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Retail Scope

The document provides an overview of the growth of the retail sector in India during 2009-2011 in the context of the global recession. It notes that organized retail makes up only 5% of the total retail sector in India. Several factors such as increasing incomes, urbanization, and global retailers entering the Indian market are expected to drive rapid growth in the organized retail sector during this period. The entry of large domestic companies and relaxation of regulations are also facilitating the expansion of retail formats across India. The retail sector is expected to become more competitive and attractive as new players enter the market and consumers increasingly adopt modern retail habits.

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ON SCOPE OF GROWTH IN RETAIL SECTOR DURING THE PERIOD 2009-2011 IN THE CONTEXT OF GLOBAL RECESSION 1
Executive Summary The phenomenon of organized retailing, in spite of its tremendous growth in the last 2-3 years in India has just seen the tip of the iceberg. As giants like Reliance, Bharti-Walmart and others enter the fray, the scenario is going to become more competitive and attractive. Under this backdrop, the fruits and vegetable sector (F&V) sector has a tremendous potential to take advantage of this development. Right now, with less than 1% of the produce being marketed in an organized way and an inefficient supply chain plaguing the system with losses and wastages, there is a need to evolve a frame-work or a model of retailing that configures an efficient supply chain to benefit the retailers, farmers and the customers alike. Demographics continue to show a positive report to spur retailing growth. Consumers aged 20- 45 years is emerging as the fastest growing consumer group and the mean age of Indians is now pegged at 27, a mean age that reinforces spending across all the retailing channels of grocery, non-grocery and non-store. The government stance of protecting local retailers and prohibiting 100% foreign direct investment in retailing continued in 2005, restraining international retailers' entry. However, there was gradual economic reform, giving way to easier and faster franchising agreements as well as the loosening of zonal regulations on retail expansion, thus stimulating retailing. Non-store retailing is expected to continue its fast-paced growth from a miniscule base. Across all channels, growth in retailing is expected to be boosted heightened competition during the period 2009-2011 due to the growing. 2
Acknowledgement I would like to express my heartfelt gratitude to Professor Mrs. KRITI SWARUP, MIM NOIDA for giving me this great opportunity to work on Scope of Growth in RETAIL SECTOR during the period 2009-2011 in the context of GLOBAL RECESSION under her able tutelage. I would like to thank her for her guidance during the project and taking out time for me from her busy schedule. This Final Project, 2009 as a part of PGDM Programme has given me an opportunity to gather data without visiting the organization. This has brought encouragement to complete the project. However with lot of dedication, concentration, hard work, support, guidance, & assistance of concerned people has made it possible to complete the project. PRIYANKA GUPTA PGDM IV SEMESTER 2007-2009 3
Table of Contents Introduction............................................................................................................................... 6 Retail Global Retail Industry Scenario of Retailing in India Retailers are facing numerous challenges PRESENT INDIAN SCENARIO Few of India's top retailers are INDIAN RETAIL IS MOVING INTO SECOND GEAR RETAIL FORMATS GROWTH STAGES IN INDIA THE EVOLUTION OF THE INDIAN CUSTOMER Trends in Present Retail Market…………………………………………………………20 New Product Categories Increasing competition in the retail market Increase in Private Labels Expanding to Tier II and III cities Foray into Retail Agri-Business Experimenting with formats Technology in Retail ………………………………………………………………………22 Customer Interfacing Systems Operation Support Systems Advanced Planning and Scheduling Systems Challenges in Retail Proposed Supply Chain Strategies for Retail Industry ………………………………….25 Supply Chain Strategies in Retail Competitive Areas of Importance Model in Detail Tips for Controlling Retail Inventory ……………….. …………………………………..27 Primary Data Inventory & Credit Operations (Using JETRMS Software) 7 P’s of Services …………………………………………………………………………...35 4
FUTURE TREND ………………………………………………………………………….38 SCOPE OF 24hr RETAILING Rural Vs Urban Retail Trends Urban Trends RAPID GROWTH Backdrop: then and now…………………………………………………………………...41 Changing retail scenario A glimpse into future Current changes Perspectives: food and grocery Recession ………………………………………………….………………………………… 45 What Causes Recession FDI IN RETAIL SEGMENTS OF INDIAN RETAIL FDI RESTRICTION FUTURE OUTLOOK AND CHALLENGES ………………………………………….… 52 Conclusion…………………………………………………………………………………...7 5 Recommendations………………………………………………………………………. ….77 References……………………………………………………………………………….….79 5
Introduction RETAIL he 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. T 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 are big business and better organized 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 organized 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, organized 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 organized retailing in India is a recent phenomenon and is concentrated in the top 20 urban towns and cities 6
The Reason This emergence of organized 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 drive to Brand and Experience driven, while the Value element still dominating the buying decisions. The Global Retail Industry Retail stores constitute 20% of US GDP & are 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. Scenario of Retailing in India Retailing is the most active and attractive sector of last decade. While the retailing industry itself has been present since ages in our country, it is only the recent past that it has witnessed so much dynamism. The emergence of retailing in India has more to do with the 7
increased purchasing power of buyers, especially post-liberalization, increase in product variety, and increase in economies of scale, with the aid of modern supply and distributions solution. Indian retailing today is at an interesting crossroads. The retail sales are at the highest point in history and new technologies are improving retail productivity. Though there are many opportunities to start a new retail business. Retailers are facing numerous challenges KEY CHALLENGES: 1) LOCATION: "Right Place, Right choice" Location is the most important ingredient for any business that relies on customers, and is typically the prime consideration in a customer’s store choice. Locations decisions are harder to change because retailers have to either make sustainable investments to buy and develop real estate or commit to long-term lease with developers. When formulating decision about where to locate, the retailer must refer to the strategic plan. * Investigate alternative trading areas. * Determine the type of desirable store location. * Evaluate alternative specific store sites. 2) MERCHANDISE: The primary goal of the most retailers is to sell the right kind of merchandise and nothing is more central to the strategic thrust of the retailing firm. Merchandising consists of activities involved in acquiring particular goods and services and making them available at a place, time and quantity that enable the retailer to reach its goals. Merchandising is perhaps, the 8
most important function for any retail organization, as it decides what finally goes on shelf of the store. 3) PRICING: Pricing is a crucial strategic variable due to its direct relationship with a firm's goal and its interaction with other retailing elements. The importance of pricing decisions is growing because today's customers are looking for good value when they buy merchandise and services. Price is the easiest and quickest variable to change. 4) TARGET AUDIENCE: - "Consumer the prime mover" "Consumer Pull", however, seems to be the most important driving factor behind the sustenance of the industry. The purchasing power of the customers has increased to a great extent, with the influencing the retail industry to a great extent, a variety of other factors also seem to fuel the retailing boom. 5) SCALE OF OPERATIONS: Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of business operations is very high in India. PRESENT INDIAN SCENARIO * Unorganized market: Rs. 583,000 crores * Organized market: Rs.5, 000 crores * 5X growth in organized retailing between 2000-2005 * Over 4,000 new modern Outlets in the last 3 years 9
* Over 5,000,000 sq. ft. of mall space under development * The top 3 modern retailers control over 750,000 sq. ft. of retail space * Over 400,000 shoppers walk through their doors every week * Growth in organized retailing on par with expectations and projections of the last 5 Years: on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2009-11 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 2011. 10
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. INDIAN RETAIL IS MOVING INTO SECOND GEAR 1) FIRST GEAR: (Create awareness) * New retailers driving awareness * High degree of fragmentation * Real estate groups starting retail chains * Consumer expecting 'value for money' as core value 2) SECOND GEAR: (Meet customer expectations) * Consumer-driven 11
* Emergence of pure retailers * Retailers getting multi-locational and multi-format * Global retailers evincing interest in India 3) THIRD GEAR: (Back end management) * Category management * Vendor partnership * Stock turns * Channel synchronization * Consumer acquisition * Customer relation's management 4) FOURTH GEAR: (Consolidation) * Aggressive rollout * Organized retail acquitting significant share * Beginning of cross-border movement * Mergers and acquisitions RETAIL FORMATS: Hypermarket: It is the largest format in Indian retail so far is a one stop shop for the modern Indian shopper.  Merchandise: food grocery to clothing to spots goods to books to stationery.  Space occupied: 50000 Sq .ft. and above.  SKUs: 20000-30000.  Example: Pantaloon retail’s Big Bazaar, RPG’s Spencers (Giant). 12
Supermarket: A subdued version of a hypermarket.  Merchandise: Almost similar to that of a hypermarket but in relatively smaller proposition.  Space occupied: 5000 Sq. ft. or more.  SKUs: Around 10000.  Example: Nilgiris, Apna Bazaar, Trinethra. Convenience store: A subdued version of a supermarket.  Merchandise: Groceries are predominantly sold.  Space occupied: Around 500 Sq. ft. to 3000 Sq. ft.  Example: stores located at the corners of the streets, Reliance Retail’s Fresh and Select. Department store: A retail establishment which specializes in selling a wide range of products without a single prominent merchandise line and is usually a part of a retail chain.  Merchandise: Apparel, household accessories, cosmetics, gifts etc.  Space occupied: Around 10000 Sq. ft. – 30000 Sq. ft.  Example: Landmark Group’s LifeStyle, Trent India Ltd.’s Westside. 13
Discount store: Standard merchandise sold at lower prices with lower margins and higher volumes.  Merchandise: A variety of perishable/ non perishable goods.  Example: Viswapriya Group’s Subiksha, Piramal’s TruMart. Specialty store: It consists of a narrow product line with deep assortment.  Merchandise: Depends on the stores  Example: Bata store deals only with footwear, RPG’s Music World, Crossword. MBO’s: Multi Brand outlets, also known as Category Killers. These usually do well in busy market places and Metros.  Merchandise: Offers several brads across a single product category. Kirana stores: The smallest retail formats which are the highest in number (15 million approx.) in India.  Merchandise: Mostly food and groceries.  Space occupied: 50 sq ft and even smaller ones exist. Malls: The largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts.  Merchandise: They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof.  Space occupied: Ranges from 60,000 sq ft to 7, 00,000 sq ft. 14
Example: Pantaloon Retail’s Central, Mumbai’s Iorbit. 15
The organized retail industry is growing at 25- 30 percentage and is expected to reach the mark of 1, 00,000 crore INR by 2011 from the present figure of 35,000 crore INR 16
approx. With such a mouth watering figures the organized retailing has been attracting many players and even persuading the existing retailers to expand and experiment with newer formats. This can also be substantiated by looking the estimation of the organized retail space to be around 72 million sq ft. by the end of 2009. GROWTH STAGES IN INDIA Due to the urban-rural divide, organized retail will first take place in metros and larger cities and then in semi urban and rural regions. Thus, the country will witness multiple stages of growth even with a low organized retail penetration. In the next 5 years, the organized retail activity growth is likely to peak in the metros; however, it will still remain at an early growth stage in the semi-urban and rural areas. The following diagram shows the organized retail industry cycle with the bold line depicting larger cities and dashed lines representing smaller cities and semi-urban areas: • Introduction: Marks the beginning of organized retail, primarily in metros with limited players and formats. 17
• Growth: Shows a market with rapid growth which is ready for retail; players announce huge expansions, experiment with formats, set up supply chain and back-end for scaling up, hire and train talent and use hygiene and ambience as their unique selling proposition (USP). • Maturity: Growth reaches its peak; market is still growing but opportunities for new entrants decrease. Organized formats become well accepted and discounting becomes a norm. • Decline: A high level of penetration is reached; industry has undergone consolidation and is dominated by a few players. The window of opportunity becomes small. Unlike the West, India is likely to have a shortened evolution cycle with rapid growth in the coming years (similar to the growth story of China). Inspired by formats existing in the developed countries, players are fast setting up all kinds of formats. The kind of growth that the developed countries (USA and UK) had witnessed in 4 decades is being witnessed by India only in a decade. The first mall in the US was set up only after more than 20 years of retailing in the form of shopping centers. Lifestyle centers, specialty stores and multiplexes came up in the US almost after 4 decades. Within 5 years of major activity in the organized sector, specialty retailing is already gaining ground in India. The success of Indian retailers will not be determined simply by emulating the West. A player will succeed in the long run only if he keeps in mind the tastes and preferences of consumers and fulfils their needs. For example, opening of large stores in the outskirts may not work in India due to low auto density and inadequate public transport and infrastructure. India is primarily a consumption driven economy. With booming sectors like IT/ITES, real estate, financial services, etc, the country is witnessing both high affordability and willingness to spend at present. Organized retail has considerably grown only in the last 3-4 years. It is believed that the organized retail industry is currently in a growth stage due to the following reasons: • Players are experimenting with formats, markets and products and are succeeding in almost all new ventures • There is room for more players and formats; large domestic and international players are announcing new plans 18
• There is a shortage of trained manpower, which is being solved by hiring and training local talent and employing people from related sectors, thereby creating a balance with expatriate employees • Most players are tapping the value segment through super markets and hypermarkets, as they have higher success rates. ANALYSIS OF THE INDIAN RETAIL SECTOR OVERVIEW The Indian retail sector is highly fragmented with 97% of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The 3% share of organized retail is quite low when compared even to the other emerging countries. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10% by the year 2010 bringing in a huge opportunity for prospective new players. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10% of India's GDP. THE EVOLUTION OF THE INDIAN CUSTOMER In the past few years the whole concept of shopping has been altered in terms of format and consumer buying behavior. With the increasing urbanization, the Indian consumer is emerging as more trend-conscious. There has also been a shift from price considerations to designs and quality as there is a greater focus on looking and feeling good (apparel as well as fitness). At the same time, the Indian consumer is not beguiled by retail products which are high on price but commensurately low on value or functionality. However, it can be said that the Indian consumer is a paradox, where the discount shopper loyalty takes a backseat over price discounts. Indians have grown richer and thus spending more on vehicles, phones and eating out in restaurants. The spending is focused more outside the homes, unlike in other Asian countries where consumers have tended to spend more on personal items as they grow richer. Spending on luxury goods have increased twice as fast with 2/3 of India's population is 19
under 35, consumer demand is clearly growing. The mall mania has bought in a whole new breed of modern retail formats across the country catering to every need of the value-seeking Indian consumer. An average Indian would see a mall as a perfect weekend getaway with family offering them entertainment, leisure, food, shopping all less than one roof. Indian consumer is also witnessing some changes in its demographics with a large working population being under the age group of 24-35, there has been an increasing number of nuclear families, increase in working women population and emerging opportunities in the service sector during the past few years which has been the key growth driver of the organized retail sector in India. The emergence of a larger middle and upper middle classes and the substantial increase in their disposable income has changed the nature of shopping in India from need based to lifestyle dictated. The self-employed segment has replaced the employed salaried segment as the mainstream market, thus resulting in an increasing consumption of productivity goods, especially mobile phones and 2 - 4 wheeler vehicles. There is also an easier acceptance of luxury and an increased willingness to experiment with the mainstream fashion, resulting in an increased willingness towards disposability and casting out from apparels to cars to mobile phones to consumer durables. Indians spend over USD 30,000 a year (in PPP terms) on conspicuous consumption that represents 2.8% of the entire population (which is approx 30 million people) making it the 4th largest economy in PPP terms next only to USA, Japan and China. Facilities like credit friendliness, availability of cheap finance and a drop in interest rates have changed consumer markets. Capital expenditure (jewelry, homes, and cars) has shifted to becoming redefined as consumer revenue expenditure, in addition to consumer durables and loan credit purchases. Trends in Present Retail Market New Product Categories: 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. 20
The traditional food and grocery segment has seen the emergence of supermarkets/grocery chains (Food World, Nilgiris, and Apna Bazaar), convenience stores (ConveniO, HP Speedmart) and fast-food chains (McDonalds, Dominos). It is the non-food segment; however that foray has been made into a variety of new sectors. These include lifestyle/fashion segments (Shoppers' Stop, Globus, LifeStyle, Westside), apparel/accessories (Pantaloon, Levis, Reebok), books/music/gifts (Archies, Music World, Crosswords, Landmark), appliances and consumer durables (Viveks, Jainsons, Vasant & Co.), drugs and pharmacy (Health and Glow, Apollo). Increasing competition in the retail market: New entrants such as Reliance, Bharti Enterprises and the AV Birla group will compete against well-established retailers, such as Pantaloon Retail, Shoppers’ stop, Trent, Spencer’s and Lifestyle stores. Foreign retailers are keenly evaluating the Indian market and identifying partners to forge an alliance with in areas currently permitted by regulations. With an estimated initial investment of USD 750 million, Reliance is planning to launch a nationwide chain of hyper marts, supermarkets, discount stores, department stores, convenience stores and specialty stores. These 5,500 stores will be located in 800 cities and towns in India. Increase in Private Labels: With the emergence of organized retail and modern retail formats, private labels have been gaining significance. They enhance the profitability levels of product categories, increase retailers’ negotiation powers and create consumer loyalty. More retailers are introducing their own brands in all categories including Food & Groceries, apparel, accessories, and footwear. These own brands also do not have to manage intermediaries since retailers maintain oversight of the supply chain. 21
The label penetration is in a huge rise. Private Label penetration has been on a rise. It is mainly growing among FMCG products in most supermarkets with groceries accounting for 45.9%. Expanding to Tier II and III cities: Indian retailers are planning to extend operations into Tier II and Tier III cities as heightened IT off shoring activity in these locations have increased consumers’ disposable income. The population in these cities is typically well educated and willing to purchase goods and services. Some major retailers, like Globus, Reliance Retail and Pantaloon, have already begun building a retail presence in Tier III cities before many retailers have finalized their Tier II retail operations. Foray into Retail Agri-Business: India’s most prestigious business houses and global retailers are planning to enter retail agri-business. Market entrants plan to invest in the entire value chain, moving goods “from the farm to the fridge at home.” Viewed as India’s next “Sunrise Sector,” retailers are employing contract farming as a means of boosting their ventures. Contract farming enables farmers to access land, manpower and farming skill without having to purchase land. Of the total Cultivable land of 400 million acres in India, contract farming represents 7 million acres thus indicating a tremendous opportunity. For pure corporate contracts between farmers and companies, only 2, 00,000 acres are used. Experimenting with formats: Selecting the right retail format is essential in modern retailing. The difference between urban and rural customers is one of the reasons why multiple formats are required in India. Local conditions and insights into buying-behavior shape the format choice. No single format will be suitable for an all India strategy and selecting the relevant format is the key success factor. Technology in Retail 22
Over the years as the consumer demand increased and the retailers geared up to meet this increase, technology evolved rapidly to support this growth. The hardware and software tools that have now become almost essential for retailing can be into 2 broad categories. Customer Interfacing Systems: Bar Coding and Scanners Point of sale systems use scanners and bar coding to identify an item, use pre-stored data to calculate the cost and generate the total bill for a client. Tunnel Scanning is a new concept where the consumer pushes the full shopping cart through an electronic gate to the point of sale. In a matter of seconds, the items in the cart are hit with laser beams and scanned. All that the consumer has to do is to pay for the goods. Payment Payment through credit cards has become quite widespread and this enables a fast and easy payment process. Electronic cheque conversion, a recent development in this area, processes a cheque electronically by transmitting transaction information to the retailer and consumer's bank. Rather than manually process a cheque, the retailer voids it and hands it back to the consumer along with a receipt, having digitally captured and stored the image of the cheque, which makes the process very fast. Internet Internet is also rapidly evolving as a customer interface, removing the need of a consumer physically visiting the store. Operation Support Systems: ERP System Various ERP vendors have developed retail-specific systems which help in integrating all the functions from warehousing to distribution, front and back office store systems and 23
merchandising. An integrated supply chain helps the retailer in maintaining his stocks, getting his supplies on time, preventing stock-outs and thus reducing his costs, while servicing the customer better. CRM Systems The rise of loyalty programs, mail order and the Internet has provided retailers with real access to consumer data. Data warehousing & mining technologies offers retailers the tools they need to make sense of their consumer data and apply it to business. This, along with the various available CRM (Customer Relationship Management) Systems, allows the retailers to study the purchase behavior of consumers in detail and grow the value of individual consumers to their businesses. Advanced Planning and Scheduling Systems: APS systems can provide improved control across the supply chain, all the way from raw material suppliers’ right through to the retail shelf. These APS packages complement existing (but often limited) ERP packages. They enable consolidation of activities such as long term budgeting, monthly forecasting, weekly factory scheduling and daily distribution scheduling into one overall planning process using a single set of data The major reasons behind the development of new trends are:  Scalable and profitable Retail models are well established for most of the categories  Rapid Evolution of New-age Young Indian Consumers  Retail Space is no more a constraint for growth  Partnering among Brands, retailers, franchisees, investors and malls  India is on the radar of Global Retailer Suppliers. 24
