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SYNOPSIS Thesis Title: Causes and Impact Of recession In Indian retail Sector
Introduction: The Indian retail industry is now beginning and growing day by day. The concept of retail which includes the shopkeeper to customer interaction, has taken many forms and dimensions, from the traditional retail outlet and street local market shops to upscale multi brand outlets, especially stores or departmental stores.
In this thesis, I am focusing on two aspects of retail marketing i.e. Store Retailing and Non store Retailing. Store Retailing: Store Retailing includes departmental store, which is a store or multi brand outlet, offering an Varity of products in various categories under one roof, trying to cater to not one or two but many segments of the society Non store Retailing. : Non store Retailing Includes direct selling, direct marketing, automatic vending.
Therefore, this concept of retail marketing through departmental stores, which is coming up in a big way in India was decided to be studied in detail, through an exploratory and conclusive research.
Causes and Impact Of Recession In Indian retail Sector Submitted by:Deepshikha Mehta
OBJECTIVE : Retailing in India Past, present and future Future growth potential of Retail Marketing in India. How do Indian retailers sell their product? Which International retailers eyeing Indian market..
TOPIC 2 LOCATION/AREA OF STUDY
The location of the research work is mainly confined to metropolitan cities of India. Along with it, emerging Retail Hubs in cities like Udaipur have also been considered.
The Eastern part of the country is a place which has been on the expansion prospective of multinational companies since a very long time but the recession effect has jeopardized the chances of growth of retail sector in this area as well. Hence, retail growth prospective in this part has also been given importance.
There have been major retail players in the country operating from a very long time. Their growth pattern, expansion modules, effect of recession and future prospective have also been discussed.
TOPIC 3 INTRODUCTION OF THE RESEARCH TOPIC Recession In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way. Production, as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits, and inflation all fall during recessions, while bankruptcies and the unemployment rate rise.
Recessions generally occur when there is a widespread drop in spending often following an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.
Recession is the prime story of the global economy since last few Years. The economy is facing an uninterrupted downfall that has further sent invites to many disastrous results. These outcomes have gripped badly the international economy status that has made the major entrepreneurs suffer sleepless nights. Some of the key impacts are listed below:
Background Main article: Causes of the late-2000s financial crisis The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 20052006. Alreadyrising default rates on "subprime" and adjustable rate mortgages (ARM) began to increase quickly thereafter. As banks began to give out more loans to potential home owners, housing prices began to rise. In the optimistic terms, banks would encourage home owners to take on considerably high loans in the belief they would be able to pay them back more quickly overlooking the interest rates. Once the interest rates began to rise in mid 2007, housing prices dropped significantly. In many states, like California, refinancing became increasingly difficult. As a result, the number of foreclosed homes also began to rise.
Share in GDP of U.S. financial sector since 1860
Steadily decreasing interest rates backed by the U.S Federal Reserve from 1982 onward and large inflows of foreign funds created easy credit conditions for a number of years prior to the crisis, fueling a housing construction boom and encouraging debt-financed consumption. The combination of easy credit and money inflow contributed to the United States housing bubble. Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain and consumers assumed an unprecedented debt load. As part of the housing and credit booms, the number of financial agreements called mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which derived their value from mortgage payments and housing prices, greatly increased. Such financial innovation enabled institutions and investors around the world to invest in the U.S. housing market. As housing prices declined, major global financial institutions that had borrowed and invested heavily in subprime MBS reported significant losses. Falling prices also resulted in homes worth less than the mortgage loan, providing a financial incentive to enter foreclosure. The ongoing foreclosure epidemic that began in late 2006 in the U.S. continues to drain wealth from consumers and erodes the financial strength of banking institutions. Defaults and losses on other loan types also increased significantly as the crisis expanded from the housing market to other parts of the economy. Total losses are estimated in the trillions of U.S. dollars globally.
