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Retail Scenario in India

The word retail derived from the French word “retailler”, meaning to cut the bulk. In other word, it
implies a first hand transaction with the customer.
Retailing can be defined as the buying and selling of goods and services. It can also be defined as the
timely delivery of goods and services demanded by consumers at price that are competitive and
affordable.
The last few years have witnessed an sudden increase of organized retail formats like supermarkets
and hypermarkets in an otherwise fragmented Indian retail market. India is witnessing an unparalleled
consumption explosion. The economy is growing between 8 %– 9 % and the improvement in income
along with factors like favourable demographics and growths in aspiration consumption are the drivers
for retail in India.
In 2005, the retail industry in India amounted to Rs. 10000 billion accounting for about 10% growth to
the country’s GDP. The organized retail market in India out of this total market accounted for Rs. 350
billion which is about 3.5% of the total revenues.
This retail market in Indian retail sector is expected to cross Rs. 1000 billion by 2010. Traditionally
the retail industry in India was largely unorganized, comprising of drug stores, medium and small
grocery stores. Most of the organized retailing in India have started recently and concentrated on
metropolitan cities only.
Organized retail in India refers to the modern retail formats like supermarkets, hypermarkets prevalent
in most developed countries. This sector remained a dormant sector largely due to lack of
infrastructure for large scale retail, absence of product variety, and a conservative Indian consumer.
Today, the flood of products in the market coupled with more informed, interested and adaptable
Indian consumers, have created the atmosphere for entry of organized retail to tap into the $320 billion
Indian retail industry.
Different forms of retailing
Hypermarts
Large supermarkets, typically (3,500 - 5,000 sq. ft)
Mini supermarkets, typically (1,000 - 2,000 sq. ft)
Convenience store, typically (7,50 - 1,000 sq. ft)
Discount/shopping list grocer
Traditional retailers trying to reinvent by introducing self-service formats as well as value-added
services such as credit, free home delivery etc.
The Indian retail sector can be broadly classified into –
1. food retailers
2. health and beauty products
3. clothing and footwear
4. home furnishing and household goods
5. durable good
6. leisure and personal goods.
Today, equipped with higher income, credit cards., exposure to new shopping culture of west, desire
to show status and to improve standard of living, the Indian consumer is spending a lot. His new
mentality, in turn is fueling the growth of organized retail in India.
Young shoppers –
Most of the consumers have grown up with television, the internet, and have been exposed to the
better standard of living and consumer culture abroad. This generation is also making money at a
younger stage in life due to call centre jobs and other avenues of employment openings. As a result
most of them are considering these shopping malls as the place for their entertainment.
Higher income/MNCs –
With the entry of MNCs in India, the people are getting better job opportunities, and the income levels
are also becoming better with different allowances. This sets the stage for a very exciting and
promising retail market in the future.
Plastic Money –
The finance section has already seen a huge expansion. Nowadays credit cards, debit cards, short time
loans have become easily accessible and have contributed to the emergence of a consumer culture in
India. Credit card schemes, flexible financing options, EMI facility, loyalty cards are tempting the
Indian consumer to shop.
Urbanization –
Growing urbanization and different facilities of cities converted the local population from net saver to
net spender.
Awareness level –
The urban population is well aware of the different shopping malls and through different media they
are well known about the offers and schemes.
Aspiration –
Aspirations for better standard of living make the urban consumer spending more.
While consumer demand is driving retail growth, it is in turn being driven by the following factors –
1. Economic growth
2. Improved standard of living
3. More affluence
4. Mass awareness
5. Demographics
6. Credit availability
7. Promotional offers
8. Status symbol
These positive macro trends are resulting in changing preferences in demand for lifestyle goods. Mind
sets are shifting towards an organized retailing experience.
But the future is not so smooth for the retail industry. A number of important issues need to be
addressed suitably to foster the further growth of the retail sector .These are summarized as follows-
1. Security of these malls need to be strengthen as any given point of time thousands of people
are present at these malls.
2. The tax rate for commercial /tenanted premises is maximum in India. It should be discussed
with the authority to invite and attract retailers for the organized retail sector.
3. An overall change is to be bringing in the mind set of the retailers. They must find out the way
to satisfy the consumers.
4. Retailers need to study the consumer behavior more cautiously and relate their efforts
according to that.
In India the retail sector is one of the largest employers after agriculture. But it is highly fragmented
and chiefly consists of small independent, owner – managed shops. New formats like super markets
and large discount and department stores have started influencing the traditional looks of bookstores,
furnishing stores and chemist shops. The retail revolution, apart from bringing in positive changes in
the quality of life in the metros and bigger towns, is also bringing in slow changes in lifestyle in the
smaller towns of India. Increase in literacy, exposure to media, greater availability and penetration of a
variety of consumer goods into the interiors of the country, have all resulted in tapering down the
differences of spending between the consumers of larger metros and those of smaller towns. However,
the supply of quality real estate space would be instrumental in propelling the future growth
momentum of the retail sector in India. The addition of better and affordable retail space would enable
retailers to distribute more better-quality products and services to the consumers. For the retail sector
to accomplish more growth, the increase of organized retailing has to become a countrywide
phenomenon. The growth of the organized retail industry in the country will mean thousands of new
jobs, increasing income levels and living standards, better products, and services, a better shopping
experience, and more social activities
The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized
sectors, India retail industry is one of the fastest growing industries in India, especially over the last
few years. Though initially, the retail industry in India was mostly unorganized, however with the
change of tastes and preferences of the consumers, the industry is getting more popular these days and
getting organized as well. With growing market demand, the industry is expected to grow at a pace of
25-30% annually. The India retail industry is expected to grow from Rs. 35,000 crore in 2004-05 to
Rs. 109,000 crore by the year 2010.

