CHAPTER 1: INTRODUCTION

1.1. THE RETAILING PROCESS

The retailing as a process is least understood in India. For a start up, it is

important to have a comprehensive view of what retailing means and where he
wants to focus on. Most of the world player like Wal Mart-Mart, Circuit city,
Sears has developed in house expertise in each of these processes. The Indian
organized sector needs to understand how to manage each of these processes
and success will be contingent upon mastering them.

The following is the process involved in starting a retail outlet:

 SITE SELECTION: Market selection, site selection, site acquisition,

store design, store construction and store upgrading and remodelling.

 ASSORTMENT PLANNING: Choice of target assortment, product

development, vendor management, outsourcing merchandise
management.

 MANUFACTURING AND SOURCING: Buying raw material,

Manufacturing Buying finished goods, arranging delivery, payments.

 LOGISTICS AND DISTRIBUTION: Ordering and allocation, freight

forwarding, warehousing, distribution, inventory management and
replenishment.

 MARKETING AND BRANDING: Marketing definition research,

brand strategy, pricing, developing advertising strategy, organizing
support events, marketing monitoring.

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  IN STORE OPERATION: Creating store environment, recruiting,
training labour, Managing store operation, selling to and serving
customer, handling after sales services.

1.2. MANAGING A RETAIL STORE / CHAIN

The retailers have to manage their business effectiveness to grow and succeed
as any other businessmen .The organized retail sector must be professionally
controlled to make a mark in the market. Managing retail stores would involve

I. Operational Management
II. Customer service management
III. Advertising management

I. OPERATIONAL MANAGEMENT
In Operational Management, the operations of the store are to be taken care of,
in terms of

a) STORE LOCATION AND SIZE: The initial decision whether to

locate the store in a planned shopping centre and increase productivity
or locate in an unplanned business district and create your own market.
The size of the store will depend on the availability of land; finance
and the customer response expected them.

b) SPACE ALLOCATION: The emphasis is on allocating store between

different product and brands. They must use the facilities as
productively as possible and determine the amount of space and its
placement for each product category. The space allocation can be

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 standard or customized (Micro merchandising-as per target customers,
their shopping habits and preferences).

c) STORE MAINTENANCE: This includes managing the retailer’s

physical facility, both external and interior. In external –the parking
lot, points of entry/exit, outside sigh, display windows and in internal –
windows, walls. Flooring, climate control, sign and lighting are the
important things to be considered.

d) INVENTORY MANAGEMENT: This include proper management of

merchandise, assortment and includes management between
Retailer and Supplier (for placing order)
Supplier and Retailer (delivery)
Retailer and Customer (sale)

e) STORE SECURITY: To avoid shopping and theft, proper security

system must be implemented.

f) CREDIT MANAGEMENT: Whether accept cash, credit or both from

customer. Clear instruction to be given to the customers in case of
acceptance of Cheque

II. CUSTOMER SERVICE MANAGEMENT

This is the most critical part to be managed. It include the services offered to
the Customer before, during and after sales like credit, delivery, packaging,
trial purchase, special sales, extended store hours, tailors, baby-sitting, pay
phones and restrooms

III. ADVERTISING MANAGEMENT

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Advertising is a paid presentation of a message on behalf of a product, service
or an idea by an identified sponsor to a mass audience. The objective is to
create awareness, increase disposition to buy, provide information, retain
patronage or enhance store image. A retailer must be clear about the target
segment he intends to address and the message he intends to convey.

1.3. CLASSIFICATION OF RETAIL FORMATS

Broadly the organized retail sector can be divided into two segments, In-store
retailers, who operate through fixed point of sale outlets and designed to
attract a high volume of walk-in customers, as referred to as the brick-and-
mortar formats, and the Non-store Retailers, who reach out to the customers at
their homes or offices through direct selling, telemarketing and E-commerce.
The common formats of brick-and-mortar retailing can be summarized as
follows:

FORMATS DESCRIPTION VALUE PROPOSITION

Focus on a specific
Greater choice to the
SPECILITY STORE product category,
consumer, Comparison
(Multi-Brands) Medium sized layout
between brands possible
in strategic location
Exclusive store
owned/managed or
EXCLUSIVE Complete range available for
franchised out by a
BRAND Or a specific brand or
given brand or
COMPANY manufacturer with certified
manufacturer; Can be
OUTLET product quality
Exclusive Single-
brand store

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 Large store having a
variety of products,
DEPATMENT Organized into
One-stop shop catering to
STORE (Multi- different departments
varied consumer needs,
product/Multi such as clothing,
Service as differentiator
Brands) house ware etc;
skewed towards
apparel
Small self service Convenient, multi-
CONVENIENCE
formats located in functional, extended
STORE
crowded urban areas operating hours
Stores offering
discounts on the retail
price through selling
DISCOUNT STORE Low-prices
high volume and
reaping the
economies of scale
Large multiple &
cohesive self-service
retail outlets, catering
One-stop family shop in food
SUPERMARKETS to varied customer
& household categories
needs, located in
residential high
streets
Very large store with
focus on a specific
CATEGORY Consumer get extremely
products category,
KILLER (Multi- wide choice of brands in a
located in busy
Brands) specific product category
marketplace in large
cities

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 Huge multi-divisional
layout with a
Low-price, vast choice,
warehouse-like
HYPEMARKET including service; value
appearance, generally
drivers
located in remote
parts of a city
A huge enclosure
housing different
Variety of shop available
formats of retailers,
close to each other, all under
Form ideal shopping
MALLS a common roofs &uniforms
destination in Metros,
shopping environment; ideal
large cities and easily
hangouts
accessible urban
outskirts/rural setting

1.4. PRIVATE LABEL BRANDS OR STORE BRANDS:

1.4.1. BACKGROUND

Store brands are products developed by a retailer and available for sale only
from that retailer; some retailers may attempt to utilize this measure of
exclusivity to differentiate them from the competition. Store brands help
retailers to increase sales which indirectly add to the bottom line (profit).
However store brands are priced 20-30%less than the branded goods. Store
brands can used as a powerful tool i.e. The general feeling is that in times of
recession, private labels increase their market share, but tend to maintain that
market share as economies recover. Thus store brands prove to be a useful
tool, depending upon how it is created.

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The definition of private label branding has evolved significantly over time.
Some would argue the term “private label” is a misnomer of great proportions.
There is no question that the words “private label” acknowledges the birth,
history and existence of generic and store brands. Yet, the term does not
adequately capture the extent to which private label has progressed. Today's
retail marketers are managing their proprietary brands with the same
combination of care and innovation as manufacturers of national brands.

In recent years, retailers have been liberating themselves from the traditional
definition of private label marketing as being the poor relative of national
brand consumer goods, and, in doing so, opening up huge opportunities for
private label branding. These opportunities require the adoption of a different
set of marketing and branding practices to support and propel the retailer’s
business and marketing ideals for its private label brands.

The key to successful marketing management for today’s retailers is to

understand the contribution and role of their proprietary or “own” brands in
the long-term business strategy and marketing mix of the retail store and
consider both the supply side and the demand side of the equation. Effective
category management can enable retailers to solidify and optimize supply-
chain relationships. Strategic brand management goes hand in hand with these
endeavours to establish sustainable points of difference in each aisle and
segment within the store. It also spurs decisions about how to appropriately
define the retailer’s “own” brand portfolio in order to galvanize consumers to
connect and reconnect with its franchise in a compelling manner.

1.4.2. HISTORY

Private Label brands were traditionally defined as generic product offerings

that competed with their national brand counterparts by means of a price-value

7
proposition. Often the lower priced alternative to the “real” thing, private label
or store brands carried the stigma of inferior quality and therefore inspired less
trust and confidence. Yet, they still grew and prospered by providing
consumers lower priced options for what was often a low involvement
purchase decision. Retailers continued to push more and more private label
products into different categories of the marketplace because they represented
high margins and the promise of profitability with little to no marketing effort.

Over the years, this proliferation of private label offerings perpetuated a

myopic approach to private label brand management. Previously successful
yet, currently failing private label brands clued today’s retailer into some
important pitfalls to avoid in proprietary brand portfolio management. Most
importantly, these examples underscore a need for private label marketers to
be cognizant of how their initiatives play a role in the overall marketing mix
and the long-term definition and impact of their portfolio.

