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Introduction to Retailing Overview of the Industry
Organized Retailing
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Introduction to Retailing
The sea of change can pull customers in many directions. It is our responsibility
to light the way and take care of them… before the competition does.
Definition of Retailing:
Retailing is derived from the old French word ‘retailier’, meaning ‘to cut into small
pieces’.
Retailing is defined as the business activity of selling goods and services to the final
consumer. In simple terms, it implies a first-hand transaction with the customer. It covers
sales of goods ranging from automobiles to apparel and food products, and services
ranging from hair cutting to air travel and computer education.
Retailing involves:
- Interpreting needs of customers.
- Developing good assortment of merchandise.
- Presenting them in an effective manner so that consumers find it easy,
convenient and attractive to buy
According to Philip Kotler, Retailing includes all the activities involved in selling
goods and services directly to final consumer for personal, non-business use.
Retailing involves a direct interface with the customer and the coordination of business
activities from end to end-right from the concept or design stage of a product or offering,
to its delivery and post-delivery service to the customer.
Long ago, the Father of the Nation, Mahatma Gandhi realized the importance of
customer in retailing. He said, “The customer is the most important person on our
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premises. He is not dependent on us. We are dependent on him. He is not an interruption
of our work; he is the purpose of it. He is not an outsider on our business, he is part of it.
We are not doing a favor by serving him; He is doing us a favor by giving us the
opportunity to do so.” This proves the fact that retailing is incomplete without customer.
Retailing is directly dependent on customer.
Growing importance of the retail sector:
Retailing is not only an integral part of our economic structure but also shapes and is
shaped by our way of life. While trading of goods has always been a part of traditional
societies, in recent times the buying and selling of products has become a much more
formalized and brand dominated activity. Its impact on society in general is readily
acknowledged.
Factors illustrating the growing importance of the retail sector:
• Large & increasing contribution to GDP.
• Major employer.
• Retailers diversifying their activities.
• Organization growing on an international scale.
• Size of operations allowing for supply chain control.
• Blurring of areas of retail to include wider areas of business activity.
• Retailing organization is growing & is now comparable with and ever bigger
than manufacturers.
• Development of new products of retailers’ i.e. own brand lines takes large
portion of the market.
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Major types of retailers:
1. Kirana Stores: The Kirana Stores are the original retail formats in India. They
are small, friendly neighborhood stores, which have been offering customized
services to their customers.
2. Specialty Stores: Specialty stores are narrow product line with a deep
assortment, such as apparel store, sporting goods store, furniture stores,
bookstores and florist. A clothing store would be a single line store, a men’s
clothing store would be a limited line store and a men’s custom shirt store would be a super specialty store.
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
some of the examples of Specialty store.
3. Departmental store: Departmental stores are such stores which cater to all
shopping needs of the consumer under one roof under their luxurious settings. It
consists of different several product lines-clothing, home furnishings, household
goods. 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!.
4. Supermarkets: Supermarkets are relatively large self-services retail outlets,
they are low cost, low margin, high volume, designed to serve total needs for
food, laundry, and household maintenance products. They earn an operating
profit of only about 1% on sales and 10% on Net worth.
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5. Discount Stores: Discount stores are the stores which offer discounts on the
retail price through selling high volumes and reaping the economies of scale.
True discount stores regularly sell merchandise at lower prices and offer mostly
national brands. The main advantage of such stores is low prices.
‘Big Bazaar’ is one of the very good examples of discount stores.
6. Branded Stores: Branded Stores are exclusive stores either owned or
franchised out by a manufacturer consisting of a complete range available for a
given brand only. There are various companies having their branded stores like
TATA owned Westside, Raymond, Adidas, Reebok, and Pantaloons etc. This
concept is now being used to introduce organized retailing to the second rung
towns.
7. Malls: Malls consist of an enclosure having different formats of in-store retailers,
all under one roof. They have variety of shops available close to each other. Most
malls give floor space out to individual shops on lease, and these are enticed by
the economies resulting from the sharing of costs. India's largest shopping arcade
Spencer Plaza (600,000-sq-ft) in Chennai is an example. In malls like these, the
combined brand pull of all outlets is used to create a pull for the mall.Center One, R-Mall, Crossroads, Nirmal Lifestyles, RNA Millennium, In Orbit
malls in Mumbai, Sahara Mall, MGF Metropolitan, DLF Mega mall in Delhi, are
some of the many examples of Malls in India.