Challenges in Retail The following are the key areas that may pose a threat to those retail companies that ignore the impacts of giving less importance to manage their demand and supply: -  Forecasting and Inventory Management for JIT replenishments of products.  Peak Season Demand Handling.  Order Management in case of retailers with multiple outlets.  Warehouse Management in case of multiple outlets.  Introducing new products.  Handling variety of items. Proposed Supply Chain Strategies for Retail Industry 25
Supply Chain Strategies in Retail Bulk Breaking: Orders can be done in smaller lots with a good understanding with the supplier. This can be achieved by following ways: -  Spatial Convenience: Strategically locating the outlet with distribution networks and warehouses located proximally.  Supplier holds inventory. Vendor Managed Inventory: In this case, the vendor himself is given the responsibility to handle the inventory. A space for the vendor is rented in the outlet, and he takes care of the shelves and the space. It is a 2-way agreement wherein the vendor gets the space to market his product by interacting one-to-one with the customers. Point of Sale Information System: As soon as one stock-keeping unit moves out of the store when purchased by a customer, the information readily flows to the supplier. 26
 He is given access to the inventory database.  A re-order point can be imposed based on consumption pattern and the supplier is asked to fill the shelf upon inventory reaching the re-order point. SRM - Supplier Relationship Management:  Relationship with supplier should not be a marriage of convenience. Supplier has to act in ways more than what is required.  By providing special offers, discounts and incentives, the supplier savors the relationship. This also serves as a promotion strategy for the outlet. Competitive Areas of Importance Fulfillment: Stock filling is taken care of at both customer end (end product) and at the end of shelves at the shop. Reaching the customer at the right time and constant check on stocks and making sure right quantity is ordered at the right time. Logistics:  Safe and reliable transport at as much low price as possible.  Constant contact with distribution teams (trucks, trains, etc.) and track where material is.  Partnership with transportation firms so that cost and transport can be shared if the shipment does not occupy the whole truck space. Procurement: (Vendor’s side points to take care) 27
 Strong Relationship  Information sharing and updating plan change  Combine vendors by minimizing transportation cost  Choose vendors in proximity  Optimum lot size taking vendors into confidence Production: Line should run smoothly without delays due to ordering and transportation (fulfillment and logistics have to be met first). Model in Detail Integrated Demand Management:  The sales in the outlet is kept track of bill after bill hour after hour.  Store register work is made online and paper work is done with.  Forecasting made with data on past consumption and present market trend.  Optional forecasting is made in case of seasonal requirements.  Periodic offers and incentives are made available to the customers to generate demand. Tips for Controlling Retail Inventory Part of the answer to the "buying problem" is inventory control. In fact, the biggest reason retail businesses fail is that they lack inventory control. However, when employed aggressively against competitors, effective management of your inventory can be a lethal weapon. Imagine doubling your inventory turnover rate (certainly not far-fetched with 28
proper control): you could sell product at half the normal margin and still gross the same amount of dollars in a given time period. Inventory control has been used to take down many competing retailers. Like much of the new technology available to business owners, Management Information Systems (MIS) is still evolving, and along the way it becomes both more sophisticated and less expensive. MIS tools can be implemented to gain a significant advantage over competitors. However, it is critical that you understand the uses and goals of an inventory management system before implementing. Possibly the best examples of inventory management come from big retailers. To put it simply: Kmart neglected inventory control and failed, and Wal-Mart concentrated on becoming the leading edge of inventory control and is now one of the world's largest companies. It is a common misconception among small retailers that only industry giants like Wal-Mart can use MIS effectively. Sam Walton himself began as a small retailer, but one of his most advantageous assets was his deep understanding of inventory control's importance. MIS is commonly regarded as a daunting system to implement by those with limited experience in this highly technical area, however it is critical to understand exactly what MIS can accomplish. Although internal hires are available, MIS is made greatly accessible to the small retailer by consulting companies. The basic goal of a point-of-purchase inventory control system is to provide information on profitability, status, and rate of sale for every item a retailer stocks, instantly. These metrics can then be used to improve inventory turnover and return on investment. Once an MIS infrastructure is established, it makes sense for the retailer to integrate vendors into the system. Vendors are subject to an incentive to keep their inventory on store shelves, and systems are available which provide vendors with sales and stock information directly from the point of sale system. Providing your vendors with timely information and making them responsible for maintaining inventory your overall efficiency is improved as your own 29
workload is diminished. The net impact on your business is increased turnover rates and fewer runs on inventory. Anything that results in making the chain between Vendors, Retailers and Customers more efficient also results in additional profit. FRID, an example of an electronic recognition system, enables tracking of items via a computer chip embedded in the product or packaging, which is detected at various stages along the distribution process. Product information obtained in this way is uploaded instantly to the inventory control system, which reduces the time spent in receiving and stocking and allows for a more efficient shipping process. It is imperative for retailers to be aware of inventory performance and its effects on profitability. Inventory control is not, however, the answer to all questions. Inventory controls systems can tell you how the inventory in stock is performing. It doesn't tell you those new products you should carry. Buying is a great area of opportunity, especially for the small retailer who is close to customers and much more responsive to their demands than is the national chain. Of course, inventory control is not the ultimate solution to retailers' problems. For example, inventory control tells you what products are performing well, but it can't tell you what new products to stock. Inventory control is a great way for small retailers to act like one of the big guys, and gain an advantage over other small competitors. Primary Data Operations are classified into 3 functions below:  Management Function  General Merchandise 30
 Inventory & Credit Management MANAGEMENT FUNCTION Management is creative problem solving. This creative problem solving is accomplished through five functions of management  Planning  Organizing  Staffing  Directing  Controlling The intended result is the use of an organization's resources in a way that accomplishes its mission and objectives. Planning is the ongoing process of developing the business' mission and objectives and determining how they will be accomplished. Planning includes both the broadest view of the organization, e.g., its mission, and the narrowest, e.g., a tactic for accomplishing a specific goal. Organizing is establishing the internal organizational structure of the organization. The focus is on division, coordination, and control of tasks and the flow of information within the organization. It is in this function that managers distribute authority to jobholders. Staffing is filling and keeping filled with qualified people all positions in the business. Recruiting, hiring, training, evaluating and compensating are the specific activities included 31
in the function. In the family business, staffing includes all paid and unpaid positions held by family members including the owner/operators. Directing is influencing people's behavior through motivation, communication, group dynamics, leadership and discipline. The purpose of directing is to channel the behavior of all personnel to accomplish the organization's mission and objectives while simultaneously helping them accomplish their own career objectives. Controlling is a four-step process of establishing performance standards based on the firm's objectives, measuring and reporting actual performance, comparing the two, and taking corrective or preventive action as necessary. Managerial levels and hierarchy The management of a large organization may have three levels: 1. Senior management (or "top management" or "upper management") 2. Middle management 3. Low-level management, such as supervisors or team-leaders 4. Foreman 5. Rank and File Top-level management  Require an extensive knowledge of management roles and skills.  They have to be very aware of external factors such as markets.  Their decisions are generally of a long-term nature  Their decisions are made using analytic, directive, conceptual and/or behavioral/participative processes  They are responsible for strategic decisions.  They have to chalk out the plan and see that plan may be effective in the future.  They are executive in nature. 32
Middle management  Mid-level managers have a specialized understanding of certain managerial tasks.  They are responsible for carrying out the decisions made by top-level management. Lower management  This level of management ensures that the decisions and plans taken by the other two are carried out.  Lower-level managers' decisions are generally short-term ones  Foreman / lead hand  They are people who have direct supervision over the working force in office factory, sales field or other workgroup or areas of activity.  Rank and File  The responsibilities of the persons belonging to this group are even more restricted and more specific than those of the foreman. General Merchandise In marketing, a product is anything that can be offered to a market that might satisfy a want or need. In retailing, products are called merchandise. It is an art and science of displaying merchandise within store, it is about implementing effective design, ideas to educate customer, create desire and finally increase store traffic and sales volume.  Home Lien Items  Electronic Items 33
 Mobile Zone  Furniture  Star Sitara  Opticians  Men, Ladies and Kids wear  Foot Wear  Music  Toys  Stationery Inventory & Credit Operations (Using JETRMS Software) Inventory Management Inventory Management and Inventory Control must be designed to meet the dictates of the marketplace and support the company's strategic plan. The many changes in market demand, new opportunities due to worldwide marketing, global sourcing of materials, and new manufacturing technology, means many companies need to change their Inventory Management approach and change the process for Inventory Control. Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. Some of the new approaches and techniques are wrapped in new terminology, but the underlying principles for accomplishing good Inventory Management and Inventory activities have not changed. The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management 34
and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations. The basic building blocks for the Inventory Management system and Inventory Control activities are:  Sales Forecasting or Demand Management  Sales and Operations Planning  Production Planning  Material Requirements Planning  Inventory Reduction The emphases on each area will vary depending on the company and how it operates, and what requirements are placed on it due to market demands. Each of the areas above will need to be addressed in some form or another to have a successful program of Inventory Management and Inventory Control. JETRMS Software is classified in to 6 operations, which controls the Inventory, Credit and Security management Inventory & Credit Operations  Employee Management System  Scanning System  Smart System  Vendor Management System  Security Management System Employee Management System 35
 Employee Details  Margin Tracking Smart System  Daily Sales Report  Billing Report  Total Discount & Revenue Reports Scanning System  Product Discount  Product Pricing Decision  Product Management Vendor Management System  Inventory Management System  Purchasing Order Management  Invoice Purchasing Order System Security Management  CHECK POINT SYSTEM  CC SYSTEM • Soft checks 36
• Hard checks 7 P’s of Services 1st P: PRODUCT  Product- refers to the merchandise i.e. the range of clothes.  Supplementary services -include a component of fashion, life style and Ambient shopping as an addition to the core product.  Today, customers buy experiences and not brands or products. 2nd P: PRICING Cost plus price and Percentage method pricing:  Most widely used technique to price apparels. Ex: - COLOR PLUS and IN-HOUSE brands like those of SHOPPER’S STOP or WESTSIDE use this technique. 3rd P: PLACE Apparel Retailing Business is driven by one crucial factor:  Location  Approachable 37
 Parking 4th P: PROMOTION  Print medium.  Loyalty programs  In-store Visual merchandising 5th P: PEOPLE  Every second a customer spends inside the store has to be viewed as Moment of Truth  “People” is that aspect of the marketing mix which adds tangibility to the service of creating an experience 6th P: PROCESSES 7th P: PHYSICAL EVIDENCE 38
 Managing Appearance of the building & Location  Maintaining Temperature, Music, Lighting and Fragrance inside the store  Availability of services like Prams, Wheel Chair, Valet Parking etc  Stylish Stocking of Merchandise FUTURE TREND: SCOPE OF 24hr RETAILING The concept of 24hr. retailing in India has been present only in very limited formats like the pharmaceuticals (Apollo) and fuel retail outlets (H.P, Reliance etc.) and the other retail formats used to operate only till the early hours of the night. But because of the changing lifestyles and the buying habits of the consumers the retailers have been extending their operating hours till late nights. Most of the Indian retail formats though capable of operating their formats round the clock do not choose to do so because of the non feasibility of the idea at present taking in conjunction the customers’ readiness. For instance if any of the hyper market or supermarket is functioning during the night the retailer has to bear the extra costs of electricity, labor and maintenance if the number of footfalls are less very low during the late nights which otherwise would be profitable to him. Anyways, the shopping time of the consumer is considerably increasing. Moreover, in India most of the retailing is all about food and groceries. It might not be a rational prediction that all the consumers will step into the retail outlet at midnights to buy food and groceries. 39
This problem can be overcome by implementing the idea in places, which have a floating population even during the nights like railway stations and bus stations. However with the upcoming culture of malls and the changing lifestyles of the people one can design a small part of the store or a mall for a new 24/7 retail format which consists of the essential products like medicines, fruits and vegetables, groceries and some other FMCG products and test market it. Once if the sales start showing some consistent positive figures and if the crowd increases then the store can come in a bigger way to reach out to their customers. The other option for trying the concept of 24hr retailing is that the retailer can have a mobile outlet, which can place itself in the areas that have substantial night traffic for the sales to happen. And once the people are to the 24hr shopping then the retail plans can be altered accordingly. Rural Vs Urban Retail Trends India's largely rural population has also caught the eye of retailers looking for new areas of growth. ITC launched the country's first rural mall ‘ Chaupal Sagar’, offering a diverse product range from FMCG to electronics appliance to automobiles, attempting to provide farmers a one-stop destination for all of their needs. There has been yet another initiative by the DCM Sriram Group called the ‘ Hariyali Bazaar’, that has initially started off by providing farm related inputs and services but plans to introduce the complete shopping basket in due course. Other corporate bodies include Escorts, and Tata Chemicals (with Tata Kisan Sansar) setting up agri-stores to provide products/services targeted at the farmer in order to tap the vast rural market. Commenting on the Rural Retailing chapter in INDIA RETAIL REPORT 2005, Mr. Adi B. Godrej, Chairman, The Godrej Group (India's one of the leading corporate majors) said that his group had also launched the concept of agri-stores named 'Adhaar', which served as one- stop shops for farmers selling agricultural products such as fertilisers & animal feed and also providing farmers knowledge on how to effectively utilise these products. "There are 8 stores already operating in Maharashtra and Gujarat and further expansion is very much on the cards. He added. 40
FDI could indeed do a lot in this sector as entry of international retailers would bring in the required expertise to set the supply chain in place which would result in elimination of wastage, better prices and quality for consumers and higher income for farmers besides of course farm produce retailing getting a facelift, said Mr. Godrej. Tapping the fresh farm produce sector, the group plans to take its recently launched retail concept – Nature's Basket - to newer cities steadily. Godrej Group's Agro and Food division, Godrej Agrovet Ltd. (GAVL) operates the format, selling a variety of vegetables, fruits and herbs - both local and exotic thereby introducing the concept of 'farm-to-plate' to urbanites. Godrej plans to open four more Nature's Basket stores in Mumbai before taking them national. Setting up cost of a store is about INR 5-10 million and per stores sales are expected in the range of INR 30- Rs 50 million a year. Interestingly, the world's largest corporation, Wal-mart, also had its roots in rural America. Unlike many other retailers who started from urban centres and then trickled down to rural areas, Wal-mart had started from rural areas and then came closer to cities over a period of time. Many more such concepts are likely to be tested in the future as marketers and retailers begin to acknowledge that the rural consumer is more than a ‘poor cousin' of the urban counterpart. The IMAGES KSA Report avers that these concepts are likely to go a long way in bringing a huge untapped population within the purview of organized retailing, thereby, increasing the size of the total market 41
The above chart makes it clearly evident why the rural retail market has been attracting the big giants to invest in it. Urban Trends The urban retailing has been experimenting with many formats like the supermarkets, hypermarkets, specialty stores, multi branded outlets etc. and of latest it seems to be embracing the trend of mall culture. It is a rich man's world too, with multi-screen cinemas, restaurants, games and branded shops - well out of the reach of many of the country's one billion people. But India's middle-classes widely traveled and with deep pockets, are flocking to malls. RAPID GROWTH: India's organized retail industry accounts for just 3% of the country's total retail sales, though it is poised to grow by 97% per year in the next five years to a staggering $24bn. Fuelling this growth are India's sprawling shopping malls, which are increasingly challenging High Street stores, corner shops and village markets alike. Just five years ago, there were shopping arcades but no malls. Today there are nearly 100 big shopping malls in the country, more than half of them in Delhi and Mumbai alone. And in two years there will 42
be 360 malls across the country. More than 20 are in various stages of development in Delhi and Mumbai. Among them is India's biggest shopping mall, Ambi, which is being built in Gurgaon, near Delhi. Spread over 3.2 million square feet, it is set to become a virtual town, where multi-screen cinemas, recreational facilities for adults and children, food courts and branded outlets will fill the space. It will have exclusive showrooms of international brands, where, according to the developers, customers will have to shop by prior appointment. Analysts comment that this is just the beginning and this is going to experience a ‘sea change’ once the platform is opened up for the FDI. Backdrop: then and now: Then Now •Self reliant mindset; closed economy •Liberal, open economy; entry of MNCs; high entrepreneurial spirit •High import tariff; high excise duty; low per capita incomes. •Reduced excise duty; low tax; high disposable income; affordable price •International brands unheard of; not much variety available. •Availability of variety •Shopping: a task •Shopping: an experience •Savings oriented; high interest rates on small savings schemes •Policy direction: more consumption oriented Changing retail scenario •USD 230b total; 3% organized modern formats  Organized retailing, then: garments, footwear and watches  Organized retailing now: expanding to food, grocery, jewelry, entertainment, cosmetics, home furnishing etc. •Booming consumerism  Socio-economic factors (USA 1960s, China 1990s) fuelling consumer spending  USA: Baby boomers attained spending age; strong economic growth (9-10%); shift in employment from primary to manufacturing; mass migration from rural areas to cities; “ready to splurge” 43
 China: Strong economic growth (10+%); significant unpicking investments and foreign fund inflows •Shift to organized formats (from kiranashops to hypermarkets) •Capital no longer a constraint –easy loans •Availability of quality real estate  Easing land regulations and releasing more land for retail; investment in real estate by organized players is on the up  100% FDI under automatic route for real estate development -townships over 25 acres of land or commercial/retail development on floor space of over 500,000 sq. ft. A glimpse into future •Massive expansion ahead –More floor space, penetration into Tier II cities –Experimentation with models: Hypermarket Big Bazaar, Giant, Spencer Malls Sahara, AnsalPlaza, Crossroads Department Stores Shopper's Stop, Pantaloon, Westside Convenience Stores ApnaBazaar, Food world, Nilgiris Specialitystores Bata, Titan, Tanishq, Raymond, Hallmark, Mc Donald, Pizza Hut Entertainment PVR, Adlabs, Inox Current changes •Organized formats booming in the South  Chennai, Bangalore, Hyderabad 44
 Lower real estate prices •12m retail outlets; most of them <500 sq. ft.  Highly fragmented •India: 6000 grocery outlets per million populations •Increasing sales through modern trade •79% of shopping done by women  Men still have strong influence on shopping decision (46% of cases) •Top 5 (organized) retail categories—by value  Clothing; food; consumer durables; footwear; furniture •Food, jewelry and beauty & personal care represent only a small percentage (1%, 2%, 2% respectively) •Highest penetration  Watches (40%), footwear (25%) and clothing (13.8%) Perspectives: food and grocery •Drivers  Busy lifestyle; pre-packaged, ready-to-eat preferred  Changed mindset from “packaged is stale”to “packaged is quality and hygienic”  The Eating Out Effect  Consumer spending is 40% on foods and grocery, but retail penetration is only 0.5%  Fastest growth prospect  Malls also drive growth 45
•Future format: towards hypermarket Perspectives: apparel •Drivers  Fashion consciousness •50% of Indian youth are fashion conscious of which 37% are highly fashion conscious  Untapped segments like maternity wear, lingerie and school wear will be exploited  Going out and outdoor wear; peer acceptance •Future format: Specialty stores for the upper crest, private labels and discount stores for lower end • Drivers  Increased nuclear families and housing  Customizability (DIY)  Self-expression  Convenience (one stop shop) •Future format: Departmental store Recession  A Recession is a contraction phase of the business cycle.  National Bureau of Economic Research (NBER) is the official agency in charge of declaring that the economy is in a state of recession.  They define recession as: “Significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales”. 46
 For this reason, the official designation of recession may not come until after we are in a recession for six months or longer. What Causes Recession?  An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years.  A recession normally takes place when consumers loose confidence in the growth of the economy and spend less.  This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment.  Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. • US Crisis Hits India US faced major crisis because of – • Sub prime mortgage crisis (home loan defaults) • Rising oil prices at $100 a barrel • Global Inflation • High unemployment rates • A declining dollar value All this slowed down the growth of the economy and as the GDP growth rate fell to 2%, recession set in. 47