While the housing and credit bubbles built, a series of factors caused the financial system to both expand and become increasingly fragile, a process called financialization. U.S. Government policy from the 1970s onward has emphasized deregulation to encourage business, which resulted in less oversight of activities and less disclosure of information about new activities undertaken
by banks and other evolving financial institutions. Thus, policymakers did not immediately recognize the increasingly important role played by financial institutions such as investment banks and hedge funds, also known as the shadow banking system. Some experts believe these institutions had become as important as commercial (depository) banks in providing credit to the U.S. economy, but they were not subject to the same regulations. These institutions, as well as certain regulated banks, had also assumed significant debt burdens while providing the loans described above and did not have a financial cushion sufficient to absorb large loan defaults or MBS losses. These losses impacted the ability of financial institutions to lend, slowing economic activity. Concerns regarding the stability of key financial institutions drove central banks to provide funds to encourage lending and restore faith in the commercial paper markets, which are integral to funding business operations. Governments also bailed out key financial institutions and implemented economic stimulus programs, assuming significant additional financial commitments.
The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserves failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.
Growth of the housing bubble Main article: United States housing bubble
A graph showing the median and average sales prices of new homes sold in the United States between 1963 and 2008 (not adjusted for inflation) Between 1997 and 2006, the price of the typical American house increased by 124%. During the two decades ending in 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This ratio rose to 4.0 in 2004, and 4.6 in 2006. This housing bubble resulted in quite a few homeowners refinancing their homes at lower interest rates, or financing consumer spending by taking out second mortgages secured by the price appreciation.
In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. This pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had
not grown as fast. Investment banks on Wall Street answered this demand with the MBS and CDO, which were assigned safe ratings by the credit rating agencies. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable.
The CDO in particular enabled financial institutions to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. A CDO essentially places cash payments from multiple mortgages or other debt obligations into a single pool, from which the cash is allocated to specific securities in a priority sequence. Those securities obtaining cash first received investment-grade ratings from rating agencies. Lower priority securities received cash thereafter, with lower credit ratings but theoretically a higher rate of return on the amount invested.
By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak. As prices declined, borrowers with adjustable-rate mortgages could not refinance to avoid the higher payments associated with rising interest rates and began to default. During 2007, lenders began
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foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006. This increased to 2.3 million in 2008, an 81% increase vs. 2007. By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure. By September 2009, this had risen to 14.4%.
Easy credit conditions Lower interest rates encourage borrowing. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%. This was done to soften the effects of the collapse of the dot-com bubble and of the September 2001 terrorist attacks, and to combat the perceived risk of deflation.
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U.S. current account deficit Additional downward pressure on interest rates was created by the USA's high and rising current account deficit, which peaked along with the housing bubble in 2006. Federal Reserve Chairman Ben Bernanke explained how trade deficits required the U.S. to borrow money from abroad, which bid up bond prices and lowered interest rates. Bernanke explained that between 1996 and 2004, the USA current account deficit increased by $650 billion, from 1.5% to 5.8% of GDP. Financing these deficits required the USA to borrow large sums from abroad, much of it from countries running trade surpluses, mainly the emerging economies in Asia and oil-exporting nations. The balance of payments identity requires that a country (such as the USA) running a current account deficit also have a capital account (investment) surplus of the same amount. Hence large and growing amounts of foreign funds (capital) flowed into the USA to finance its imports. This created demand for various types of financial assets, raising the prices of those assets while lowering interest rates. Foreign investors had these funds to lend, either because they had very high personal savings rates (as high as 40% in China), or because of high oil prices. Bernanke referred to this as a "saving glut." A "flood" of funds (capital or liquidity) reached the USA financial markets. Foreign governments supplied funds by purchasing USA Treasury bonds and thus avoided much of the direct impact of the crisis. USA households, on the other hand, used funds borrowed from foreigners to finance consumption or to bid up the prices of housing and financial assets. Financial institutions invested foreign funds in mortgage-backed securities.
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The Fed then raised the Fed funds rate significantly between July 2004 and July 2006. This contributed to an increase in 1-year and 5-year adjustable-rate mortgage (ARM) rates, making ARM interest rate resets more expensive for homeowners. This may have also contributed to the deflating of the housing bubble, as asset prices generally move inversely to interest rates and it became riskier to speculate in housing. USA housing and financial assets dramatically declined in value after the housing bubble burst. Weak and fraudulent underwriting practice Testimony given to the Financial Crisis Inquiry Commission by Richard M. Bowen, III on events during his tenure as Citi's Business Chief Underwriter for Correspondent Lending in the Consumer Lending Group (where he was responsible for over 220 professional underwriters) suggests that by the final years of the US housing bubble (20062007), the collapse of mortgage underwriting standards was endemic. His testimony stated that by 2006, 60% of mortgages purchased by Citi from some 1,600 mortgage companies were "defective" (were not underwritten to policy, or did not contain all policyrequired documents). This, despite the fact that each of these 1,600 originators were contractually responsible (certified via representations and warrantees) that their mortgage originations met Citi's standards. Moreover, during 2007, "defective mortgages (from mortgage originators contractually bound to perform underwriting to Citi's standards) increased... to over 80% of production".