8. Hypermarkets: Hypermarkets are larger than a Supermarket, sometimes with a
warehouse appearance, generally located in quieter parts of the city and have low
prices, vast choice available including services as cafeterias.
Big Bazaar, Giant and Super Sabka Bazaar are the three major players in this
segment.
9. Hotel Shopping Plazas: This type has been largely unknown because of its thin
existence. Traditionally hotel retail was restricted to jewellery and handicraft
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items but post 2003 this is changing with various international retailers entering
the market preferring the hotel environment more suitable to get a feel of the
market. Assessing this demand, new upcoming hotels are incorporating distinct
retail areas in their plans on the lines of Grand Hyatt in Mumbai and Leela
Galleria in Bangalore.
10. E- Tailing: The Internet has become a household name in urban India and e-
commerce transactions in India are growing steadily. Many chains and large retail
houses have entered the virtual store business. They are mainly in non-food
retailing business, like clothes, music and business.
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Overview of the industry
The retail sector is India’s largest industry, which accounts for over 10 percent of India’s
Gross Domestic Product but is fragmented and unorganized .It is also the highest
employer by contributing to over 8 percent of total employment. The Indian Retail
Industry has emerged as one of the most dynamic and fast paced sectors on the lines of
Information Technology.
History
Indian retailing for long has been only the mom-and-pop stores or the local kirana stores,
organized retailing rarely existed and it was also very fragmented. The word ‘retailer’was associated with only such stores and a common man could not imagine anything
other than that. For him, a retailer was only a person who sold goods to him after
purchasing from wholesaler.
For Indian retailing, things started to change slowly in the 1980s, when the government
recognized its potential and began opening its economy. Textiles sector (which
companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim) was the first to see
the emergence of retail chains. Later on, Titan, maker of premium watches, successfully
created an organized retailing concept in India by establishing a series of elegant
showrooms.
For long, these remained the only organized retailers, but the latter half of the 1990s saw
a fresh wave of entrants in the retailing business, thanks mainly to the changes in
Government rules and regulations. Since then, the concept of Multi-Outlet retail stores
has gained momentum and is all set to become the de-facto standard in the years ahead.
This time around it was not the manufacturer looking for an alternative sales channel.
These were pure retailers with no serious plans of getting into manufacturing. These
entrants were in various fields, like - FoodWorld, Subhiksha, More and Nilgiris in food
and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books.
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Organized retailing has finally got the push it needed and its importance is increasing day
by day. The consumer in India is now being exposed to shopping as an experience and is
charmed with a host of international brands that too at competitive prices. Today, the
Indian consumer expects wide array of choices and brand options. He has now started
spending more and also demanding more from the retailers.
According to a report prepared by Mc Kinsey and the Confederation of Indian Industry
(CII), India is set to witness retail boom, with the potential to become a US $ 300 billion
market per year by 2010.
According to recent DSP Merrill Lynch report, the key factor providing a thrust to this
retail boom is the changing age profile of spenders. A new set of young earners who are
in their mid twenties has emerged and over seven million people are entering this
category every year. The number of people who earn over US$ 5000 plus per annum is
growing at an intense pace and this is primarily attributed to the rapid rise in young
earners (those in their mid twenties).
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 retail
landscapes is dominated more and more by elaborate shopping malls and super stores,
which are springing up in both metro’s and large non-metro’s. As a result of which nearly
all domestic retail majors have announced huge expansion plans for the next 12-18 month
period with analysts predicting new investments in the region of US$ 1.5-2 billion.
India retained its position as the world’s most attractive market for mass merchant and
food retailers according to management consulting firm AT Kearney’s 2008 Global
Retail Development Index (GRDI). The Index, an annual study of retail investment
attractiveness among 30 emerging markets found Asia had overtaken Europe as a
dominant region for global retail expansion, with a growth rate of over 40%. AT
Kearney’s Global Retail Development Index (GRDI), which ranks 30 emerging countries
based on a set of 25 variables including economic and political risk, retail market
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attractiveness and retail saturation levels, has retained India’s position at the top. The
report said that the Government of India has gradually started taking all necessary steps.
On the permission to allow FDI up to 51 per cent in single-brand retail, the report said.