Low GDP growth indicating Recession in US Impact on India 48
A slowdown in the US economy is bad news for India because: • Indian companies have major outsourcing deals from the US • India's exports to the US have also grown substantially over the years. • Indian companies with big tickets deals in the US are seeing their profit margins shrinking. Anatomy of the economic depression in India  Share Market • More people have sold the shares in the Indian share market than they bought in the recent weeks. This has added to the fall of sensex to lower points. • Foreign investors have pulled out from stock markets leading to heavy losses in stocks and mutual funds • Stock broking houses are laying-off people • Because of such uncertainty many people have started saving money in banks rather than investing FDI IN RETAIL Global retailers have already been sourcing from India; the opening up of the retail sector to the FDI has been fraught with political challenges. With politicians arguing that the global retailers will put thousands of small local players and fledging domestic chains out of business. The only opening in the retail sector so far has been to allow 51% foreign stakes in single brand consumer stores, private labels, high tech items/ items requiring specialized after sales service, medical and diagnostic items and items sourced from Indian small sector (manufactured with technology provided by the foreign collaborations). Parties supporting the FDI suggest that the FDI in retail should be opened in a gradual phased manner, such that it can promote competition and contribute to the growth of the Indian economy. The impact of the FDI would benefit the end user of the consumer to a great extent and will help to generate a decent amount of employment as more and more entrepreneurs would be coming forward to invest and taste the new generation in retail marketing. The opening of FDI should be designed in such a way that many sectors - including agriculture, food processing, manufacturing, packaging and logistics would reap benefits. It can be said that this investment boom could change the face of Indian retail by 49
offering quality goods at lower prices to the consumers. In addition to this, the presence of global retailers will further enhance exports from India, as they would also source Indian goods for their international outlets in a big way leading to a remarkable increase in Indian exports. The various advantages of allowing FDI in retail are: • Inflow of investment and funds. • Improvement in the quality of employment. • Generating more employment. • Increased local sourcing. • Provide better value to end consumers. • Investments and improvement in the supply chains and warehousing. • Franchising opportunities for local entrepreneurs. • Growth of infrastructure. • Increased efficiency. • Cost reduction. • Implementation of IT in retail. • Stimulate infant industries and other supporting industries. And the possible drawbacks of allowing FDI in retail are: • Would give rise to cut-throat competition rather than promoting incremental business. • Promoting cartels and creating monopoly. • Increase in the real estate prices. • Marginalize domestic entrepreneurs. • The financial strength of foreign players would displace the unorganized players. • Absence of proper regulatory guidelines would induce unfair trade practices like Predatory pricing. 50
SEGMENTS OF INDIAN RETAIL The structure of Indian retail is developing rapidly with shopping malls becoming increasingly common in the large cities and development plans being projected at 150 new shopping malls by 2008. However, the traditional formats like hawkers, grocers and tobacconist shops continue to co-exist with the modern formats of retailing. Modern retailing has helped the companies to increase the consumption of their products for example: Indian consumer would normally consume the rice sold at the nearby kiranas for daily use. With the introduction of organized retail, it has been noticed that the sale of basmati rice has gone up by four times than it was a few years back; as a superior quality rice (Basmati) is now available at almost the same price as the normal rice at a local kirana Thus, the way a product is displayed and promoted influences its sales. If the consumption continues to grow this way it can be said that the local market would go through a metamorphoses of a change and the local stores would soon become the things of the past or restricted to last minute unplanned buying. Food and grocery retail: The food business in India is largely unorganized adding up to barely Rs. 40,000 crore, with other large players adding another 50% to that. The All India food consumption is close to Rs. 900,000 crore, with the total urban consumption being around Rs.330, 000crore. This means that aggregate revenues of large food players is currently only 5% of the total Indian market, and around 15-20% of total urban food consumption. Most food is sold in the local `wet' market, vendors, roadside push cart sellers or tiny kirana stores. According to McKinsey report, the share of an Indian household’s spends on food is one of the highest in the world, with 48% of income being spent on food and beverages. Apparel retail: The ready-mades and western outfits are growing at 40-45% annually, as the market teems up with international brands and new entrants entering this segment creating an Rs.500crore markets for the premium-grooming segment. The past few years has seen the sector aligning 51
itself with global trends with retailing companies like Shoppers' stop and Crossroads entering the fray to entice the middle class. However, it is estimated that this segment would grow to Rs. 300 crore in the next three years. Gems and Jewellery retail: The gems and jewellery market is the key emerging area; accounting for a high proportion of retail spends. India is the largest consumer of gold in the world with an estimated annual consumption of 1000 tones, considering actual imports and recycled gold. The market for jewellery is estimated as upwards of Rs. 65,000 crores. Pharma retail: The pharma retailing is estimated at about Rs. 30,000 crore, with 15% of the 51 lakh retail stores in India being chemists. A few corporate who have already forayed into this segment include Dr More pen (with Life spring and soon to be launched Tango), Medicine shop, Apollo pharmacies, 98.4 from Global Health line Pvt Ltd, and the recently launched CRS Health from SAK Industries. In the south, RPG group's Health & Glow is already in this category, though it is not a pure play pharma retailer but more in the health and beauty care business. Music Retail: The size of the Indian music industry is estimated at Rs.1100 crore of which about 36percent is consumed by the pirated market and organized music retailing constitutes about 14 percent, equivalent to Rs.150 crore. Book retail: The book industry is estimated at over Rs. 3,000 crore out of which organized retail accounts for only 7% (at Rs.210 crore). This segment is seen to be emerging with text and curriculum books accounting to about 50% of the total sales. The gifting habit in India is catching on fast with books enjoying a significant share, thus expecting this sector to grow by 15% annually. Consumer durables retail: 52
The consumer durables market can be stratified into consumer electronics comprising of TV sets, audio systems, VCD players and others; and appliances like washing machines, microwave ovens, air conditioners (A/Cs). The existing size of this sector stands at an estimated USD 4.5 Billion with organized retailing being at 5% Segment wise share in organized retail: 53
FDI RESTRICTION FUTURE OUTLOOK AND CHALLENGES At least 2 - 2.5 Million additional direct jobs are likely to be created in the next 5 years. Hyper-competition is expected to set in by 2009-11as the footprint of the top-5 players starts significant overlapping in top 20 - 30 towns. According to Assoc ham, the overall retail market would grow by 36 per cent with the organized sector expected to register three-fold growth to Rs 15,000 crore by 2009 The total size of the market is also expected to increase to Rs 14, 79,000 crore from the current level of Rs 5, 88,000 crore. 54
The Big Bazaars of India know God is in retail. Analysts swear by their stated corporate ambitions, promising growth potential and soaring performance graphs. Yet, indicators suggest that we are far from being declared as the tourism destination for retail therapy. The industry is facing a severe shortage of talented professionals, especially at the middle- management level. Most Indian retail players are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. Long intermediation chains would increase the costs by 15%. Lack of adequate infrastructure with respect to roads, electricity, cold chains and ports has further led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices. The available talent pool does not back retail sector as the sector has only recently emerged from its nascent phase. Further, retailing is yet to become a preferred career option for most of India's educated class that has chosen sectors like IT, BPO and financial services. Even though the government is attempting to implement a uniform value-added tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network. Stringent labor laws govern the number of hours worked and minimum wages to be paid leading to limited flexibility of operations and employment of part-time employees. Further, multiple clearances are required by the same company for opening new outlets adding to the costs incurred and time taken to expand presence in the country. The retail sector does not have 'industry' status yet making it difficult for retailers to raise finance from banks to fund their expansion plans. Government restrictions on the FDI are leading to an absence of foreign players resulting into limited exposure to best practices. Non- availability of government land and zonal restrictions has made it difficult to find a good real estate in terms of location and size. Also lack of clear ownership titles and high stamp duty has resulted in disorganized nature of transactions. 55
In spite of all these drawbacks, the future of retail in India is bright, mainly because of the untapped market potential here and saturated markets elsewhere. The retailers surely have to come up with innovative marketing and designing concepts in order to be profitable in India. A research by CRISIL has predicted that the penetration in the organized retail would be around 10% by the end of 2011. As calculated in the table below, this would require an investment to the tune of Rs 52 billion. This is arrived at by assuming a leased model of operation and does not include the cost of owning real estate. The estimate includes cost of furnishing, loss funding and working capital requirements (although retail is ideally a negative working capital business, working capital has been taken into account considering the early stage of business for players). In the long run, only a few players will dominate. Competition will intensify and the industry will witness consolidation. Once foreign direct investment (FDI) is permitted in the sector, India will see the entry of more global giants. When this happens, there will be rapid consolidation in few verticals. Among international players, lifestyle and home 56
I can put the issues confronting the Indian retail industry in the following table: 57
Meanwhile, existing key retailers like Pantaloon, RPG, Shoppers. Stop, Trent, Piramyd, etc are trying to capture a large market share though new markets, multiple verticals, formats and larger stores. Most players started their retail operations in larger cities. With increasing competition and multiple players catering to same catchments, players are entering smaller cities in order to gain a first mover advantage and grow, as it will give them a larger customer base and higher share of loyal customers. The share of these cities as a percentage of organized retail has been growing over the years; however, it still forms a small share of the organized retail pie. Although store sizes differ according to the city and the catchments, there has been an overall increase in the store sizes of large retailers. This clearly indicates the growing demand for organized retail and the efforts put by retailers to be a part of the retail growth story. Players such as Pantaloon, Shoppers Stop, RPG, Lifestyle and Pyramid have announced larger stores with sizes ranging between 60,000 and 100,000 square feet. However, these stores are smaller when compared with international standards. In most developed countries, there are large stores in the outskirts of the city. These are discount stores spread across an area of over 100,000 square feet catering to almost all household requirements. Some of these stores are almost as big as the malls in India. Indian retailers are experimenting and putting up stores that cater to the tastes and preferences of Indian consumers. Thus, in cities where the density of population is high, players might prefer setting up multiple stores instead of a few large stores capturing various segments, which would make it simple for the target segment to approach the store, save on time and the inconvenience of travel (in cities where public transport is not adequate). Learning from western countries, players are trying to capture the market share by bringing out formats catering to single verticals. Such chains are called specialty retailers or. Category killers. in the West. Many specialized stores have been set up with various food, apparel and footwear brands (both Indian and foreign) and companies like Godrej have already started 58
furniture stores. Hindustan Lever Ltd, the FMCG major, is considering a retail chain for laundry products. Big players such as the Dubai-based Jumbo Group, Tatas and some small players are entering the electronics space. Other categories being explored by retailers are office products, toys, lingerie, chocolates, electrical products, paper products, stationery and furnishings. As these stores do not require much space, they will be set up as stores in malls rather than as standalone stores. Specialty/concept malls (catering to one category, concept, occasion or a particular kind of customer) have also sprung up in India. The western countries witnessed this development almost three decades after the advent of organized retail. Malls catering exclusively to women, weddings, and education and factory outlets are slated to come up in the near future. Players are also setting up smaller stores in residential areas (for the convenience of residents) in order to tap a larger market share. This encourages residents in the adjacent areas to buy from such stores, and thus, increases sales by expanding the target customer base and the retail spend of consumers. Such stores will increase the penetration levels of organized retailing. These stores are mostly food and grocery stores with lesser stock keeping units (SKUs) primarily targeting weekly replenishment or stores catering to impulse goods. The idea behind this is to get the customer to buy when he/she goes for an outing or shopping for other needs, thus increasing the spend on unplanned/impulse purchases. Both Music World (RPG) and Crossword bookstores have adopted this strategy and started corner stores at petrol pumps, multiplexes, and etc neighborhood areas. HUB AND SPOKE MODEL This model is being increasingly used by retail organizations for setting up smaller stores. Under this model, one large store becomes a hub with large stock and feeds a few smaller stores, which operate as spokes. Initially, large chains did not set up small stores in a big way. However, this model makes the process easier with large stores obtaining supplies from the warehouse and, in turn, supplying to smaller stores. Under this model, smaller stores can also procure the goods demanded by the customers from the hub store. Pyramid Retail’s Trumart stores (food and grocery) in Mumbai and Pune are based on the same model. There is a good possibility that in the near future, retail chains will tie up with 59
traditional formats in the areas, which are dominated by kirana stores and are difficult for the retailers to penetrate due to the unavailability of space and logistics problems. An arrangement akin to that of franchising might be followed whereby thekiranas will create an ambience similar to that offered by the retail chain and make it both easier and quicker for organized retailers to expand operations, thereby creating awin-win situation for both parties. PRIVATE LABELS Private labels are rapidly growing as organized retail is picking up pace in the country. Apparel and general merchandise have witnessed maximum private labels followed by the food and grocery segment. With inventory management in place, it is easier for retailers to integrate backwards in the supply chain and create private labels. Private labels are those that the retailer sells under his own brand. The retailer might outsource or manufacture in the case of apparel and accessories and package under his own label in the case of food items. These labels provide quality assurance to customers. Although they are priced lower than the premium brands, the gross margin earned by the retailer is almost double of what he earns by selling other premium brands. This is because the retailer saves at every step of the supply chain and can still sell at a price lower than the premium brands as no margin is to be given to the brand owner. These goods can be outsourced from the small-scale industries (SSI) and designed, packaged or labeled in-house. Companies are increasingly acquiring private labels in food and grocery and other valuebasedsegments. Hypermarkets sell both apparel and food items like tealeaves, sugar, spices, etc after outsourcing them and labeling them in-house. This enables them to provide cheaper products and gets higher stock turnover and margins. With a decline in import tariffs, the purchase options for retailers from other countries have also increased. If positioned in the right manner, the private label can lead to a significant advantage not only in terms of margins, but also as the brand is unique to the retailer. However, there are risks associated with private labels: • They might cause confusion in the mind of the customer in terms of brand value and recognition. If not designed, priced and promoted properly, these might end up staying on 60
shelves. The success of private labels depends on differentiation in terms of price, quality and style. Thus, in order to fulfill the needs of the customers, it is essential for the stores to maintain an optimum mix. • These products also lead to high risk of inventory. In case they are not sold, the cost of production or procurement often has to be borne by the retailer unlike the consignment arrangements with other branded goods where the unsold goods can be returned. Thus, the loss because of low sales or clearance sales has to be borne by the retailer. This risk is particularly high in apparel or fashion items. • There are other risks like those of line failure and style failure. However, with efficient supply chain management and designing teams in place, these do not pose a major threat. MALL DEVELOPMENT Unavailability of government land, zoning restrictions, high stamp duty and lack of clear ownership titles leads to difficulty in finding good real estate in terms of location and size. This increases transaction costs and leads to supply constraints. Thus, even if an area has affluent catchments, retailers might be unable to enter it (for example, South Mumbai). This problem is being solved by leasing space in malls. With sectors like IT/ITESretail, hospitality, healthcare and entertainment booming, the demand for commercial space has increased. Consequently, lease rentals have also skyrocketed. Rentals in established malls in metros have increased by more than 20-40per cent in the last 6 months. Some prime areas across various cities have witnessed the doubling of rentals. Rentals at prime malls like In orbit have doubled in less than 2 years partly as a result of demand for space. At a time when retailers need to lease more space to support their ambitious expansion plans, this is becoming a major hurdle. As retail is a low margin business, lease rental is the single most important cost constituent and any change in it can affect survival. Most retailers work out a rent-to-reveueratio (a level at which they can sustain their business) with mall developers. This figure usually varies between 4 per cent for a hypermarket and 10 per cent for a department store. Rentals 61
constitute 3-5 per cent of sales in developed markets like the US compared with the current levels of 10-15 per cent of sales for some Indian retailers. In nascent markets like India, retailers are paying an expensive price for a business where increasing competition is already putting pressure on margins. Lease rentals have come down in places like Gurgaon having a large number of malls. It’s expected that with the advent of new malls, the rentals will come down; however this will not happen in all areas. In areas like Dadar and Parel in Mumbai where malls are30being developed on the erstwhile mill lands, the rentals may be Rs 250-300 per square feet. At such levels, only high margin players will be able to make money and small players will not be able to survive.wth mall space becoming expensive, key retailers such as Pantaloon-Kshitij Investment Advisory Company Ltd (through Kshitij and Horizon funds), Shoppers. Stop (InorbitMalls, Rahejas), Provogue (Prozone), Piramyd (Piramal Group) have already forayed into mall development. In addition to related diversification into real estate, space also becomes easily available. Although malls entail significant investments (the construction cost of a mall of a global standard is Rs 1,500-2,000 per square feet) and may require even 5-10 years to break even, we believe that players can arbitrage by buying more space than required and leasing out the extra space at a higher rate. INCOME WISE CLASSIFICATION The initial expansion undertaken by most players was limited to the metros. However; gradually they are spreading to other large cities to gain from the first-moveradvantageand customer loyalty. Value formats; super markets and fresh food stores in particular are fast becoming popular in these cities. It is thus important to determine the potential of key cities or markets in India and how it will change over time. Cities with a largepopulationwill see the proliferation of value formats; however, some cities will form a larger pie of the total retail opportunity in spite of lesser number of households due to a large share of affluent population. There will be more wealth generated, and the disposable incomewillincrease. Roughly speaking, the Indian customers can be classified into thefollowingcategories based on the household income: 62
Currently, the upper middle and the rich classes drive the retail boom. Although income shifts will happen, the middle class will remain at the same level. However, with rising income, their contribution to retail will increase significantly. With a large population belonging to the middle class, there will be maximum growth in the value segment. By 2011 as the underprivileged households move to the lower middle-income category, the households in the underprivileged category will decrease and those in the lower middle class will remain at almost the same level. GROUPING OF THE CITIES BASED ON THE MARKET SIZE Based on their market sizes, the various cities can be divided into certain buckets. Mumbai, Delhi and Kolkata are not grouped, because of their sheer size. Based on the2009data (CRISIL research), we can arrive at the following classification: 63
The CRISIL report predicts that with GDP growth continuing as currently, the total retail opportunity in the top 25 cities will grow from Rs 2.2 trillion in 2009 to Rs.3.4trillion in2011. As the income distribution changes, cities with high-income growth will move to upper buckets based on the retail opportunity size. As the number of cities in the lower buckets change, their percentage share in the total will also change. 64
Hence the above table might change to the following table in the year 2011: The mini-metros will attract more retailers and offer more customers. Pune and 65
Hyderabad may grow up to the size of Kolkata. Mumbai and Delhi will still remain the biggest markets. According to the CII research, Delhi alone will offer a retail potential ofRs 800 billion, with the largest number of households in the 10 million plus earning category. Hyderabad will be the fastest growing city and will have a retail opportunity of around Rs 310 billion. This number will be close to that of Kolkata, in spite of the number of households in Hyderabad being less than half of those in Kolkata. Chandigarh andCoimbatore will move to the group of Tier I cities with a retail opportunity of Rs 56billion and Rs 54 billion, respectively, similar to Ludhiana (Rs 54 billion) in spite of a low population. Vadodara and Vizag will move from the Tier III bucket to Tier II with an opportunity of Rs 36 billion and Rs 35 billion, respectively, slightly higher than that of Jaipur. The chart shows the current strategies of the existing big retailers for entering the Indian market – (The size of the bubble is proportional to the size of the market) 66