Historically, private label retailers appreciated that it was important to tout

certain category and product benefits to incite consumers to purchase. Yet,
rather than looking at the consumer directly to understand his brand and
product selection criteria, they took their cues from the national brand
competitors that had already identified and manifested some of the category’s
salient attributes and benefits through advertising, packaging and other brand
messaging. The result was often a series of “me-too” private label positioning
that strived to emulate the category leader.

This approach to private label management had resounding impacts on a

category as a whole as well as the individual product offerings within it. By
commoditizing their private label products, retailers undermined and
commoditized a category’s overall potential. They adopted the role of the
omnipresent, cheaper choice and often forced branded competition to lower

8
their prices to compete, thereby erasing margins for national products and
private label alike. It also created missed opportunities for all category players
(manufacturers, suppliers or retailers), since they were not considering latent
or untapped consumer needs that their category had the ability to fulfil.

1.4.3. NEW DEVELOPMENTS

Private label brands have clearly become a more instrumental priority for
today’s retailers. They are starting to diversify their offering beyond the
expected, enabling them to compete more effectively in existing product
categories and foray into new and different product categories that have
traditionally been dominated by national brand players.

In many instances, private labels have surpassed a national brand’s capacity to

deliver on visibility, consumer interest, involvement and appeal. Proprietary
brand decision makers are often able to command close to parity or parity
pricing for their products, without articulating cost as the differentiating factor.

This represents a point of departure from the past: there is an

acknowledgement that today’s proprietary brands have the ability to transcend
the negative baggage and problems of traditional store brands, creating unique,
resonant benefit propositions for consumers. Retailers are beginning to
recognize that they cannot simply rely on national branded products to draw
consumers into their stores and sustain loyalty.

There are certain contemporary brands that have either been placed on a
pedestal or carefully noted by retail marketers and consumers alike. Their
situations and strategies start to lend insight into a more compelling definition
for a retailer’s proprietary brand offering and more importantly, a sense of
how to optimize success as an exclusive, proprietary brand.

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Perhaps the strongest success story in this regard was that of the Marks &
Spencer brand in the late 1980s and early 1990s.

1.4.4. BRANDING TRENDS

In order to be truly successful, retailers must advance from the generic or store
brand mindset of the past to a new private label paradigm. Many retailers have
begun to describe their private label brands as “own” brands because there is
recognition that these proprietary, exclusive offerings are tools that represent
momentous power and potential for the retail store.

The term “own” brands acknowledges that today’s visionary retail marketers
have powerful proprietary portfolios that they control and manage and there is
potential to reap bigger and better rewards by taking a closer look at the way
they orchestrate the role and expression of these brand offerings in the eyes of
consumers in each product category. Those retailers who appreciate the
magnitude of this brand opportunity have created a new industry standard in
their realm of influence and activity.

“Own” brands are articulated and developed in a way that they not only fit
with the brand promise of the retail store, but if effective, they also give
consumer drivers a key point of departure to enhance and celebrate the overall
retail brand proposition to keep consumers coming back for more.

1.4.5. CONSUMER PERCEPTION

In order to have store brands or any other product, it is more sensible to know
the consumer buying system or their buying behaviour. The management has
to know about the retail buying process of a consumer to have success of both
long term and short term.

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The buying process of a consumer is as follows:
Figure 1.11: consumer buying process.

Thus the consumer behaviour starts with arousal of need and ends with post
purchase behaviour, which would result in store loyalty.

Though the buying process goes like the above chart, there are some factors
that would influence the decisions of the buyer.

Figure 1.12: Factors influencing consumer decision making.

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1.4.6. RETAILER’S MINDSET AND GOALS

There are certain objectives that a retailer has in mind before getting into
private label goods. Figure lists the benefits that a retailer expects from the in-
store brands.

Figure 1.13: Benefits of private label brands to a retailer.

Higher Margins- Private label goods are cheaper to produce than branded
goods. Besides, due to the lack of advertising and marketing expenses they
provide double advantage to the retailer when it comes to the profit margins.
While majority of branded goods provide margins in the range of 6-12%,
private label goods can offer margins up to 40%. Not only they give a higher
margin to the retailers, private labels have also changed the balance of power
between brand manufacturers and retailers, giving the latter a decided
advantage when negotiating terms with the brand manufacturers.

Stronger Customer Loyalty -As the private label offerings increase and the
quality is assured; a high sense of loyalty is cultivated among its customer
base. This customer loyalty is the result of an affinity with the retailer brand
which implies that the development of private label brands can tangibly
enhance the retailer’s brand itself. So in the long run, the private labels
become an important tool for the retailer to establish its positioning and

12
strategically attract the target customers to its outlet. Numerous studies have
also shown that private label buyers are more store-loyal and not as easily
influenced as brand buyers.

Differentiation- Through private labels, retailers get a chance to bring in

unique products in their supply chains that have not been branded before. So if
a retailer can cater to the local tastes and preferences of the consumers will
buy top quality private labels then they can differentiate themselves from other
stores and become destination stores. In effect, it’s a win-win situation even
for the producers who get a chance to display their produce.

Freedom with Pricing Strategy- A retailer promoting a private label has the
added benefit of greater freedom to play with pricing strategies, as a result of
which these are overall cheaper than brand leaders. For instance, in USA,
some private labels are 25 percent cheaper than leading brands. In addition,
since it is an own private label, the retailer has the freedom to create its own
marketing strategy and have more control over its stock inventory. This
command of all the stages that a product goes through, gives the retailer high
flexibility in pricing.

Positioning during economic downturns- The growth of private labels is

likely to continue in the current financial environment as cash-strapped
consumers' perception of the products as a cheaper option changes. The price
advantage of private labels leads to the belief that these score in times of
economic meltdown, and further that this newly-acquired market share is
maintained even as the recession swings out. Even after the economy bounces
back, consumers will naturally gravitate towards products marked at lower
prices yet offering the same quality, especially where the retail name is a
trusted national or regional player.

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1.4.7. STORE BRANDS CREATION FACTORS

There are many factors and things to be considered before introduction of the
store brand. The following are very important in order to make the brand a
successful one; if the following is not right then the brand cannot have a long
term success.

a) Target customers:
Though there is a good response for the store brands introduced by the
retailers, it should be directed towards target customers i.e. to whom the
products must reach. More over for a retail store, the target customers would
be the people above middle income group and people above high income
group (very rich). Because they are people with more income and as a result of
it they are often making visits to the retail store.

PricewaterhouseCoopers (PwC) report claims that the number of households

earning more than Rs.45000 will go up from 30 million in 1999-2000 to 81
million by 20015-16. It also further claims that the number of 'very rich'
households will increase six fold from 1 million to 6 million during the same
period.

The PwC report further adds that the 'consuming class' and 'climbing class' –
the two segments that offer tremendous opportunities to retailers are expected
to grow by 38.8% from 124 million households in 1994-95 to 159 million
households by 20015-16. This increase in the consuming class will lead to
greatly increased purchasing power, signalling a bright future for the
organized retailing. So with the above facts if target customers are targeted
correctly then it do wonders for the store. The income of the people is on a
rise, so if the product is liked by them then it would be a successful one for the
outlet.

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b) Identify the needs of target customers:
Having the target customers, the store has to find the needs of the people
which remain unsatisfied. The needs of the customers have to be given due
importance because the consumers buying behaviour starts with it. If the needs
are found, a product can made in such a way that it satisfies their need. If the
consumer finds that the product is satisfying him then the retail store brand
can be successful one. In order to identify the needs of the people, survey can
be made on the target customers. If this is costly, then information is got from
the key customers.

Feedback is got from the customers regarding their brands performance and if
any need is found not satisfied, the store would be designing a product based
on that. The store is also getting information voluntarily from their customers
i.e. they would be giving the information to their salesmen voluntarily and
they are using this in order to design or develop a product.

c) Quality of the product:

First and foremost thing which makes the consumer to buy the product is the
QUALITY of the brand. If the quality of the product is good then customers
will be attracted towards it. When the quality is good, during alternatives
(consumer behaviour) are evaluated, the consumer attaches more importance
to the retail brand. The store attaches more importance to the quality of their
brands and on anything else.

d) Price of the brand:

Price plays an important role in the creation of store brand. Most of the store
brands are purchased because they are priced 10% to 40% below the national
brand. Because of this most of the consumers are attracted towards the brand
and this also used to differentiate the store brand and the national brand.