“This has triggered market-entry announcements from some retailers and has signaled to
international retailers that India is serious about opening up the sector. India is at the peak
of attractiveness for retailers right now, with a $350-billion retail market expected to
grow 13 per cent this year.”
Retailing provides jobs to a large number of Indians and is the largest contributor to
India's GDP. But the flip side of the coin is that the average size of each of the retail
outlets in India is only 50 square feet and though a large employer, the industry is very
unorganized, fragmented and with a rural bias.
The Indian retail industry is unorganized
There are nearly twelve million retail outlets in India and the number is growing. Two
thirds of these stores are in rural location. The vast majority of the twelve million stores
are small "father and son" outlets. According to the "Retailing in India" report published
by the PwC Global Retail Intelligence Program, share of the unorganized sector is 98%.
The Indian retail industry is fragmented
Retail stores in India are mostly small individually owned businesses. The average size of
an outlet is 50 s.q. ft. and though India has the highest number of retail outlets per capita
in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest in the
world.
The Indian retail industry has rural bias Nearly two thirds of the stores are located in rural areas. The retail industry in rural India
has typically two forms: "Haats" and "Melas". Haats are the weekly markets: they serve
groups of 10-50 villages and sell day-to-day necessities. They are frequently used as
replenishment point for the small village retailer. Melas are larger in size and more
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sophisticated in terms of the goods sold. Mela merchandise would include more complex
manufactured products such as televisions.
Even in urban areas, organized retailing in India is restricted to the top few cities of the
country only.
Organized retail currently accounts for only three percent of the $ 230 billion retail
industry in India.
A report by property consultants Knight Frank says the retail boom has spread to Tier II
and Tier III cities, too. Of the 361 malls under construction, 227 are in the top 7 cities,
while the remaining 134 are coming up in the smaller cities.
Knight Frank estimates that besides the new malls, close to 35 hypermarkets, 325 large
department stores and more than 10,000 new outlets are also under development.
Leading the retail boom is the National Capital Region and in particular its satellite towns
of Gurgaon, Noida and Ghaziabad. With the mall culture gripping ht e ballooning
upwardly mobile population, this survey expects another 25.39 million sq ft of retail
space adding o the current stock of 10.6 million sq ft. of the 78 malls slated to come up
in the NCR, 35 will be in Delhi alone.
Mumbai presents a different picture with the retail boom taking the suburbs by storm but
bypassing the island city. Here, poor infrastructures, lack of fresh space for new
construction and high real estate costs have stymied growth.
Retail is currently enjoying its sunrise status, but the market dynamics are set to change
drastically in the near future. As retail formats mature across the country, it will be
imperative for retailers to brand themselves for competitive advantage and as employers.
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Classification of Indian retail sector:
a) FOOD RETAILERS
There are large number and variety of retailers in the food-retailing sector Traditionaltypes of retailers, who operate small single-outlet businesses mainly using family labour,
dominate this sector In comparison, super markets account for a small proportion of food
sales in India, However the growth rate of super market sales has being significant in
recent years because greater numbers of higher income Indians prefer to shop at super
markets due to higher standards of hygiene and attractive ambience.
b) HEALTH & BEAUTY PRODUCTS
With growth in income levels, Indians have started spending more on health and beauty
products .Here also small, single-outlet retailers dominate the market .However in recent
years, a few retail chains specializing in these products have come into the market.
Although these retail chains account for only a small share of the total market their
business is expected to grow significantly in the future due to the growing quality
consciousness of buyers for these products.
C) CLOTHING & FOOTWEAR
Numerous clothing and footwear shops in shopping centers and markets operate all over
India. Traditional outlets stock a limited range of cheap and popular items; in contrast,
modern clothing and footwear stores have modern products and attractive displays to lure
customers. However, with rapid urbanization, and changing patterns of consumer tastes
and preferences, it is unlikely that the traditional outlets will survive the test of time.
D) HOME FURNITURE & HOUSEHOLD GOODS
Small retailers again dominate this sector. Despite the large size of this market, very few
large and modern retailers have established specialized stores for these products.
However there is considerable potential for the entry or expansion of specialized retail
chains in the country.
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E) DURABLE GOODS
The Indian durable goods sector has seen the entry of a large number of foreign
companies during the post liberalization period. A greater variety of consumer electronic
items and household appliances became available to the Indian customer. Intense
competition among companies to sell their brands provided a strong impetus to the
growth for retailers doing business in this sector.