a) Delhi is very large. Of the total retail opportunity, 37 per cent comes from the households earning more than Rs 1 million per year. The lower middle and middle class in Delhi form 50 per cent of the total number of households and contribute to 38 per cent of the total market. There are more than 7,000 households earning more than Rs 10 million annually. However, these households account for only 5 per cent of the total households in Delhi. Unlike most cities, underprivileged households constitute only 7 per cent of the total number of households. According to the CRISIL research, in 2011, Delhi alone will offer a retail potential of Rs 800 billion, with the largest number of households in the Rs 10 million plus earning category. This is larger than the total opportunity of Bangalore, Hyderabad and Chennai. Thus, players with lifestyle formats are likely to succeed in Delhi. The number of malls in Delhi is already high. Moreover, Delhi is the fashion capital of India, with boutiques of most fashion designers. b) Mumbai – the potpourri of all income categories Mumbai, with a population of 3.8 million households, currently spends Rs 418 billion on retail. It has the largest number of underprivileged households, constituting 42 per cent of the population and contributing 12 per cent to the retail market. The retail spent of the lower middle class is 31 per cent and that of the middle class is 16 per cent. The rich class accounts for 30 per cent of total retail. Both lifestyle and value formats are likely to work in Mumbai, as the population in each category has a significant share in total retail. The linear structure of the city makes it important for retailers to cater to various catchments through multiple stores. Further, Mumbai has several affluent belts, which are likely to be dotted with lifestyle stores. It is projected that by 2011, the retail potential in Mumbai will increase to Rs 612 billion, with the upper middle and rich classes forming 50 per cent of the retail opportunity. c) Kolkata – glaring disparities in income In spite of being home to around 3 million households, Kolkata contributes only Rs 200 billion to the total retail. 51 per cent of the households in Kolkata belong to the underprivileged category and contribute to 23 per cent of the total retail. The lower middle and middle classes constitute 47 per cent of total households and account for 58 per cent of 67
the retail market. Value formats are expected to do well in the city as 98 per cent of the households belong to the middle class and lower income categories. Lifestyle formats will be limited only to certain catchments and are unlikely to come up in a big way. The total retail opportunity in Kolkata is expected to increase to Rs 330 billion by 2011. Even then, the underprivileged and lower middle class will comprise 81 per cent of the total population. Upper middle and rich classes will account for around 6 per cent of the total households but their spent will increase to 40 per cent further highlighting the disparity in income. d) Bangalore, Hyderabad and Chennai – the mini-metros Bangalore, Hyderabad and Chennai have been grouped together as Mini MetrosI due to similarity in the type of households, income distribution patterns and growth history. These cities together have a current retail market of Rs 430 billion accounted for by 4.3 million households. Of these three cities, Hyderabad has the lowest share of underprivileged households. The importance of lower middle and middle classes is highlighted in these cities, as they contribute to more than 60 per cent of households and around 50 per cent of retail opportunity. With growth in the IT/ITES sectors, these cities will witness the largest transition from middle to upper middle and rich categories. The retail opportunity in Mini MetrosI will increase to Rs 720 billion in 2011, still lower than Delhi. Hyderabad will witness rapid growth among these cities and will have retail opportunity of around Rs 310 billion. This will be similar to the retail opportunity of Kolkata in spite of the number of households being less than half of those in Kolkata. e) Ahmedabad and Pune With about 2 million households, these cities currently have a retail market of Rs 158 billion. The retail market of these cities together is similar to that of Chennai. As compared to Mini Metros I, they have a larger share of the underprivileged category, with 39 per cent of the total households belonging to this category. However, Pune has a smaller share of underprivileged population as compared to Ahmedabad. The lower middle and middle classes contribute to 53 per cent of the number of households as well as retail sales. By 2011, the retail potential of these two cities will go up to Rs 245 billion. The underprivileged population in these cities will come down to 30 per cent. The middle class categories will contribute to 70 per cent of both opportunity and households. Both these cities are 68
witnessing frenetic activity in retail and real estate. The number of malls expected to come up in Pune will be larger than that in any city in Mini Metros I. Post-expansion in the top 8 cities, retailers are now exploring Tier I, II and III cities of India. Most of these cities have witnessed proliferation of value segments through super and hypermarkets but lifestyle stores have not gained much ground. These cities account for a large aspirant population and have lower lease rentals. However, in the prime locations and market areas, lease rentals have significantly risen as these cities have a few prime locations unlike the metros. Ludhiana, Kanpur, Surat and Nagpur together have a Rs 190 billion-retail market (close to Rs 200 billion market of Kolkata) with 2 million households. These cities are among the fastest growing smaller cities in India. The lower middle class forms 59 per cent of the number of households and accounts for 51 per cent of the retail opportunity. The middle class contributes to 18 per cent of the retail market. Among these cities, Surat has the largest population; however, its market size is similar to other cities with a large section earning below Rs 100,000. Ludhiana has a significant population belonging to the affluent class. These four cities have already witnessed the penetration of both lifestyle and value formats. Tier II cities comprise Lucknow, Jaipur, Chandigarh, Coimbatore and Kochi, accounting for around Rs 154 billion of the total retail market. The retail opportunity and number of households of these cities together is similar to that of Chennai. These cities widely differ in terms of population and income distribution but have been clubbed together because of similar retail market size. Jaipur and Lucknow have a larger number of households; however, a major part of their population belongs to lower income categories. Chandigarh, Coimbatore and Kochi have a larger share of affluent households. The two lowest income categories account for 55 per cent of retail opportunity and 88 per cent of number of households. The Tier III group comprises Vadodara, Vizag, Indore, Vijaywada, Tiruvananthpuram, Bhopal, Nasik and Madurai. Cities like Indore and Bhopal are larger than some Tier II cities but have a lower share in total retail due to low-income growth. Some smaller cities in this category like Vizag are considerably growing with rapid economic growth. A total of 2.3 million households reside in these cities but they contribute to only Rs 132 billion of total retail due to their small size and high proportion of low-income households. It is predicted 69
that in 2011, Vadodara and Vizag will move out of this group and join Tier II cities. The retail opportunity from the remaining six cities will be around Rs 136 billion. These cities will mostly account for underprivileged and lower middle income households. Thus, value retailing will be popular in these cities. MATURING, TRANSITIONAL, EMERGING, HIGH GROWTH AND NASCENT CITIES In order to identify the likely future retail hierarchy and the nature of property opportunities, we can classify the various cities into five categories, based on the different stages in the market evolution and each offering a different set of opportunities for retailers and the property sector. We shall put the top 50 cities in the following broad categories: 1) Maturing Cities: Delhi/NCR and Mumbai are much above the other Indian cities in terms of number of shopping malls and organized retailers. Since 2003 their shopping mall stocks have increased markedly, and both cities have significant pipelines. Competition within the NCR and Mumbai will intensify as supply grows and there is risk of saturation in some market segments by 2008. Nonetheless, there are notable market gaps and both metros are sufficiently large and diverse to accommodate a wide variety of new formats, including large one-stop malls, specialty malls catering for luxury brands, city hypermarkets, smaller neighbourhood malls and “big box” retailing. The NCR and Mumbai will unquestionably continue to dominate the Indian retail scene, and despite strong growth in secondary and tertiary cities, there is every chance that these two cities will continue to have an approximate share of 40% of the Indian retail market for at least a couple of years to come. The NCR and Mumbai have by far the highest number of shopping malls in operation and planned. Most pan-Indian retailers have a multiple presence, they are the launch pads for most new retailer entrants and with by far the largest number of “super-rich”, and these cities are the hubs of luxury brands. They are firmly on the radar of screen of international retailers and property investors. Competition within the NCR and Mumbai will intensify as supply grows and there is risk of saturation in some market segments by 2009. Strong asset price 70
growth and difficulties in land procurement make for a challenging environment for both retailers and developers. Nonetheless, there are notable market gaps and both metros are sufficiently large to accommodate a wide variety of new formats. Opportunities are likely to arise in:  Developing large one-stop malls that combine mixed use concepts, integrating retail, entertainment, eating and residential uses.  Catering for the numerous luxury brand retailers that are now targeting India’s two main metros. Currently, luxury brands are only largely present in major five star hotels (such as The Oberoi and Imperial in Delhi and the Taj Mahal Palace in Mumbai), but there is strong demand from these retailers for showrooms in both large shopping malls and specialty malls.  Responding to the requirement for “Big Box” formats; a format that is likely to emerge over the next couple of years.  Developing more accessible neighbourhood malls and hypermarkets within the cities. Most current and planned schemes are remote from the main residential areas, and low car penetration makes shopping malls inaccessible to many consumers.  Targeting the booming middle class residential suburbs, such as Greater NOIDA (NCR) and Navi Mumbai and Thane (Mumbai) where many of the IT/ITES companies are based; and focusing in particular on those suburbs that have yet to see significant mall development. The National Capital Region has been and continues to be the leader in mall culture in India. Organized retailing in the NCR is twice the size of Mumbai, both in terms of shopping mall stock and retailer presence. Rising income levels, increasing demand for branded products and wider acceptance of mall culture (than elsewhere in India) has led to massive growth in the shopping mall stock. Retailers are also attracted by the consumer profile of the NCR, with over 40% of households in SEC groups A and B. At present the total mall stock stands 71
at 8.2 million sq ft, of which 2.6 million sq ft is within the city of Delhi. Most stock, however, is concentrated in the main suburban regions of Gurgaon (at 2.6 million sq ft), Ghaziabad (.2 million sq ft) and NOIDA (million sq ft). Organized retailing first came to the city with the construction of Ansal Plaza in South Delhi in 1999. However, it wasn’t until 2001 that the NCR saw the first shopping mall development boom, focused on the suburban market of Gurgaon, due to its booming IT/ITES sector and the availability of larger plots of cheap land. Gurgaon saw the development of several large format malls by developers such as DLF and MGF. NOIDA followed Gurgaon into the retail boom in 2003, and more recently Ghaziabad and Faridabad have both emerged as major retail sub-markets. The city of Delhi is also witnessing large-scale mall development, which has been made possible by the release and auction of land by the Delhi Development Authority. With a very large number of malls in the pipeline (the mall stock could potentially more than double to 22 million sq ft by 2009-10) the NCR will continue to lead India’s organized retail market. Mumbai’s first mall was completed in 1999 in the Central Business District (CBD). Since 2003 mall development has increased massively, expanding from the CBD to all parts of the island city and suburbs. Currently, Mumbai has a shopping mall stock of 4.0-millionsq ft, a figure that could rise to around 5 million sq ft by 2009-10. SBD Central (Worli, Prabhadevi and Mahalaxmi) and SBD North (Bandra, Andheri, Juhu and Santacruz) were the first micro-markets outside the CBD to see significant mall development in 2002-2003. Since then there has been steady growth in the number of malls and several new developments are slated for completion by 2009 in the western suburban regions. Another hot retail market is likely to be in the Parel area (in SBD Central), where the sale of mill lands has created considerable opportunities for mixed-use development. Other western suburban regions such as Malad and Goregaon have seen the development of integrated townships such as Mindspace. To cater for these residential townships, Raheja built the In-Orbit mall, which has become one of India’s most successful malls. The central suburban regions of Powai, Mulund, Navi Mumbai and Thane are emerging as Mumbai’s next hot retail markets, boosted by the growing activities of the IT/ITES sector and rapidly expanding residential areas. Both Navi Mumbai and Thane are set to witness huge mall development in the near future. Mumbai’s “high streets” such as Bandra Linking Road, Colaba Causeway, Breach Candy and Lokhandwala will continue to attract the Mumbai-ites. 72
2). Transitional Cities: Transitional Cities are now firmly making their mark on the retail sector. Whilst organised retailing is a more recent phenomenon than in the NCR and Mumbai, they are catching up as both retailers and developers tap into their large middle classes. Bangalore, Kolkata, Hyderabad, Pune and Ahmedabad all have significant mall development in the pipeline, while activity is also expected to accelerate in Chennai. By 2009 these six transitional cities are likely to account for one-third of India’s organised retail sector. Bangalore has the most aggressive shopping mall development plans, with a wide variety of retailers attracted to the city’s increasingly cosmopolitan population, and the city is a favored market to test new retail concepts. Retailers are attracted by their increasingly vibrant corporate sectors, high economic growth rates, above average incomes and large middle classes. Property, construction and labour costs are also well below the NCR and Mumbai. The majority of major domestic retailers and new market entrants, irrespective of their business models, are already expanding in these cities or have plans to open new stores. Testimony to the strength of Tier II cities, Reliance Retail chose to open its first concept store in Hyderabad. As with Tier I cities, the key opportunities are in large one-stop malls, speciality malls, neighbourhood malls and hypermarkets and “Big Box” retailing. Kolkata, Pune and Hyderabad currently have the largest shopping mall floorspace of the transitional cities. But Bangalore has the most aggressive mall construction programme, with a wide variety of retailers attracted to the city’s increasingly cosmopolitan population. Chennai has so far lagged the other transitional cities in terms of mall development, but is expected to start to catch up by 2009. 3) High Growth Cities: A small group of cities have over the past year entered a high growth phase. They include cities with substantial consumer spending power (such as Ludhiana), India’s most important tourist city (Jaipur), rapidly growing IT hubs (such as Chandigarh and Kochi), as well as 73
several other medium-sized cities (including Lucknow, Surat and Vadodara). These high growth cities, mainly located in northern India, are perceived by retailers as the “next retail destinations”. Chandigarh, Ludhiana, Jaipur, Lucknow and Kochi lead the pack, characterised by high levels of shopping mall development and significant retailer interest. The Punjabi city of Ludhiana is the most favoured tertiary city since the incomes are well above the national average and consumers have a high exposure to international brands due to the strong influence of its NRI population. 4) Emerging Cities: On the basis of the future plans of major hypermarkets and department store retailers, a group of “emerging” cities is likely to be the next growth markets over a three year horizon. Factors such as growing incomes, rising aspirations, scarcity of branded stores and growing corporate activity are increasing the demand for organised retailing. In cities such as Nagpur, Indore, Nashik, Bhubaneshwar, Vizag, Coimbatore, Mangalore, Mysore and Thiruvananthapuram, IT/ITES companies are rapidly expanding their workforces, which in turn is stimulating retailer activity. These cities currently represent among the most interesting locations for property developers, as retailers scour these cities for opportunities, and demand far exceeds supply. This group also includes several major tourist destinations such as Amritsar, Agra and Goa, as well as a number of southern Indian cities which have so far been less impacted by organized retail than their northern Indian counterparts. These smaller cities have consistently outpaced the larger metros in economic growth rates, and they are witnessing strong growth in incomes. But even more significant is the changing lifestyles and aspirations, and the fundamental shift in the consumer mindset in smaller cities. Low property costs, lower operating costs and high brand acceptance in smaller cities are enabling retailers to achieve better margins than in India’s main cities. Retailers are introducing contemporary retail formats but at a smaller scale, with mall sizes typically between 100,000- 150,000 sq ft compared to 500,000 sq ft in the larger metros. 74
5) Nascent Cities: A few smaller cities (most of which have populations of between 1- 1.5 million) are classified as “nascent”, largely reflecting low per capita incomes and limited corporate activity. Organized retailing is currently very limited, but they are on the “watch list” of pioneering retailers and mall developers that are seeking to benefit from first mover advantage. Progress towards the development of an active organized retail sector in these cities is likely to be slow, although market conditions can change rapidly should their local economies be boosted by new corporate arrivals. Jodhpur, Vijayawada and Varanasi are amongst the most popular tourist destinations in India, and their potential for organized retail is higher than other “nascent” cities. Others cities have significant manufacturing sectors, which have attracted department stores and hypermarkets. Pantaloon’s flagship brand “Big Bazaar” is already present in the majority of these cities. Developers like Prozone, are active in cities such as Aurangabad and Rajkot. Thus we see that significant new opportunities across a broad range of geographies and formats are being captured by an increasing number of domestic real estate developers and investors, all eager to participate in a market that is still at an early stage of evolution. However in the rush to expand retail formats and build new malls, many schemes fall well below international standards. As more choice becomes available for the Indian consumer, a lot of malls and retail concepts will fail the test of time. Moreover, most retailers will struggle to implement aggressive expansion plans due a lack of suitable and affordable property, inefficient logistics operations and shortages of manpower skills. A rapidly growing, but highly challenging retail environment will inevitably result in many losers as well as winners. 75
We can put the characteristics of the classified cities in the following table: India’s Retail Hierarchy-Characteristics No. Of Cities Typical Metro pop n (Mills) Shopping Mall Development since: % Of National Organized Retailing (by2009) Typical no. Of Shopping malls (by2009) Format Opportunities Maturing 2 20 1999 40% 50-150 • Large Mixed Use Malls • Specialty & Luxury brands • Big Box • Neighborhood Malls Transitional 6 5-16 2003 32% 25-30 • Large Mixed Use Malls • Specialty & Luxury brands • Big Box • Neighborhood Malls High Growth 7 2.5 2006 11% 5-10 • Mixed Use Malls • Large Department Stores • Branded Stores • Big Box Emerging 16 1.5 2007-2009 13% 2-5 • Mixed Use Malls • Department Stores • Branded Stores 76
Nascent 19 <1.5 2011 3% 1-2 • First Mover Advantage • 100K+Shopping Malls • Supermarkets/Hypermarket CONCLUSION he future for organized retail in India is a bright one. The demographics, the sense of optimism and the deep-rooted entrepreneurial culture are ready ingredients for success. The retail industry needs to get organized and drive its own destiny. The government needs to be lobbied with, to help create a conducive environment so that the latent entrepreneurial spirit can get unleashed and ultimately value can be delivered to consumers who will push their shopping carts and participate actively in this great retail boom. While there are obstacles, there are clear opportunities in modern retailing in India. In such a scenario, preparedness of Indian retailers in terms of having appropriate formats, scalable processes, appropriate technology and relevant organization capability would be crucial to success. The Indian market is extremely price-quality sensitive; it makes sense to enter the gigantic market in a phased manner; hence for the multinational players it is imperative to have the right local partners – dealers, distributors and retailers. The Indian retail sector is ready to take on challenges from global retail players such as Wal-mart and Carrefour because unlike them, they have a better understanding of the Indian consumer’s psyche. Ultimately, a successful retailer is one who understands his customer. The Indian customer is looking for an emotional connection, a sense of belonging. Hence, to be successful any retail outlet has to be localized. T The customer should feel that it is a part of his culture, his perceived values, and does not try to impose alien values or concepts on him. Indian customer is not keen to buy something just because an international company sells it. Ultimately, it boils down to how much localization and adaptation the company is willing to do for India. Other than tremendous money power, global companies have nothing extra or special that the Indian retail business does not have. To use a clichéd phrase - We live in exciting times. Only three 77
percent of India’s retail market is organized. The future shows tremendous potential for growth in the retail sector. Almost all large companies worldwide are looking to establish a base or stake in the Indian market. In this scenario, the Indian retail sector itself must seize the initiative to realize the dreams of contributing to a prosperous and booming economy. The focus should be on the Indian horizon before looking for retail opportunities in other countries because India itself is a big retail market. And with the big cities getting saturated, the tier II cities hold the key for the prosperity of the retailers in India, provided they come up with innovations needed to suit the culture and demographics of these cities. We shall end with “Mr. Kishore Biyani’s famous gospel for retailing in India”– “Rewrite rules…but Retain the values”. 78
RECOMMENDATIONS 1) Retailers need to think about shoppers not just about a format as understanding the shoppers’ dynamics holds the key to such a business. Retailers would have to create new delivery formats that can cater to the huge mass of consumers. 2) Retailers must understand what value shopper is looking for and how the retailers can deliver that desired value to the customer. However, most retailers look for what they are offering and how shoppers can fit into retailer’s scheme of offerings. 3) It is also observed that in the changing retailing environment, understanding the psyche of customer is critical to success in retailing. Aggregate level picture may be misleading, as it averages the beats and the valleys. Hence, individual understanding is desirable. 4) Indian consumers are still family-driven entities. Shopping, entertainment and eating out are family events. Since these decisions are normally group decisions, hence a marketer has to address family sensibilities more rigorously to woo Indian customers. 79
5) Indian customers have become more sensitive to quality, customer service and status. He/She is ready to pay, sometimes; astronomical sums provided their needs are satisfied. They are basically looking for an experience, which is more of cognitive than physical. In brief: - Jo Dikhta Hai Wo Hi Bikta Hai. 80
REFERENCES Websites: 1. www.google.com 2. www.etretailbiz.com 3. www.mothersprideonline.com 4. www.futuregroup.com 5. www.rbk.com 6. www.retailindustry.about.com 7. www.pantaloon.com Books: 1. MARKETING MANAGEMENT by Philip Kotler 2. ORGANIZATIONAL BEHAVIOR by Stephen P Robbins. 3. CONSUMER BEHAVIOR by Leon G. Schiffman & Lesile Lazar Kanuk MAGZINES: Business today Business world - The Marketing White book, 2008 Press Sources: Economic Times Business Standard 81

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Retail Scope

  • 1.
    ON SCOPE OF GROWTHIN RETAIL SECTOR DURING THE PERIOD 2009-2011 IN THE CONTEXT OF GLOBAL RECESSION 1
  • 2.
