Organised Retailing in India - An Overview

By
Prof. Shravan Rungta
B.Com, MMS, PGDEM, NET
Faculty - Advertising
N L Dalmia Institute of Management Studies and Research.
Mumbai
9820572046
E-mail : facultyshravan@yahoo.co.in
 

Introduction

The word 'retail' is derived from the French word 'retaillier' meaning 'to cut a piece off' or 'to break bulk'. In simple terms it involves activities whereby product or services are sold to final consumers in small quantities.

Although retailing in its various formats has been around our country for many decades, it has been confined for along time to family owned corner shops.

Englishmen are great soccer enthusiasts, and they strongly think that one should never give Indians a corner. It stems from the belief that, if you give an Indian a corner he would end up setting a shop. That is how great Indians retail management skill is considered.

The Facts

Retailing in more developed countries is big business and better organised that what it is in India. Report published by McKinsey & Co. in partnership with Confederation of Indian Industry (CII) states that the global retail business is worth a staggering US $ 7 trillion. The ratio of organised retailing to unorganized in US is around 80 to 20, in Europe it is 70 to 30, while in Asia it comes to around 20 to 80.

In India the scenario is quiet unique, organised retailing accounts for a mere 5% of the total retail sector. Although there are around 5 million retail stores in India, 90% of these have a floor space area of 500 sq.ft. or less. The emergence of organised retailing in India is a recent phenomenon and is concentrated in the top 20 urban towns and cities.

The Reason

This emergence of organised retailing has been due to the demographic and psychographic changes taking place in the life of urban consumers.

Growing number of nuclear families, working women, greater work pressure, changing values and Lifestyles, increased commuting time, influence of western way of life etc. have meant that the needs and wants of consumers have shifted from just being Cost and Relationship driven to Brand and Experience driven, while the Value element still dominating the buying decisions.

Also, with the liberalization of Indian Economy in the early 1990's the employment and income from the service sector has lead to the burgeoning of the so called 'Middle Class Consumers'. The lifestyle and purchasing power of this segment has fueled the growth of organised retailing.

The BIG Boys

The level of interest shown by major corporate sector has increased manifold over the last few years. Large conglomerates like the TATA's, ITC, the RPG group, the Piramals and the Rahejas have invested heavly into large format retail stores.  Organised retailing for some of these business groups is a logical extension of there businesses. For example Real Estate Major Rahejas have successfully exploited their expertise in selection and execution of retail establishment in prominent places around metros in the country. While the ownership remains with them, the day-today running is left to the hands of experts.

Also textile and garments companies like Raymond, Madura Garments and Arvind Denims have successfully employed forward integration by opening up exclusive outlets for their branded garments. This reduces their dependence on intermediaries, increases the profit margin and allows them to remain close to their customers.

Apart from apparel brands, Consumer durables, FMCG products and Sports brands have also spurred the growth of retails outlets.  In fact, so much is the promise of this sector that old Economy major like Reliance, BPCL and others want to join the band wagon to cash in on their reach and retail space availability.

Organised retailing in India initially began in south The availability of land at prime locations coupled with lower real estate prices enabled the construction of multi-storeyed shopping complexes. The growth of retailing in an expensive real estate places like Mumbai and Delhi was due to the recession in the real estate sector during the mid-nineties. It was during these times that big business houses like Piramals and Rahejas took notice of the potential in organised retailing.

The Design

Another interesting aspect of Indian Organised retailing market is the evolution of various formats over a period of time. The traditional grocers by introducing self-service formats and value added services like Home Delivery and Monthly Credit have tried to differentiate them.

In the late nineties the departmental stores dominated the retail scene; today it's the large formats of hyper markets and Mega Malls which have conquered the largest retail space in the country.

Although some formats have been successful and others busted, still there is no consensus among experts as to what would work where. Each formats has its won merits and demerits, and careful location and assortment planning, accurate consumer insight with efficient supply chain management will remain the corner stones of any format.

Building The Store Brand

The two major areas where the Retail Store managers face a marketing challenge is one – to create footfalls, and secondly – to convert footfalls into sales.

Promotional efforts like Advertising and Sales promotions would help in creating footfalls, but in the longer term it's the positioning and consumer proposition which would build the stores brand. Once the brand is build, loyalty can be sustained through Direct Marketing or CRM programs.

The store brand would convey the value proposition in terms of what it offers and what it stands for.

For example:

Shopper's stop offers "All lifestyle products under one roof" and it stands for "Feel the Experience While you shop" attribute.

Similarly Pantaloons Big Bazaar offers "All household products at one place" and it stands for "The best bargain in town" attribute.

Also RPG's specialty store called Health & Glow offers "Health and Beauty treatment products" and it stands for "Quality products with expert advice".

The Technology

Increased competition has lead to tighter margins and greater pressure on profits for retail store owners. Operating expenses like rentals, salaries, maintenance, electricity etc. have steadily risen as gross margins have declined. Because of the low-margin nature of most retail businesses retailers will have to focus on operational efficiency in order to create competitive differentiation.

"India is a big country where preferences change with every 25kms and customer loyalty with every 5 rupees. Hence retails outfits needs technology and systems which can manage and interpret these dynamics, and thereby help the management to take real time decisions" said one of the pioneers of Organised Retailing in India, Mr. Kishore Biyani of Pantaloons.

One of the major technological innovations in organised retailing have been the introduction of Bar Codes, it provides real time information of products sold, which in turn helps online inventory management and also allows the manufacturer to organise production planning and distribution management.

Organisations like A C Neilson have come up with Decision Support Services Systems which help in sophisticated multi-dimensional reporting, data navigation, analytical modeling, graphical presentations and expert system tools. Also issues like shoplifting have been address to with introduction of sensors and tags.

Human Resource

The HR function in all service sector organizations like Retailing is one of the pillars of success. Proper Man power planning, Recruitment, Motivation and Retention would be essential to maintain operational smoothness and consistent service to the customers.

Realizing the need gap existing in this area, major educational institutions are today designing and offering specialized courses in retail management. Also a lot of management Institutes have retailing as a full credit course.

The Macro Benefit

The contribution of a well developed retail industry, to its economy, could be manifold; firstly it will help in releasing for productive usage large area of lands lying ideal in prime location with governmental and non-governmental agencies. Secondly, if we look at any major tourists' city in the world it has a well-developed shopping environment; hence it is obvious that organised retailing would help significantly in promoting our cities as tourist destinations.
 

Prof. Shravan Rungta
B.Com, MMS, PGDEM, NET
Faculty - Advertising
N L Dalmia Institute of Management Studies and Research.
Mumbai
9820572046
E-mail : facultyshravan@yahoo.co.in
 

Source : E-mail May 6, 2004

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