Retail Industry


By

Tamoghna DasSharma
Student
Globsyn Business School
 


Executive Summary

Retailing is emerging as a sunrise industry in India and is presently the largest employer after agriculture. In the year 2004, the size of Indian organized retail industry was Rs 28,000 Crore, which was only 3% of the total retailing market. Retailing in its present form started in the latter half of 20th Century in USA and Europe and today constitutes 20% of US GDP. It is the 3rd largest employer segment in USA. Organized retailing in India is projected to grow at the rate of 25%-30% p.a. and is estimated to reach an astounding Rs 1,00,000 Crore by 2010. The contribution of organized retail is expected to rise from 3% to 9% by the end of the decade. The projection for the current year ie 2005 is Rs 35,000 Crore. In India it has been found out that the top 6 cities contribute for 66% of total organized retailing. With the metros already been exploited, the focus has now been shifted towards the tier-II cities**. The 'retail boom', 85% of which has so far been concentrated in the metros is beginning to percolate down to these smaller cities and towns. The contribution of these tier-II cities to total organized retailing sales is expected to grow to 20-25%. In the year 2004, Rs 28,000 Crore organized retail industry had Clothing, Textiles & fashion accessories as the highest contributor (39%), where as health & beauty had a contribution of 2%. Food & Grocery contributed to 18% whereas Pharma had a contribution of 2%.

** Tier-II cities: Surat, Lucknow, Dehradun, Vijaywada, Bhopal, Indore, Bhubasehwar, Varanasi to name a few.

Introduction

Retailing includes all activities involved in selling goods or services directly to final consumers for personal, non-business use. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing.

Any organization selling to final consumers – whether a manufacturer, wholesaler or retailer- is doing retailing. It does not matter how the goods or services are sold (by person, mail, telephone, vending machine or internet) or where they are sold (in store, on the street, or in consumer's home).

There are 3 types of retailers:

1. Store retailer
2. Non Store retailer
3. Retail Organization

From the assortment point of view, Store retailers* are of 5 types:

1. Specialty Store
2. Departmental Store
3. Super market
4. Convenience Store
5. Discount Store

* = Definition of the store retailer types is provided in the glossary.

From customers service point of view:

1. Self-service retailing: Many customers are willing to carry out their own locate-compare-select process to save money.

2. Self-selection retailing : Customers find their own goods, although they can ask for assistance.

3. Limited service retailing: These retailers carry more shopping goods, and customers need more information and assistance. The stores also offers services such as credit & merchandise-return privileges.

4. Full service retailing: Salespeople are ready to assist in every phase of the locate-compare-select process.

Although majority of goods & services is sold through stores, non-store retailing has been growing much faster than store retailing.

Major non-store retailer types:

1. Direct Selling: It deals with door-to-door or at home sale parties i.e. it involves one-to-one or one-to-many selling.
Example > Eureka Forbes, Amway, Mary Kay Cosmetics.

2. Automatic Vending: Example > ATM

3. Buying services: Is a store less retailer serving a specific clientele-usually employees of large organizations-who are entitled to buy from a list of retailers who have agreed to give them discounts in return for membership.
Example > Amazon.com

4. Direct marketing: It involves direct response marketing. The different forms of direct marketing are: Direct mail, catalog marketing, telemarketing, television direct response marketing and electronic shopping.
Example: Dell Computers

Retail Organization mainly falls into 4 major categories:

1. Corporate chains: Example > Pantaloons, Westside
2. Retail Co-operative: Example > Amul, Samavaika, Khadi Gram Yudog
3. Consumer Co-operative: Example > Apna Bazar
4. Franchise Organization: Example > Monginis, Café Coffee day.

Global Scenario

Retail stores constitute 20% of US GDP & is the 3 rd largest employer segment in USA.
China on the other hand has attracted several global retailers in recent times. Retail sector employs 7% of the population in China. Major retailers like Wal-Mart & Carrefour have already entered the Chinese market. In the year 2003, Wal-Mart & Carrefour had sales of US $ 70.4 Crore & US $ 160 Crore respectively.

The global retail industry has traveled a long way from a small beginning to an industry where the world wide retail sales is valued at $ 7 x 10 5 Crore. The top 200 retailers alone accounts for 30 % of the worldwide demand. Retail turnover in the EU is approximately Euros 2,00,000 Crore and the sector average growth is showing an upward pattern. The Asian economies (excluding Japan) are expected to grow at 6% consistently till 2005-06.