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In separate testimony to Financial Crisis Inquiry Commission, officers of Clayton Holdingsthe largest residential loan due diligence and securitization surveillance company in the United States and Europetestified that Clayton's review of over 900,000 mortgages issued from January 2006 to June 2007 revealed that scarcely 54% of the loans met their originators underwriting standards. The analysis (conducted on behalf of 23 investment and commercial banks, including 7 "Too Big To Fail" banks) additionally showed that 28% of the sampled loans did not meet the minimal standards of any issuer. Clayton's analysis further showed that 39% of these loans (i.e. those not meeting any issuer's minimal underwriting standards) were subsequently securitized and sold to investors. Sub-prime lending
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U.S. subprime lending expanded dramatically 2004-2006 The term subprime refers to the credit quality of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers. The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007, with over 7.5 million first-lien subprime mortgages outstanding.
As well as easy credit conditions, there is evidence that both government and competitive pressures contributed to an increase in the amount of subprime lending during the years preceding the crisis. Major U.S. investment banks and government sponsored enterprises like Fannie Mae played an important role in the expansion of higher-risk lending.
Subprime mortgages remained below 10% of all mortgage originations until 2004, when they spiked to nearly 20% and remained there through the 20052006 peak of the United States housing bubble. A proximate event to this increase was the April 2004 decision by the U.S. Securities and Exchange Commission (SEC) to relax the net capital rule, which permitted the largest five investment banks to dramatically increase their financial leverage and aggressively expand their issuance of mortgage-backed securities. This applied additional competitive pressure to Fannie Mae and Freddie Mac, which further expanded their riskier lending. Subprime mortgage payment delinquency rates remained in the 10-15% range from 1998 to 2006, then began to increase rapidly, rising to 25% by early 2008.
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Some, like American Enterprise Institute fellow Peter J. Wallison, believe the roots of the crisis can be traced directly to sub-prime lending by Fannie Mae and Freddie Mac, which are government sponsored entities. On September 30, 1999, The New York Times reported that the Clinton Administration pushed for more lending to low and moderate income borrowers, while the mortgage industry sought guarantees for sub-prime loans:
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers... In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.
In the early and mid-2000s, the Bush administration called numerous times for investigation into the safety and soundness of the GSEs and their swelling portfolio of subprime mortgages. On September 10, 2003 the House Financial Services Committee held a hearing at the urging of the administration to assess safety and soundness issues and to review a recent report by the Office of Federal Housing Enterprise Oversight (OFHEO) that had uncovered accounting discrepancies within the two entities. The hearings never resulted in new legislation or formal investigation of Fannie Mae and Freddie Mac, as many of
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the committee members refused to accept the report and instead rebuked OFHEO for their attempt at regulation. Some believe this was an early warning to the systemic risk that the growing market in subprime mortgages posed to the U.S. financial system that went unheeded.
A 2000 United States Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 showed that $467 billion of mortgage lending was made by Community Reinvestment Act (CRA)-covered lenders into low and mid level income (LMI) borrowers and neighborhoods, representing 10% of all US mortgage lending during the period. The majority of these were prime loans. Sub-prime loans made by CRA-covered institutions constituted a 3% market share of LMI loans in 1998. Nevertheless, only 25% of all sub-prime lending occurred at CRA-covered institutions, and a full 50% of sub-prime loans originated at institutions exempt from CRA.
An analysis by the Federal Reserve Bank of Dallas in 2009 concluded unequivocally that the CRA was not responsible for the mortgage loan crisis, pointing out that CRA rules have been in place since 1995 whereas the poor lending emerged only a decade later. Furthermore, most sub-prime loans were not made to the LMI borrowers targeted by the CRA, especially in the years 2005-2006 leading up to the crisis. Nor did it find any evidence that lending under the CRA rules increased delinquency rates or that the CRA indirectly influenced independent mortgage lenders to ramp up sub-prime lending.