F) LEISURE & PERSONAL GOODS
Increasing household incomes due to better economic opportunities have encouraged
consumer expenditure on leisure and personal goods in the country. There are specialized
retailers for each category of products (books, music products, etc.) in this sector.
Another prominent feature of this sector is popularity of franchising agreements between
established manufacturers and retailers.
Today trend is the development of integrated retail cum Entertainment centers or
shopping malls. An increasing number of retailers are focusing on malls now as opposed
to stand-alone developments. While the number of shopping malls has seen a massive
surge in the recent past in the metros and their suburbs, the latest trend in this sector is the
increasing focus on providing leisure activities such as multiplexes, facilities for kids'
entertainment, eateries etc. within the mall premises. Customer less the time consumes
and more entertainment with his family in malls because they within shopping mall
number of retail shop and variety of products and selected the product they want. Good
environment in mall. Less crowed and These are enclosed, air-conditioned, multi-level
malls of at least 100,00 sq ft. Critical to these malls is the concept of the anchor, the key
outlet or store around which other outlets cluster. The most popular Indian anchors
include Shoppers' Stop, Globus, Pantaloon, Lifestyle and hypermarkets like Big Bazaar
and Giant. Cinemas also often anchor malls. Driven by the lucrative tax breaks, the old
single screen theatres are being divided into three-five smaller screens, as was done in the
US, years ago.
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Key drivers of retailing in India
• Consumer Pull
In the pre-liberalization market, the power rested clearly with the manufacturers. Intoday’s demand-led market, it’s the consumer who calls the shots. Over the last decade,
there has been a significant evolution in the Indian consumer, mainly due to the
liberalization of the consumer goods industry that was initiated in themed-eighties and
accelerated through the nineties, combined with a growing consumerism driven by the
media, new opportunities and increasing wealth. A. F. Ferguson & Co . had carried out a
brief survey among consumers across income segments to understand their spending
pattern. An analysis of the `monthly purchase basket of the consumers surveyed indicated
that the average monthly households spend on food and grocery related items varied
across income segments. For instance, in the case of upper income households, the
average spend was around Rs 4,200 per month. As against this, the average spend in the
case of a middle income household was around Rs. 2,850 and lower income households
Rs. 1,250 per month.
• Rising incomes
Over the past decade, India’s middle and high income population has grown at rapid pace
of over 10 percent per annum. Though this growth is most evident in urban areas, it has
also taken place in rural areas. Further the number of households earning above Rs. 1,
50,000 per annum is about 50 million today and is expected to grow to80 million by
2010. This growing high income population is triggering the demand for consumer
goods, leading to proliferation of higher quality/ higher priced products. With increase in
double-income households and working women, there is an increasing pressure on time
with very little time being available for leisure. These changes in consumer behavior alsoaugur well for the retailing industry.
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• Explosion of media:
There has been an explosion in media as well during the last decade. Kick-started by the
cable explosion during the Gulf War, television has accelerated to a point where there are
more cable connections than telephones in Indian homes (225 million vs. 23 million), and
about over 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 and expectations from the shopping experience- they want more choice,
value, service, experience and convenience of more affluent countries and raised their
aspirations and expectations from the shopping experience- they want more choice,
value, service, experience and convenience.
• Change in consumer behavior
There has been a change in shopping behavior in present urban India where consumers
are looking for convenience. That is, they want everything under one roof and a bigger
choice of products. With an increase in double-income households, people do not have
much leisure time and seek the convenience of one-stop shopping in order to make the
best use of their time. They also look for speed and efficiency. Increased awareness has
also meant that consumers now seek more information, variety, product availability,
better quality and hygiene as well as increased customer service. The concept f “Valuefor Money” is picking up.
As malls and supermarkets offer the option of entertainment along with shopping,
younger couples prefer to shop there along with their kids. Also driving the retail industry
is impulse buying spurred on by higher brand awareness.
Consumer niches have begun propelling the market and are becoming more important,
with positive and negative sub- segments of consumers gaining significance. The growth
accelerator has definitely been the working woman, with the money spent by her
averaging 1.3 times that of a housewife.
