In this research paper, we take a peek into the organized retail sector of India. It started making its presence felt nearly a decade after the first lot of entrepreneurs set up shop. A brief introduction and evolution shows how the organized retailing changed its gears over the period from Panwala dhukan to chain stores across the length and breadth of India. The market size and related details gives a statistical view of increasing market in a few major areas of retailing. The major market players who enlivened the present caricature of retail sector are presented briefly along with statistics. The changing scenarios of Indian consumers give a proof to the potential opportunity in the retailing arena. SWOT and its subheads take you to the crux of analysis into retail industry. Out of which we formulated the future prospects. One major lifesaver of the Indian retailing is the advertising and promotional strategies; which comes out with innovative ways to win consumers over and keep them permanently happy. FDI in retail has been contentious issue and may face resistance, given the perceived political scenario. FDI will be a defining moment for Indian retail and how government policies effect the retail industry is given briefly to the end.
INTRODUCTION AND EVOLUTION
The word ‘Retailing’ refers to any activity that involves the direct sale to an individual customer or end user. Retailing has been the most active and attractive sector of the last decade. While the retailing industry itself has been present through out the history in our country, it is only the recent past that has witnessed so much dynamism. Retailing arena today is very different. It’s the latest bandwagon that has been witnessing hordes of players leaping onto it. While international retail store chains have caught the fancy of many travelers abroad, the action was missing from the Indian business scene, at least till recently.
The emergence of organized retailing in India has more to do with the increasing purchasing power of buyers, specially post liberalization, increase in product variety, and the increasing economics of scale, with the aid of modern supply and distribution management solutions.
The current retailing revolution has been provided impetus from multiple sources. These revolutionaries include many:
- Conventional stores upgrading themselves to modern retailing.
- Companies in competitive environments entering the market directly to ensure exclusive visibility for their products.
- Professional chain stores coming up to meet the need of the manufacturers who do not fall into either of the above categories.
- Attractiveness, accessibility and affordability seem to be the key offerings of the retailing chain.
In our presentation, we shall be restricting ourselves to the Organized Retailing Sector. Organized retailing mainly comprises of Malls, Branded Stores, Specialty Stores, Departmental Stores, and Discount Stores etc.
The world first saw the emergence of retailing in the pre 1850s when the Yankee Peddlers, Bartering, Trading Posts and General stores were in place. The first departmental store was established in 1851 by the name of F & R Lazarus Company in the U.S. Between 1860 and 1910, chain stores and early general stores dominated the scene. In 1932, the first super market was established in New Jersey (Big Bear).
In India the retail market is as old as in the global context. However, the concept organized retailing is comparatively new. Retailing has been one of the prominent driving forces in business in India. Traditionally it has been dominated to a large extent by the unorganized sector. But the growth of the organized sector has been steadily increasing especially after liberalization of the Indian economy. The process started with the establishment of the Shopper’s Stop outlet at Andheri, Mumbai in 1991.Then, other organized retailing stores like Kids Kemp, Crossroads, RPG’s Music world, Pyramids etc followed the trend.
The change that organized retail has brought about is evident from how it has transformed the neighborhood grocery or ‘kirana’ store. Gone are the dust-coated shelves and cluttered displays and in place are neat rows of the latest products and spruced up appearance and attentive staff. Organized retail accounts for merely 2% of total retail market. The pace of development is, of course, still below the desired level but the phased growth has been strong enough to ensure that retail does not go the way some of the other ‘sunrise’ industries did following over-investment.
While big retailers like Shopper’s Stop, Pantaloon, Subhishka, Food World do get some preferential treatment from large suppliers the relationship between the tow is tense to say the least. Retailers need to get the customer to spend more at their outlets before they can turn the tables on manufacturers. With mere 2% share there is precious little that organized retailing can do to get better terms from manufacturers. International retailers too have evinced interest in India’s retail market. The latest entry is that of supermarket giant from South Africa, tied up with mall developer Nirmal Lifestyle in Mulund.