On the global Retail stage, little has remained same over the last decade. One of the few similarities with today is that Wal-Mart was ranked the top retailer in the world then & it still holds that distinction. Other than Wal-Mart's dominance, there's a little about today's environment that looks like the mid-1990s. The global economy has changed, consumer demand has shifted & retailers' operating systems today are infused with far more technology than was the case six years ago. 

Given below a list of World's top 15 retailers:

DT Rank 04

Country of Origin

Company name

Formats

2003 retail sales            (US $ Crore)

1

US

Wal-Mart

Discount, Hypermarket, Supermarket, Superstore, Warehouse

25,632.9

2

France

Carrefour

Discount, Hypermarket, Supermarket, Specialty, Convenience, Cash & Carry

7,979.6

3

US

Home Depot

DIY

6,481.6

4

Germany

Metro

Hypermarket, Superstore, Specialty, Convenience, Cash & Carry, Departmental, DIY, Food Service

6,050.3

5

US

Kroger

Discount, Convenience, Supermarket, Super center, Warehouse, Specialty

5,379.1

6

UK

Tesco

Department, Hypermarket, Supermarket, Superstore, Convenience

5,153.5

7

US

Target

Department, Discount, Super center

4,678.1

8

Netherlands

Ahold

Discount, Hypermarket, Supermarket, Specialty, Convenience, Cash & Carry, Drug

4,458.4

9

US

Costco

Warehouse

4,169.3

10

Germany

Aldi Einkauf

Discount, Supermarket

4,006.0 e

11

Germany

Rewe

Hypermarket, Superstore, Super market, Specialty, Convenience, Cash & Carry, Departmental, DIY, Food Service, Discount, Drug

3,893.1e

12

France

Intermarche

Superstore, Super market, Specialty, Convenience, Cash & Carry, DIY, Food Service, Discount

3,747.2e

13

US

Sears

Department, mail order, Specialty

3,637.2

14

US

Safeway, Inc.

Supermarket

3,555.3

15

US

Albertsons

Convenience, Drug, Supermarket

3,543.6


                                                                                                      
e= estimate.

Indian Scenario

Retailing in India is the largest employer after agriculture. It employs almost 7% of the total work force in India and has a contribution of 14% to the national GDP. In the year 2004 , the size of Indian organized retail industry was Rs 28000 Crore, which was only 3% of the total retailing market. Organized retailing is projected to grow at the rate of 25%-30% p.a. and is estimated to reach an astounding Rs 1,00,000 Crore by 2010. The contribution of organized retail is expected to rise from 3% to 9% by the end of the decade. The projection for the year 2005 is Rs 35000 Crore.

Though with a population of a billion and a middle class of 300 million (upper middle class= 40, Middle class =150 & lower middle class = 110), organized retailing is still at its infancy in India. The great Indian middle class is estimated to grow to over 60 Crore by 2010 making India one of the largest consumer markets of the world. It is projected that by the year 2010, 65% of the Indian population will be in the age group of 10-49 years, which makes the scenario even more attractive. India has the largest retail network with 1.2 Crore outlets but only 4% of them are larger than 500 sq. feet in size. USA on the other hand has 9 Lakh outlets catering to more than 13 times the total retail market size of India. Thus India has the highest number of outlets per capita in the world with a widely spread retail network but with the lowest per capita retail space (@ 2 sq.ft. per person). AT Kearney has ranked India as the 2nd most attractive retail market after Russia, in its Global Retail Development Index 2004 report.

Retailing, one of the largest sectors in the global economy, is going through a transition phase in India. For a long time, the corner grocery store was the only choice available to the consumer, especially in the urban areas. This is slowly giving way to international formats of retailing.

Let us look at the evolution process:


Detailing reasons why Indian organized retail is at the brink of revolution, the IMAGES-KSA report says that the last few years have seen rapid transformation in many areas and the setting of scalable and profitable retail models across categories. Indian consumers are rapidly evolving and accepting modern formats overwhelmingly. Retail Space is no more a constraint for growth. India is on the radar of Global Retailers and suppliers / brands worldwide are willing to partner with retailers here. Further, large Indian corporate groups like Tata, Reliance, Raheja, ITC, Bombay Dyeing, Murugappa & Piramal Groups etc and also foreign investors and private equity players are firming up plans to identify investment opportunities in the Indian retail sector. The quantum of investments is likely to skyrocket as the inherent attractiveness of the segment lures more and more investors to earn large profits. Investments into the sector are estimated at    INR 2000 - 2500 Crore in the next 2-3 years, and over INR 20,000 Crore by end of 2010.