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• Consumer cycle
The consumer cycle starts with the industry dictating the market. Eventually over time
the distributor gains control over the market; at this stage the distributor becomes an
important link between manufacturer and customer. When the market starts developing
its horizons, retailers turn into the vital link in this supply chain. India is entering the third
stage where retailers control the market. Being closest to the link to the consumer in the
supply chain, retailers benefit accordingly. Manufacturers spend a lot of money
promoting a product, but if it’s not on the shop-shelf, consumers won’t be able to buy it.
Manufacturers have also realized that retailer recommendations matter, particularly in
smaller towns where retailers are figures of authority or opinion leaders.
With shopping attitudes changing, the Indian market today desires value- added products
and services with good ambience and brands, which only a retailer can provide. Hence,
good relations are a must. Manufacturers are ready to pay listing fees to get retailers to
stock a product, or display charges to place it prominently.
• Emergence of rural market
The rural market is beginning to emerge as an important consumption area, accounting
for over one-third of the demand for most key consumer durables and non- durables, INresponse, manufacturers of consumer goods- both FMCG’s and durables – have begun
developing new products (LG television, shampoo sachets, Ruf n Tuf jeans) and
marketing strategies (using a village ‘Haat” for brand promotions) with the rural
consumers in mind.
• Establishment of Supply Chain
Over the past few years, the consumer goods sector has been transformed by increased
liberalization, continuous reduction in customs duty, a shift from quota to tariff-based
systems for imports and sophistication in manufacturing. Entry restrictions for
multinationals have been removed in nearly all sectors. All these has enabled chain
retailers to enjoy better range depth and sourcing options as well as improved average
margins. There has been a proliferation in the range across all categories, with a
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simultaneous increase in the supply of products and quality retail space. According to a
study, there are over 18,000 stock- keeping units (SKUs are products and their variants,
of type and size, counted individually), while most retailers have the space for at most
5,000 – 7,000 units.
• Emergence of Hubs as Retail Activity
Chennai was considered a `traditional', conservative' and `cost-conscious' market, but
proved to be the home ground for most of the successful retail names - Food World,
Music World, Health and Glow, Vitan, Subhiksha and Viveks -to name a few. The choice
of Chennai as the `retail capital' has surprised many, but a variety of factors acted in its
favor. Chennai, in spite of being a rapidly growing metropolis offers reasonable realestate prices, one of the most critical elements for the industry. Chennai has been
witnessing a high industrial growth and increasing presence of the MNCs, both in the IT
sector as well as outside it. The industrial boom has led to the emergence of new
residential areas with aggregation of professionals as well as a rapid increase in the
number of `double-income' households and growth of the nouveau riche/upper middle
class with increased purchasing power. These have been combined with the increasing
need for touch and feel shopping (especially for the large migrant population). All the
factors have acted favorably in nurturing the industry.
• Expansion of Family-Owned Businesses:
The most successful of these are the Rs.150- crore Viveks, the forty year old Chennai
consumer durables chain, the Rs 50-crore Pantaloon apparel retail business, and
Bangalore’s food retailer Nilgiris. With the new-age demanding consumer preferring to
shop in these big retail chains, traditional ‘bania’ shops will face a difficult time trying tomeet consumer expectations. The process is likely to be kick-started by grocery stores
transforming into supermarkets since the margins in the grocery trade are the lowest in
the business.
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• New Entrepreneurs
The growing attractiveness of the retail trade has begun to attract new entrepreneurs with
ideas, and venture capitalists with funds. Subhiksha, an innovative discount grocery chain
started from Chennai is one of the most successful retail start-ups of the recent past.
Venture capitalists like ICICI and IL&FS are also increasingly willing to invest in retail
business.
• Building Chains around Brands:
Apparel, footwear and consumer durable brands have driven the growth of specialty
chains and upgraded existing multi-brand outlets. Some like Reebok claim to have
entered retailing because of the paucity of suitable multi-brand retailing options.
However, many of these are emerging as large retailers (Titan, Madura Garments,
Raymond) today, and appear to be committed to developing their retail businesses. Thus
there is an extension of consumer brand-seeking i.e. promise, trust, comfort, and image;
from products to stores.
• Foreign Retailers Looking for Entry Options:
The increasing attractiveness of the sector has drawn the interest of a number of global
retailers. With the opening of the economy, more and more MNC’s have entered the
Indian Business arena through joint ventures, franchisees or even self – owned stores.