MORE ARE BETTER OFF
Indian consumer markets
Structure of Indian consumer market (2001-2002)
Annual income (Rs) Classification Number of house holds (in millions)
URBAN RURAL TOTAL
<16,000 Destitutes 5.3 27.7 33.0
16,000-22,000 Aspirants 7.1 36.9 44.0
22,001-45,000 Climbers 16.8 37.3 54.1
45,001-215,000 Consumers 16.6 15.9 32.5
>215,000 The rich 0.8 0.4FF 1.2
Total no. Of households 46.6 118.2 164.8
Source: ORG-Marg, ETIG Estimates
2001-02 2007 CAGR (%)
Large Segments 8,850 23,109 21
Other Segments 6,050 12,169 15
Non-store Retailing 1,100 1,939 12
Total Organized Retail 16,000 37,216 18
3 Large Segments
Chain Stores 1,500 6,726 35
Single Large Stores & others 300 746 20
1800 7,473 33
Manufacturing Retailers 1,350 2,715 15
Chain Stores 1,450 3,919 22
Single Large Stores & others 2,150 3,789 12
4,950 10,423 16
Manufacturer Retailers 650 1,307 15
Chain Stores 450 1,373 25
Single Large Stores 550 1,106 15
1,650 3,787 18
Source: ORG-Marg, ETIG Estimates
ETIG has estimated the size of the organized retail industry at about Rs 16,000 crore in 2001-02.
Food retailing has shown very rapid growth compared to other sectors. This sector has doubled during the last two years and is expected to grow to more than 30 percent in the next five years. No major national players has emerged in this industry yet and south still remains home to three of the largest players in the industry – Food world, subhiksha and Margin free.
Apparel retailing takes a major share of Pie. This will be driven by more sales through multi-brand outlets (MBO’s) and popularity of private labels. One shop selling also saves time.
Consumer durables is still in fragmented state. However large format stores are appealing to people. In the south, organized retail has a strong foothold. Vijay Sales and Akbarallys are the main players in Mumbai. A new trend has been sale of BigBazaar. Shoppers Stop too has added consumer durables to its portfolio in certain outlets. Raymond the clothing major has announced a proposed investment of Rs15 crores in a venture that will undertake consumer durables retailing. These developments may mark the beginning of a new era in consumer durables retailing but only time will tell if organized retail can capture a larger share of the durable retailing market. Manufacturer retailer stores form the largest category followed by chain stores. Single large stores will continue to be the key players though their growth rates may not be as high.
The following is the list of major players in major cities in India:
MAJOR PLAYERS & THEIR MARKET SHARE (2001-2002)
No of Stores Turn over (Rs Cr) Sales(Rs. Cr)
Shoppers Stop 13 256 6,250
Crossword 13 35 7,807
Globus 3 57 7,000
Pantaloon 13 149 10,000
Westside 7 93 6,786
Piramyd 2 55 11,000
Kbn 1 22 10,950
Apna bazaar 75 126 11,111
Ebony+Wordsworth 10 109 8,462
Wills Sport 29 38 6,333
Sabka bazaar 5 16 8,000
LifeStyle 3 76 6,522
Subhiksha 112 201 16,000
Jainsons 17 57 6,588
Food world 275 363 10,286
Big Bazaar 3 67 12,500
Dev’s Super market 1 14 14,000
Adani Ravji 6 16 10,000
Changing consumer behaviour:
- More discerning & demanding lifestyle
- Indian household income is on the rise (Ref)
- Lavish life style
- More priority to eating out (ref)
- Changing priorities for consumer durables goods as per ages (Ref)
- Youth is emerging as a core target customer for ‘Look good feel good’
Top Six Categories
Preference 1999 2000 2001
- Grocery Grocery Grocery
- Eating out Eating out Eating out
- Personal care Books & Music Personal care
- Consumer durables Personal care Books & Music
- Clothing Clothing Consumer durables
- Books & Music Consumer durables Clothing
Source: KSA Consumer Outlook 2002
This change in purchasing power of consumer and most welcoming trends in buying behavior of consumer gave several cues to existing retailers regarding promotional activities. The potential opportunity in the retail sector can be evident from the shift in the figures over years (Ref)
SPENDING ACROSS MAJOR SEGMENTS
1999 2001 2002
Grocery 47.8 48.0 42.1
Personal Care items 7.5 7.1 8.8
Home appliances 0.7 2.0 5
Savings & investments 6.1 6.4 5.2
Clothing 6.5 4.7 10.5
Consumer/durables 4.8 5.5 5
* Figures indicated in the tables are in percentages.