Growth of Indian Retail

According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry
is the most promising emerging market for investment. In 2007, the retail trade in India had a share of 8-
10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to
reach 22% by 2010.

According to a report by Northbride Capita, the India retail industry is expected to grow to US$ 700 billion
by 2010. By the same time, the organized sector will be 20% of the total market share. It can be mentioned
here that, the share of organized sector in 2007 was 7.5% of the total retail market.

Major Retailers in India


Pantaloon:

Pantaloon is one of the biggest retailers in India with more than 450 stores across the country.
Headquartered in Mumbai, it has more than 5 million sq. ft retail space located across the country. It's
growing at an enviable pace and is expected to reach 30 million sq. ft by the year 2010. In 2001, Pantaloon
launched country's first hypermarket ‘Big Bazaar’. It has the following retail segments:

• Food & Grocery: Big Bazaar, Food Bazaar


• Home Solutions: Hometown, Furniture Bazaar, Collection-i
• Consumer Electronics: e-zone
• Shoes: Shoe Factory
• Books, Music & Gifts: Depot
• Health & Beauty Care: Star, Sitara
• E-tailing: Futurebazaar.com
• Entertainment: Bowling Co.

Tata Group

Tata group is another major player in Indian retail industry with its subsidiary Trent, which operates
Westside and Star India Bazaar. Established in 1998, it also acquired the largest book and music
retailer in India ‘Landmark’ in 2005. Trent owns over 4 lakh sq. ft retail space across the country.

RPG Group

RPG Group is one of the earlier entrants in the Indian retail market, when it came into food & grocery
retailing in 1996 with its retail Foodworld stores. Later it also opened the pharmacy and beauty care
outlets ‘Health & Glow’.

Reliance

Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Fresh stores
and Reliance Mart are quite popular in the Indian retail market. It's expecting its sales to reach Rs.
90,000 crores by 2010.

AV Birla Group

AV Birla Group has a strong presence in Indian apparel retailing. The brands like Louis Phillipe, Allen
Solly, Van Heusen, Peter England are quite popular. It's also investing in other segments of retail. It
will invest Rs. 8000-9000 crores by 2010.
Types of Retailers
The retailers are classified according to various lines:
• Ownership (Independent, Chain, Franchises)
• Level of Service (Full to self service)
• Variety and Assortment
• Price

Based on the above dimensions we have these major retailing formats:

Food Retailers
• Conventional Supermarket
• Supercenter
• Hypermarket
• Warehouse Club
• Convenience Store

Conventional Supercenter Hypermarket Warehouse Convenience


Supermarket Club Store
Percentage 70-90 30-40 60-70 60 90
Food
Size (000 sq. 20-50 150-220 100-300 100-150 2-3
ft.)
SKUs (000)s 20-30 100-150 40-60 20 2-3
Variety Average Broad Average Broad Narrow
Assortment Average Deep Deep Shallow Shallow
No. of 6-10 20-30 40-60 10-15 1-2
checkout
lines
Prices Average Low Low Low High

General Merchandise Retailers


• Discount Stores
• Specialty Stores
• Category Specialists
• Home Improvement centers
• Department Stores
• Drugstores
• Off-price stores
• Value retailers

Type Variety Assortment Service Prices Size SKUs Location


(000 sq. (000)
ft.)
Discount Broad Average to Low Low 60-80 30 Stand
Stores Shallow alone,
power
strip
centers
Specialty Narrow Deep High High 4-12 5 Regional
Stores malls
Category Narrow Very Deep Low to Low 50-120 20-40 Stand
Specialists high alone,
power
strip
centers
Home Narrow Very Deep Low to Low 80-120 20-40 Stand
Improvemen high alone,
t Centers power
strip
centers
Department Broad Deep to Average Average 100-200 100 Regional
Stores average to high to high malls
Drugstores Narrow Very Deep Average Average 3-15 10-20 Stand
to high alone,
strip
centers
Off-price Average Deep but Low Low 20-30 50 Outlet
Stores varying malls
Value Average Average Low Low 7-15 3-4 Urban,
Retailers and strip
varying

Nonstore Retail Formats


• Electronic retailing
• Catalog and Direct-Mail retailing
• Direct Selling
• Television Home Shopping
• Vending Machine Retailing

Electronic Retailing
Electronic retailing (also called e-tailing and internet retailing) is a retail format in whch the retailers
communicate with customers and offer products and services for sale over the Internet. The
rapid diffusion of internet access and usage and the perceived low cost of entry stimulated the
creation of over 10000 entrepreneurial electronic retailing ventures during the last five years of
the twentieth century.