Few of India's top retailers are:

1. Big Bazaar-Pantaloons: Big Bazaar, a division of Pantaloon Retail (India) Ltd is already India's biggest retailer. In the year 2003-04, it had revenue of Rs 658.31 crores & by 2010; it is targeting revenue of Rs 8,800 Crore.

2. Food World : Food World in India is an alliance between the RPG group in India with Dairy Farm International of the Jardine Matheson Group.

3. Trinethra : It is a supermarket chain that has predominant presence in the southern state of Andhra Pradesh. Their turnover was Rs 78.8 Crore for the year 2002-03.

4. Apna Bazaar : It is a Rs 140-crore consumer co-operative society with a customer base of over 12 lakh, plans to cater to an upwardly mobile urban population.

5. Margin Free : It is a Kerala based discount store, which is uniformly spread across 240 Margin Free franchisees in Kerala, Tamil Nadu and Karnataka.

Wholesale trading is another area, which has potential for rapid growth. German giant Metro AG and South African Shoprite Holdings have already made headway in this segment by setting up stores selling merchandise on a wholesale basis in Bangalore and Mumbai respectively. These new-format cash-and-carry stores attract large volumes from a sizeable number of retailers who do not have to maintain relationships with multiple suppliers for all their needs.

SWOT Analysis

A SWOT analysis of the Indian organized retail industry is presented below:

Strength:

1. Retailing is a " technology-intensive" industry. It is technology that will help the organized retailers to score over the unorganized retailers. Successful organized retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and ultimately save cost. Example: Wal-Mart pioneered the concept of building competitive advantage through distribution & information systems in the retailing industry. They introduced two innovative logistics techniques – cross-docking and EDI (electronic data interchange).

2. On an average a super market stocks up to 5000 SKU's against a few hundreds stocked with an average unorganized retailer.

Weakness

1. Less Conversion level : Despite high footfalls, the conversion ratio has been very low in the retail outlets in a mall as compared to the standalone counter parts. It is seen that actual conversions of footfall into sales for a mall outlet is approximately 20-25%. On the other hand, a high street store of retail chain has an average conversion of about 50-60%. As a result, a stand-alone store has a ROI (return on investment) of 25-30%; in contrast the retail majors are experiencing a ROI of 8-10%.

2. Customer Loyalty: Retail chains are yet to settle down with the proper merchandise mix for the mall outlets. Since the stand-alone outlets were established long time back, so they have stabilized in terms of footfalls & merchandise mix and thus have a higher customer loyalty base.

Opportunity

1. The Indian middle class is already 30 Crore & is projected to grow to over          60 Crore by 2010 making India one of the largest consumer markets of the world. The IMAGES-KSA projections indicate that by 2015, India will have over 55 Crore people under the age of 20 - reflecting the enormous opportunities possible in the kids and teens retailing segment.

2. Organized retail is only 3% of the total retailing market in India. It is estimated to grow at the rate of 25-30% p.a. and reach INR 1,00,000 Crore by 2010.

3. Percolating down : In India it has been found out that the top 6 cities contribute for 66% of total organized retailing. While the metros have already been exploited, the focus has now been shifted towards the tier-II cities. The 'retail boom', 85% of which has so far been concentrated in the metros is beginning to percolate down to these smaller cities and towns. The contribution of these tier-II cities to total organized retailing sales is expected to grow to 20-25%.

4. Rural Retailing: India's huge rural population has caught the eye of the retailers looking for new areas of growth. ITC launched India's first rural mall "Chaupal Saga" offering a diverse range of products from FMCG to electronic goods to automobiles, attempting to provide farmers a one-stop destination for all their needs." Hariyali Bazar" is started by DCM Sriram group which provides farm related inputs & services. The Godrej group has launched the concept of 'agri-stores' named "Adhaar" which offers agricultural products such as fertilizers & animal feed along with the required knowledge for effective use of the same to the farmers. Pepsi on the other hand is experimenting with the farmers of Punjab for growing the right quality of tomato for its tomato purees & pastes.

Threat

1. If the unorganized retailers are put together, they are parallel to a large supermarket with no or little overheads, high degree of flexibility in merchandise, display, prices and turnover.

2. Shopping Culture: Shopping culture has not developed in India as yet. Even now malls are just a place to hang around with family and friends and largely confined to window-shopping.