The Strength-Weakness-Opportunities-Threat analysis of the Retail industry can be done as follows:
1) Eliminates links in the purchasing chain (direct manufacturer-retailer-customer chain).
2) Technology driven (hence less error prone)
3) Consultative selling
4) Presence of big industry houses (Tatas, Rahejas etc.) which can absorb loses.
5) Consumer service.
6) Variety of products under one roof.
7) Authentic products with Guarantee (some cases)
8) Pleasant shopping ambience.
9) Research driven plus competent manpower.
1) Lowest per capita space in the world with 2 sq.ft/1000 (congestion)
2) Prices more as compared to specialized shops (in India).
3) Reluctance of people (Middle and lower class)
4) Non-availability of huge land spaces at prime slots (especially in the metros)
5) High overhead and labor costs.
1) Lifestyle changes or status consciousness (NRS Survey)
2) Ready availability of real estate in smaller towns.
3) Improved sourcing options.
4) Increasing time pressure for Indian woman.
5) Focus on more quality, variety and easy availability under one roof.
6) Increase in disposable income (NRS Survey)
7) Feel and touch shopping.
8) No foreign competition.
9) Increasing media exposure to brand.
1) Roadside bargains.
2) Other retail outlets (organized and unorganized)
3) Personal and homely attention at smaller Shops
4) Availability of credit at other retail (unorganized) outlets.
5) Competition from unorganized sector.
6) Government policies.
· Paucity of expert management and trained staff.
· Ban on FDI.
· Political considerations.
· Lack of recognization of importance of retailing as a driver of economic growth.
· High cost of real estate at ‘hot locations’.
· Complex regulatory regime.
· Population with diverse cultural background.
· Fragmented makeup of the consuming market, complex geographical &culture structure.
· Poor infrastructural linkages.
Ease of Entry and Exit by players
· Complex business that requires substantial skills in areas like logistics
· 2P’s-Property and Personnel are the biggest problems to venture into retailing, since huge area (approx. 1,00,000 square feet) is required for setting up a high-class retailing outlet. Also there’s a dearth of skilled personnel in retailing since it is still thought of a low-class, low paying jobs.
· Huge marketing required after setting up an organized retailing shop (full-line stores) since competition is with local retailers (unorganized) who are well acquainted with local needs.
· Huge infrastructure required for setting up an organized retailing shop (Power, logistics systems etc.)
GROWTH DRIVERS FOR RETAILING SECTOR
Organized retailing is spreading and making its present felt in different parts of the country. Several growth drivers are responsible for this boom of retail industry.
There has been an increase in the presence of MNCs. The industrial boom has led to the emergence of new residential areas with aggregation of professionals as well as rapid increase in the number of ‘double-income’ households and growth of the rich/upper middle class with increased purchasing power. This has been combined with the increasing need for touch and feel shopping, especially for the large migrant population. All these factors have together acted favorably in nurturing the industry.
One of the main influences in the growth of retail industry is the consumer pull. In fact this seems to be the most important driving factor behind the sustenance of the industry.
With the increase in double-income households, working women, there is an increasing pressure on time with very little time available for leisure. So under these circumstances people are preferring the convenience of one stop shopping. They are also seeking speed and efficiency in processing, as a result.
Being more aware, consumers are on the lookout for more information, better quality, hygiene and as well as increased customer service. These changes in consumer behavior also augur well for the retail industry.
ADVERTISING & PROMOTIONAL STRATEGIES
Retail, today is a combination of revolution and evolution. The retail industry will continue to evolve and change. With increasing interest in non-store retailing (catalogue shopping, online shopping, home delivery), companies will have to redefine and plan new shopping environments that make shopping experience as enjoyable as possible. While unique displays add flavor to the store’s interior, merchandising displays help the customer learn about a product and to promote an impulse purchase. The present study further confirms that displays play a very significant role in increasing sales.
