The Retailing Virus - The Fastest Spreading Virus In India


By

Mrs. Madhuri Mathur
Faculty (Marketing)
ICFAI National College
Kota (Rajasthan)
 


ABSTRACT

Customer is the king and customer is always right
is followed blindly by all the retailers to please its customers. India is being looked as one of the most attractive host for retail developments.  The development of malls in India has given a new meaning to retailing. Indian customer is exposed to completely new kind of shopping experience. The rising standard of living have opened new avenues for shopping.


Figure Shows that more than 60 % of the spending is on food and clothing the various formats like supermarkets, speciality store are growing with the most potential in future lies in food and groceries store However with the market growing at this faster pace there is a word of caution for the existing distribution channel retailing might fade off their business

Retail is said to be a growth-oriented industry in upcoming years with unlimited opportunities for entrepreneurs and professional                                                                                                          

Retail industry strongly has to develop these 3 pillars of support

    * Technological enhancements to ensure best service for customers
    * Strong back end logistics support to ensure that the products reach customers in time
    * Visual merchandising to chance the customer's eye

INTRODUCTION

Retailing, considered a sunrise industry today is the most happening industry with almost all the big players vying for a share of the coveted pie.

India is being seen as a potential goldmine. India's vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets

India has been ranked first in a Global Retail Development Index of 30 developing countries drawn up by A T Kearney.

2005 A.T. Kearney Global Retail Development Index

Country

2005 Rank

India

1

Russia

2

Ukraine

3

China

4

Slovenia

5


About the study

A.T. Kearney's Global Retail Development Index ranks 30 emerging countries on the urgency for retailers to enter the country.  The scores are based on 25 variables across four primary categories:  economic and political risk; market attractiveness; market saturation; and time pressure (difference or addition between gross domestic product and modern retail area growth).

The infecting virus started its effects by propelling traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls have begun appearing in metros and second-rung cities alike introducing the Indian consumer to a shopping experience like never before.

The development of malls in India has given a new meaning to Retailing. Malls are expected to usher in a more organized retailing environment by clearly demarcating product and service offerings .the consumer is exposed to a new kind of shopping experience, which is quietly and surely redefining the definition of shopping

Organized Retailing in India

The Virus fast spreading ……………

All The Mega Retailers –Tata's (Westside Chain Of Stores), RPG Group- (Food world, Music world, Health And Glow), The Primal's - Crosswords, The Rahejas -Shopper's Stop And Globus, And Pantaloons All Are Heading In Neck-To-Neck Competition

Retail sales in India amounted to about Rs.7400 billion in 2002, expanded at an average annual rate of 7% during 1999-2002.  With the upturn in economic growth during 2003, retail sales are also expected to expand at a higher pace of nearly 10% across the country and in the coming years retail sales predicted to rise more rapidly than consumer expenditure in 2004-08. The forecast growth in real retail sales during 2004- 2008 is 8.3% per year compared with 7.1% for consumer expenditure.

According to a latest report by Euro monitor International, a leading provider of global consumer-market intelligence sales from these large-format stores are to expand at growth rates ranging from 24% to 49% per year during 2003-2008

It is estimated that about 225 new malls are coming up in India and will offer between 30-40 million square of retail space in 50 plus cities over the next five years. With average size of the local stores being 100-150 square feet, the total area under retail could be anywhere between 120-180 million square Feet.

Organized retail is set to grow fast. This is further substantiated with the Fitch report that expects organized retail to grow to 15-20% by 2010.

Organized retail formats in India

Each of the retail stars has identified and settled into a feasible and sustainable business model of its own.

* Shoppers' Stop - department store format
* Westside - emulated the Marks & Spencer model of 100 per cent private label  
* Big Bazaar - hypermarket
* Food World– supermarket format
* Pantaloons and The Home Store - specialty retailing

The Indian Retail Sector Can Be Broadly Classified Into:

a) Food Retailers.
b) Health & Beauty Product.
c) Clothing & Footwear
d) Home Furniture & Household Good
e) Durable Goods
f) Leisure & Personal Goods

Non store based Retailing

All the big players are providing a pleasant shopping experience to Indian 's at the same time the service providers have focuses don making this shopping experience convenient and at the comfort of customer's home with just a click of mouse or at their doorstep .Non store based retailing is also gaining peaking sales.

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 India's 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.