    Executive Summary The phenomenonof organized retailing, in spite of its tremendous growth in the last 2-3 years in India has just seen the tip of the iceberg. As giants like Reliance, Bharti-Walmart and others enter the fray, the scenario is going to become more competitive and attractive. Under this backdrop, the fruits and vegetable sector (F&V) sector has a tremendous potential to take advantage of this development. Right now, with less than 1% of the produce being marketed in an organized way and an inefficient supply chain plaguing the system with losses and wastages, there is a need to evolve a frame-work or a model of retailing that configures an efficient supply chain to benefit the retailers, farmers and the customers alike. Demographics continue to show a positive report to spur retailing growth. Consumers aged 20- 45 years is emerging as the fastest growing consumer group and the mean age of Indians is now pegged at 27, a mean age that reinforces spending across all the retailing channels of grocery, non-grocery and non-store. The government stance of protecting local retailers and prohibiting 100% foreign direct investment in retailing continued in 2005, restraining international retailers' entry. However, there was gradual economic reform, giving way to easier and faster franchising agreements as well as the loosening of zonal regulations on retail expansion, thus stimulating retailing. Non-store retailing is expected to continue its fast-paced growth from a miniscule base. Across all channels, growth in retailing is expected to be boosted heightened competition during the period 2009-2011 due to the growing. 2
  • 3.
    Acknowledgement I would liketo express my heartfelt gratitude to Professor Mrs. KRITI SWARUP, MIM NOIDA for giving me this great opportunity to work on Scope of Growth in RETAIL SECTOR during the period 2009-2011 in the context of GLOBAL RECESSION under her able tutelage. I would like to thank her for her guidance during the project and taking out time for me from her busy schedule. This Final Project, 2009 as a part of PGDM Programme has given me an opportunity to gather data without visiting the organization. This has brought encouragement to complete the project. However with lot of dedication, concentration, hard work, support, guidance, & assistance of concerned people has made it possible to complete the project. PRIYANKA GUPTA PGDM IV SEMESTER 2007-2009 3
  • 4.
    Table of Contents Introduction............................................................................................................................... 6 Retail GlobalRetail Industry Scenario of Retailing in India Retailers are facing numerous challenges PRESENT INDIAN SCENARIO Few of India's top retailers are INDIAN RETAIL IS MOVING INTO SECOND GEAR RETAIL FORMATS GROWTH STAGES IN INDIA THE EVOLUTION OF THE INDIAN CUSTOMER Trends in Present Retail Market…………………………………………………………20 New Product Categories Increasing competition in the retail market Increase in Private Labels Expanding to Tier II and III cities Foray into Retail Agri-Business Experimenting with formats Technology in Retail ………………………………………………………………………22 Customer Interfacing Systems Operation Support Systems Advanced Planning and Scheduling Systems Challenges in Retail Proposed Supply Chain Strategies for Retail Industry ………………………………….25 Supply Chain Strategies in Retail Competitive Areas of Importance Model in Detail Tips for Controlling Retail Inventory ……………….. …………………………………..27 Primary Data Inventory & Credit Operations (Using JETRMS Software) 7 P’s of Services …………………………………………………………………………...35 4
  • 5.
    FUTURE TREND ………………………………………………………………………….38 SCOPE OF24hr RETAILING Rural Vs Urban Retail Trends Urban Trends RAPID GROWTH Backdrop: then and now…………………………………………………………………...41 Changing retail scenario A glimpse into future Current changes Perspectives: food and grocery Recession ………………………………………………….………………………………… 45 What Causes Recession FDI IN RETAIL SEGMENTS OF INDIAN RETAIL FDI RESTRICTION FUTURE OUTLOOK AND CHALLENGES ………………………………………….… 52 Conclusion…………………………………………………………………………………...7 5 Recommendations………………………………………………………………………. ….77 References……………………………………………………………………………….….79 5
  • 6.
    Introduction RETAIL he 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. T 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 are big business and better organized 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 organized 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, organized 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 organized retailing in India is a recent phenomenon and is concentrated in the top 20 urban towns and cities 6
  • 7.
    The Reason This emergenceof organized 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 drive to Brand and Experience driven, while the Value element still dominating the buying decisions. The Global Retail Industry Retail stores constitute 20% of US GDP & are 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. Scenario of Retailing in India Retailing is the most active and attractive sector of last decade. While the retailing industry itself has been present since ages in our country, it is only the recent past that it has witnessed so much dynamism. The emergence of retailing in India has more to do with the 7
  • 8.
    increased purchasing powerof buyers, especially post-liberalization, increase in product variety, and increase in economies of scale, with the aid of modern supply and distributions solution. Indian retailing today is at an interesting crossroads. The retail sales are at the highest point in history and new technologies are improving retail productivity. Though there are many opportunities to start a new retail business. Retailers are facing numerous challenges KEY CHALLENGES: 1) LOCATION: "Right Place, Right choice" Location is the most important ingredient for any business that relies on customers, and is typically the prime consideration in a customer’s store choice. Locations decisions are harder to change because retailers have to either make sustainable investments to buy and develop real estate or commit to long-term lease with developers. When formulating decision about where to locate, the retailer must refer to the strategic plan. * Investigate alternative trading areas. * Determine the type of desirable store location. * Evaluate alternative specific store sites. 2) MERCHANDISE: The primary goal of the most retailers is to sell the right kind of merchandise and nothing is more central to the strategic thrust of the retailing firm. Merchandising consists of activities involved in acquiring particular goods and services and making them available at a place, time and quantity that enable the retailer to reach its goals. Merchandising is perhaps, the 8
  • 9.
    most important functionfor any retail organization, as it decides what finally goes on shelf of the store. 3) PRICING: Pricing is a crucial strategic variable due to its direct relationship with a firm's goal and its interaction with other retailing elements. The importance of pricing decisions is growing because today's customers are looking for good value when they buy merchandise and services. Price is the easiest and quickest variable to change. 4) TARGET AUDIENCE: - "Consumer the prime mover" "Consumer Pull", however, seems to be the most important driving factor behind the sustenance of the industry. The purchasing power of the customers has increased to a great extent, with the influencing the retail industry to a great extent, a variety of other factors also seem to fuel the retailing boom. 5) SCALE OF OPERATIONS: Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of business operations is very high in India. PRESENT INDIAN SCENARIO * Unorganized market: Rs. 583,000 crores * Organized market: Rs.5, 000 crores * 5X growth in organized retailing between 2000-2005 * Over 4,000 new modern Outlets in the last 3 years 9
  • 10.
    * Over 5,000,000sq. ft. of mall space under development * The top 3 modern retailers control over 750,000 sq. ft. of retail space * Over 400,000 shoppers walk through their doors every week * Growth in organized retailing on par with expectations and projections of the last 5 Years: on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2009-11 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 2011. 10
  • 11.
    Few of India'stop 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. INDIAN RETAIL IS MOVING INTO SECOND GEAR 1) FIRST GEAR: (Create awareness) * New retailers driving awareness * High degree of fragmentation * Real estate groups starting retail chains * Consumer expecting 'value for money' as core value 2) SECOND GEAR: (Meet customer expectations) * Consumer-driven 11
  • 12.
    * Emergence ofpure retailers * Retailers getting multi-locational and multi-format * Global retailers evincing interest in India 3) THIRD GEAR: (Back end management) * Category management * Vendor partnership * Stock turns * Channel synchronization * Consumer acquisition * Customer relation's management 4) FOURTH GEAR: (Consolidation) * Aggressive rollout * Organized retail acquitting significant share * Beginning of cross-border movement * Mergers and acquisitions RETAIL FORMATS: Hypermarket: It is the largest format in Indian retail so far is a one stop shop for the modern Indian shopper.  Merchandise: food grocery to clothing to spots goods to books to stationery.  Space occupied: 50000 Sq .ft. and above.  SKUs: 20000-30000.  Example: Pantaloon retail’s Big Bazaar, RPG’s Spencers (Giant). 12
  • 13.
    Supermarket: A subduedversion of a hypermarket.  Merchandise: Almost similar to that of a hypermarket but in relatively smaller proposition.  Space occupied: 5000 Sq. ft. or more.  SKUs: Around 10000.  Example: Nilgiris, Apna Bazaar, Trinethra. Convenience store: A subdued version of a supermarket.  Merchandise: Groceries are predominantly sold.  Space occupied: Around 500 Sq. ft. to 3000 Sq. ft.  Example: stores located at the corners of the streets, Reliance Retail’s Fresh and Select. Department store: A retail establishment which specializes in selling a wide range of products without a single prominent merchandise line and is usually a part of a retail chain.  Merchandise: Apparel, household accessories, cosmetics, gifts etc.  Space occupied: Around 10000 Sq. ft. – 30000 Sq. ft.  Example: Landmark Group’s LifeStyle, Trent India Ltd.’s Westside. 13
  • 14.
    Discount store: Standardmerchandise sold at lower prices with lower margins and higher volumes.  Merchandise: A variety of perishable/ non perishable goods.  Example: Viswapriya Group’s Subiksha, Piramal’s TruMart. Specialty store: It consists of a narrow product line with deep assortment.  Merchandise: Depends on the stores  Example: Bata store deals only with footwear, RPG’s Music World, Crossword. MBO’s: Multi Brand outlets, also known as Category Killers. These usually do well in busy market places and Metros.  Merchandise: Offers several brads across a single product category. Kirana stores: The smallest retail formats which are the highest in number (15 million approx.) in India.  Merchandise: Mostly food and groceries.  Space occupied: 50 sq ft and even smaller ones exist. Malls: The largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts.  Merchandise: They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof.  Space occupied: Ranges from 60,000 sq ft to 7, 00,000 sq ft. 14
  • 15.
    Example: Pantaloon Retail’sCentral, Mumbai’s Iorbit. 15
  • 16.
    The organized retailindustry is growing at 25- 30 percentage and is expected to reach the mark of 1, 00,000 crore INR by 2011 from the present figure of 35,000 crore INR 16
  • 17.
    approx. With sucha mouth watering figures the organized retailing has been attracting many players and even persuading the existing retailers to expand and experiment with newer formats. This can also be substantiated by looking the estimation of the organized retail space to be around 72 million sq ft. by the end of 2009. GROWTH STAGES IN INDIA Due to the urban-rural divide, organized retail will first take place in metros and larger cities and then in semi urban and rural regions. Thus, the country will witness multiple stages of growth even with a low organized retail penetration. In the next 5 years, the organized retail activity growth is likely to peak in the metros; however, it will still remain at an early growth stage in the semi-urban and rural areas. The following diagram shows the organized retail industry cycle with the bold line depicting larger cities and dashed lines representing smaller cities and semi-urban areas: • Introduction: Marks the beginning of organized retail, primarily in metros with limited players and formats. 17
  • 18.
    • Growth: Showsa market with rapid growth which is ready for retail; players announce huge expansions, experiment with formats, set up supply chain and back-end for scaling up, hire and train talent and use hygiene and ambience as their unique selling proposition (USP). • Maturity: Growth reaches its peak; market is still growing but opportunities for new entrants decrease. Organized formats become well accepted and discounting becomes a norm. • Decline: A high level of penetration is reached; industry has undergone consolidation and is dominated by a few players. The window of opportunity becomes small. Unlike the West, India is likely to have a shortened evolution cycle with rapid growth in the coming years (similar to the growth story of China). Inspired by formats existing in the developed countries, players are fast setting up all kinds of formats. The kind of growth that the developed countries (USA and UK) had witnessed in 4 decades is being witnessed by India only in a decade. The first mall in the US was set up only after more than 20 years of retailing in the form of shopping centers. Lifestyle centers, specialty stores and multiplexes came up in the US almost after 4 decades. Within 5 years of major activity in the organized sector, specialty retailing is already gaining ground in India. The success of Indian retailers will not be determined simply by emulating the West. A player will succeed in the long run only if he keeps in mind the tastes and preferences of consumers and fulfils their needs. For example, opening of large stores in the outskirts may not work in India due to low auto density and inadequate public transport and infrastructure. India is primarily a consumption driven economy. With booming sectors like IT/ITES, real estate, financial services, etc, the country is witnessing both high affordability and willingness to spend at present. Organized retail has considerably grown only in the last 3-4 years. It is believed that the organized retail industry is currently in a growth stage due to the following reasons: • Players are experimenting with formats, markets and products and are succeeding in almost all new ventures • There is room for more players and formats; large domestic and international players are announcing new plans 18
  • 19.
    • There isa shortage of trained manpower, which is being solved by hiring and training local talent and employing people from related sectors, thereby creating a balance with expatriate employees • Most players are tapping the value segment through super markets and hypermarkets, as they have higher success rates. ANALYSIS OF THE INDIAN RETAIL SECTOR OVERVIEW The Indian retail sector is highly fragmented with 97% of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The 3% share of organized retail is quite low when compared even to the other emerging countries. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10% by the year 2010 bringing in a huge opportunity for prospective new players. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10% of India's GDP. THE EVOLUTION OF THE INDIAN CUSTOMER In the past few years the whole concept of shopping has been altered in terms of format and consumer buying behavior. With the increasing urbanization, the Indian consumer is emerging as more trend-conscious. There has also been a shift from price considerations to designs and quality as there is a greater focus on looking and feeling good (apparel as well as fitness). At the same time, the Indian consumer is not beguiled by retail products which are high on price but commensurately low on value or functionality. However, it can be said that the Indian consumer is a paradox, where the discount shopper loyalty takes a backseat over price discounts. Indians have grown richer and thus spending more on vehicles, phones and eating out in restaurants. The spending is focused more outside the homes, unlike in other Asian countries where consumers have tended to spend more on personal items as they grow richer. Spending on luxury goods have increased twice as fast with 2/3 of India's population is 19
  • 20.
    under 35, consumerdemand is clearly growing. The mall mania has bought in a whole new breed of modern retail formats across the country catering to every need of the value-seeking Indian consumer. An average Indian would see a mall as a perfect weekend getaway with family offering them entertainment, leisure, food, shopping all less than one roof. Indian consumer is also witnessing some changes in its demographics with a large working population being under the age group of 24-35, there has been an increasing number of nuclear families, increase in working women population and emerging opportunities in the service sector during the past few years which has been the key growth driver of the organized retail sector in India. The emergence of a larger middle and upper middle classes and the substantial increase in their disposable income has changed the nature of shopping in India from need based to lifestyle dictated. The self-employed segment has replaced the employed salaried segment as the mainstream market, thus resulting in an increasing consumption of productivity goods, especially mobile phones and 2 - 4 wheeler vehicles. There is also an easier acceptance of luxury and an increased willingness to experiment with the mainstream fashion, resulting in an increased willingness towards disposability and casting out from apparels to cars to mobile phones to consumer durables. Indians spend over USD 30,000 a year (in PPP terms) on conspicuous consumption that represents 2.8% of the entire population (which is approx 30 million people) making it the 4th largest economy in PPP terms next only to USA, Japan and China. Facilities like credit friendliness, availability of cheap finance and a drop in interest rates have changed consumer markets. Capital expenditure (jewelry, homes, and cars) has shifted to becoming redefined as consumer revenue expenditure, in addition to consumer durables and loan credit purchases. Trends in Present Retail Market New Product Categories: 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. 20
  • 21.
    The traditional foodand grocery segment has seen the emergence of supermarkets/grocery chains (Food World, Nilgiris, and Apna Bazaar), convenience stores (ConveniO, HP Speedmart) and fast-food chains (McDonalds, Dominos). It is the non-food segment; however that foray has been made into a variety of new sectors. These include lifestyle/fashion segments (Shoppers' Stop, Globus, LifeStyle, Westside), apparel/accessories (Pantaloon, Levis, Reebok), books/music/gifts (Archies, Music World, Crosswords, Landmark), appliances and consumer durables (Viveks, Jainsons, Vasant & Co.), drugs and pharmacy (Health and Glow, Apollo). Increasing competition in the retail market: New entrants such as Reliance, Bharti Enterprises and the AV Birla group will compete against well-established retailers, such as Pantaloon Retail, Shoppers’ stop, Trent, Spencer’s and Lifestyle stores. Foreign retailers are keenly evaluating the Indian market and identifying partners to forge an alliance with in areas currently permitted by regulations. With an estimated initial investment of USD 750 million, Reliance is planning to launch a nationwide chain of hyper marts, supermarkets, discount stores, department stores, convenience stores and specialty stores. These 5,500 stores will be located in 800 cities and towns in India. Increase in Private Labels: With the emergence of organized retail and modern retail formats, private labels have been gaining significance. They enhance the profitability levels of product categories, increase retailers’ negotiation powers and create consumer loyalty. More retailers are introducing their own brands in all categories including Food & Groceries, apparel, accessories, and footwear. These own brands also do not have to manage intermediaries since retailers maintain oversight of the supply chain. 21
  • 22.
    The label penetrationis in a huge rise. Private Label penetration has been on a rise. It is mainly growing among FMCG products in most supermarkets with groceries accounting for 45.9%. Expanding to Tier II and III cities: Indian retailers are planning to extend operations into Tier II and Tier III cities as heightened IT off shoring activity in these locations have increased consumers’ disposable income. The population in these cities is typically well educated and willing to purchase goods and services. Some major retailers, like Globus, Reliance Retail and Pantaloon, have already begun building a retail presence in Tier III cities before many retailers have finalized their Tier II retail operations. Foray into Retail Agri-Business: India’s most prestigious business houses and global retailers are planning to enter retail agri-business. Market entrants plan to invest in the entire value chain, moving goods “from the farm to the fridge at home.” Viewed as India’s next “Sunrise Sector,” retailers are employing contract farming as a means of boosting their ventures. Contract farming enables farmers to access land, manpower and farming skill without having to purchase land. Of the total Cultivable land of 400 million acres in India, contract farming represents 7 million acres thus indicating a tremendous opportunity. For pure corporate contracts between farmers and companies, only 2, 00,000 acres are used. Experimenting with formats: Selecting the right retail format is essential in modern retailing. The difference between urban and rural customers is one of the reasons why multiple formats are required in India. Local conditions and insights into buying-behavior shape the format choice. No single format will be suitable for an all India strategy and selecting the relevant format is the key success factor. Technology in Retail 22
  • 23.
    Over the yearsas the consumer demand increased and the retailers geared up to meet this increase, technology evolved rapidly to support this growth. The hardware and software tools that have now become almost essential for retailing can be into 2 broad categories. Customer Interfacing Systems: Bar Coding and Scanners Point of sale systems use scanners and bar coding to identify an item, use pre-stored data to calculate the cost and generate the total bill for a client. Tunnel Scanning is a new concept where the consumer pushes the full shopping cart through an electronic gate to the point of sale. In a matter of seconds, the items in the cart are hit with laser beams and scanned. All that the consumer has to do is to pay for the goods. Payment Payment through credit cards has become quite widespread and this enables a fast and easy payment process. Electronic cheque conversion, a recent development in this area, processes a cheque electronically by transmitting transaction information to the retailer and consumer's bank. Rather than manually process a cheque, the retailer voids it and hands it back to the consumer along with a receipt, having digitally captured and stored the image of the cheque, which makes the process very fast. Internet Internet is also rapidly evolving as a customer interface, removing the need of a consumer physically visiting the store. Operation Support Systems: ERP System Various ERP vendors have developed retail-specific systems which help in integrating all the functions from warehousing to distribution, front and back office store systems and 23
  • 24.
    merchandising. An integratedsupply chain helps the retailer in maintaining his stocks, getting his supplies on time, preventing stock-outs and thus reducing his costs, while servicing the customer better. CRM Systems The rise of loyalty programs, mail order and the Internet has provided retailers with real access to consumer data. Data warehousing & mining technologies offers retailers the tools they need to make sense of their consumer data and apply it to business. This, along with the various available CRM (Customer Relationship Management) Systems, allows the retailers to study the purchase behavior of consumers in detail and grow the value of individual consumers to their businesses. Advanced Planning and Scheduling Systems: APS systems can provide improved control across the supply chain, all the way from raw material suppliers’ right through to the retail shelf. These APS packages complement existing (but often limited) ERP packages. They enable consolidation of activities such as long term budgeting, monthly forecasting, weekly factory scheduling and daily distribution scheduling into one overall planning process using a single set of data The major reasons behind the development of new trends are:  Scalable and profitable Retail models are well established for most of the categories  Rapid Evolution of New-age Young Indian Consumers  Retail Space is no more a constraint for growth  Partnering among Brands, retailers, franchisees, investors and malls  India is on the radar of Global Retailer Suppliers. 24
  • 25.