Successful retailers today have found that they can dramatically increase their sales by merchandising items in a way that creates good impression. The term merchandising can be defined as “the promotion of a product by developing strategies for packaging and displaying it”. Effective merchandising can help generate more customer traffic, amplify repeat business, increase no of customers who make purchases and increase the size of the purchases that take place- all leading to increase sales. In-store merchandising is no longer a commodities-driven method of organizing a product at retail, but rather the last three feet of any comprehensive and integrated marketing plan. Merchandising plays a crucial role in leveraging brands, since it talks to the consumer when money, product and willingness to buy converge at the retail outlet. The KSA consumer outlook study (2000) in India established that 75% of consumers look out for attractive display in a store. The other important attributes were
Satisfaction with stores
Attributes % Of respondents looking out for this attribute in a retail outlet.
Polite & courteous sales people 86.1
Quality of products 85.9
Non-intrusive sales people 76.2
Value for money 75.1
Attractive displays 75.0
Range of products 65.8
Schemes & promotions 48.8
Exchange/ return policy 44.1
A trial room 32.0
Acceptance of credit cards 25.1
An entertainment center for children 10.0
The price is the most important influencer. It is almost doubly important than retailer suggestion (push). There is a very thin line between schemes and brand name. This means even a new brand backed by good schemes and reasonable price can find favor with the customer. Also providing incentives to the retailer to push the brand may not be a sound strategy after all. Displays scored better than retailer suggestion. This implies eye-catching displays can do wonders to brand sales.
Key success factors for a display are:
- Sales force must be aware of the objective of the display and the retailer must share the same.
The retail outlet must fit the profile for the display strategy.
- All key elements of design and merchandising must be coordinated to get the right effect.
- Sales force must scan the surrounding environment to gauge the effect of climate as well as competition on proposed place of display.
- The height of display must be such that it meets the eye level of customer.
Above all displays must be eye catching. Hence some time must be spent to maintain the display on repeat visits by sales force.
Currently, domestic discount formats within the organized retail market include The Home Stores’ Sabka Bazaar, Giant, Big Bazaar and the Tirupati Group-owned Hum Sabka Dilli Bazaar and each of them is bang on course. Mr. Sanjeev Kapoor, Managing Director of the recently-set-up Dilli Bazaar, for example, intends to sell FMCG products at anywhere between 3-30 per cent below MRP. Offering flat rates on specific days is also becoming common at discount stores such as these. According to Mr Kapoor, “Bulk buying directly from the company cuts down on the distribution and dealer margins significantly, which makes such discounting possible.”
In order to survive in today’s tough retail climate, companies must continually innovate in ways to create stronger, more direct links with their customers. At the same time retailers must focus on the most demanding customers who want customization, value and service. New store designs must assault the consumer’s sense of sight, sound, Taste, touch and smell-preferably all at the same time. In this environment, merchandising and esp. displays is more important than ever, as being top-of-mind will keep the brand growing.
Impact of retail sector in India:
In India, the retail sector is the second largest employer after agriculture. The retail industry in India is estimated to employ about 10% of the total labor force. The retail industry in India is enjoying boom time and job opportunities in retailing have been increasing. In fact, retailing has emerged as a new stream of management curriculum, providing new areas of employment. The retailing sector in India is highly fragmented and predominantly consists of small independent, owner-managed shops.
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.
- Consumer response to supermarkets has been moderate because most do not have access to transportation to a supermarket and are still in the habit of buying fresh produce daily from local stores. This is mostly due to the proximity to homes and personal service of local stores. Self-serve supermarkets are a more recent phenomenon in India. These self-service stores stock a wide range of groceries, snacks, processed foods, confectionery items, and cleaning and personal care products.
- Many shoppers also have the perception that prices are higher at supermarkets because they are large, brightly lit, and air-conditioned. Higher-income consumers focus more on convenience and quality.