Be it store based retailing or non store based retailing both focus on making shopping convenient and pleasant for customers

Key Strategic Factors in Retailing

*
The availability of credit and the reduction in rate of interest has led to a boom in real estate market making a way for establishment of new shopping malls
* Improving standards of living and constant economic growth  -its needless to say as we see our young aspirants with good jobs and handsome packages .the big thanks should actually go the BPO industry which opened jobs for young graduates and part time jobs for undergraduates. Their favorite place top shell out their salaries are the shopping Malls
* Working women to a great extend has contributed to increasing standards of living Heightened marketing of credit cards by banks; the credit card penetration reached 17 million.
* Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.
* Credit card usage is another factor that is driving organized retail growth
* Another factor that is driving organized retail is the car sales. With
Availability of credit and increased aspirations of the youth to have a car, car sales   grew by 41% last month. Car sales and retail are directly linked. As people have cars, they will come to a destination to shop and entertain themselves
* Reduction in import duties-offering more global sourcing options

Organized retailing –Unique selling proposition

Retailers offer an experience that local retailer cannot offer by offering good

*
Product width and depth giving customer great variety of choice and an amazing ambience
*
Retailers have some unique advantages for managing brands such as continuous and actionable dialogue with consumers, control over brand Presentation at point-of-sale, control over shopping environment, display location/adjacencies, and signage's 
* If they keep their supply chain in place they can eliminate the intermediaries involved and can offer products at attractive prices.
* There is an assurance of quality when customers shop with organized retailers

Impact on distribution channel

The role of the intermediary is being diminished gradually, which has obvious implication of backlash of the trade channel upwards towards the suppliers. In India   channel economics in favour of the middlemen is still strong enough Therefore when Food World, the largest grocer in India has a "direct supply" contract with over 20% of its key suppliers, it gives rise to conflict of interest with the distribution infrastructure that suppliers have painstakingly built over the years. Thus companies like HLL have evolved a distinct distribution channel altogether (called "Modern Trade") to service the needs of such large grocers. Even the mom and pop stores (known as kirana shops) are affected due to this" unfair" back-end advantage extended by the supplier to its leading accounts.

The point here is how long will be able to stop these conflicts with the pace at which the retailing is growing there might be a possibility that the manufacturers start selling goods directly to the retailers or we cannot deny the possibility where the big FMGC giants like HLL, Colgate pamolive will open up their exclusive outlets in metros and make their franchisee in the smaller town to reach out every person .We cannot deny any possibilities as future is uncertain

Supply chain analysis

To cope up with the competition from unorganized retailers all the retail giants in the
Country believe that it is imperative to follow tight inventory, ensure quality and restrict
Margins to the minimum. To ensure this all the players in organized retailing are fine-tuning their supply chains. Some of the initiatives taken in this direction include:

* Tight inventory control and logistics through the use of information technology.
* Control price by direct sourcing from manufacturer and farmers.
* Procurement of raw ingredients from the places that are reputed for their production
* Maintaining very high quality standards right from procurement to sale
* Buy-back arrangement of leftovers
* Use of modern technology such as RFID for better tractability, inventory control    and prevention of theft etc.

Challenges Ahead For Retailing

Human Resources
Availability of trained personnel and retaining the human resources is a major challenge for these big retailers. The bigwigs like Crossroads offer high compensation and create a cohesive environment that makes an employee proud to be a part of such big retail chains.

Space and Infrastructure
To establish a retail shop / mall, the real estate and the infrastructure are very vital. The expenditure and availability on both the accounts do hinder the growth of the retail chain. The lack of secondary infrastructure also affects the logistics and supply chain management for retail companies.

Absence of retailer friendly laws
India still does not have retail-friendly laws especially relating to the movement of goods from one state to another. Retailers need to put in a whole lot of products from different parts of the country - at times from outside the country -

Lack of technical know-how
The Indian government does not encourage any foreign direct investment (FDI) in the retail industry. FDI is normally one of the ways of getting technical inputs. And because of this dearth of FDI in this sector, development in terms of people, skills etc are happening the hard way.

Future perspective

According to a recent study done by ETIG the organized retail industry is expected to grow by 30 per cent in the next five years and is expected to touch Rs. 45,000 crore. Thus, the growth potential for the organized retailer is enormous. In the next 2-3 years, India will finally see operations of a number of very serious international players - notwithstanding the current restrictions on FDI in retail. Metro from Germany is a very successful and resourceful retailer and their cash & carry format should offer a good run for money to others. Some others will also find perfectly legitimate ways to operate in India, for example, Marks & Spencer, Mango and Shoprite.