    Challenges in Retail Thefollowing are the key areas that may pose a threat to those retail companies that ignore the impacts of giving less importance to manage their demand and supply: -  Forecasting and Inventory Management for JIT replenishments of products.  Peak Season Demand Handling.  Order Management in case of retailers with multiple outlets.  Warehouse Management in case of multiple outlets.  Introducing new products.  Handling variety of items. Proposed Supply Chain Strategies for Retail Industry 25
  • 26.
    Supply Chain Strategiesin Retail Bulk Breaking: Orders can be done in smaller lots with a good understanding with the supplier. This can be achieved by following ways: -  Spatial Convenience: Strategically locating the outlet with distribution networks and warehouses located proximally.  Supplier holds inventory. Vendor Managed Inventory: In this case, the vendor himself is given the responsibility to handle the inventory. A space for the vendor is rented in the outlet, and he takes care of the shelves and the space. It is a 2-way agreement wherein the vendor gets the space to market his product by interacting one-to-one with the customers. Point of Sale Information System: As soon as one stock-keeping unit moves out of the store when purchased by a customer, the information readily flows to the supplier. 26
  • 27.
     He isgiven access to the inventory database.  A re-order point can be imposed based on consumption pattern and the supplier is asked to fill the shelf upon inventory reaching the re-order point. SRM - Supplier Relationship Management:  Relationship with supplier should not be a marriage of convenience. Supplier has to act in ways more than what is required.  By providing special offers, discounts and incentives, the supplier savors the relationship. This also serves as a promotion strategy for the outlet. Competitive Areas of Importance Fulfillment: Stock filling is taken care of at both customer end (end product) and at the end of shelves at the shop. Reaching the customer at the right time and constant check on stocks and making sure right quantity is ordered at the right time. Logistics:  Safe and reliable transport at as much low price as possible.  Constant contact with distribution teams (trucks, trains, etc.) and track where material is.  Partnership with transportation firms so that cost and transport can be shared if the shipment does not occupy the whole truck space. Procurement: (Vendor’s side points to take care) 27
  • 28.
     Strong Relationship Information sharing and updating plan change  Combine vendors by minimizing transportation cost  Choose vendors in proximity  Optimum lot size taking vendors into confidence Production: Line should run smoothly without delays due to ordering and transportation (fulfillment and logistics have to be met first). Model in Detail Integrated Demand Management:  The sales in the outlet is kept track of bill after bill hour after hour.  Store register work is made online and paper work is done with.  Forecasting made with data on past consumption and present market trend.  Optional forecasting is made in case of seasonal requirements.  Periodic offers and incentives are made available to the customers to generate demand. Tips for Controlling Retail Inventory Part of the answer to the "buying problem" is inventory control. In fact, the biggest reason retail businesses fail is that they lack inventory control. However, when employed aggressively against competitors, effective management of your inventory can be a lethal weapon. Imagine doubling your inventory turnover rate (certainly not far-fetched with 28
  • 29.
    proper control): youcould sell product at half the normal margin and still gross the same amount of dollars in a given time period. Inventory control has been used to take down many competing retailers. Like much of the new technology available to business owners, Management Information Systems (MIS) is still evolving, and along the way it becomes both more sophisticated and less expensive. MIS tools can be implemented to gain a significant advantage over competitors. However, it is critical that you understand the uses and goals of an inventory management system before implementing. Possibly the best examples of inventory management come from big retailers. To put it simply: Kmart neglected inventory control and failed, and Wal-Mart concentrated on becoming the leading edge of inventory control and is now one of the world's largest companies. It is a common misconception among small retailers that only industry giants like Wal-Mart can use MIS effectively. Sam Walton himself began as a small retailer, but one of his most advantageous assets was his deep understanding of inventory control's importance. MIS is commonly regarded as a daunting system to implement by those with limited experience in this highly technical area, however it is critical to understand exactly what MIS can accomplish. Although internal hires are available, MIS is made greatly accessible to the small retailer by consulting companies. The basic goal of a point-of-purchase inventory control system is to provide information on profitability, status, and rate of sale for every item a retailer stocks, instantly. These metrics can then be used to improve inventory turnover and return on investment. Once an MIS infrastructure is established, it makes sense for the retailer to integrate vendors into the system. Vendors are subject to an incentive to keep their inventory on store shelves, and systems are available which provide vendors with sales and stock information directly from the point of sale system. Providing your vendors with timely information and making them responsible for maintaining inventory your overall efficiency is improved as your own 29
  • 30.
    workload is diminished.The net impact on your business is increased turnover rates and fewer runs on inventory. Anything that results in making the chain between Vendors, Retailers and Customers more efficient also results in additional profit. FRID, an example of an electronic recognition system, enables tracking of items via a computer chip embedded in the product or packaging, which is detected at various stages along the distribution process. Product information obtained in this way is uploaded instantly to the inventory control system, which reduces the time spent in receiving and stocking and allows for a more efficient shipping process. It is imperative for retailers to be aware of inventory performance and its effects on profitability. Inventory control is not, however, the answer to all questions. Inventory controls systems can tell you how the inventory in stock is performing. It doesn't tell you those new products you should carry. Buying is a great area of opportunity, especially for the small retailer who is close to customers and much more responsive to their demands than is the national chain. Of course, inventory control is not the ultimate solution to retailers' problems. For example, inventory control tells you what products are performing well, but it can't tell you what new products to stock. Inventory control is a great way for small retailers to act like one of the big guys, and gain an advantage over other small competitors. Primary Data Operations are classified into 3 functions below:  Management Function  General Merchandise 30
  • 31.
     Inventory &Credit Management MANAGEMENT FUNCTION Management is creative problem solving. This creative problem solving is accomplished through five functions of management  Planning  Organizing  Staffing  Directing  Controlling The intended result is the use of an organization's resources in a way that accomplishes its mission and objectives. Planning is the ongoing process of developing the business' mission and objectives and determining how they will be accomplished. Planning includes both the broadest view of the organization, e.g., its mission, and the narrowest, e.g., a tactic for accomplishing a specific goal. Organizing is establishing the internal organizational structure of the organization. The focus is on division, coordination, and control of tasks and the flow of information within the organization. It is in this function that managers distribute authority to jobholders. Staffing is filling and keeping filled with qualified people all positions in the business. Recruiting, hiring, training, evaluating and compensating are the specific activities included 31
  • 32.
    in the function.In the family business, staffing includes all paid and unpaid positions held by family members including the owner/operators. Directing is influencing people's behavior through motivation, communication, group dynamics, leadership and discipline. The purpose of directing is to channel the behavior of all personnel to accomplish the organization's mission and objectives while simultaneously helping them accomplish their own career objectives. Controlling is a four-step process of establishing performance standards based on the firm's objectives, measuring and reporting actual performance, comparing the two, and taking corrective or preventive action as necessary. Managerial levels and hierarchy The management of a large organization may have three levels: 1. Senior management (or "top management" or "upper management") 2. Middle management 3. Low-level management, such as supervisors or team-leaders 4. Foreman 5. Rank and File Top-level management  Require an extensive knowledge of management roles and skills.  They have to be very aware of external factors such as markets.  Their decisions are generally of a long-term nature  Their decisions are made using analytic, directive, conceptual and/or behavioral/participative processes  They are responsible for strategic decisions.  They have to chalk out the plan and see that plan may be effective in the future.  They are executive in nature. 32
  • 33.
    Middle management  Mid-levelmanagers have a specialized understanding of certain managerial tasks.  They are responsible for carrying out the decisions made by top-level management. Lower management  This level of management ensures that the decisions and plans taken by the other two are carried out.  Lower-level managers' decisions are generally short-term ones  Foreman / lead hand  They are people who have direct supervision over the working force in office factory, sales field or other workgroup or areas of activity.  Rank and File  The responsibilities of the persons belonging to this group are even more restricted and more specific than those of the foreman. General Merchandise In marketing, a product is anything that can be offered to a market that might satisfy a want or need. In retailing, products are called merchandise. It is an art and science of displaying merchandise within store, it is about implementing effective design, ideas to educate customer, create desire and finally increase store traffic and sales volume.  Home Lien Items  Electronic Items 33
  • 34.
     Mobile Zone Furniture  Star Sitara  Opticians  Men, Ladies and Kids wear  Foot Wear  Music  Toys  Stationery Inventory & Credit Operations (Using JETRMS Software) Inventory Management Inventory Management and Inventory Control must be designed to meet the dictates of the marketplace and support the company's strategic plan. The many changes in market demand, new opportunities due to worldwide marketing, global sourcing of materials, and new manufacturing technology, means many companies need to change their Inventory Management approach and change the process for Inventory Control. Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. Some of the new approaches and techniques are wrapped in new terminology, but the underlying principles for accomplishing good Inventory Management and Inventory activities have not changed. The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management 34
  • 35.
    and the activitiesof Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations. The basic building blocks for the Inventory Management system and Inventory Control activities are:  Sales Forecasting or Demand Management  Sales and Operations Planning  Production Planning  Material Requirements Planning  Inventory Reduction The emphases on each area will vary depending on the company and how it operates, and what requirements are placed on it due to market demands. Each of the areas above will need to be addressed in some form or another to have a successful program of Inventory Management and Inventory Control. JETRMS Software is classified in to 6 operations, which controls the Inventory, Credit and Security management Inventory & Credit Operations  Employee Management System  Scanning System  Smart System  Vendor Management System  Security Management System Employee Management System 35
  • 36.
     Employee Details Margin Tracking Smart System  Daily Sales Report  Billing Report  Total Discount & Revenue Reports Scanning System  Product Discount  Product Pricing Decision  Product Management Vendor Management System  Inventory Management System  Purchasing Order Management  Invoice Purchasing Order System Security Management  CHECK POINT SYSTEM  CC SYSTEM • Soft checks 36
  • 37.
    • Hard checks 7P’s of Services 1st P: PRODUCT  Product- refers to the merchandise i.e. the range of clothes.  Supplementary services -include a component of fashion, life style and Ambient shopping as an addition to the core product.  Today, customers buy experiences and not brands or products. 2nd P: PRICING Cost plus price and Percentage method pricing:  Most widely used technique to price apparels. Ex: - COLOR PLUS and IN-HOUSE brands like those of SHOPPER’S STOP or WESTSIDE use this technique. 3rd P: PLACE Apparel Retailing Business is driven by one crucial factor:  Location  Approachable 37
  • 38.
     Parking 4th P:PROMOTION  Print medium.  Loyalty programs  In-store Visual merchandising 5th P: PEOPLE  Every second a customer spends inside the store has to be viewed as Moment of Truth  “People” is that aspect of the marketing mix which adds tangibility to the service of creating an experience 6th P: PROCESSES 7th P: PHYSICAL EVIDENCE 38
  • 39.
     Managing Appearanceof the building & Location  Maintaining Temperature, Music, Lighting and Fragrance inside the store  Availability of services like Prams, Wheel Chair, Valet Parking etc  Stylish Stocking of Merchandise FUTURE TREND: SCOPE OF 24hr RETAILING The concept of 24hr. retailing in India has been present only in very limited formats like the pharmaceuticals (Apollo) and fuel retail outlets (H.P, Reliance etc.) and the other retail formats used to operate only till the early hours of the night. But because of the changing lifestyles and the buying habits of the consumers the retailers have been extending their operating hours till late nights. Most of the Indian retail formats though capable of operating their formats round the clock do not choose to do so because of the non feasibility of the idea at present taking in conjunction the customers’ readiness. For instance if any of the hyper market or supermarket is functioning during the night the retailer has to bear the extra costs of electricity, labor and maintenance if the number of footfalls are less very low during the late nights which otherwise would be profitable to him. Anyways, the shopping time of the consumer is considerably increasing. Moreover, in India most of the retailing is all about food and groceries. It might not be a rational prediction that all the consumers will step into the retail outlet at midnights to buy food and groceries. 39
  • 40.
    This problem canbe overcome by implementing the idea in places, which have a floating population even during the nights like railway stations and bus stations. However with the upcoming culture of malls and the changing lifestyles of the people one can design a small part of the store or a mall for a new 24/7 retail format which consists of the essential products like medicines, fruits and vegetables, groceries and some other FMCG products and test market it. Once if the sales start showing some consistent positive figures and if the crowd increases then the store can come in a bigger way to reach out to their customers. The other option for trying the concept of 24hr retailing is that the retailer can have a mobile outlet, which can place itself in the areas that have substantial night traffic for the sales to happen. And once the people are to the 24hr shopping then the retail plans can be altered accordingly. Rural Vs Urban Retail Trends India's largely rural population has also caught the eye of retailers looking for new areas of growth. ITC launched the country's first rural mall ‘ Chaupal Sagar’, offering a diverse product range from FMCG to electronics appliance to automobiles, attempting to provide farmers a one-stop destination for all of their needs. There has been yet another initiative by the DCM Sriram Group called the ‘ Hariyali Bazaar’, that has initially started off by providing farm related inputs and services but plans to introduce the complete shopping basket in due course. Other corporate bodies include Escorts, and Tata Chemicals (with Tata Kisan Sansar) setting up agri-stores to provide products/services targeted at the farmer in order to tap the vast rural market. Commenting on the Rural Retailing chapter in INDIA RETAIL REPORT 2005, Mr. Adi B. Godrej, Chairman, The Godrej Group (India's one of the leading corporate majors) said that his group had also launched the concept of agri-stores named 'Adhaar', which served as one- stop shops for farmers selling agricultural products such as fertilisers & animal feed and also providing farmers knowledge on how to effectively utilise these products. "There are 8 stores already operating in Maharashtra and Gujarat and further expansion is very much on the cards. He added. 40
  • 41.
    FDI could indeeddo a lot in this sector as entry of international retailers would bring in the required expertise to set the supply chain in place which would result in elimination of wastage, better prices and quality for consumers and higher income for farmers besides of course farm produce retailing getting a facelift, said Mr. Godrej. Tapping the fresh farm produce sector, the group plans to take its recently launched retail concept – Nature's Basket - to newer cities steadily. Godrej Group's Agro and Food division, Godrej Agrovet Ltd. (GAVL) operates the format, selling a variety of vegetables, fruits and herbs - both local and exotic thereby introducing the concept of 'farm-to-plate' to urbanites. Godrej plans to open four more Nature's Basket stores in Mumbai before taking them national. Setting up cost of a store is about INR 5-10 million and per stores sales are expected in the range of INR 30- Rs 50 million a year. Interestingly, the world's largest corporation, Wal-mart, also had its roots in rural America. Unlike many other retailers who started from urban centres and then trickled down to rural areas, Wal-mart had started from rural areas and then came closer to cities over a period of time. Many more such concepts are likely to be tested in the future as marketers and retailers begin to acknowledge that the rural consumer is more than a ‘poor cousin' of the urban counterpart. The IMAGES KSA Report avers that these concepts are likely to go a long way in bringing a huge untapped population within the purview of organized retailing, thereby, increasing the size of the total market 41
  • 42.
    The above chartmakes it clearly evident why the rural retail market has been attracting the big giants to invest in it. Urban Trends The urban retailing has been experimenting with many formats like the supermarkets, hypermarkets, specialty stores, multi branded outlets etc. and of latest it seems to be embracing the trend of mall culture. It is a rich man's world too, with multi-screen cinemas, restaurants, games and branded shops - well out of the reach of many of the country's one billion people. But India's middle-classes widely traveled and with deep pockets, are flocking to malls. RAPID GROWTH: India's organized retail industry accounts for just 3% of the country's total retail sales, though it is poised to grow by 97% per year in the next five years to a staggering $24bn. Fuelling this growth are India's sprawling shopping malls, which are increasingly challenging High Street stores, corner shops and village markets alike. Just five years ago, there were shopping arcades but no malls. Today there are nearly 100 big shopping malls in the country, more than half of them in Delhi and Mumbai alone. And in two years there will 42
  • 43.
    be 360 mallsacross the country. More than 20 are in various stages of development in Delhi and Mumbai. Among them is India's biggest shopping mall, Ambi, which is being built in Gurgaon, near Delhi. Spread over 3.2 million square feet, it is set to become a virtual town, where multi-screen cinemas, recreational facilities for adults and children, food courts and branded outlets will fill the space. It will have exclusive showrooms of international brands, where, according to the developers, customers will have to shop by prior appointment. Analysts comment that this is just the beginning and this is going to experience a ‘sea change’ once the platform is opened up for the FDI. Backdrop: then and now: Then Now •Self reliant mindset; closed economy •Liberal, open economy; entry of MNCs; high entrepreneurial spirit •High import tariff; high excise duty; low per capita incomes. •Reduced excise duty; low tax; high disposable income; affordable price •International brands unheard of; not much variety available. •Availability of variety •Shopping: a task •Shopping: an experience •Savings oriented; high interest rates on small savings schemes •Policy direction: more consumption oriented Changing retail scenario •USD 230b total; 3% organized modern formats  Organized retailing, then: garments, footwear and watches  Organized retailing now: expanding to food, grocery, jewelry, entertainment, cosmetics, home furnishing etc. •Booming consumerism  Socio-economic factors (USA 1960s, China 1990s) fuelling consumer spending  USA: Baby boomers attained spending age; strong economic growth (9-10%); shift in employment from primary to manufacturing; mass migration from rural areas to cities; “ready to splurge” 43
  • 44.
     China: Strongeconomic growth (10+%); significant unpicking investments and foreign fund inflows •Shift to organized formats (from kiranashops to hypermarkets) •Capital no longer a constraint –easy loans •Availability of quality real estate  Easing land regulations and releasing more land for retail; investment in real estate by organized players is on the up  100% FDI under automatic route for real estate development -townships over 25 acres of land or commercial/retail development on floor space of over 500,000 sq. ft. A glimpse into future •Massive expansion ahead –More floor space, penetration into Tier II cities –Experimentation with models: Hypermarket Big Bazaar, Giant, Spencer Malls Sahara, AnsalPlaza, Crossroads Department Stores Shopper's Stop, Pantaloon, Westside Convenience Stores ApnaBazaar, Food world, Nilgiris Specialitystores Bata, Titan, Tanishq, Raymond, Hallmark, Mc Donald, Pizza Hut Entertainment PVR, Adlabs, Inox Current changes •Organized formats booming in the South  Chennai, Bangalore, Hyderabad 44
  • 45.
     Lower realestate prices •12m retail outlets; most of them <500 sq. ft.  Highly fragmented •India: 6000 grocery outlets per million populations •Increasing sales through modern trade •79% of shopping done by women  Men still have strong influence on shopping decision (46% of cases) •Top 5 (organized) retail categories—by value  Clothing; food; consumer durables; footwear; furniture •Food, jewelry and beauty & personal care represent only a small percentage (1%, 2%, 2% respectively) •Highest penetration  Watches (40%), footwear (25%) and clothing (13.8%) Perspectives: food and grocery •Drivers  Busy lifestyle; pre-packaged, ready-to-eat preferred  Changed mindset from “packaged is stale”to “packaged is quality and hygienic”  The Eating Out Effect  Consumer spending is 40% on foods and grocery, but retail penetration is only 0.5%  Fastest growth prospect  Malls also drive growth 45
  • 46.
    •Future format: towardshypermarket Perspectives: apparel •Drivers  Fashion consciousness •50% of Indian youth are fashion conscious of which 37% are highly fashion conscious  Untapped segments like maternity wear, lingerie and school wear will be exploited  Going out and outdoor wear; peer acceptance •Future format: Specialty stores for the upper crest, private labels and discount stores for lower end • Drivers  Increased nuclear families and housing  Customizability (DIY)  Self-expression  Convenience (one stop shop) •Future format: Departmental store Recession  A Recession is a contraction phase of the business cycle.  National Bureau of Economic Research (NBER) is the official agency in charge of declaring that the economy is in a state of recession.  They define recession as: “Significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales”. 46
  • 47.
     For thisreason, the official designation of recession may not come until after we are in a recession for six months or longer. What Causes Recession?  An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years.  A recession normally takes place when consumers loose confidence in the growth of the economy and spend less.  This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment.  Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. • US Crisis Hits India US faced major crisis because of – • Sub prime mortgage crisis (home loan defaults) • Rising oil prices at $100 a barrel • Global Inflation • High unemployment rates • A declining dollar value All this slowed down the growth of the economy and as the GDP growth rate fell to 2%, recession set in. 47
  • 48.