15
In some it can also be premium store brands. There are two strategies for this.
The first strategy is to identify the gap in the market in accordance launch a
premium store brand.

e) Positioning:
Positioning attracts the customers a lot easily towards the brand. When
positioning of the store brand is perfect, then pricing the brand above premium
is possible. Moreover, when introducing store brands, retailers may use either
a differentiation strategy or an imitation strategy in positioning the store
brands. "Food Bazaar" positioned its private salt brand as premium health salt
which is available in the price of the ordinary salt. It enjoys 40 - 45% market
share in its category among all the "Food Bazaar" outlets. Thus it has used the
differentiation strategy and got success. The long-term losses that can happen
due to retaliation (imitation strategy) from national brand manufacturers who
may withdraw promotional and advertising support, which are essential to the
development of the category itself. Such support helps the whole category
because it builds awareness and drives traffic to the store.

f) Packaging:
Packaging plays a very important role because even if the customers are not
aware about the store brand, the packaging will make the consumer to see the
product and it makes the customer to inquire about the product. The store have
a special unit for packing their store brands and the design, look etc., of the
package is vested with the packing unit. It is already said that the customers of
the retail outlet will be middle and upper class people. So the packaging
should be in such a way that it matches their taste.

g) Training to the employees:

Training is said to be important because the customers of the store will not be
aware about the store brands, its uses, its merits, etc. In order to fill this gap

16
the employees of the store must be given adequate training regarding their
brand. Every time when the store introduces its new store brand, they are
providing one month training to their employees. The main advantage of
giving training to the employees is that, media advertising is not given for the
store brands, so the training can act as a substitute for advertising.

h) Promotion of the store brand:

Promotion is that aspect of marketing communications that keeps the product
in the minds of customers and helps stimulate trial and repeat purchase. Most
retail owners and marketing managers are familiar with promotional strategies
such as:
 Advertising
 Personal selling
 Sales promotions (buy one get one, coupons, introductory offers, etc.)
 Public relations & publicity
For a retail store, media advertising is not needed, because it is already
provided by the national brand.

Figure 1.15: strategies adopted by private label brands.

The above chart shows how store brands create customer loyalty and also how
it competes with the national brand.

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i) Feedback from the customers:

Feedback can be got from the customers regarding the store brand's
performance and its improvement. Feedback gives the satisfaction level of the
customers. The store receives feedback from the customers regarding their
brand's performance. Feedback can also be used for improving the qualities of
the brand.

1.5. RETAIL INDUSTRY IN INDIA

1.5.1. BACKGROUND
India being a signatory to World Trade Organization’s General Agreement on
Trade in Services, which include wholesale and retailing services, had to open
up the retail trade sector to foreign investment. There were initial reservations
towards opening up of retail sector arising from fear of job losses,
procurement from international market, competition and loss of
entrepreneurial opportunities. However, the government in a series of moves
has opened up the retail sector slowly to Foreign Direct Investment (FDI). In
1997, FDI in cash and carry (wholesale) with 100 percent ownership was
allowed under the Government approval route. It was brought under the
automatic route in 2006. 51 percent investment in a single brand retail outlet
was also permitted in 2006. FDI in Multi-Brand retailing was prohibited in
India.

In 2004, The High Court of Delhi defined the term ‘retail’ as a sale for final
consumption in contrast to a sale for further sale or processing (i.e.
wholesale). A sale to the ultimate consumer. Thus, retailing can be said to be
the interface between the producer and the individual consumer buying for
personal consumption. This excludes direct interface between the

18
manufacturer and institutional buyers such as the government and other bulk
customers retailing is the last link that connects the individual consumer with
the manufacturing and distribution chain. A retailer is involved in the act of
selling goods to the individual consumer at a margin of profit.

The retail industry is mainly divided into:-

Organized retailing refers to trading activities undertaken by licensed

retailers, that is, those who are registered for sales tax, income tax, etc. These
include the corporate-backed hyper markets and retail chains, and also the
privately owned large retail businesses.

Unorganized retailing, on the other hand, refers to the traditional formats of

low-cost retailing, for example, the local kirana shops, owner manned general
stores, paan / beedi shops, convenience stores, hand cart and pavement
vendors, etc.
The Indian retail sector is highly fragmented with 97 per cent of its business
being run by the unorganized retailers. The organized retail however is at a
very nascent stage. The sector is the largest source of employment after
agriculture, and has deep penetration into rural India generating more than 10
per cent of India’s GDP.

1.5.2. POLICY LANDSCAPE

Indian market has high complexities in terms of a wide geographic spread and
distinct consumer preferences varying by each region necessitating a need for
localization even within the geographic zones. India has highest number of
outlets per person (7 per thousand) Indian retail space per capita at 2 sq ft
(0.19 m2)/ person is lowest in the world Indian retail density of 6 percent is

19
highest in the world.[1 1.8 million households in India have an annual income
of over 45 lakh (US$81,900).2

While India presents a large market opportunity given the number and
increasing purchasing power of consumers, there are significant challenges as
well given that over 90% of trade is conducted through independent local
stores. Challenges include: Geographically dispersed population, small ticket
sizes, complex distribution network, and little use of IT systems, limitations of
mass media and existence of counterfeit goods.3

The retailing is one of the pillars of its economy and accounts for 14 to 15
percent of its GDP4. The Indian retail market is estimated to
be US$ 450 billion and one of the top five retail markets in the world by
economic value. India is one of the fastest growing retail markets in the world,
with 1.2 billion people5.

India's retailing industry is essentially owner manned small shops. In 2010,

larger format convenience stores and supermarkets accounted for about 4
percent of the industry, and these were present only in large urban centres.
India's retail and logistics industry employs about 40 million Indians (3.3% of
Indian population). Until 2011, Indian central government denied foreign
direct investment (FDI) in multi-brand retail, forbidding foreign groups from
any ownership in supermarkets, convenience stores or any retail outlets. Even
single-brand retail was limited to 51% ownership and a bureaucratic process.
In November 2011, India's central government announced retail reforms for
both multi-brand stores and single-brand stores. These market reforms paved

1Fashion meets tech as handsets get sleek expensive",www.ksa-technopak.com

2 LCD televisions, laptops are flying off the shelves.",www.ksa-technopak.com
3 Traditional Retail Trade in India." ,www.bostonanalytics.com,28 June 2009.
4 "The Bird of Gold - The Rise of India's Consumer Market". McKinsey and Company. May 2007.
^ Anand Dikshit (August 12, 2011). "The Uneasy Compromise - Indian Retail". The Wall Street Journal.
5 "Winning the Indian consumer". McKinsey & Company. 2005.
^ Majumder, Sanjoy (25 November 2011). "Changing the way Indians shop". BBC News.

20
the way for retail innovation and competition with multi-brand retailers such
as Walmart, Carrefour and Tesco, as well single brand majors such
as IKEA, Nike, and Apple6. The announcement sparked intense activism, both
in opposition and in support of the reforms. In December 2011, under pressure
from the opposition, Indian government placed the retail reforms on hold till it
reaches a consensus7.

In January 2012, India approved reforms for single-brand stores welcoming

anyone in the world to innovate in Indian retail market with 100% ownership,
but imposed the requirement that the single brand retailer source 30 percent of
its goods from India. Indian government continues the hold on retail reforms
for multi-brand stores8.
In June 2012, IKEA announced it has applied for permission to invest $1.9
billion in India and set up 25 retail stores. Fitch believes that the 30 percent
requirement is likely to significantly delay if not prevent most single brand
majors from Europe, USA and Japan from opening stores and creating
associated jobs in India9.

On 14 September 2012, the government of India announced the opening of

FDI in multi-brand retail, subject to approvals by individual states.10 This
decision has been welcomed by economists and the markets, however has
caused protests and an upheaval in India's central government's political
coalition structure. On 20 September 2012, the Government of India formally

6 "Retailing in India Unshackling the chain stores". The Economist. 29 May 2008
7 Agarwal, Vibhuti; Bahree, Megha (7 December 2011). "India puts retails reforms on hold". The Wall
Street Journal.
8 Sharma, Amol; Sahu, Prasanta (11 January 2012). "India Lifts Some Limits on Foreign Retailers". The
Wall Street Journal
9 Amol Sharma (24 June 2012). "IKEA Knocks on India's Door". The Wall Street Journal.
"Ikea shelves Indian retail market move". The Financial Times. 22 January 2012.
10 Times of India Newsreport".

21
notified the FDI reforms for single and multi brand retail, thereby making it
effective under Indian law11.