Others have pointed out that there were not enough of these loans made to cause a crisis of this magnitude. In an article in Portfolio Magazine, Michael Lewis spoke with one trader who noted that "There werent enough Americans with
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[bad] credit taking out [bad loans] to satisfy investors appetite for the end product." Essentially, investment banks and hedge funds used financial innovation to enable large wagers to be made, far beyond the actual value of the underlying mortgage loans, using derivatives called credit default swaps, CDO and synthetic CDO. As long as derivative buyers could be matched with sellers, the theoretical amount that could be wagered was infinite. "They were creating [synthetic loans] out of whole cloth. One hundred times over! Thats why the losses are so much greater than the loans."
Economist Paul Krugman argued in January 2010 that the simultaneous growth of the residential and commercial real estate pricing bubbles undermines the case made by those who argue that Fannie Mae, Freddie Mac, CRA or predatory lending were primary causes of the crisis. In other words, bubbles in both markets developed even though only the residential market was affected by these potential causes. As of March 2011 the FDIC has had to pay out $9 billion to cover losses on bad loans at 165 failed financial institutions.
Predatory lending Predatory lending refers to the practice of unscrupulous lenders, enticing borrowers to enter into "unsafe" or "unsound" secured loans for inappropriate purposes. A classic bait-and-switch method was used by Countrywide Financial, advertising low interest rates for home refinancing. Such loans were written into extensively detailed contracts, and swapped for more expensive loan products on the day of closing. Whereas the advertisement might state that 1% or 1.5% interest would be charged, the consumer would be put into an adjustable rate mortgage (ARM) in which the interest charged would be greater
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than the amount of interest paid. This created negative amortization, which the credit consumer might not notice until long after the loan transaction had been consummated. Countrywide, sued by California Attorney General Jerry Brown for "unfair business practices" and "false advertising" was making high cost mortgages "to homeowners with weak credit, adjustable rate mortgages (ARMs) that allowed homeowners to make interest-only payments". When housing prices decreased, homeowners in ARMs then had little incentive to pay their monthly payments, since their home equity had disappeared. This caused Countrywide's financial condition to deteriorate, ultimately resulting in a decision by the Office of Thrift Supervision to seize the lender.
Former employees from Ameriquest, which was United States' leading wholesale lender, described a system in which they were pushed to falsify mortgage documents and then sell the mortgages to Wall Street banks eager to make fast profits. There is growing evidence that such mortgage frauds may be a cause of the crisis. Deregulation Critics such as economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner have argued that the regulatory framework did not keep pace with financial innovation, such as the increasing importance of the shadow banking system, derivatives and off-balance sheet financing. In other cases, laws were changed or enforcement weakened in parts of the financial system. Key examples include:
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Jimmy Carter's Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) phased out a number of restrictions on banks' financial practices, broadened their lending powers, and raised the deposit insurance limit from $40,000 to $100,000 (raising the problem of moral hazard). Banks rushed into real estate lending, speculative lending, and other ventures just as the economy soured.
In October 1982, U.S. President Ronald Reagan signed into Law the GarnSt. Germain Depository Institutions Act, which provided for adjustable-rate mortgage loans, began the process of banking deregulation, and contributed to the savings and loan crisis of the late 1980s/early 1990s.
In November 1999, U.S. President Bill Clinton signed into Law the Gramm-Leach-Bliley Act, which repealed part of the GlassSteagall Act of 1933. This repeal has been criticized for reducing the separation between commercial banks (which traditionally had fiscally conservative policies) and investment banks (which had a more risk-taking culture).
In 2004, the U.S. Securities and Exchange Commission relaxed the net capital rule, which enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC has conceded that self-regulation of investment banks contributed to the crisis.
Financial institutions in the shadow banking system are not subject to the same regulation as depository banks, allowing them to assume additional debt obligations relative to their financial cushion or capital base. This was the case despite the Long-Term Capital Management debacle in 1998, where a highly-leveraged shadow institution failed with systemic implications.
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Regulators and accounting standard-setters allowed depository banks such as Citigroup to move significant amounts of assets and liabilities off-balance sheet into complex legal entities called structured investment vehicles, masking the weakness of the capital base of the firm or degree of leverage or risk taken. One news agency estimated that the top four U.S. banks will have to return between $500 billion and $1 trillion to their balance sheets during 2009. This increased uncertainty during the crisis regarding the financial position of the major banks. Off-balance sheet entities were also used by Enron as part of the scandal that brought down that company in 2001.
