business. The company, which has 145 outlets, closed the last financial year at Rs 278 crore up from Rs 100 crore in 2004-05. Investment in an outlet is roughly Rs 25 lakh, says R. Subramanian, managing director of Subhiksha. However, if the stores are too close to each other it can hit the revenue potential of the outlets.
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REFERENCES
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WEBSITES: http://www.managementparadise.com/forums/articles/42292-retail-industry-indiaoverview.html http://www.articlesbase.com/career-management-articles/an-introduction-to-indian-retailindustry-729290.html http://www.fibre2fashion.com/industry-article/free-retail-industry-article/indian-retailindustry-its-growth-challenges-and-opportunities/indian-retail-industry-its-growthchallenges-and-opportunities1.asp www.naukrihub.com/india/retail/overview/retail-formats/ www.axaptaretail.com/eng/formats http://www.thehindubusinessline.com/catalyst/2004/10/28/stories/2004102800180200.ht m http://www.livemint.com/2007/12/09222808/Retail-special http://www.indianmba.com/Occasional_Papers/OP95/op95.html http://business.mapsofindia.com/india-retail-industry/challenges-facing-the-indianorganized-retail-sector.html
BOOKS: Retail marketing, Philip Kotler In Search of Excellence, Peters & Waterman (Pg.107 -172) Retailing Management, Levy Weitz
OTHERS: Excerpts from a report titled Emerging Trends in Modern Retail Formats & Customer Shopping Behavior in Indian Scenario: A Meta Analysis & Review by Aditya P. Tripathi
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