On 7 December 2012, the Federal Government of India allowed 51% FDI in

multi-brand retail in India. The Feds managed to get the approval of multi-
brand retail in the parliament despite heavy uproar from the opposition. Some
states will allow foreign supermarkets like Walmart, Tesco and Carrefour to
open while other states will not

India in 1997 allowed foreign direct investment (FDI) in cash and carry
wholesale. Then, it required government approval. The approval requirement
was relaxed, and automatic permission was granted in 2006. Between 2000 to
2010, Indian retail attracted about $1.8 billion in foreign direct investment,
representing a very small 1.5% of total investment flow into India.12

Single brand retailing attracted 94 proposals between 2006 and 2010, of which
57 were approved and implemented. For a country of 1.2 billion people, this is
a very small number. Some claim one of the primary restraints inhibiting
better participation was that India required single brand retailers to limit their
ownership in Indian outlets to 51%. China in contrast allows 100% ownership
by foreign companies in both single brand and multi-brand retail presence.

Indian retail has experienced limited growth, and its spoilage of food harvest
is amongst the highest in the world, because of very limited integrated cold-
chain and other infrastructure. India has only 5386 stand-alone cold storages,
having a total capacity of 23.6 million metric tons. However, 80 percent of this
storage is used only for potatoes. The remaining infrastructure capacity is less
than 1% of the annual farm output of India, and grossly inadequate during
11 "Department of Industrial Policy & Promotion (FC-I Section), Press Note No.5 (2012 Series) - multi-
brand retail". Ministry of Commerce & Industry, Government of India. 20 September 2012. "FDI in
multi-brand retail comes into effect; way clear for Walmart". The Economic Times. 20 September 2012.
12 "FDI IN MULTI-BRAND RETAIL TRADING". KPMG. 2010.

22
peak harvest seasons. This leads to about 30% losses in certain perishable
agricultural output in India, on average, every year.13

Indian laws already allow foreign direct investment in cold-chain

infrastructure to the extent of 100 percent. There has been no interest in
foreign direct investment in cold storage infrastructure build out. Experts
claim that cold storage infrastructure will become economically viable only
when there is strong and contractually binding demand from organized retail.
The risk of cold storing perishable food, without an assured way to move and
sell it, puts the economic viability of expensive cold storage in doubt. In the
absence of organized retail competition and with a ban on foreign direct
investment in multi-brand retailers, foreign direct investments are unlikely to
begin in cold storage and farm logistics infrastructure.

Until 2010, intermediaries and middlemen in India have dominated the value
chain. Due to a number of intermediaries involved in the traditional Indian
retail chain, norms are flouted and pricing lacks transparency. Small Indian
farmers realize only 1/3rd of the total price paid by the final Indian consumer,
as against 2/3rd by farmers in nations with a higher share of organized retail.
The 60%+ margins for middlemen and traditional retail shops have limited
growth and prevented innovation in Indian retail industry.

India has had years of debate and discussions on the risks and prudence of
allowing innovation and competition within its retail industry14 Numerous
economists repeatedly recommended to the Government of India that legal
restrictions on organized retail must be removed, and the retail industry in

13 "FDI IN MULTI-BRAND RETAIL TRADING". KPMG. 2010.

14 Mukherjee et al., Arpita (2006). FDI in Retail Sector: INDIA, A Report by ICRIER. Academic
Foundation. ISBN 978-81-7188-480-3.
12 Mehta and Chatterjee (June 2011). "Growth and Poverty - the great debate".,
cutsInternational.org.pdf
Jagdish Bhagwati (14 December 2010). "Hiren Mukerjee Memorial Parliamentary Lecture: Parliament
of India". Columbia University, Parliament of India.

23
India must be opened to competition. For example, in an invited address to the
Indian parliament in December 2010, Jagdish Bhagwati, Professor of
Economics and Law at the Columbia University analysed the relationship
between growth and poverty reduction, then urged the Indian parliament to
extend economic reforms by freeing up of the retail sector, further
liberalization of trade in all sectors, and introducing labour market reforms.
Such reforms Professor Bhagwati argued will accelerate economic growth and
make a sustainable difference in the life of India's poorest.15

A 2007 report noted that an increasing number of people in India are turning
to the services sector for employment due to the relative low compensation
offered by the traditional agriculture and manufacturing sectors. The organized
retail market is growing at 35 percent annually while growth of unorganized
retail sector is pegged at 6 percent.16.The Retail Business in India is currently
at the point of inflection. As of 2008, rapid change with investments to the
tune of US $ 25 billion was being planned by several Indian and multinational
companies in the next 5 years. It is a huge industry in terms of size and
according to India Brand Equity Foundation (IBEF), it is valued at about US$
395.96 billion. Organised retail is expected to garner about 16-18 percent of
the total retail market (US $ 65-75 billion) in the next 5 years.

India had topped the A.T. Kearney’s annual Global Retail Development Index
(GRDI) for the third consecutive year, maintaining its position as the most
attractive market for retail investment. The Indian economy has registered a
growth of 8% for 2007. The predictions for 2008 was 7.9%17. The enormous
growth of the retail industry has created a huge demand for real estate.

16 India again tops global retail index." indiafmcg.blogspot.com,22 /6/ 2007.

17 Economic and financial indicators", 3 indiafmcg.blogspot.com uly 2008.

24
 Property developers are creating retail real estate at an aggressive pace and by
2010, 300 malls are estimated to be operational in the country.18
Although prior to Jan 24, 2006, FDI was not authorised in retailing, most
general players had been operating in the country.

Some of entrance routes used by them have been discussed in sum as below:-

a) Franchise Agreements
It is an easiest track to come in the Indian market. In franchising and
commission agents services, FDI (unless otherwise prohibited) is allowed with
the approval of the Reserve Bank of India (RBI) under the Foreign Exchange
Management Act. This is a most usual mode for entrance of quick food
bondage opposite a world. Apart from quick food bondage identical to Pizza
Hut, players such as Lacoste, Mango, Nike as good as Marks as good as
Spencer, have entered Indian marketplace by this route.

b) Cash And Carry Wholesale Trading

100% FDI is allowed in wholesale trading which involves building of a large
distribution infrastructure to assist local manufacturers. The wholesaler deals
only with smaller retailers and not Consumers. Metro AG of Germany was the
first significant global player to enter India through this route.

c) Strategic Licensing Agreements

Some foreign brands give exclusive licences and distribution rights to Indian
companies. Through these rights, Indian companies can either sell it through
their own stores, or enter into shop-in-shop arrangements or distribute the
brands to franchisees. Mango, the Spanish apparel brand has entered India
through this route with an agreement with Piramyd, Mumbai, SPAR entered
into a similar agreement with Radhakrishna Foodlands Pvt. Ltd

18 Indian Retail story from Myths to Mall." ,indiafmcg.blogspot.com,11 August 2007.

25
d) Manufacturing and Wholly Owned Subsidiaries.
The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-
owned subsidiaries in manufacturing are treated as Indian companies and are,
therefore, allowed to do retail. These companies have been authorised to sell
products to Indian consumers by franchising, internal distributors, existent
Indian retailers, own outlets, etc. For instance, Nike entered through an
exclusive licensing agreement with Sierra Enterprises but now has a wholly
owned subsidiary, Nike India Private Limited.

1.5.3. CHALLENGES TO INDIAN RETAIL SECTOR

Before 2011, India had prevented innovation and organized competition in its
consumer retail industry. Several studies claim that the lack of infrastructure
and competitive retail industry is a key cause of India's persistently high
inflation. Furthermore, because of unorganized retail, in a nation where
malnutrition remains a serious problem, food waste is rife. Well over 30% of
food staples and perishable goods produced in India spoil because poor
infrastructure and small retail outlets prevent hygienic storage and movement
of the goods from the farmer to the consumer.19

One report estimates the 2011 Indian retail market as generating sales of about
$470 billion a year, of which a minuscule $27 billion comes from organized
retail such as supermarkets, chain stores with centralized operations and shops
in malls. The opening of retail industry to free market competition, some claim
will enable rapid growth in retail sector of Indian economy. Others believe the
growth of Indian retail industry will take time, with organized retail possibly

19 Bahree, Megha (November 25, 2011). "India Unlocks Door for Global Retailers". The Wall Street
Journal. "Wal-Mart Waits With Carrefour as India Wins Instant Gain: Retail". Bloomberg
BusinessWeek. 30 November 2011.