- In urban India, families are experiencing growth in income and dearth of time. More and more women are also turning to corporate jobs, which is adding to the family income but making lifestyles extremely busy. Rising incomes has led to increasing demand for better quality products while lack of time has led a demand for convenience and service.
Government of India (or for that matter, any of the State Governments) do not even consider this sector worthy of being deemed as an industry status or to formulate any strategy or directive to support or nurture it. Foreign Direct Investment (FDI) in the retailing sector is not permitted yet, in order to protect the interests of the small retailers. There is a strong lobby of small traders that has been vocal on the issue of not permitting FDI into retail. The lobby is based on the premise that modern retail will impact the livelihood of millions of small family-run businesses. Since 1997, the government has barred foreign participation in the retail sector, except for the cash-and-carry wholesale route where wholesalers cannot open retail shops to sell to consumers directly, 100 percent foreign ownership is permitted, and for franchising. However, the Commerce Department is considering a proposal to allow 100% FDI in department stores and 5-star shopping arcades, as these would not compete with small retailers.
Major Regulations and Licenses Required:
- Shop and establishment license
- NOC from Fire Brigade regarding fire safety norms
- Conforming to Labour Laws
- License for fabrics, yarn and other inflammables like cosmetics
The task lying ahead of Indian retail is an onerous one. After grappling against the wild tides of the past decade, a few perseverant players have evolved into mature players and are confident of the way ahead. Plenty of opportunity exists and the formidable task is to tap this opportunity, in a unique country like India.
The huge potential can be tapped if the following three aspects are stressed:
- What does it take to make a customer walk into your store and buy products
- How many such outlets can we open across the country to achieve national status and more importantly economies of scale.
- There should be a clear-cut vision and perseverance to dig in their heels and wait for the returns that will kick in only a few years later.
The retail industry in India is witnessing a high level of organized business activity CRM, supply chain management, visual merchandising & customer loyalty programs are now buzzwords in the industry. No where is this transformation more evident than in the organized retail segment for apparel and lifestyle products which is expected to grow at more than 25% to reach Rs12850 crores by 2005.
Retail may soon see FDI coming in.
After an initial set back, the Indian retailers are now coping up in a phased manner. The backend & front end are equally geared up. The key players in the market have learnt to live up with the existing problems and find innovative solution to work around them and the day is not far-off when organized retailing becomes the primary way of selling.
· The size of the industry is estimated at 16,000 crore and is growing at the rate of 18-20 percent per annum. ETIG (Economic times estimate guide) estimates that the retailing industry will cross the 37,000 crore sales mark by the year 2007 and could even exceed this level if the flow of investment in the sector accelerate.
· Departmental stores are coming up in most cities and many more are planned to be opening in the coming years.
· An increase in purchasing power (NRS survey) of the urban population is leading to a higher demand for better lifestyle which is leading to a need for better shopping ambience, superior quality products and improved service. All these factors form the basis for organized retailing.
· With the advent of modern technology, Indian retailers have been spending more on setting up IT systems, which augurs well for the retail industry.
· If FDI is allowed into organized retail, it will be a defining moment into Indian retail as it will allow more foreign players into organized retail, which will lead to increased competition and hence improvement in performance and quality.
Indian retailing is currently largely urban and based on models emulated from the US. What is missing is a clear connection to Indian realities. There is a huge untapped potential in the rural market for retailing. India’s rural market stated as a percentage of world population is 12.2 percent. Rural households in India form about 72 percent of the total households- a huge market. Even the current consumption of certain durables and non- durables by rural customers is more than that of urban consumers. Also literacy rates in villages have increased considerably, thus bringing about a shift in consumer tastes.
The Hariyali Kisan Bazar (HKB), initiated by the Delhi-based DCM Shriram Consolidated Ltd, is one model catering to retailing in rural areas. It is located at a place close to Shahjahanpur, 167km from Lucknow. It is a retail store that specifically caters to rural people. It has targeted the farmers supplying sugarcane to the sugar mill next door as the main customer. In addition to providing functional products, it also provides farmers with certain other value added services like computerized transactions, touch-screen info kiosk, technical advisory services. Thus, whoever would follow their footsteps and go for retailing in the rural areas stand to gain a lot.
