RETAILING CHALLENGES AND OPPORTUNTITES IN INDIA


By
Prof. R K Gupta
Director
Management Training Centre
Jodhpur
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
URL :
www.Geocities.com/rkgupta_india
 


Abstract:

Retailing otherwise is simple function-It is end of the supply or distribution channel

pipe where customer finally picks the product or service. The customer can be individual or even an organisation .Mostly it is the family buying unit. The most of retiling research has been built in this are of family buying behavior, its needs and changing perceptions about life style, shopping and utility of a product or service. With so many freebies thrown in by almost all retailing outlets mostly backed by the manufacturing or trading organisations of the product/service, the retailing has become a challenging opportunity of future, as far as India is concerned-being an emerging market with fast formation of nuclear family units, urbanization, double income couple, spreading education, influence of TV, global exposure and fast rising discretionary income at least in urban areas.

The modern shopping malls, departmental stores, one stop shopping centers and the traditional retailers all lend kaleidoscopic color to retailing, which is by far the biggest sector in marketing in any country.

There is always confusion in terminology which should be clarified once for all. Shopping mall is not a departmental store owned by one owner as is normally used. It is a shopping centre where a number of shops are available with some eating places and or entertainment places with its own spacious parking and infrastructure facilities.

Most of shopping centers being developed by colony developers like Ansals, DLF etc are shopping malls.

On one hand we have single street corner convenience store like your morning grocer for bread , eggs and milk and on other end you have huge specialty stores that cater to only one commodity like say electronics or  gems and ornaments superstores.

The organised sector retailers bring large volume benefits, better shopping ambience as we call it in services marketing jargon, technology and large variety of items at one place.

On the other hand the traditional small retailer has virtual no overheads, no big rentals, no air conditioning and security expenses and intimate knowledge of customers in his/her locality that a modern shopping store can never match, whatever may be the technology level.

The research conducted by author on more than 500 persons in 3 cities in northern India revealed that their priorities are clear. For certain type o goods and services they prefer corner shop and for certain items shopping them prefer to go to the modern shopping complexes or super stores.

The line is clearly drawn and it would be advisable for organisations like Metro, Shoppers Stop to focus on hose items that give perception of value added items and standardisation required by customer.

Prospects

Having laid down the background let us examine certain statistics:

  • Even though India has well over 5 million retail outlets of all sizes and styles (or non-styles), the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity.
  • It was only in the year 2000 that the global management consultancy AT Kearney put a figure to it: Rs. 400,000 crore (1 crore = 10 million) which will increase to Rs. 800,000 crore by the year 2005 an annual increase of 20 per cent.
  • Retailing in India is thoroughly unorganised. There is no supply chain management perspective. According to a survey by AT Kearney,  an overwhelming proportion of the Rs. 400,000 crore retail market is UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organised.
  • As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet in area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world (source: KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt Salmon Associates).
  • Just over 8 per cent of India's population is engaged in retailing (compared to 20 per cent in the United States). There is no data on this sector's contribution to the GDP.
  • From a size of only Rs.20, 000 crore, the ORGANISED retail industry will grow to Rs. 160,000 crore by 2005. The TOTAL retail market, however, as indicated above will grow 20 per cent annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by 2005 (source: survey by AT Kearney)
  • Given the size, and the geographical, cultural and socio-economic diversity of India, there is no role model for Indian suppliers and retailers to adapt or expand in the Indian context.
  • The first challenge facing the organised retail industry in India is: competition from the unorganised sector. Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labour costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector.
  • In contrast, players in the organised sector have big expenses to meet, and yet have to keep prices low enough to be able to compete with the traditional sector. High costs for the organised sector arises from: higher labour costs, social security to employees, high quality real estate, much bigger premises, comfort facilities such as air-conditioning, back-up power supply, taxes etc. Organised retailing also has to cope with the middle class psychology that the bigger and brighter a sale outlet is, the more expensive it will be.
  • The above should not be seen as a gloomy foreboding from global retail operators. International retail majors such as Benetton, Dairy Farm and Levis have already entered the market. Lifestyles in India are changing and the concept of "value for money" is picking up.
  • India's first true shopping mall complete with food courts, recreation facilities and large car parking space was inaugurated as lately as in 1999 in Mumbai. (This mall is called "Crossroads").
  • Local companies and local-foreign joint ventures are expected to be more advantageously positioned than the purely foreign ones in the fledgling organised India's retailing industry.
  • These drawbacks present opportunity to international and/or professionally managed Indian corporations to pioneer a modern retailing industry in India and benefit from it.
  • The prospects are very encouraging. The first steps towards sophisticated retailing are being taken, and "Crossroads" is the best example of this awakening. More such malls have been planned in the other big cities of India.

An FDI Confidence Index survey done by AT Kearney, retail industry is one of the most attractive sectors for FDI (foreign direct investment) in India and foreign retail chains would make an impact circa 2003.

Fortune 500 for 2004: Wal-Mart stores tops the list with a $26, 3009 million {263 billion} in revenue PTI

While three Oil companies and reliance make it to lower end of the list.