The very first MNC to get into the business was Spencer’s and the Diary Farm
International, a $10 billion Hong-Kong based company, and a part of the Jardine
Matheson group.
While the foreign retailers cannot start operations on their own mainly because of the FDI
restrictions on the sector, a number of companies, including Tesco, Carrefour and Ahold,
are exploding entry options. In apparel, Benetton, Lifestyle and Zegna are already in
business; Diary Farm has a number of retailing joint ventures in India.
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• Technological Impact
Technology is probably the most dynamic change agent in the retailing industry. The
computerization of the various operations in the retail store – including inventory
management, billing and payments as well as database (of customers) management –
widespread use of bar coding, point-of-sale terminals and Management Information
Systems (MIS) has changed the face3 of retailing drastically. Apart from providing the
retailers with better & timely information about their operations, the technology also
performs such tasks as preventing theft (through the hi-tech Electronic Article
Surveillance System), promoting the store’s goods and creating a better shopping
atmosphere. This is done with the help of Closed-circuit televisions, video walls, in-store
video networks, and other forms of interactive applications – ranging from CD-ROMs to
virtual reality – to let customers select and buy products.
They make the customers life a lot easier by facilitating the use of credit cards, debit
cards and smart cards. Toll-free numbers have brought about a revolution in consumer
ordering & feedback mechanisms. These also pave the way for tele-shopping and net-
shopping. Emerging technologies also facilitate just-in-time management of certain
products within the store.
• At 271 million, one of the largest consuming base in the world, forming 27% of
the total population.
• A high spending community below 45 years comprises 81 percent of the
population.
• A young population with 54% population below 25 years
• Increased literacy from 44% in 1965 to 70% in 2003
•
Increase in working women from 1.3 million in 1961 to 4.8 million in 1998.
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Contribution of Retailing to Indian Economic Sector:
1. Real estate: The retail industry’s real-estate requirement will be in millions of
square feet. This will release for productive use large tracts of land lying with various
government agencies such as the ports, the armed forces, railways, mill land and so on.
2. Tourism/Outbound shopping: One of the best features of any city that attracts
a large number of tourists every year—London, Singapore, Dubai, New York and so on
—is a well-developed shopping environment. Organized retailing will help significantly
in developing our cities as tourist destinations. And, if well-marketed and managed, it
can significantly enhance government revenues, apart from spreading the word about
ethnic Indian brands across the world.
3. Higher GDP: The value that retailing can add to the economy should not be
underestimated. Organized retailing has huge potential, which could lead to higher GDP
growth and also generate employment. Organized retailing could also bring about the
transformation of the agricultural supply chain, remove inefficiencies in the distribution
of consumer goods and improve productivity while providing consumers with a better
range of products at better prices in a better ambience at the same time.
4. Outsourcing opportunities: If organize retailing is a $200 billion industry, how
big can its outsourcing opportunities be? Pretty big, including everything from supply
chain management to pilferage control to loyalty management. Checkpoint Systems has
launch its pilferage prevention system and Venture Infotek has come in with tractionmanagement for loyalty programmes.
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The benefits are difficult to quantify, but clearly they will be huge. In countries
where retailing and modernization has progressed, it has favorably affected the value-
capturing capacity and modernization of the farming industry. It has also restructured the
supply chain for all FMCG products, driven end-costumer prizes down on a sustain basis,
created significant employment opportunities, been a source of considerable revenue for
both State and Central Governments, and in general been a catalyst for creating
considerable national wealth.
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Evolution of Organized Retailing
The much needed organized retailing in India is already taking place. It originally began
in the south. The availability of land at prime locations coupled with lower real estate
prices compared to Delhi and Mumbai made multi-storied shopping complexes possible.
As a result of this, Chennai and to a lesser extent Bangalore and Hyderabad- has emerged
as a centre of organized retailing. In fact, in Chennai, nearly 20 % of food sales is now
accounted for by supermarkets and an equal share of consumer durables is sold through
specialty chains such as Vivek’s.
It took almost two years of recession for this concept of shopping to take root in major
cities like Mumbai and Delhi. Recession brought down the prices of property in these
cities, and it was during this slump that big business houses took notice of the potential in
retailing.