26
needing a decade to grow to a 25% share.20 A 25% market share, given the
expected growth of Indian retail industry through 2021, is estimated to be over
$250 billion a year: a revenue equal to the 2009 revenue share from Japan for
the world's 250 largest retailers.,21

The Economist forecasts that Indian retail will nearly double in economic
value, expanding by about $400 billion by 202022. The projected increase
alone is equivalent to the current retail market size of France.
In 2011, food accounted for 70% of Indian retail, but was under-represented
by organized retail. A.T. Kearney estimates India's organized retail had a 31%
share in clothing and apparel, while the home supplies retail was growing
between 20% to 30% per year.23 These data correspond to retail prospects
prior to November announcement of the retail reform. The Indian market
offers endless possibilities for investors.24
A McKinsey study claims retail productivity in India is very low compared to
international peer measures. For example, the labor productivity in Indian
retail was just 6% of the labour productivity in United States in 2010. India's
labour productivity in food retailing is about 5% compared to Brazil's 14%;
while India's labour productivity in non-food retailing is about 8% compared
to Poland's 25%.25
Total retail employment in India, both organized and unorganized, account for
about 6% of Indian labour work force currently - most of which is
unorganized.

This about a third of levels in United States and Europe; and about half of
levels in other emerging economies. A complete expansion of retail sector to
20 "Indian retail: The supermarket’s last frontier". The Economist. 3 December 2011.
21 "INDIAN RETAIL INDUSTRY: A Report". CARE Research. March 2011.
21 "Global Powers of Retailing 2011". Deloitte. 2011.
22 "India's retail reform: No massive rush". The Economist. 2 December 2011.
23 "Reasons to Invest in India". Engineeringfromindia.com.
24 Retail Global Expansion: A Portfolio of Opportunities". AT Kearney. 2011.

25 "Retail - India". McKinsey & Co,www.mckinsey.com.

27
levels and productivity similar to other emerging economies and developed
economies such as the United States would create over 50 million jobs in
India. Training and development of labour and management for higher retail
productivity is expected to be a challenge.

To become a truly flourishing industry, retailing in India needs to cross the

following hurdles:26
 Automatic approval is not allowed for foreign investment in retail.
 Regulations restricting real estate purchases, and cumbersome local laws.
 Taxation, which favours small retail businesses.
 Absence of developed supply chain and integrated IT management.
 Lack of trained work force.
 Low skill level for retailing management.
 Lack of Retailing Courses and study options
 Intrinsic complexity of retailing – rapid price changes, constant threat of
product obsolescence and low margins.
In November 2011, the Indian government announced relaxation of some rules
and the opening of retail market to competition.

1.5.4. MAJOR INDIAN RETAILORS

Indian apparel retailers are increasing their brand presence overseas,

particularly in developed markets. While most have identified a gap in
countries in West Asia and Africa, some majors are also looking at
the US and Europe. Arvind Brands, Madura Garments, Spykar Lifestyle and
Royal Classic Polo are busy chalking out foreign expansion plans through the
distribution route and standalone stores as well. Another denim wear brand,
Spykar, which is now moving towards becoming a casual wear lifestyle brand,

26 "Retail Scenario in India",www.ibef.org/attachdisplay.aspx

28
has launched its store in Melbourne recently. It plans to open three stores in
London by 2008-end.27
The low-intensity entry of the diversified Mahindra Group into retail is unique
because it plans to focus on lifestyle products. The Mahindra Group is the
fourth largest Indian business group to enter the business of retail
after Reliance Industries Ltd, the Aditya Birla Group, and Bharti
Enterprises Ltd.

The other three groups are focusing either on perishables and groceries, or a
range of products, or both.
 REI AGRO LTD Retail: 6TEN and 6TEN kirana stores
 Future Groups-Formats: Pantaloons,Big Bazaar, Food Bazaar, Central,
Fashion Station, Brand Factory, Home Town, E-Zone etc.
 Raymond Ltd.: Textiles, The Raymond Shop, Park Avenue, Park Avenue
Woman, Parx, Colourplus, Neck Ties & More, Shirts & More etc.
 Fabindia: Textiles, Home furnishings, handloom apparel, jewellery
 RP-Sanjiv Goenka Group Retail-Formats: Spencer’s Hyper, Spencer's
Daily, Music World, Au Bon Pain, Beverly Hills Polo Club
 The Tata Group-Formats: Westside, Star India Bazaar, Landmark, Titan,
Tanishq, Croma.
 Reliance Retail-Formats: Reliance MART, Reliance SUPER, Reliance
FRESH, Reliance Footprint, Reliance Living, Reliance Digital, Reliance
Jewellery, Reliance Trends, Reliance Autozone, iStore
 K Raheja Corp Group-Formats: Shoppers Stop, Crossword, Hyper
City, Inorbit Mall
 Nilgiri’s-Formats: Nilgiris’ supermarket chain
 Shri Kannan Departmental Store (P) Ltd ., : Groceries, Clothing,
Cosmetics [Western Tamil Nadu's Leading Retailer]

27 "Mahindra joins the retail bandwagon, to sell lifestyle products, www.ksa-technopak/pressroom

29
 Lifestyle International-Lifestyle, Home Centre, Max, Fun City and
International Franchise brand stores.
 Pyramid Retail-Formats: Pyramid Megastore, TruMart
 Next retail India Ltd (Consumer Electronics)
 Aditya Birla Group- Formats: more., acquiured Pantaloon from Future
group, acquired Trinetra (Fabmall and Fabcity)
 Vishal Retail Group-Formats: Vishal Mega Mart
 BPCL-Formats: In & Out
 Gitanjali- Nakshatra, Gili, Asmi, D'damas, Gitanjali Jewels, Giantti,
Gitanjali Gifts, etc.

1.5.5. POPULAR RETAIL FORMATS IN INDIA

a) Exclusive Band Outlets are either company owned or franchised. There

are different levels of control of the company on the store manager or
franchised outlet manager.

b) Company Owned: Management of the manufacturer controls company

outlets and pays for all administrative expenses. They have to work on
lower gross margins because expenses are paid for. With malls and
quality space being created such outlets seems to have a promising future
and should lead to subsequent growth of the brands.

c) FRANCHISE: Management of the franchised outlet controls and pays for

administrative expenses. They can work on higher gross margins because
expenses are not paid for. Franchisee Outlets receive support from the
manufacturer in various forms like training (sometime recruitment) of
staff, visual merchandising, designing store layout (interiors) etc. There
are already new established brands from abroad coming into India and
quality retail space available all across the nation, as long as key

30
 considerations of right location, right product at right price and right time
are systematically enforced there is a commanding future for such type of
outlets with promising returns.

d) Both these type of outlets can be present in the High Street shopping
areas or inside a mall wherein they have their own set of advantage and
disadvantages. While stores in the malls attract traffic, many of them are
browsers or prospective future consumer. As more malls come up in the
near future, we expect a large number of such stores to come up and drive
overall branded apparel sales. Stores in high streets attract brand loyal
clientele which often has pre-set positive disposition towards the brands.

e) MULTI-BRAND OUTLETS: Multi-Brand Outlets are the ones which

stock merchandise of more than one brand. They can be a small formats
store (300-1500 sq. ft) present in the high streets, malls or local market
area. While they offer a set of brands to choose from, they often offer
limited range constrained by available space. They usually buy goods on
an outright basis and hence have greater margins. But, at the same time,
they are at a greater risk of being left with unsold stock.
There is also large format multi brand outlet (b/w 1500-5000sq.ft), which
are often city specific. They thus have a loyal consumer base, but due to
their bigger size they often fail to get good returns on capital employed,
often on account of inherent inefficiencies that the un-organized set up
faces.
Key characterized of multi brands outlets includes a large covered area
with many brands on offer, with a complete range of products across
different brands. They have fewer walk-ins than department stores but
more than exclusive outlets or specialty stores. These stores try and offer
lower price than in an exclusive brand outlet or specialty store.