    Low GDP growthindicating Recession in US Impact on India 48
  • 49.
    A slowdown inthe US economy is bad news for India because: • Indian companies have major outsourcing deals from the US • India's exports to the US have also grown substantially over the years. • Indian companies with big tickets deals in the US are seeing their profit margins shrinking. Anatomy of the economic depression in India  Share Market • More people have sold the shares in the Indian share market than they bought in the recent weeks. This has added to the fall of sensex to lower points. • Foreign investors have pulled out from stock markets leading to heavy losses in stocks and mutual funds • Stock broking houses are laying-off people • Because of such uncertainty many people have started saving money in banks rather than investing FDI IN RETAIL Global retailers have already been sourcing from India; the opening up of the retail sector to the FDI has been fraught with political challenges. With politicians arguing that the global retailers will put thousands of small local players and fledging domestic chains out of business. The only opening in the retail sector so far has been to allow 51% foreign stakes in single brand consumer stores, private labels, high tech items/ items requiring specialized after sales service, medical and diagnostic items and items sourced from Indian small sector (manufactured with technology provided by the foreign collaborations). Parties supporting the FDI suggest that the FDI in retail should be opened in a gradual phased manner, such that it can promote competition and contribute to the growth of the Indian economy. The impact of the FDI would benefit the end user of the consumer to a great extent and will help to generate a decent amount of employment as more and more entrepreneurs would be coming forward to invest and taste the new generation in retail marketing. The opening of FDI should be designed in such a way that many sectors - including agriculture, food processing, manufacturing, packaging and logistics would reap benefits. It can be said that this investment boom could change the face of Indian retail by 49
  • 50.
    offering quality goodsat lower prices to the consumers. In addition to this, the presence of global retailers will further enhance exports from India, as they would also source Indian goods for their international outlets in a big way leading to a remarkable increase in Indian exports. The various advantages of allowing FDI in retail are: • Inflow of investment and funds. • Improvement in the quality of employment. • Generating more employment. • Increased local sourcing. • Provide better value to end consumers. • Investments and improvement in the supply chains and warehousing. • Franchising opportunities for local entrepreneurs. • Growth of infrastructure. • Increased efficiency. • Cost reduction. • Implementation of IT in retail. • Stimulate infant industries and other supporting industries. And the possible drawbacks of allowing FDI in retail are: • Would give rise to cut-throat competition rather than promoting incremental business. • Promoting cartels and creating monopoly. • Increase in the real estate prices. • Marginalize domestic entrepreneurs. • The financial strength of foreign players would displace the unorganized players. • Absence of proper regulatory guidelines would induce unfair trade practices like Predatory pricing. 50
  • 51.
    SEGMENTS OF INDIANRETAIL The structure of Indian retail is developing rapidly with shopping malls becoming increasingly common in the large cities and development plans being projected at 150 new shopping malls by 2008. However, the traditional formats like hawkers, grocers and tobacconist shops continue to co-exist with the modern formats of retailing. Modern retailing has helped the companies to increase the consumption of their products for example: Indian consumer would normally consume the rice sold at the nearby kiranas for daily use. With the introduction of organized retail, it has been noticed that the sale of basmati rice has gone up by four times than it was a few years back; as a superior quality rice (Basmati) is now available at almost the same price as the normal rice at a local kirana Thus, the way a product is displayed and promoted influences its sales. If the consumption continues to grow this way it can be said that the local market would go through a metamorphoses of a change and the local stores would soon become the things of the past or restricted to last minute unplanned buying. Food and grocery retail: The food business in India is largely unorganized adding up to barely Rs. 40,000 crore, with other large players adding another 50% to that. The All India food consumption is close to Rs. 900,000 crore, with the total urban consumption being around Rs.330, 000crore. This means that aggregate revenues of large food players is currently only 5% of the total Indian market, and around 15-20% of total urban food consumption. Most food is sold in the local `wet' market, vendors, roadside push cart sellers or tiny kirana stores. According to McKinsey report, the share of an Indian household’s spends on food is one of the highest in the world, with 48% of income being spent on food and beverages. Apparel retail: The ready-mades and western outfits are growing at 40-45% annually, as the market teems up with international brands and new entrants entering this segment creating an Rs.500crore markets for the premium-grooming segment. The past few years has seen the sector aligning 51
  • 52.
    itself with globaltrends with retailing companies like Shoppers' stop and Crossroads entering the fray to entice the middle class. However, it is estimated that this segment would grow to Rs. 300 crore in the next three years. Gems and Jewellery retail: The gems and jewellery market is the key emerging area; accounting for a high proportion of retail spends. India is the largest consumer of gold in the world with an estimated annual consumption of 1000 tones, considering actual imports and recycled gold. The market for jewellery is estimated as upwards of Rs. 65,000 crores. Pharma retail: The pharma retailing is estimated at about Rs. 30,000 crore, with 15% of the 51 lakh retail stores in India being chemists. A few corporate who have already forayed into this segment include Dr More pen (with Life spring and soon to be launched Tango), Medicine shop, Apollo pharmacies, 98.4 from Global Health line Pvt Ltd, and the recently launched CRS Health from SAK Industries. In the south, RPG group's Health & Glow is already in this category, though it is not a pure play pharma retailer but more in the health and beauty care business. Music Retail: The size of the Indian music industry is estimated at Rs.1100 crore of which about 36percent is consumed by the pirated market and organized music retailing constitutes about 14 percent, equivalent to Rs.150 crore. Book retail: The book industry is estimated at over Rs. 3,000 crore out of which organized retail accounts for only 7% (at Rs.210 crore). This segment is seen to be emerging with text and curriculum books accounting to about 50% of the total sales. The gifting habit in India is catching on fast with books enjoying a significant share, thus expecting this sector to grow by 15% annually. Consumer durables retail: 52
  • 53.
    The consumer durablesmarket can be stratified into consumer electronics comprising of TV sets, audio systems, VCD players and others; and appliances like washing machines, microwave ovens, air conditioners (A/Cs). The existing size of this sector stands at an estimated USD 4.5 Billion with organized retailing being at 5% Segment wise share in organized retail: 53
  • 54.
    FDI RESTRICTION FUTURE OUTLOOKAND CHALLENGES At least 2 - 2.5 Million additional direct jobs are likely to be created in the next 5 years. Hyper-competition is expected to set in by 2009-11as the footprint of the top-5 players starts significant overlapping in top 20 - 30 towns. According to Assoc ham, the overall retail market would grow by 36 per cent with the organized sector expected to register three-fold growth to Rs 15,000 crore by 2009 The total size of the market is also expected to increase to Rs 14, 79,000 crore from the current level of Rs 5, 88,000 crore. 54
  • 55.
    The Big Bazaarsof India know God is in retail. Analysts swear by their stated corporate ambitions, promising growth potential and soaring performance graphs. Yet, indicators suggest that we are far from being declared as the tourism destination for retail therapy. The industry is facing a severe shortage of talented professionals, especially at the middle- management level. Most Indian retail players are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. Long intermediation chains would increase the costs by 15%. Lack of adequate infrastructure with respect to roads, electricity, cold chains and ports has further led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices. The available talent pool does not back retail sector as the sector has only recently emerged from its nascent phase. Further, retailing is yet to become a preferred career option for most of India's educated class that has chosen sectors like IT, BPO and financial services. Even though the government is attempting to implement a uniform value-added tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network. Stringent labor laws govern the number of hours worked and minimum wages to be paid leading to limited flexibility of operations and employment of part-time employees. Further, multiple clearances are required by the same company for opening new outlets adding to the costs incurred and time taken to expand presence in the country. The retail sector does not have 'industry' status yet making it difficult for retailers to raise finance from banks to fund their expansion plans. Government restrictions on the FDI are leading to an absence of foreign players resulting into limited exposure to best practices. Non- availability of government land and zonal restrictions has made it difficult to find a good real estate in terms of location and size. Also lack of clear ownership titles and high stamp duty has resulted in disorganized nature of transactions. 55
  • 56.
    In spite ofall these drawbacks, the future of retail in India is bright, mainly because of the untapped market potential here and saturated markets elsewhere. The retailers surely have to come up with innovative marketing and designing concepts in order to be profitable in India. A research by CRISIL has predicted that the penetration in the organized retail would be around 10% by the end of 2011. As calculated in the table below, this would require an investment to the tune of Rs 52 billion. This is arrived at by assuming a leased model of operation and does not include the cost of owning real estate. The estimate includes cost of furnishing, loss funding and working capital requirements (although retail is ideally a negative working capital business, working capital has been taken into account considering the early stage of business for players). In the long run, only a few players will dominate. Competition will intensify and the industry will witness consolidation. Once foreign direct investment (FDI) is permitted in the sector, India will see the entry of more global giants. When this happens, there will be rapid consolidation in few verticals. Among international players, lifestyle and home 56
  • 57.
    I can putthe issues confronting the Indian retail industry in the following table: 57
  • 58.
    Meanwhile, existing keyretailers like Pantaloon, RPG, Shoppers. Stop, Trent, Piramyd, etc are trying to capture a large market share though new markets, multiple verticals, formats and larger stores. Most players started their retail operations in larger cities. With increasing competition and multiple players catering to same catchments, players are entering smaller cities in order to gain a first mover advantage and grow, as it will give them a larger customer base and higher share of loyal customers. The share of these cities as a percentage of organized retail has been growing over the years; however, it still forms a small share of the organized retail pie. Although store sizes differ according to the city and the catchments, there has been an overall increase in the store sizes of large retailers. This clearly indicates the growing demand for organized retail and the efforts put by retailers to be a part of the retail growth story. Players such as Pantaloon, Shoppers Stop, RPG, Lifestyle and Pyramid have announced larger stores with sizes ranging between 60,000 and 100,000 square feet. However, these stores are smaller when compared with international standards. In most developed countries, there are large stores in the outskirts of the city. These are discount stores spread across an area of over 100,000 square feet catering to almost all household requirements. Some of these stores are almost as big as the malls in India. Indian retailers are experimenting and putting up stores that cater to the tastes and preferences of Indian consumers. Thus, in cities where the density of population is high, players might prefer setting up multiple stores instead of a few large stores capturing various segments, which would make it simple for the target segment to approach the store, save on time and the inconvenience of travel (in cities where public transport is not adequate). Learning from western countries, players are trying to capture the market share by bringing out formats catering to single verticals. Such chains are called specialty retailers or. Category killers. in the West. Many specialized stores have been set up with various food, apparel and footwear brands (both Indian and foreign) and companies like Godrej have already started 58
  • 59.
    furniture stores. HindustanLever Ltd, the FMCG major, is considering a retail chain for laundry products. Big players such as the Dubai-based Jumbo Group, Tatas and some small players are entering the electronics space. Other categories being explored by retailers are office products, toys, lingerie, chocolates, electrical products, paper products, stationery and furnishings. As these stores do not require much space, they will be set up as stores in malls rather than as standalone stores. Specialty/concept malls (catering to one category, concept, occasion or a particular kind of customer) have also sprung up in India. The western countries witnessed this development almost three decades after the advent of organized retail. Malls catering exclusively to women, weddings, and education and factory outlets are slated to come up in the near future. Players are also setting up smaller stores in residential areas (for the convenience of residents) in order to tap a larger market share. This encourages residents in the adjacent areas to buy from such stores, and thus, increases sales by expanding the target customer base and the retail spend of consumers. Such stores will increase the penetration levels of organized retailing. These stores are mostly food and grocery stores with lesser stock keeping units (SKUs) primarily targeting weekly replenishment or stores catering to impulse goods. The idea behind this is to get the customer to buy when he/she goes for an outing or shopping for other needs, thus increasing the spend on unplanned/impulse purchases. Both Music World (RPG) and Crossword bookstores have adopted this strategy and started corner stores at petrol pumps, multiplexes, and etc neighborhood areas. HUB AND SPOKE MODEL This model is being increasingly used by retail organizations for setting up smaller stores. Under this model, one large store becomes a hub with large stock and feeds a few smaller stores, which operate as spokes. Initially, large chains did not set up small stores in a big way. However, this model makes the process easier with large stores obtaining supplies from the warehouse and, in turn, supplying to smaller stores. Under this model, smaller stores can also procure the goods demanded by the customers from the hub store. Pyramid Retail’s Trumart stores (food and grocery) in Mumbai and Pune are based on the same model. There is a good possibility that in the near future, retail chains will tie up with 59
  • 60.
    traditional formats inthe areas, which are dominated by kirana stores and are difficult for the retailers to penetrate due to the unavailability of space and logistics problems. An arrangement akin to that of franchising might be followed whereby thekiranas will create an ambience similar to that offered by the retail chain and make it both easier and quicker for organized retailers to expand operations, thereby creating awin-win situation for both parties. PRIVATE LABELS Private labels are rapidly growing as organized retail is picking up pace in the country. Apparel and general merchandise have witnessed maximum private labels followed by the food and grocery segment. With inventory management in place, it is easier for retailers to integrate backwards in the supply chain and create private labels. Private labels are those that the retailer sells under his own brand. The retailer might outsource or manufacture in the case of apparel and accessories and package under his own label in the case of food items. These labels provide quality assurance to customers. Although they are priced lower than the premium brands, the gross margin earned by the retailer is almost double of what he earns by selling other premium brands. This is because the retailer saves at every step of the supply chain and can still sell at a price lower than the premium brands as no margin is to be given to the brand owner. These goods can be outsourced from the small-scale industries (SSI) and designed, packaged or labeled in-house. Companies are increasingly acquiring private labels in food and grocery and other valuebasedsegments. Hypermarkets sell both apparel and food items like tealeaves, sugar, spices, etc after outsourcing them and labeling them in-house. This enables them to provide cheaper products and gets higher stock turnover and margins. With a decline in import tariffs, the purchase options for retailers from other countries have also increased. If positioned in the right manner, the private label can lead to a significant advantage not only in terms of margins, but also as the brand is unique to the retailer. However, there are risks associated with private labels: • They might cause confusion in the mind of the customer in terms of brand value and recognition. If not designed, priced and promoted properly, these might end up staying on 60
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    shelves. The successof private labels depends on differentiation in terms of price, quality and style. Thus, in order to fulfill the needs of the customers, it is essential for the stores to maintain an optimum mix. • These products also lead to high risk of inventory. In case they are not sold, the cost of production or procurement often has to be borne by the retailer unlike the consignment arrangements with other branded goods where the unsold goods can be returned. Thus, the loss because of low sales or clearance sales has to be borne by the retailer. This risk is particularly high in apparel or fashion items. • There are other risks like those of line failure and style failure. However, with efficient supply chain management and designing teams in place, these do not pose a major threat. MALL DEVELOPMENT Unavailability of government land, zoning restrictions, high stamp duty and lack of clear ownership titles leads to difficulty in finding good real estate in terms of location and size. This increases transaction costs and leads to supply constraints. Thus, even if an area has affluent catchments, retailers might be unable to enter it (for example, South Mumbai). This problem is being solved by leasing space in malls. With sectors like IT/ITESretail, hospitality, healthcare and entertainment booming, the demand for commercial space has increased. Consequently, lease rentals have also skyrocketed. Rentals in established malls in metros have increased by more than 20-40per cent in the last 6 months. Some prime areas across various cities have witnessed the doubling of rentals. Rentals at prime malls like In orbit have doubled in less than 2 years partly as a result of demand for space. At a time when retailers need to lease more space to support their ambitious expansion plans, this is becoming a major hurdle. As retail is a low margin business, lease rental is the single most important cost constituent and any change in it can affect survival. Most retailers work out a rent-to-reveueratio (a level at which they can sustain their business) with mall developers. This figure usually varies between 4 per cent for a hypermarket and 10 per cent for a department store. Rentals 61
  • 62.
    constitute 3-5 percent of sales in developed markets like the US compared with the current levels of 10-15 per cent of sales for some Indian retailers. In nascent markets like India, retailers are paying an expensive price for a business where increasing competition is already putting pressure on margins. Lease rentals have come down in places like Gurgaon having a large number of malls. It’s expected that with the advent of new malls, the rentals will come down; however this will not happen in all areas. In areas like Dadar and Parel in Mumbai where malls are30being developed on the erstwhile mill lands, the rentals may be Rs 250-300 per square feet. At such levels, only high margin players will be able to make money and small players will not be able to survive.wth mall space becoming expensive, key retailers such as Pantaloon-Kshitij Investment Advisory Company Ltd (through Kshitij and Horizon funds), Shoppers. Stop (InorbitMalls, Rahejas), Provogue (Prozone), Piramyd (Piramal Group) have already forayed into mall development. In addition to related diversification into real estate, space also becomes easily available. Although malls entail significant investments (the construction cost of a mall of a global standard is Rs 1,500-2,000 per square feet) and may require even 5-10 years to break even, we believe that players can arbitrage by buying more space than required and leasing out the extra space at a higher rate. INCOME WISE CLASSIFICATION The initial expansion undertaken by most players was limited to the metros. However; gradually they are spreading to other large cities to gain from the first-moveradvantageand customer loyalty. Value formats; super markets and fresh food stores in particular are fast becoming popular in these cities. It is thus important to determine the potential of key cities or markets in India and how it will change over time. Cities with a largepopulationwill see the proliferation of value formats; however, some cities will form a larger pie of the total retail opportunity in spite of lesser number of households due to a large share of affluent population. There will be more wealth generated, and the disposable incomewillincrease. Roughly speaking, the Indian customers can be classified into thefollowingcategories based on the household income: 62
  • 63.
    Currently, the uppermiddle and the rich classes drive the retail boom. Although income shifts will happen, the middle class will remain at the same level. However, with rising income, their contribution to retail will increase significantly. With a large population belonging to the middle class, there will be maximum growth in the value segment. By 2011 as the underprivileged households move to the lower middle-income category, the households in the underprivileged category will decrease and those in the lower middle class will remain at almost the same level. GROUPING OF THE CITIES BASED ON THE MARKET SIZE Based on their market sizes, the various cities can be divided into certain buckets. Mumbai, Delhi and Kolkata are not grouped, because of their sheer size. Based on the2009data (CRISIL research), we can arrive at the following classification: 63
  • 64.
    The CRISIL reportpredicts that with GDP growth continuing as currently, the total retail opportunity in the top 25 cities will grow from Rs 2.2 trillion in 2009 to Rs.3.4trillion in2011. As the income distribution changes, cities with high-income growth will move to upper buckets based on the retail opportunity size. As the number of cities in the lower buckets change, their percentage share in the total will also change. 64
  • 65.
    Hence the abovetable might change to the following table in the year 2011: The mini-metros will attract more retailers and offer more customers. Pune and 65
  • 66.