Traditionally the retail industry in India was largely unorganized, comprising of drug
stores, medium, and small grocery stores. India is now rapidly evolving into an exciting
and competitive market place with potential target consumers in both the niche and
middle class segments. Manufacturer-owned and retail chain stores are springing up in
urban areas to market consumer goods in a style similar to that of malls in more affluentcountries. Even though big retail chains like Crossroads, Saga and Shopper’s Stop are
concerting on the upper segment and selling products at higher prices, some like RPG’s
Food World and Big Bazaar are tapping the huge middle class population. During the
past two years, there has been tremendous amount of interest in the Indian retail trade
from major players as well. Over the years, international brands like Mc Donald’s,
Swarovski, Lacoste, Domino’s, and Pepsi, Benetton among a host of others to come in
and thrive in India.
The growth in the Indian organized retail market is mainly due to the change in the
consumer’s behavior. This change has come in the consumer due to increased income,
changing lifestyles, and patterns of demography which are favorable. Now the consumer
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wants to shop at a place where he can get food, entertainment, and shopping all under one
roof. This has given Indian organized retail market a major boost.
Organized retailing has a very long haul ahead. The process of getting into newer forms
of purchasing has been gradual because of traditional buying habits and the manner in
which traditional retailers manage relationships. There is no specific international format
or an existing role model that can be easily adapted and applied in the Indian context.
India is going through that phase which the US experienced in the eighties and nineties.
In order to develop the right proposition one needs to go through the learning curve. The
growth and development of organized retailing I India will be driven by mainly two
factors- low price and benefits the consumer can’ resist. Economies of scale will drive
down the cost of the supply chain and increase the benefits offered to the customer. From
product-based shopping, the emphasis will shift to experience-based shopping.
All these factors signal the prosperity of organized retailing in India. Organized retailing
in India is now being catapulted through the different stages of its growth to its
culmination in maturity. There is a growing consumerism that is paving the way for
greater consumer orientation and consumer enlightenment. More emphasis is given on
establishing a robust and cost-effective supply chain backed by fast developing
technology. Now it has become of utmost importance of creating a liberalized economic
platform that will enable global retailers to set up shops in India through various methods
that are permitted now such as joint ventures, licensing, franchising, etc.
Retail market in the organized sector in India is growing can be seen from the fact that
1500 supermarkets, 325 departmental stores, and 300 new malls are being built.
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Organized v/s Un-Organized Retail Sector
In the developed economies, organized retail is in the range of 75-80 per cent of total
retail, whereas in developing economies, the unorganized sector dominates the retail
business. The share of organized retail varies widely from just one per cent in Pakistan
and 4 per cent in India to 36 per cent in Brazil and 55 per cent in Malaysia (Table 2.2).
Modern retail formats, such as hypermarkets, superstores, supermarkets, discount and
convenience stores are widely present in the developed world, whereas such forms of
retail outlets have only just begun to spread to developing countries in recent years. In
developing countries, the retailing business continues to be dominated by family-run
neighbourhood shops and open markets. As a consequence, wholesalers and distributors
who carry products from industrial suppliers and agricultural producers to the
independent family-owned shops and open markets remain a critical part of the supply
chain in these countries.
According to Indian Retail report 2008, at present, India's retail sector is largely
unorganized, with about 15 million tiny outlets catering to consumer needs across the
country and employing second-largest number of people after agriculture.
Organized retail is now focused primarily on the 300 million urban "middle classes'' andan additional 200 million rural rich, who form a consumer market worth more than
US$100 billion.
So, there is enough ground for the modern and the traditional formats to co-exist.
The small retail stores are an important source of jobs, providing about 7 per cent of the
total employment in India. Moreover, they are providers of employment of the last resort.
Anyone without a job and proper education can set up a local retail outlet.
However, India is not an integrated homogeneous market; it is a hierarchy of markets
catering to people of many different income levels and tastes. For example, both Sony
and a local brand can coexist, catering to market segments.
Entry of sophisticated branded products affects the unbranded mass market only
marginally in a country such as India.
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Moreover, in malls where the large retail chains set up their stores, typically, there will
also be many small shops which will attract people.
Further, the street-corner shops will have some advantages over big stores located many
miles away in shopping plazas.
In India, transportation and parking are big problems for people who want to visit
shopping malls.
For them, it is more convenient and cost-effective to purchase many of their daily
requirements from the neighbourhood stores, especially as these establishments stock
goods that are in particular demand in the locality.