Conclusion

To conclude, it can be said that though the global retail industry has reached its maturity, the Indian retail industry is still at its infancy. But with the huge potentiality existing in the Indian market, it is expected to grow in leaps and bounds in the near future.

Instead of comparing the total global retail industry with the Indian retail industry, lets compare Wal-Mart alone with the Indian retail industry & put forward few interesting facts:

1. Retail Sales of Wal-Mart for the year 2003 was US $ 25,632.9 Crore; higher than the size of Indian retail industry.

2. The size of any Wal-Mart store is much higher than the size of any existing shopping mall in India.

3. Wal-Mart has over 4,800 stores, which is unparallel to any of the India's large format store.

4. New stores opened annually by Wal-Mart are about 420, much higher than all organized Indian retailers put together.

5. The sales per hour of $2.2 Crore are incomparable to any retailer in the world.

6. Wal-Mart has around 30,000 suppliers throughout the world and more than 600,000 SKU's on its web site, a number that cannot be compared.

7. Daily customers are about 1.57 Crore (almost equivalent to Mumbai's entire population).

8. Time between each Barbie Sale at Wal-Mart is just two seconds (same rate at which babies are produced in India!)

Overall, it can be said that " Retail Industry" in India will emerge as one of the best 5 Business sectors in this decade.

Glossary

Specialty Store: Narrow product line with deep assortment, viz apparel stores, book stores etc. A clothing store would be a single line store, men's clothing store would be limited line store & men's custom-shirt store would be a super specialty store.
Example: The limited, The Body Shop.

Departmental Store: Several product lines-typically clothing, household goods, home furnishings- with each line operated as a separate department managed by specialist buyers or merchandisers.
Example: Sears, Bloomingdale's.

Supermarkets: Relatively large, low-cost, low-margin, high volume, self-service operation designed to serve total needs for food, laundry & household maintenance products.
Example: Kroger, Safeway.

Convenience Stores: Relatively small store located near residential area, open long hours, seven days a week and carrying a limited line of high-turnover convenience products at slightly higher prices.
Example: 7-Eleven, Circle K.

Discount Store: Standard merchandise sold at lower prices with lower margins and higher volumes. True discount stores regularly sell merchandise at lower prices and offer mostly national brands.
Example: Wal-Mart, Kmart.

Off-price retailer: Merchandise bought at less than regular wholesale prices & sold at less than retail; often-leftover goods, overruns and irregulars obtained at reduced prices from manufacturers or other retailers.

Factory outlets are owned and operated by manufacturers and normally carry the manufacturer's surplus, discontinued or irregular goods.
Example: Mikasa(dinnerware), Dexter (shoes)

Independent off-price retailers are owned & run by entrepreneurs or by divisions of larger retail corporations.
Example: T.J.Maxx, Filene's Basement.

Warehouse clubs (or wholesale clubs) sell a limited selection of brand name grocery items, appliances, clothing and other goods sold at deep discounts to members who pay an annual membership fees. Warehouse clubs serve small businesses & group members from government agencies, nonprofit organizations and some large corporations. They operate in huge, low-overhead, warehouse like facilities & offer few frills.They offer rock bottom prices- typically 20% to 40% below super market and discount stores prices but make no home deliveries and accept no credit cards.
Example: Sam's Clubs, Max Clubs.

Superstore: Averages 35,000 square feet of selling space traditionally aimed at meeting consumers' total needs for routinely purchased food and non food items. Usually offer services such as laundry, dry cleaning, shoe repair, check cashing & bill paying.

A new group called "category killers" carries a deep assortment in a particular category & a knowledgeable staff.
Example: Borders books & Music, IKEA.

Combination stores are a diversification of the supermarket store into the growing drug-and-prescription field. Combination food & drug stores average 55,000 square feet of selling space.
Example: Jewel & Osco stores.

Hypermarkets range between 80,000 and 220,000 square feet and combine supermarket, discount & warehouse retailing principles. Product assortment goes beyond routinely purchased goods & includes furniture, large & small appliances, clothing items and many other items. Bulk display & minimum handling by store personnel with discounts offered to customers who are willing to carry heavy appliances and furniture out of the store. Hypermarkets originated in France.
Example: Carrefour and Casino (France), Pyrca, Continente and Alcampo (Spain), Meijer's (Netherlands).
 


Tamoghna DasSharma
Student
Globsyn Business School
 

Source : E-mail October 10, 2006

 

     

 

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