31
f) DEPARTMENT STORES: The third format that sells a number of brands
under one roof is that of department stores. These can be b/w 3000-
5000sq.ft or can extend up to 20,000sq.ft or beyond, depending upon the
company, city in which the store is present and the location within the
city. Key characteristics of department stores are that they have largest
covered area (among all retail formats) with a number of categories and
brands on offer. They attract the highest of walk-ins per day and are often
service oriented, with a knowledgeable sales staff and a systematic,
organizes set up behind them. Department stores try to offer an enjoyable
shopping environment that may lead to increased time spent within the
store, and hence, more sales.
Department stores are generally located in Destination towns, metros and
mega metros. These stores have a large layout, which often enables free
access of merchandise. The merchandise mix is usually of cohesive
category, i.e. cluster/brands, skewed towards garments etc, and their
merchandise range is generally focused towards addressing a wider
audience with service as a main differentiating factor.
Large Department stores such as Shopper’s Stop, Pantaloon, Lifestyle,
Globus and Westside etc that primarily deal in clothing, fashion
accessories and home décor products are the main anchors in most of the
malls and their number will continue to grow due to ongoing upsurge in
Malls and development of quality retail space.

g) SPECIALITY STORES: Specialty Stores are strategically located with a

medium focus and an interactive layout. They are generally single-
category focused and have individual, group cluster of same class with
high loyalty categories of product. Typical examples of such kind of retail
formats are BATA, Planet M, etc. Their general business strategy is the
merchandise value proposition, which is driven and clearly differentiated
from other brands.

32
 Specialty Stores also need to know their customer thoroughly as the
merchandise collection is specific, making customers visit again and
again. According to the American Express Retail Index on shopper
loyalty, 56% of specialty store shopper says that they have been loyal to
the same store for more than five years in the United States .The take out
from this simple. It is necessary for specialty store to have a robust
customer loyalty program. Many of the branded specialty stores in India
are yet to get into the process of having an organized customer loyalty
program. This is necessary as product and services tend to be similar in
nature in the competing stores.
Chains such as Bangalore based Kids Kemp, the Mumbai based book
retailer Crossword, RPG’s Music World and the Times Group’s music
chain planet M, are focusing on specific market segment and have
established themselves strongly in their sectors. More recent
developments in this field are the specialty malls like Gold Souk, Auto
Mall, The Homeland and the likes.

h) SUPERMARKETS: Supermarkets as their name suggests are typically

located in busy market or residential localities of the metros and other
large cities. They are generally large in size and their typical layout
enables free access of merchandise. They generally have not only
household categories but also have food as an integral parts of their store
formats. Typical example are Apna Bazaar, Food world, Food Bazaar etc.
these stores are generally catchments focused and relationship driven with
variety, quality and service as their key drivers.

i) HYPERMARKETS: The Hypermarkets format is the latest and most

appealing concept that has hit the Indian consumer. This format is
generally a drive-away destination and is normally very large in size as
compared to the other store formats. Hypermarkets offer various divisions

33
 of product and services, often in bulk quantities, high is more akin to
wholesale format. Except in some cases like the Cash & Carry model of
Metros, the hypermarkets are normally family oriented and the bulk
buyers are mostly their loyal customers.
In India, the prime example of such formats is Spencer’s (formerly giant)
have RPG group and Big Bazaar of Pantaloon retail. Of the recent
entrants to this format of retailing in India, and serious ones at that, are
the Germans retail major Metro Cash & South Africa Shoprite. Metro,
though a B2B model has opened two of its outlets in Bangalore. Shoprite
has opened shop in Mumbai. These hypermarkets are a class apart since
they offer variety and price advantage as their key value drivers to gain
footfalls and conversions.

j) POWER RETAILING & CATEGORY KILLERS: Both these terms are

similar in connotation. The first talks of how a retailer can leverage the
intrinsic advantage of his business to create a winning cocktail while the
latter highlights how some retailers have been able to use their strengths
to ‘kill’ competition in the category they service. The main difference is
that the former has been used more in the context of brick and mortar
stores while the latter has been used more in discussions and to describe
internet companies.
The format has not as yet gained popularity in India, perhaps because
even the largest retailer in India is yet to attain the width and depth
enjoyed by a full-blown department store in the West. Thus, while you
have a Spencer’s, Trent, Big Bazaar and Home Store beginning to happen
in the hyper marker space, our retailers are yet to reach the stage and
dimensions of JC penny, Macy’s or even Abdullah’s of Singapore. While
some of big retailers might be stocking 300400 units, a retailer abroad of
the dimensions we are talking about would stock between 1000-1500
units. But new research is beginning to throw up the possibility of

34
 extending the concept of power retailing to smaller retail outlets. A prime
example of category killing is “The Loft’, a footwear store in Powai,
Mumbai, and measuring 18,000 sq.ft.

k) DISCOUNT STORE: Discounting is not a dominant format of Retailing

in India as compared to international standards where around 60 percent
of the business comes from this format. Internationally, the largest retailer
in the world, Wal-Mart, is a discounter. These discounters have
advantages of price, assortment dominance, and quality assurance, and
have the ability to quickly build scale and pass on the benefits to their
customers.
Indian retailers have lagged behind in this field mainly because, unlike
their Western counterparts, they have much less bargaining power vis-à-
vis the manufacturers. However, the scenario is now changing. Increased
investments and the entry of big business houses in retailing is leading to
the emergence of big retailers who can both bargain with the suppliers, as
well as reap the benefits of economics of scale.

l) KIOSKS, CORNERS, SHOP-IN-SHOPS AND CONVENIENCE

STORES: Kiosks, Corners, Shop-in-Shops and Convenience Stores are
some of the other retail formats that are fast gaining popularity in India.
The Kiosk and Corner stores are popularity in India. The Kiosk and
Corner stores are generally found in busy market places and are quite
small in comparison to the regular stores found in marketplace. They
normally have fast moving consumer goods (FMCG’s), mostly edible
items such as biscuits, beverages etc. the buying is mostly impulse drive,
they can be easily found along high streets, market places etc. e.g. the
Pepsi fountain shop, which also sells biscuits, minerals water, chewing
gum etc. these Kiosks are generally attractive looking to lure customers
and are readily available in India across regions. The Shop-in-Shops are

35
 located with the large department stores whereas the Convenience stores
are now getting popular at fuel stations where people can avail of the
regular shopping while their vehicles get refuelled.

1.5.6. PRIVATE LABEL BRANDS IN INDIA:

Private label brands in India in a growing stage. It will be difficult to get the
details of sales in India because of the highly unorganized structure of Indian
retailing. But still it contributes a turnover of Rs.700 Cr in the organized
structure.
Though the margin of Rs.700 Cr is considered as low when compared to other
countries, India is expected to achieve a sizeable volume in the coming 3-5
years. Moreover in India the products come under private label brands include
mainly food and apparel industry.

Some of the retail players having private label brands in India are as follows:

FOOD AND GROCERY FASHION OTHERS

Spencer's Daily Shoppers' Stop Vivek's
Adani- Rajiv's Westside Planet M
Subhiksha Lifestyle Music World
Nilgris Piramyd Crossword
Nirma-Radhey Ebony Gautier
Globus

Each of these retail stars has identified and settled into a feasible and
sustainable business model of its own. Rather surprisingly, each has developed
a unique model. Westside has very successfully emulated a Marks & Spencer
model (of 100 per cent private label, very good value for money merchandise

36
for the entire family). Spencer's Daily and Nilgris have successfully shown the
viability of the `supermarket' format in India and its ability to co-exist with the
ubiquitous Kirana store. Pantaloon has both demonstrated the potential of
"speciality" retailing in India.

1.5.7. INDIAN RETAIL REFORMS : NEW POLICY & NEW ERA

Until 2011, Indian central government denied foreign direct investment (FDI)
in multi-brand Indian retail, forbidding foreign groups from any ownership in
supermarkets, convenience stores or any retail outlets, to sell multiple products
from different brands directly to Indian consumers.

It will be prudent to look into Press Note 4 of 2006 issued by DIPP and
consolidated which provide the sector specific guidelines for FDI with regard
to the conduct of trading activities.
a) FDI up to 100% for cash and carry wholesale trading and export
trading allowed under the automatic route.
b) FDI up to 51 % with prior Government approval (i.e. FIPB) for retail
trade of Single Brand products, subject to Press Note 3 (2006 Series).
c) FDI is not permitted in Multi Brand Retailing in India.

The government of Manmohan Singh, prime minister, announced on 24

November 2011 the following:28
 India will allow foreign groups to own up to 51 per cent in "multi-brand
retailers", as supermarkets are known in India, in the most radical pro-
liberalisation reform passed by an Indian cabinet in years;
 Single brand retailers, such as Apple and Ikea, can own 100 percent of
their Indian stores, up from the previous cap of 51 percent;

28"FDI policy in multi brand retail". Ministry of Commerce, Government of India. 28 November 2011.