The time to shift the gears and accelerate the pace of retail development has arrived and it is up to retailers and potential investors to get their show on the roads. Some retailers are doing this and have massive expansion plans in place. WE NEED MORE LIKE THEM.
PROFILE OF SOME MAJOR MARKET PLAYERS
Shoppers Stop, a K. Raheja Group company, started its operations in 1991 with a mega retail store in Andheri, Mumbai. It is one of the major retailers in India with 13 stores across the country out of which 5 are operational in Mumbai. Its main area of business consists of apparel and accessories. One of the executives of Shoppers Stop Mr. Rajesh Shetty, Department Manager of Chembur outlet provided valuable information about the organization.
- Big Bazaar
It is has been its strategy to target “higher income group” consumers. Although it has been quite a smaller group in India but they target the entire share of the consumer’s wallet.
The USP of Shoppers Stop is customer service. It focuses on customer loyalty and tries to promote shopping as an experience. Shoppers Stop boasts of being Third in the country in terms of loyal customer base with 3.5 lac customers to its credit. As it is, 60% of its sales are through loyalty programme called First Citizen Club.
Shoppers Stop generally recruits undergraduates for its floor operations. Like any other retail business they also suffer from higher attrition rate. It organizes meets and get-togethers for its employees.
Shoppers Stop strategy about future expansion is that it intends to exploit the cosmopolitan cities in India to the fullest. In the next phase it would be expanding to the other major Indian cities. Keeping this objective in mind it is planning to increase its store line from 13 to 38 in the next year. In addition, it also plans to open its outlet in Dubai.
Beginning with its initial offering of Wills Sport premium relaxed wear from the first store at South Extension, New Delhi in July 2000, ITC has in a short span of time expanded its basket of offerings to the formal segment with Wills Classic formal wear and to the social evening segment with Wills Clublife, evening wear. There are currently 48 stores in 38 cities across the length and breadth of the country and these have established themselves as preferred shopping destinations in the prime shopping districts. At the Images Fashion Awards 2001, ‘Wills Lifestyle’ was declared “Most Admired Exclusive Retail Chain of the year”. Wills Classic formal wear, launched in November 2002, is positioned as the brand for New Age Leaders, who encourage teamwork, innovation and enterprise, breaking the shackles of hierarchy and domination. ITC launched Wills Clublife in May 2003 in the growing eveningwear segment, thereby strengthening its portfolio in the premium segment. ITC launched its brand of men’s apparel in the popular segment, ‘John Players’, in December 2002.
Introduction: Trent Ltd.’s Westside stores promise customers an international shopping experience and value-for-money. High quality, contemporary designs and a plethora of products have been successfully balanced to create the ultimate shopping experience.
Location: What began as just one store at Bangalore has now expanded to other cities, such as Mumbai, Hyderabad, Chennai, New Delhi, Pune, Kolkata, Nagpur and Ahmedabad. The Westside stores have several departments to meet the varied shopping needs of customers. These include the menswear, womenswear, lingerie, kidswear, household accessories, cosmetics and perfumes sections. Complementing the shopping ambience is a coffee shop, Cafй West, managed by the Taj Group.
Strategy: Trent has primarily focused on garments and accessories. It has decided to build in-store brands rather than stock established brands. This would be beneficial for the company over long term, as margins earned on own brands will be higher.
Customer Policy: Trent has positioned its products in the value for money segment by offering premium quality products at affordable prices. The company proposes to start 12 stores all over the country in the next 2 years.
The company’s business can be categorized into two divisions, namely, Apparels division and other products division. During FY 2000 the company’s apparels division contributed 98% of the total sales of Rs336mn. (of the total turnover of Rs495mn Rs336 came from sales of goods and rest form income from current investments) rest 2% came from other products division. During the year FY00 the company sold 1.23mn units of apparels at an average realization of Rs267 per unit. The realizations increased by 26% over that of previous year. During the year of the total sales 85.4% were finished goods purchases and rest was in-house manufacturing.