Catalog and Direct-Mail retailing


Catalog retailing is a nonstore retail format in which the retail offering is communicated to a customer
through a catalog, whereas direct-mail retailers communicate with their customers using letters and
brochures.

Challenges of Retailing in India


Retailing as an industry in India has still a long way to go. To become a truly flourishing industry,
retailing needs to cross the following hurdles:
• 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.
• Intrinsic complexity of retailing – rapid price changes, constant threat of product obsolescence
and low margins. The retailers in India have to learn both the art and science of retailing by
closely following how retailers in other parts of the world are organizing, managing, and
coping up with new challenges in an ever-changing marketplace. Indian retailers must use
innovative retail formats to enhance shopping experience, and try to understand the regional
variations in consumer attitudes to retailing. Retail marketing efforts have to improve in the
country - advertising, promotions, and campaigns to attract customers; building loyalty by
identifying regular shoppers and offering benefits to them; efficiently managing high-value
customers; and monitoring customer needs constantly, are some of the aspects which Indian
retailers need to focus upon on a more pro-active basis. Despite the presence of the basic
ingredients required for growth of the retail industry in India, it still faces substantial hurdles
that will retard and inhibit its growth in the future. One of the key impediments is the lack of
FDI status. This has largely limited capital investments in supply chain infrastructure, which is
a key for development and growth of food retailing and has also constrained access to world-
class retail practices. Multiplicity and complexity of taxes, lack of proper infrastructure and
relatively high cost of real estate are the other impediments to the growth of retailing. While
the industry and the government are trying to remove many of these hurdles, some of the
roadblocks will remain and will continue to affect the smooth growth of this industry. Fitch
believes that while the market share of organised retail will grow and become significant in the
next decade, this growth would, however, not be at the same rapid pace as in other emerging
markets. Organised retailing in India is gaining wider acceptance. The development of the
organised retail sector, during the last decade, has begun to change the face of retailing,
especially, in the major metros of the country. Experiences in the developed and developing
countries prove that performance of organised retail is strongly linked to the performance of
the economy as a whole. This is mainly on account of the reach and penetration of this
business and its scientific approach in dealing with customers and their needs. In spite of the
positive prospects of this industry, Indian retailing faces some major hurdles (see Table 1),
which have stymied its growth. Early signs of organized retail were visible even in the 1970s
when Nilgiris (food), Viveks (consumer durables) and Nallis (sarees) started their operations.
However, as a result of the roadblocks (mentioned in Table 1), the industry remained in a
rudimentary stage. While these retailers gave the necessary ambience to customers, little effort
was made to introduce world-class customer care practices and improve operating efficiencies.
Moreover, most of these modern developments were restricted to south India, which is still
regarded as a ‘Mecca of Indian Retail’.

Factors Description Implications


Barriers to FDI not permitted in pure Absence of global players
FDI retailing Limited exposure to best
Franchisee arrangement practices
allowed
Lack of Industry Status Government does not Restricted availability of
recognize the industry finance
Restricts growth and scaling
up
Structural Impediments Lack of urbanization Lack of awareness of Indian
Poor transportation consumers
infrastructure Restricted retail growth
Consumer habit of buying Growth of small, one-store
fresh foods formats, with unmatchable
Administered pricing cost structure
Wastage of almost 20%-
25% of farm produce
High Cost of Real Estate Pro-tenant rent laws Difficult to find good real
Non-availability of estate in terms of location
government land, zoning and size
restrictions High land cost owing to
Lack of clear ownership constrained supply
titles, high stamp Disorganized nature of
transactions duty (10%)
Supply Chain Bottlenecks Several segments like food Limited product range
and apparel reserved for Makes scaling up difficult
SSIs High cost and complexity of
Distribution, logistics sourcing & planning
constraints – restrictions of Lack of value addition and
purchase and movement of increase in costs by almost
food grains, absence of cold 15%
chain infrastructure
Long intermediation chain
Complex Taxation System Differential sales tax rates Added cost and complexity
across states of distribution
Multi-point octroi Cost advantage for smaller
Sales tax avoidance by stores through tax evasion
smaller stores
Multiple Legislations Stringent labor laws Limits flexibility in
governing hours of work, operations
minimum wage payments Irritant value in establishing
Multiple licenses/clearances chain operations; adds to
required overall costs
Customer Preferences Local consumption habits Leads to product
Need for variety proliferation
Cultural issues Need to stock larger number
of SKUs at store level
Increases complexity in
sourcing & planning
Increases the cost of store
management
Availability of Talent Highly educated class does Lack of trained personnel
not consider retailing a Higher trial and error in
profession of choice managing retail operations
Lack of proper training Increase in personnel costs
Manufacturers Backlash No increase in margins Manufacturers refuse to dis-
intermediate and pass on
intermediary margins to
retailers