Hence, the local kirana stores can very well survive.
Country Organized Retailing Traditional Retailing
Malaysia 50% 50%
Thailand 50% 50%
Philippines 35% 65%
Indonesia 25% 75%
South Korea 15% 85%
China 10% 90%
India 2% 98%
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Share of Organized Retailing in selected countries
Consumer behavior and retailing decisions
Consumer behavior refers to the mental and emotional process and the observable behavior of consumers during searching, purchasing and post consumption of a product
or service. Consumer behavior involves study of how people buy, what they buy, when
they buy and why they buy. It blends the elements from psychology, sociology,
sociopsychology, anthropology and economics. It also tries to assess the influence on the
consumer from groups such as family, friends, reference groups and society in general.
Buyer behavior has two aspects: the final purchase activity visible to any observer and
the detailed or short decision process that may involve the interplay of a number of
complex variables not visible to anyone.
Factors Affecting Consumer Buying Behavior
Consumer buying behavior is influenced by the major three factors:
• Social Factors
• Psychological Factors
• Personal Factors.
Social Factors
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Social factors refer to forces that other people exert and which affect consumers’
purchase behavior. These social factors can include culture and subculture, roles and
family, social class and reference groups.
Psychological Factors
These are internal to an individual and generate forces within that influence her/his
purchase behavior. The major forces include motives, perception, learning, attitude and
personality.
Personal Factors
These include those aspects that are unique to a person and influence purchase behavior.
These factors include demographic factors, lifestyle, and situational factors.
Consumer decision-making process generally involves five stages:
Information Search
Problem Recognition
Purchase Action
Alternative Evaluation
Post purchase Actions
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Retail outlet selection and brand selection:
There are three fundamental patterns, which a consumer can follow and they
could be:
(I) Brand first, retail outlet second
(ii) Retail outlet first, brand second
(iii) Brand and retail outlet simultaneously.
A consumer wanting to buy a car may collect information on brands and purchase it from
a retail outlet based on his perception of price offered or after sales service provided by
the outlet (typically, search for information on brands is followed by retail outlet
selection in durables). In certain product categories, especially where `category killers'
exist, consumers may think of the retail outlet initially and then the brands (television,
refrigerator and audio products retailed through outlets like Vivek and Co. in the South,
could be an example).
One more dimension may be to compare brands in the evoked set at retail outlets which
also exist in an evoked set of their own. This is highly possible, especially in the Indian
context where dealers develop a social relationship with consumers, especially in semi-
urban and rural areas. Primary research could be used to discover the specific sequence
involved in a situation of this kind. A `brand first' dimension may need feature-based
advertising and a `retail outlet first' dimension may require a set of point-of-purchase
(POP) materials and special training to sales personnel to recognize the needs of
consumers.
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Some statistics derived from Indis-report.com
• Retailing of mobile handset and accessories will grow to Rs. 5000 crores by
2010.19.
• Third party logistics market is estimated at US$ 20 billion by 2011.• Demand for private labels in the rise, will grow further.
• In-house brands will see a growing demand amongst the retailers and will also
ensure margin stability.
• India’s fast moving consumer goods (FMCG) industry has introduced 251 new
products up to October 2007, as against 191 in the same period last year.
• The Indian healthcare IT market is expecting a growth rate of 22% says a
Springboard Research report.
• India's food and beverages sector, growing at 9%, is expected to attain US$
117.25 billion by the end of this year.
• With 54% of its 1.1 billion people aged below 25, it is one of the world's largest
markets for TV.
• India's food service industry is expected to grow 48% to US$ 667.49 million in
the next two years.
• According to a report by PriceWaterhouse Coopers, India could grow to almost
90% of the size of the US economy by 2050
• According to Confederation of Indian Industry, Yes Bank study, India's US$
35.17 billion rural retail market is expected to cross US$ 45.22 billion by 2010and US$ 60.29 billion by 2015.
• The size of the luxury market in India is estimated at around US$ 3.5 billion, and
could easily leapfrog to US$ 30 billion by 2015.
• Indian consumer spending will quadruple to US$ 1.77 trillion by 2025, from
about US$ 431.69 billion in 2005 due to a jump in its middle-class population and
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a rise in household income, according to a McKinsey study.
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