Growing categories:
The single biggest opportunity in India in organized retailing is bound to be food and groceries. It is in this sector that the largest amount of consumer spends is concentrated. This sector has maximum opportunity for investments and entrepreneurs to come in and try to make the supply chain a little more efficient.

Consumer durables is another promising sector because, with increasing purchasing power, Consumers tend to spend the most on this category availability of finance options has increased spending in this sector.

Third are home products - with increasing private ownership of homes by relatively young Couples, across most major cities in India, national retail chains offering home furniture (and Accessories) have great potential.

Finally, personal care products, pharmaceutical products, and healthcare services have Tremendous growth potential. Recently, we have seen some interest from organized healthcare players like Max, Fortis, Birlas and the Reliance group

Formats with good future potential

KSA Technopak's research suggests the top four formats to emerge in the next five years are

* Shopping Malls
* Specialty Stores (categories such as office products, specialty food, optical and travel)
* Departmental Stores
* Supermarkets

Where is this growth going to happen
Research conducted by KSA Technopak, shows that today 96 %of total organized retail is in the top 10 cities, of which the top six cater to 82 per cent. Thus the grade B cities like Lucknow, Jaipur Ludhiana, Chandigarh, Nagpur, Ahmedabad, Surat, Pune, Kochi, Thiruvananthapuram, Guwahati And Bhubaneshwar. Etc Will Have Greater Growth Potential

The success mantra

Focus on the consumer
:. Understanding their evolving needs, aspirations and lifestyles is the underlying key to success for any retailer. The primary emphasis should be on access, Experience and service and the secondary emphasis on product and price. There should be an effort to improve service by having better trained sales staff, better availability of Products, and minor but important conveniences.

Mantra I -Customer is always right

Brand the store: branding the store will increase volume and enhance customer loyalty. Branding is critical to maintaining competitive differentiation in an increasingly Challenging retail environment.

Develop private label brand: Private labels act as margin generators, increasing sales Volume by positioning the label as providing higher perceived value to consumers. In the Long run, they also increase the retailers' bargaining power with national brand suppliers. Private labels generate customer loyalty by providing exclusive products, which works Towards differentiation strategy, much sought after by the retailers.

Mantra II-Make customer feel proud while carrying your brand
some entrepreneurs should put efforts in creating custom-developed solutions for tapping the rural and semi-urban spending potential. Even in non-metro urban centres, there are very good opportunities in looking at starting or expanding operations.

Mantra III –Make it easy for the customers to reach you

Mantra IV – Incorporate 'All under One Roof" strategy

Destination for shopping as well as eating out and entertainment. These findings together indicate an excellent potential for a mall with the following features

* A superior well-managed leisure experience
* Targeted at all members of the household
* Comprising of shopping, dining and entertainment, all under one roof
* A wide range of products and services
* Proximity to homes

The Action Plan

For a start, these 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 investments 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 investment in improving the interiors of their respective establishments to make shopping an enjoyable experience for the customer.

Appendix:

Present Indian Scenario

Retail Realities:

10th largest economy in the world based on GDP
7.5% GDP growth forecasted over 2005-2007
Real estate sector growing at 30% per annum and one of the largest employer – a key contributor to GDP
Residential market is 80% of the total real estate market
Gap between supply and demand in residential market is 41 billion sq.ft.
Office space demand of 66 million sq.ft. for IT industry  over next 5 years
Real Estate in India projected to be USD 50 billion in 2008
Total Private Consumption Expenditure in India – 375 Billion USD
Retail Sale – 205 Billion USD (55%)
Organized Retail – 6.2 Billion USD (3%)
Retailing – 35% of GDP
Outlet Estimates – Over 12 Million
Format – Only 4% larger than 500 sq.ft.
Second Largest Employer after agriculture


Bibliography

* www.euromonitor.com
*
www.pantaloon.com
* Inaugural issue of RETAILER –Indian edition February-April issue –volume   -1 
* FDI in retail sector --www.thehindubusinessline.com
* www.indiaonestop.com
* www.careers-in-marketing.com
* www.researchandmarkets.com
* www.chillibreeze.com
* www.axaptaretail.com
* www.knowthis.com
 


Mrs. Madhuri Mathur
Faculty (Marketing)
ICFAI National College
Kota (Rajasthan)
 

Source: E-mail May 20, 2006

     

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