37
 Both multi-brand and single brand stores in India will have to source
nearly a third of their goods from small and medium-sized Indian
suppliers;
 All multi-brand and single brand stores in India must confine their
operations to 53-odd cities with a population over one million, out of some
7935 towns and cities in India. It is expected that these stores will now
have full access to over 200 million urban consumers in India;
 Multi-brand retailers must have a minimum investment of US$100 million
with at least half of the amount invested in back end infrastructure,
including cold chains, refrigeration, transportation, packing, sorting and
processing to considerably reduce the post harvest losses and bring
remunerative prices to farmers;
 The opening of retail competition will be within India's federal structure of
government. In other words, the policy is an enabling legal framework for
India. The states of India have the prerogative to accept it and implement
it, or they can decide to not implement it if they so choose. Actual
implementation of policy will be within the parameters of state laws and
regulations.

1.5.8. PRO AND CONS OF FOREIGN RETAIL IN INDIA

Critics of the Indian retail reforms announcement are making the following
points,29
a) Independent stores will close, leading to massive job losses. Walmart
employs very few people in the United States. If allowed to expand in
India as much as Walmart has expanded in the United States, few
thousand jobs may be created but millions will be lost.
b) Wal-Mart’s efficiency at supply chain management leads to "direct"
procurement of goods from the supplier. In addition to eliminating the

29
Tripathi, Salil (29 December 2011). "India needs Supermarkets". London: The Guardian

38
 "middle-man", due to its status as the leading retailer, suppliers of
goods also bends over backwards to drop prices in order to assure
consistent cash flow. There is the fear that this may not benefit the
farmer, or the suppliers of Walmart.
c) The small retailer and the middle man present in the retail industry
plays a large part in supporting the local economy, since they typically
themselves procure goods and services from the area they have their
retail shops in. This leads to increased economic activity, and wealth
redistribution. With large, efficient retailers, the corporate profits are
not spent in the areas where they're generated, hence killing the local
economy.
d) Walmart will lower prices to dump goods, get competition out of the
way, become a monopoly, and then raise prices. We have seen this in
the case of the soft drinks industry. Pepsi and Coke came in and wiped
out all the domestic brands.
e) India doesn't need foreign retailers, since home grown companies and
traditional markets may be able to do the job.
f) Work will be done by Indians, profits will go to foreigners.
g) Remember East India Company. It entered India as a trader and then
took over politically.
h) There will be sterile homogeneity and Indian cities will look like cities
anywhere else.
i) The government hasn't built consensus.
j) The government claims modern retail will create 4 million new jobs.
This cannot be true because Walmart, with over 9000 stores
worldwide, has only 2.1 million employees.30

Supporters claim none of these objections has merit and they claim:31

30 FDI in retail, India debate: Parliament of India, December 4, 2012

31 "Walmart Fact Sheets". Walmart. November 2011,www.walmartstores.com

39
a) Organized retail will need workers. Walmart employs 1.4 million
people in United States alone. With United States population of about
300 million, and India's population of about 1200 million, if Walmart-
like retail companies were to expand in India as much as their presence
in the United States, and the staffing level in Indian stores kept at the
same level as in the United States stores, Walmart alone would employ
5.6 million Indian citizens. Walmart has a 6.5% market share of the
total United States retail. Adjusted for this market share, the expected
jobs in future Indian organized retail would total over 85 million. In
addition, millions of additional jobs will be created during the building
of and the maintenance of retail stores, roads, cold storage centres,
software industry, electronic cash registers and other retail supporting
organizations. Instead of job losses, retail reforms are likely to be
massive boost to Indian job availability.
b) KPMG - one of the world's largest audit companies - finds that in
China, the employment in both retail and wholesale trade increased
from 4% in 1992 to about 7% in 2001, post China opening its retail to
foreign and domestic innovation and competition. In absolute terms,
China experienced the creation of 26 million new jobs within 9 years,
post China announcing FDI retail reforms. Additionally, contrary to
some concerns in China, post retail reforms, the number of traditional
small retailers also grew by 30% over 5 years.
c) India needs trillions of dollars to build its infrastructure, hospitals,
housing and schools for its growing population. Indian economy is
small, with limited surplus capital. Indian government is already
operating on budget deficits. It is simply not possible for Indian
investors or Indian government to fund this expansion, job creation
and growth at the rate India needs. Global investment capital through
FDI is necessary. Beyond capital, Indian retail industry needs
knowledge and global integration. Global retail leaders, some of which

40
 are partly owned by people of Indian origin, can bring this knowledge.
Global integration can potentially open export markets for Indian
farmers and producers. Walmart, for example, expects to source and
export some $1 billion worth of goods from India every year, since it
came into Indian wholesale retail market.32
d) Walmart, Carrefour, Tesco, Target, Metro, Coop are some of over 350
global retail companies with annual sales over $1 billion. These retail
companies have operated for over 30 years in numerous countries.
They have not become monopolies. Competition between Walmart-
like retailers has kept food prices in check. Canada credits their very
low inflation rates to Walmart-effect.33 Anti-trust laws and state
regulations, such as those in Indian legal code, have prevented food
monopolies from forming anywhere in the world. Price inflation in
these countries has been 5 to 10 times lower than price inflation in
India. The current consumer price inflation in Europe and the United
States is less than 2%, compared to India's double digit inflation.
e) The Pepsi and Coke example is meaningless in the context of Indian
beverage market. More competition is lacking because of limited
demand. Indian consumer has limited interest in soft drinks. Soft
drinks represent less than 5% of Indian beverage market.34 Indian
consumer prefers milk-based, tea and coffee and these account for
90% of Indian beverage market. In these markets, Coca Cola and Pepsi
have plenty of competition. The next most important market in India is
bottled water that outsells combined soft drink sales of the Pepsi and
Coca Cola. Bottled water, milk, coffee and tea market in India are big
markets, and have plenty of domestic brands, European brands like
Nestle, as well as Pepsi and Coca Cola. Organized retail too will have
numerous brands and strong competition.

32 "Walmart Asia to make India an export hub". Business Standard. April 14, 2010.
33 Grant, Tavia (January 25, 2011). "The Wal-Mart effect: food inflation tame in Canada". Toronto: The Globe and Mail
34 "For India's Consumers, Pepsi Is the Real Thing". Bloomberg BusinessWeek. 16 September 2010.

41
 f) Comparing 21st century to 18th century is inappropriate. Conditions
today are not same as in the 18th century. India wasn't a democracy
then, it is today. Global awareness and news media were not the same
in 18th century as today. Consider China today. It has over 57 million
square feet of retail space owned by foreigners, employing millions of
Chinese citizens. Yet, China hasn't become a vassal of imperialists. It
enjoys respect from all global powers. Other Asian countries like
Malaysia, Taiwan, Thailand and Indonesia see foreign retailers as
catalysts of new technology and price reduction; and they have
benefitted immensely by welcoming FDI in retail. India too will
benefit by integrating with the world, rather than isolating itself.35
g) With 51% FDI limit in multi-brand retailers, nearly half of any profits
will remain in India. Any profits will be subject to taxes, and such
taxes will reduce Indian government budget deficit. Many years ago,
China adopted the retail reform policy India has announced; China
allowed FDI in its retail sector. It has taken FDI-financed retailers in
China between 5 to 10 years to post profits, in large part because of
huge investments they had to make initially. Like China, it is unlikely
foreign retailers will earn any profits in India for the first 5 to 10 years.
Ultimately, retail companies must earn profits with hard work and by
creating value.
h) States have a right to say no to retail FDI within their
jurisdiction.36 States have the right to add restrictions to the retail
policy announced before they implement them. Thus, they can place
limits on number, market share, style, diversity, homogeneity and
other factors to suit their cultural preferences. Finally, in future, states
can always introduce regulations and India can change the law to
ensure the benefits of retail reforms reach the poorest and weakest
segments of Indian society, free and fair retail competition does indeed
35 "Aam bania is more powerful than the aam aadmi". The Times of India. 4 December 2011.
36 "Fdi Policy In Multi Brand Retail". Ministry of Commerce, Government of India. 28 November 2011.