All the projects of Wal-Mart have not succeeded though. Their most successful project is Discount superstores (as Author prefers to call these)

India's Great Middle Class:
 

Table I
Estimated households by annual income

Table II
Structure of the Indian consumer market
(1995-96)

Annual income (in Rupees) at 1994-95 prices

No. of households
(in million)

Annual income
(in Rupees) at 1994-95 prices

Classification

Number of households
(in million)

Urban

Rural

Total

<25,000

80.7

<16,000

Destitute

5.3

27.7

33.0

25,001-50,000

50.4

16,001-22,000

Aspirants

7.1

36.9

44.0

50,001-77,000

19.7

22,001-45,000

Climbers

16.8

37.3

54.1

77,001-106,000

8.2

45,001-215,000

Consumers

16.6

15.9

32.5

>106,000

5.8

>215,000

The rich

0.8

0.4

1.2

Total no. of households: 164.9 million

Total no. of households

46.6

118.2

164.8

Source: National Council of Applied Economic Research (NCAER). The above presentation has been slightly modified by IndiaOneStop.Com


We  should not again and again confuse between shopping Malls and the departmental of super store run by a company which offers many consumer goods at one place or under one roof and is owned by one owner only.

Indian as well as foreign companies have always been fond of Great Indian Middle Class of almost 500 million persons, their fast rising purchasing power and the market size they offer. But many companies like Kellogg's, Nike etc. initially burnt their figures in the middle class pie of  India and many more are like to do so in future; specially huge Retailing projects and multiplexes that are being planned.

Let us see why Wal-Mart is so immensely successful to be No 1 Fortune Company.

1. Discount stores offering best available prices in market
2. Large network and conveneinetly located stores
3. Large variety with at least 45-50,000 sq ft shopping area.
4. Friendly smile and personalized service (Only Sam Walton new about it. Modern customers don't find it anymore)

Now let us look at what consumers have to say about some of stores they visit in Delhi and Mumbai.

-Not suitable for ritual or occasion purchases like Marriages
-Costly and don't offer any price benefit over traditional stores
- Except for packaged and standard commodities, these stores try to overcharge the customers by heaving bigger price tags on known brands or trying to pass their own or other pseudo brands.
- No much personalized services
-Customers are not confident that they are getting fair deal in thee glamorously appointed  stores ( Typical Middle Class phobia)

Some Comments on Income table shown above:

  • Data on income distribution of households is insufficient in determining market size for different consumer products in India. This is because of the lack of homogeneity of the consuming class and the varying prices of a single product in different parts of India. For example, vegetables generally cost more in Mumbai than in Calcutta, hence vegetable-purchasing power for identical income groups would be different in the two places even though they are the two biggest cities in India with comparable populations. In other words, purchasing power is location-specific, not income specific. Consumption habits of households are therefore better determinants of consumer market size than income distribution. Of course, other factors are also to be considered and they are detailed below.
  • While determining market size for a consumer product, the structure of the consuming class as seen in Table II above, can be both revealing as well as misleading depending on the kind of product. For example, any specific consuming class would be fit to be a market for consumer products like tea or soap, but a product such as vacuum cleaners would find market largely only in the "consumers" and "rich" segments of the market as defined in Table II above. Furthermore, even this may not be correct, because a taste for a vacuum cleaner is not necessarily a function of purchasing power but of culture and/or taste as well.
  • Identifying a plausible market size for a consumer product is therefore a hazardous task in a heterogeneous country like India. Yet, the marketer needs some data to come as close to the real picture as possible. For this purpose, it can be cautiously assumed that purchasing power is proportional to income despite variables such as location, taste etc. Companies are therefore advised to plan their consumer product marketing strategies on an area-by-area basis, rather than on an all-India basis.
  • Income data is insufficient. Therefore, it must be supplemented by product-specific information regarding its existing stock in the marketplace (in the case of consumer durables) and existing rate of purchases.
  • It is also advisable to further refine the plausible market size by taking into account details based on social, cultural and demographic factors.
  • Marketing a super-premium product such as a Rolex watch is relatively easy. Just go for the income class above Rs. 106,000 per annum (in 1995-96) as per Table I above. This class, Table I shows, comprises 5.8 million households. But the problem lies in the fact that the 5.8 million households are spread all over India.
  • The prime market for consumer products in India is aware of the cost-benefit or value for money, aspect. Their concept of value incorporates socio-cultural benefits in addition to product utility. For example, many households in the "consumers" class and the "rich" class (as defined Table II) may have two television sets, but both the sets may not be top-of-the-line. Thus, while they may be demand for an additional TV set in many households in the two mentioned classes, it must not be mistaken as demand for the higher priced TV models. The prime consumer market in India therefore is not a market for absolute premium products, but for something between the "high end popular brands" to the "premium brands."
  • Organisations that wish to enter into retailing will have to be careful in planning projects depending on location, city and product mix design while keeping overhead costs low.

The author welcomes any organisation that wishes to lend ear to good advice based on hardcore experience and research in this field based on almost 28 years of retailing experience of his own, marketing expertise and All India experience.
 


Prof R K Gupta
Director
Management Training Centre
Jodhpur
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
URL :
www.Geocities.com/rkgupta_india
 

Source : E-mail August 3, 2004

 

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