    Hyderabad may growup to the size of Kolkata. Mumbai and Delhi will still remain the biggest markets. According to the CII research, Delhi alone will offer a retail potential ofRs 800 billion, with the largest number of households in the 10 million plus earning category. Hyderabad will be the fastest growing city and will have a retail opportunity of around Rs 310 billion. This number will be close to that of Kolkata, in spite of the number of households in Hyderabad being less than half of those in Kolkata. Chandigarh andCoimbatore will move to the group of Tier I cities with a retail opportunity of Rs 56billion and Rs 54 billion, respectively, similar to Ludhiana (Rs 54 billion) in spite of a low population. Vadodara and Vizag will move from the Tier III bucket to Tier II with an opportunity of Rs 36 billion and Rs 35 billion, respectively, slightly higher than that of Jaipur. The chart shows the current strategies of the existing big retailers for entering the Indian market – (The size of the bubble is proportional to the size of the market) 66
  • 67.
    a) Delhi isvery large. Of the total retail opportunity, 37 per cent comes from the households earning more than Rs 1 million per year. The lower middle and middle class in Delhi form 50 per cent of the total number of households and contribute to 38 per cent of the total market. There are more than 7,000 households earning more than Rs 10 million annually. However, these households account for only 5 per cent of the total households in Delhi. Unlike most cities, underprivileged households constitute only 7 per cent of the total number of households. According to the CRISIL research, in 2011, Delhi alone will offer a retail potential of Rs 800 billion, with the largest number of households in the Rs 10 million plus earning category. This is larger than the total opportunity of Bangalore, Hyderabad and Chennai. Thus, players with lifestyle formats are likely to succeed in Delhi. The number of malls in Delhi is already high. Moreover, Delhi is the fashion capital of India, with boutiques of most fashion designers. b) Mumbai – the potpourri of all income categories Mumbai, with a population of 3.8 million households, currently spends Rs 418 billion on retail. It has the largest number of underprivileged households, constituting 42 per cent of the population and contributing 12 per cent to the retail market. The retail spent of the lower middle class is 31 per cent and that of the middle class is 16 per cent. The rich class accounts for 30 per cent of total retail. Both lifestyle and value formats are likely to work in Mumbai, as the population in each category has a significant share in total retail. The linear structure of the city makes it important for retailers to cater to various catchments through multiple stores. Further, Mumbai has several affluent belts, which are likely to be dotted with lifestyle stores. It is projected that by 2011, the retail potential in Mumbai will increase to Rs 612 billion, with the upper middle and rich classes forming 50 per cent of the retail opportunity. c) Kolkata – glaring disparities in income In spite of being home to around 3 million households, Kolkata contributes only Rs 200 billion to the total retail. 51 per cent of the households in Kolkata belong to the underprivileged category and contribute to 23 per cent of the total retail. The lower middle and middle classes constitute 47 per cent of total households and account for 58 per cent of 67
  • 68.
    the retail market.Value formats are expected to do well in the city as 98 per cent of the households belong to the middle class and lower income categories. Lifestyle formats will be limited only to certain catchments and are unlikely to come up in a big way. The total retail opportunity in Kolkata is expected to increase to Rs 330 billion by 2011. Even then, the underprivileged and lower middle class will comprise 81 per cent of the total population. Upper middle and rich classes will account for around 6 per cent of the total households but their spent will increase to 40 per cent further highlighting the disparity in income. d) Bangalore, Hyderabad and Chennai – the mini-metros Bangalore, Hyderabad and Chennai have been grouped together as Mini MetrosI due to similarity in the type of households, income distribution patterns and growth history. These cities together have a current retail market of Rs 430 billion accounted for by 4.3 million households. Of these three cities, Hyderabad has the lowest share of underprivileged households. The importance of lower middle and middle classes is highlighted in these cities, as they contribute to more than 60 per cent of households and around 50 per cent of retail opportunity. With growth in the IT/ITES sectors, these cities will witness the largest transition from middle to upper middle and rich categories. The retail opportunity in Mini MetrosI will increase to Rs 720 billion in 2011, still lower than Delhi. Hyderabad will witness rapid growth among these cities and will have retail opportunity of around Rs 310 billion. This will be similar to the retail opportunity of Kolkata in spite of the number of households being less than half of those in Kolkata. e) Ahmedabad and Pune With about 2 million households, these cities currently have a retail market of Rs 158 billion. The retail market of these cities together is similar to that of Chennai. As compared to Mini Metros I, they have a larger share of the underprivileged category, with 39 per cent of the total households belonging to this category. However, Pune has a smaller share of underprivileged population as compared to Ahmedabad. The lower middle and middle classes contribute to 53 per cent of the number of households as well as retail sales. By 2011, the retail potential of these two cities will go up to Rs 245 billion. The underprivileged population in these cities will come down to 30 per cent. The middle class categories will contribute to 70 per cent of both opportunity and households. Both these cities are 68
  • 69.
    witnessing frenetic activityin retail and real estate. The number of malls expected to come up in Pune will be larger than that in any city in Mini Metros I. Post-expansion in the top 8 cities, retailers are now exploring Tier I, II and III cities of India. Most of these cities have witnessed proliferation of value segments through super and hypermarkets but lifestyle stores have not gained much ground. These cities account for a large aspirant population and have lower lease rentals. However, in the prime locations and market areas, lease rentals have significantly risen as these cities have a few prime locations unlike the metros. Ludhiana, Kanpur, Surat and Nagpur together have a Rs 190 billion-retail market (close to Rs 200 billion market of Kolkata) with 2 million households. These cities are among the fastest growing smaller cities in India. The lower middle class forms 59 per cent of the number of households and accounts for 51 per cent of the retail opportunity. The middle class contributes to 18 per cent of the retail market. Among these cities, Surat has the largest population; however, its market size is similar to other cities with a large section earning below Rs 100,000. Ludhiana has a significant population belonging to the affluent class. These four cities have already witnessed the penetration of both lifestyle and value formats. Tier II cities comprise Lucknow, Jaipur, Chandigarh, Coimbatore and Kochi, accounting for around Rs 154 billion of the total retail market. The retail opportunity and number of households of these cities together is similar to that of Chennai. These cities widely differ in terms of population and income distribution but have been clubbed together because of similar retail market size. Jaipur and Lucknow have a larger number of households; however, a major part of their population belongs to lower income categories. Chandigarh, Coimbatore and Kochi have a larger share of affluent households. The two lowest income categories account for 55 per cent of retail opportunity and 88 per cent of number of households. The Tier III group comprises Vadodara, Vizag, Indore, Vijaywada, Tiruvananthpuram, Bhopal, Nasik and Madurai. Cities like Indore and Bhopal are larger than some Tier II cities but have a lower share in total retail due to low-income growth. Some smaller cities in this category like Vizag are considerably growing with rapid economic growth. A total of 2.3 million households reside in these cities but they contribute to only Rs 132 billion of total retail due to their small size and high proportion of low-income households. It is predicted 69
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    that in 2011,Vadodara and Vizag will move out of this group and join Tier II cities. The retail opportunity from the remaining six cities will be around Rs 136 billion. These cities will mostly account for underprivileged and lower middle income households. Thus, value retailing will be popular in these cities. MATURING, TRANSITIONAL, EMERGING, HIGH GROWTH AND NASCENT CITIES In order to identify the likely future retail hierarchy and the nature of property opportunities, we can classify the various cities into five categories, based on the different stages in the market evolution and each offering a different set of opportunities for retailers and the property sector. We shall put the top 50 cities in the following broad categories: 1) Maturing Cities: Delhi/NCR and Mumbai are much above the other Indian cities in terms of number of shopping malls and organized retailers. Since 2003 their shopping mall stocks have increased markedly, and both cities have significant pipelines. Competition within the NCR and Mumbai will intensify as supply grows and there is risk of saturation in some market segments by 2008. Nonetheless, there are notable market gaps and both metros are sufficiently large and diverse to accommodate a wide variety of new formats, including large one-stop malls, specialty malls catering for luxury brands, city hypermarkets, smaller neighbourhood malls and “big box” retailing. The NCR and Mumbai will unquestionably continue to dominate the Indian retail scene, and despite strong growth in secondary and tertiary cities, there is every chance that these two cities will continue to have an approximate share of 40% of the Indian retail market for at least a couple of years to come. The NCR and Mumbai have by far the highest number of shopping malls in operation and planned. Most pan-Indian retailers have a multiple presence, they are the launch pads for most new retailer entrants and with by far the largest number of “super-rich”, and these cities are the hubs of luxury brands. They are firmly on the radar of screen of international retailers and property investors. Competition within the NCR and Mumbai will intensify as supply grows and there is risk of saturation in some market segments by 2009. Strong asset price 70
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    growth and difficultiesin land procurement make for a challenging environment for both retailers and developers. Nonetheless, there are notable market gaps and both metros are sufficiently large to accommodate a wide variety of new formats. Opportunities are likely to arise in:  Developing large one-stop malls that combine mixed use concepts, integrating retail, entertainment, eating and residential uses.  Catering for the numerous luxury brand retailers that are now targeting India’s two main metros. Currently, luxury brands are only largely present in major five star hotels (such as The Oberoi and Imperial in Delhi and the Taj Mahal Palace in Mumbai), but there is strong demand from these retailers for showrooms in both large shopping malls and specialty malls.  Responding to the requirement for “Big Box” formats; a format that is likely to emerge over the next couple of years.  Developing more accessible neighbourhood malls and hypermarkets within the cities. Most current and planned schemes are remote from the main residential areas, and low car penetration makes shopping malls inaccessible to many consumers.  Targeting the booming middle class residential suburbs, such as Greater NOIDA (NCR) and Navi Mumbai and Thane (Mumbai) where many of the IT/ITES companies are based; and focusing in particular on those suburbs that have yet to see significant mall development. The National Capital Region has been and continues to be the leader in mall culture in India. Organized retailing in the NCR is twice the size of Mumbai, both in terms of shopping mall stock and retailer presence. Rising income levels, increasing demand for branded products and wider acceptance of mall culture (than elsewhere in India) has led to massive growth in the shopping mall stock. Retailers are also attracted by the consumer profile of the NCR, with over 40% of households in SEC groups A and B. At present the total mall stock stands 71
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    at 8.2 millionsq ft, of which 2.6 million sq ft is within the city of Delhi. Most stock, however, is concentrated in the main suburban regions of Gurgaon (at 2.6 million sq ft), Ghaziabad (.2 million sq ft) and NOIDA (million sq ft). Organized retailing first came to the city with the construction of Ansal Plaza in South Delhi in 1999. However, it wasn’t until 2001 that the NCR saw the first shopping mall development boom, focused on the suburban market of Gurgaon, due to its booming IT/ITES sector and the availability of larger plots of cheap land. Gurgaon saw the development of several large format malls by developers such as DLF and MGF. NOIDA followed Gurgaon into the retail boom in 2003, and more recently Ghaziabad and Faridabad have both emerged as major retail sub-markets. The city of Delhi is also witnessing large-scale mall development, which has been made possible by the release and auction of land by the Delhi Development Authority. With a very large number of malls in the pipeline (the mall stock could potentially more than double to 22 million sq ft by 2009-10) the NCR will continue to lead India’s organized retail market. Mumbai’s first mall was completed in 1999 in the Central Business District (CBD). Since 2003 mall development has increased massively, expanding from the CBD to all parts of the island city and suburbs. Currently, Mumbai has a shopping mall stock of 4.0-millionsq ft, a figure that could rise to around 5 million sq ft by 2009-10. SBD Central (Worli, Prabhadevi and Mahalaxmi) and SBD North (Bandra, Andheri, Juhu and Santacruz) were the first micro-markets outside the CBD to see significant mall development in 2002-2003. Since then there has been steady growth in the number of malls and several new developments are slated for completion by 2009 in the western suburban regions. Another hot retail market is likely to be in the Parel area (in SBD Central), where the sale of mill lands has created considerable opportunities for mixed-use development. Other western suburban regions such as Malad and Goregaon have seen the development of integrated townships such as Mindspace. To cater for these residential townships, Raheja built the In-Orbit mall, which has become one of India’s most successful malls. The central suburban regions of Powai, Mulund, Navi Mumbai and Thane are emerging as Mumbai’s next hot retail markets, boosted by the growing activities of the IT/ITES sector and rapidly expanding residential areas. Both Navi Mumbai and Thane are set to witness huge mall development in the near future. Mumbai’s “high streets” such as Bandra Linking Road, Colaba Causeway, Breach Candy and Lokhandwala will continue to attract the Mumbai-ites. 72
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    2). Transitional Cities: TransitionalCities are now firmly making their mark on the retail sector. Whilst organised retailing is a more recent phenomenon than in the NCR and Mumbai, they are catching up as both retailers and developers tap into their large middle classes. Bangalore, Kolkata, Hyderabad, Pune and Ahmedabad all have significant mall development in the pipeline, while activity is also expected to accelerate in Chennai. By 2009 these six transitional cities are likely to account for one-third of India’s organised retail sector. Bangalore has the most aggressive shopping mall development plans, with a wide variety of retailers attracted to the city’s increasingly cosmopolitan population, and the city is a favored market to test new retail concepts. Retailers are attracted by their increasingly vibrant corporate sectors, high economic growth rates, above average incomes and large middle classes. Property, construction and labour costs are also well below the NCR and Mumbai. The majority of major domestic retailers and new market entrants, irrespective of their business models, are already expanding in these cities or have plans to open new stores. Testimony to the strength of Tier II cities, Reliance Retail chose to open its first concept store in Hyderabad. As with Tier I cities, the key opportunities are in large one-stop malls, speciality malls, neighbourhood malls and hypermarkets and “Big Box” retailing. Kolkata, Pune and Hyderabad currently have the largest shopping mall floorspace of the transitional cities. But Bangalore has the most aggressive mall construction programme, with a wide variety of retailers attracted to the city’s increasingly cosmopolitan population. Chennai has so far lagged the other transitional cities in terms of mall development, but is expected to start to catch up by 2009. 3) High Growth Cities: A small group of cities have over the past year entered a high growth phase. They include cities with substantial consumer spending power (such as Ludhiana), India’s most important tourist city (Jaipur), rapidly growing IT hubs (such as Chandigarh and Kochi), as well as 73
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    several other medium-sizedcities (including Lucknow, Surat and Vadodara). These high growth cities, mainly located in northern India, are perceived by retailers as the “next retail destinations”. Chandigarh, Ludhiana, Jaipur, Lucknow and Kochi lead the pack, characterised by high levels of shopping mall development and significant retailer interest. The Punjabi city of Ludhiana is the most favoured tertiary city since the incomes are well above the national average and consumers have a high exposure to international brands due to the strong influence of its NRI population. 4) Emerging Cities: On the basis of the future plans of major hypermarkets and department store retailers, a group of “emerging” cities is likely to be the next growth markets over a three year horizon. Factors such as growing incomes, rising aspirations, scarcity of branded stores and growing corporate activity are increasing the demand for organised retailing. In cities such as Nagpur, Indore, Nashik, Bhubaneshwar, Vizag, Coimbatore, Mangalore, Mysore and Thiruvananthapuram, IT/ITES companies are rapidly expanding their workforces, which in turn is stimulating retailer activity. These cities currently represent among the most interesting locations for property developers, as retailers scour these cities for opportunities, and demand far exceeds supply. This group also includes several major tourist destinations such as Amritsar, Agra and Goa, as well as a number of southern Indian cities which have so far been less impacted by organized retail than their northern Indian counterparts. These smaller cities have consistently outpaced the larger metros in economic growth rates, and they are witnessing strong growth in incomes. But even more significant is the changing lifestyles and aspirations, and the fundamental shift in the consumer mindset in smaller cities. Low property costs, lower operating costs and high brand acceptance in smaller cities are enabling retailers to achieve better margins than in India’s main cities. Retailers are introducing contemporary retail formats but at a smaller scale, with mall sizes typically between 100,000- 150,000 sq ft compared to 500,000 sq ft in the larger metros. 74
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    5) Nascent Cities: Afew smaller cities (most of which have populations of between 1- 1.5 million) are classified as “nascent”, largely reflecting low per capita incomes and limited corporate activity. Organized retailing is currently very limited, but they are on the “watch list” of pioneering retailers and mall developers that are seeking to benefit from first mover advantage. Progress towards the development of an active organized retail sector in these cities is likely to be slow, although market conditions can change rapidly should their local economies be boosted by new corporate arrivals. Jodhpur, Vijayawada and Varanasi are amongst the most popular tourist destinations in India, and their potential for organized retail is higher than other “nascent” cities. Others cities have significant manufacturing sectors, which have attracted department stores and hypermarkets. Pantaloon’s flagship brand “Big Bazaar” is already present in the majority of these cities. Developers like Prozone, are active in cities such as Aurangabad and Rajkot. Thus we see that significant new opportunities across a broad range of geographies and formats are being captured by an increasing number of domestic real estate developers and investors, all eager to participate in a market that is still at an early stage of evolution. However in the rush to expand retail formats and build new malls, many schemes fall well below international standards. As more choice becomes available for the Indian consumer, a lot of malls and retail concepts will fail the test of time. Moreover, most retailers will struggle to implement aggressive expansion plans due a lack of suitable and affordable property, inefficient logistics operations and shortages of manpower skills. A rapidly growing, but highly challenging retail environment will inevitably result in many losers as well as winners. 75
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    We can putthe characteristics of the classified cities in the following table: India’s Retail Hierarchy-Characteristics No. Of Cities Typical Metro pop n (Mills) Shopping Mall Development since: % Of National Organized Retailing (by2009) Typical no. Of Shopping malls (by2009) Format Opportunities Maturing 2 20 1999 40% 50-150 • Large Mixed Use Malls • Specialty & Luxury brands • Big Box • Neighborhood Malls Transitional 6 5-16 2003 32% 25-30 • Large Mixed Use Malls • Specialty & Luxury brands • Big Box • Neighborhood Malls High Growth 7 2.5 2006 11% 5-10 • Mixed Use Malls • Large Department Stores • Branded Stores • Big Box Emerging 16 1.5 2007-2009 13% 2-5 • Mixed Use Malls • Department Stores • Branded Stores 76
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    Nascent 19 <1.52011 3% 1-2 • First Mover Advantage • 100K+Shopping Malls • Supermarkets/Hypermarket CONCLUSION he future for organized retail in India is a bright one. The demographics, the sense of optimism and the deep-rooted entrepreneurial culture are ready ingredients for success. The retail industry needs to get organized and drive its own destiny. The government needs to be lobbied with, to help create a conducive environment so that the latent entrepreneurial spirit can get unleashed and ultimately value can be delivered to consumers who will push their shopping carts and participate actively in this great retail boom. While there are obstacles, there are clear opportunities in modern retailing in India. In such a scenario, preparedness of Indian retailers in terms of having appropriate formats, scalable processes, appropriate technology and relevant organization capability would be crucial to success. The Indian market is extremely price-quality sensitive; it makes sense to enter the gigantic market in a phased manner; hence for the multinational players it is imperative to have the right local partners – dealers, distributors and retailers. The Indian retail sector is ready to take on challenges from global retail players such as Wal-mart and Carrefour because unlike them, they have a better understanding of the Indian consumer’s psyche. Ultimately, a successful retailer is one who understands his customer. The Indian customer is looking for an emotional connection, a sense of belonging. Hence, to be successful any retail outlet has to be localized. T The customer should feel that it is a part of his culture, his perceived values, and does not try to impose alien values or concepts on him. Indian customer is not keen to buy something just because an international company sells it. Ultimately, it boils down to how much localization and adaptation the company is willing to do for India. Other than tremendous money power, global companies have nothing extra or special that the Indian retail business does not have. To use a clichéd phrase - We live in exciting times. Only three 77
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    percent of India’sretail market is organized. The future shows tremendous potential for growth in the retail sector. Almost all large companies worldwide are looking to establish a base or stake in the Indian market. In this scenario, the Indian retail sector itself must seize the initiative to realize the dreams of contributing to a prosperous and booming economy. The focus should be on the Indian horizon before looking for retail opportunities in other countries because India itself is a big retail market. And with the big cities getting saturated, the tier II cities hold the key for the prosperity of the retailers in India, provided they come up with innovations needed to suit the culture and demographics of these cities. We shall end with “Mr. Kishore Biyani’s famous gospel for retailing in India”– “Rewrite rules…but Retain the values”. 78
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    RECOMMENDATIONS 1) Retailers needto think about shoppers not just about a format as understanding the shoppers’ dynamics holds the key to such a business. Retailers would have to create new delivery formats that can cater to the huge mass of consumers. 2) Retailers must understand what value shopper is looking for and how the retailers can deliver that desired value to the customer. However, most retailers look for what they are offering and how shoppers can fit into retailer’s scheme of offerings. 3) It is also observed that in the changing retailing environment, understanding the psyche of customer is critical to success in retailing. Aggregate level picture may be misleading, as it averages the beats and the valleys. Hence, individual understanding is desirable. 4) Indian consumers are still family-driven entities. Shopping, entertainment and eating out are family events. Since these decisions are normally group decisions, hence a marketer has to address family sensibilities more rigorously to woo Indian customers. 79
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    5) Indian customershave become more sensitive to quality, customer service and status. He/She is ready to pay, sometimes; astronomical sums provided their needs are satisfied. They are basically looking for an experience, which is more of cognitive than physical. In brief: - Jo Dikhta Hai Wo Hi Bikta Hai. 80
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    REFERENCES Websites: 1. www.google.com 2. www.etretailbiz.com 3.www.mothersprideonline.com 4. www.futuregroup.com 5. www.rbk.com 6. www.retailindustry.about.com 7. www.pantaloon.com Books: 1. MARKETING MANAGEMENT by Philip Kotler 2. ORGANIZATIONAL BEHAVIOR by Stephen P Robbins. 3. CONSUMER BEHAVIOR by Leon G. Schiffman & Lesile Lazar Kanuk MAGZINES: Business today Business world - The Marketing White book, 2008 Press Sources: Economic Times Business Standard 81