42
 lead to sharply lower inflation than current levels, small farmers get
better prices, jobs created by organized retail pay well, and healthier
food becomes available to more households.
i) Inbuilt inefficiencies and wastage in distribution and storage account
for why, according to some estimates, as much as 40% of food
production doesn't reach consumers. Fifty million children in India are
malnourished.37 Food often rots at farms, in transit, or in antiquated state-
run warehouses. Cost-conscious organized retail companies will avoid
waste and loss, making food available to the weakest and poorest
segment of Indian society, while increasing the income of small
farmers. Walmart, for example, since its arrival in Indian wholesale
retail market, has successfully introduced "Direct Farm Project" at
Haider Nagar near Malerkotla in Punjab, where 110 farmers have been
connected with Bharti Walmart for sourcing fresh vegetables directly,
thereby reducing waste and bringing fresher produce to Indian
consumers.38
j) Indian small shops employ workers without proper contracts, making
them work long hours. Many unorganized small shops depend on child
labour. A well-regulated retail sector will help curtail some of these
abuses.
k) Organized retail has enabled a wide range of companies to start and
flourish in other countries. For example, in the United States, an
organized retailer named Whole Foods has rapidly grown to annual
revenues of $9 billion by working closely with farmers, delighting
customers and caring about the communities it has stores in.39
l) The claims that there is no consensus are without merit. About 10
years ago, when opposition formed the central government, they had
proposed retail reforms and suggested India consider FDI in retail.

37 Tripathi, Salil (29 December 2011). "India needs Supermarkets". London: The Guardian.
38 "Fdi In Multi-Brand Retail Trading". KPMG. 2010.
39"Walmart Asia to make India an export hub". Business Standard. April 14, 2010.

43
 Retail reforms discussions are not new. More recently, retail reforms
announced evolved after a process of intense consultations and
consensus building intiative. In 2010, the Indian government circulated
a discussion paper on FDI retail reforms.40 On July 6, 2011, another
version of the discussion paper was circulated by the central
government of India. Comments from a wide cross-section of Indian
society including farmers' associations, industry bodies, consumer
forums, academics, traders' associations, investors, economists were
analyzed in depth before the matter was discussed by the Committee
of Secretaries. By early August 2011, the consensus from various
segments of Indian society was overwhelming in favor of retail
reforms41. The reform outline was presented in India's Rajya Sabha in
August 2011. The announced reforms are the result of this consensus
process. The current opposition is not helping the consensus process,
since consensus is not built by threats and disruption. Those who
oppose current retail reforms should help build consensus with ideas
and proposals, if they have any. The opposition parties currently
disrupting the Indian parliament on retail reforms have not offered
even one idea or a single proposal on how India can eliminate food
spoilage, reduce inflation, improve food security, feed the poor,
improve the incomes of small farmers.
m) A study by Global Insights research found that modern retailers such
as Walmart create jobs directly, indirectly and induced effects. In
Dallas-Fort Worth area of the United States, with a population of about
2 million people, Global Insights found that Walmart alone had helped
create about 6,300 new net jobs with an average salary of over $21,000
each.42 For India's urban population of over 400 million, an average

40 "Government of India, Ministry of Commerce & Industry, Department of Industrial Policy & Promotion, Press Note No.1 (2012 Series)". 11 January
2012.
41"Discussion Paper on Foreign Direct Investment (FDI) in Multi-Brand Trading". Indian Venture Capital and Private Equity Association. 2 August 2011.

42 Global Insights. "The Economic Impact of WalMart"www.siouxfalls.org

44
salary of less than $2,100 per year, this scales to over 12 million new
jobs. Other multi-brand retailers, such as Mitsukoshi of Japan, employ
a much higher number of sales support employee per store, than
Walmart, to suit local consumer culture. The Global Insights study
also found that the modern retail such as Walmart were a key
contributor in creating new net jobs.

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1.6. PERCEPTION

1.6.1. Definition of Perception

Perception is one of the oldest fields within scientific psychology, and there
are correspondingly many theories about its underlying processes. The oldest
quantitative law in psychology is the Weber-Fechner law, which quantifies the
relationship between the intensity of physical stimuli and their perceptual
effects. It was the study of perception that gave rise to the Gestalt school of
psychology, with its emphasis on holistic approach. .

Figure 1.17: Perception and reality

Ambiguous images

Many philosophers contend that perception consists of one's interpretation of

the world, but as commonality of perception trends toward 100% perception
transmogrifies into reality. Case in point: the sky is blue - reality, now imagine
everyone but you perceived the sky to be yellow. The reality would then
become "the sky is yellow". Thus reality is merely a popular consensus of
perception. All things in the universe are understood as received through the
various filters of human understanding and thus are perceptions of reality.
What we commonly refer to as reality

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Perception is the process by which organisms interpret and organize sensation
to produce a meaningful experience of the world. Sensation usually refers to
the immediate, relatively unprocessed result of stimulation of sensory
receptors in the eyes, ears, nose, tongue, or skin. Perception, on the other hand,
better describes one's ultimate experience of the world and typically involves
further processing of sensory input. In practice, sensation and perception are
virtually impossible to separate, because they are part of one continuous
process.

Thus, perception in humans describes the process whereby sensory stimulation

is translated into organized experience. That experience, or percept, is the joint
product of the stimulation and of the process itself. Relations found between
various types of stimulation (e.g., light waves and sound waves) and their
associated precepts suggest inferences that can be made about the properties of
the perceptual process; theories of perceiving then can be developed on the
basis of these inferences. Because the perceptual process is not itself public or
directly observable (except to the perceiver himself, whose precepts are given
directly in experience), the validity of perceptual theories can be checked only
indirectly.

The following definitions of perceptions are ordered by their degree of

complexity, from the simplest to the most complex.
1. Runyon, Kenneth E.:"A process through which we make sense out of the
world (Runyon, 1977)."

2. Zaltman, Gerald and Wallendorf, Melanie: “The process of giving meaning

to stimuli is referred to as perception."

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3. Wells, William, Burnett, John and Moriarty, Sandra: "Perception is the
process by which we receive information through our five senses and assign
meaning to it."
4. Markin, Rom J. Jr.: "Perception is a complex process by which people
select, organize, and interpret sensory stimulation into a meaningful picture of
the world (Markin, 1974)."

5. Wilkie, William L.:"In a broad sense, the topic of perception is concerned

with the translation from the external, physical world to the internal, mental
world that each of us actually experiences." "There are three basic functions
that are contained in the definition of perception: sensing a stimulus in the
external world; selecting and attending to certain stimuli and not others; and
interpreting the stimuli and giving them meaning."

Figure 1.18: Formation of perception.

6. Forgus, Ronald H. and Melamed, Lawrence E.:"The way the individual

gains knowledge about his environment in this quest for adaptive behavior is
of prime importance. The gaining of such knowledge necessitates the
extraction of information from the vast array of physical energy which
stimulates the organism's senses. Only those stimuli which have cue value,
i.e., which trigger some kind of reactive or adaptive action from the individual,
should logically be called information.

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1.6.2. Factors influencing perception

How do we explain that individuals may look at the same thing, yet perceive it
differently? A number of factors operate to shape and sometimes distort
perception.

These factors can reside in the perceiver in the object or target being
perceived, or in the context of the situation in which the perception is made
(See Below):

Factors that influence perception:

a) Factors in the perceiver
b) Attitudes
Motives
Interests
Experience
Expectations
a) Factors in the situation
Time
Work setting
Social setting
b) Factors in the target
Novelty
Motion
Sounds
Size
Background
Proximity
Similarity

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c) Personal characteristics that affect perception included a person’s
attitudes, personality motives interest, past experiences, and
expectations. When an individual looks at a target and attempts to
interpret what he or she sees, that interpretation is heavily influenced
by the personal characteristics of the individual perceiver. For instance
if you expect police officers to be authoritative, young people to be
lazy, or individuals holding office to be unscrupulous, you may peeve
them as such regardless of their cultural traits.
d) Characteristics of the target being observed affect what is perceived.
Loud people are more likely to be noticed in a group than quiet ones.
So, too, are extremely attractive or unattractive individuals. Because
targets are not looked at in isolation, the relationship of a target to its
background also influences perception, as does our tendency to group
close things and similar things together. For instance, women people of
color or members of any other group that has clearly distinguishable
characteristics in terms of features or color are often perceived as alike
in other, unrelated characteristics as well.
e) The context in which we see objects or events is also important. The
time at which an object or event is seen can influence attention, as can
location, light, heat, or any number of situational factors.

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