As early as 1997, Federal Reserve Chairman Alan Greenspan fought to keep the derivatives market unregulated. With the advice of the President's Working Group on Financial Markets, the U.S. Congress and President allowed the self-regulation of the over-the-counter derivatives market when they enacted the Commodity Futures Modernization Act of 2000. Derivatives such as credit default swaps (CDS) can be used to hedge or speculate against particular credit risks. The volume of CDS outstanding increased 100-fold from 1998 to 2008, with estimates of the debt covered by CDS contracts, as of November 2008, ranging from US$33 to $47 trillion. Total over-the-counter (OTC) derivative notional value rose to $683 trillion by June 2008. Warren Buffett famously referred to derivatives as "financial weapons of mass destruction" in early 2003.
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Increased debt burden or over-leveraging
Leverage ratios of investment banks increased significantly 2003-2007 U.S. households and financial institutions became increasingly indebted or overleveraged during the years preceding the crisis. This increased their vulnerability to the collapse of the housing bubble and worsened the ensuing economic downturn, Key statistics include:
Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion dollars over the period, contributing to economic growth worldwide. U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.
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USA household debt as a percentage of annual disposable personal income was 127% at the end of 2007, versus 77% in 1990.
In 1981, U.S. private debt was 123% of GDP; by the third quarter of 2008, it was 290%. From 2004-07, the top five U.S. investment banks each significantly increased their financial leverage (see diagram), which increased their vulnerability to a financial shock. These five institutions reported over $4.1 trillion in debt for fiscal year 2007, about 30% of USA nominal GDP for 2007. Lehman Brothers was liquidated, Bear Stearns and Merrill Lynch were sold at fire-sale prices, and Goldman Sachs and Morgan Stanley became commercial banks, subjecting themselves to more stringent regulation. With the exception of Lehman, these companies required or received government support.
Fannie Mae and Freddie Mac, two U.S. Government sponsored enterprises, owned or guaranteed nearly $5 trillion in mortgage obligations at the time they were placed into conservatorship by the U.S. government in September 2008.
These seven entities were highly leveraged and had $9 trillion in debt or guarantee obligations; yet they were not subject to the same regulation as depository banks. Financial innovation and complexity The term financial innovation refers to the ongoing development of financial products designed to achieve particular client objectives, such as offsetting a particular risk exposure (such as the default of a borrower) or to assist with obtaining financing. Examples pertinent to this crisis included: the adjustablerate mortgage; the bundling of subprime mortgages into mortgage-backed
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securities (MBS) or collateralized debt obligations (CDO) for sale to investors, a type of securitization; and a form of credit insurance called credit default swaps (CDS). The usage of these products expanded dramatically in the years leading up to the crisis. These products vary in complexity and the ease with which they can be valued on the books of financial institutions.
CDO issuance grew from an estimated $20 billion in Q1 2004 to its peak of over $180 billion by Q1 2007, then declined back under $20 billion by Q1 2008. Further, the credit quality of CDO's declined from 20002007, as the level of subprime and other non-prime mortgage debt increased from 5% to 36% of CDO assets. As described in the section on subprime lending, the CDS and portfolio of CDS called synthetic CDO enabled a theoretically infinite amount to be wagered on the finite value of housing loans outstanding, provided that buyers and sellers of the derivatives could be found. For example, buying a CDS to insure a CDO ended up giving the seller the same risk as if they owned the CDO, when those CDO's became worthless. Diagram of CMLTI 2006 - NC2
This boom in innovative financial products went hand in hand with more complexity. It multiplied the number of actors connected to a single mortgage (including mortgage brokers, specialized originators, the securitizers and their due diligence firms, managing agents and trading desks, and finally investors, insurances and providers of repo funding). With increasing distance from the underlying asset these actors relied more and more on indirect information (including FICO scores on creditworthiness, appraisals and due diligence checks by third party organizations, and most importantly the computer models of rating agencies and risk management desks). Instead of spreading risk this
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provided the ground for fraudulent acts, misjudgments and finally market collapse.
Martin Wolf further wrote in June 2009 that certain financial innovations enabled firms to circumvent regulations, such as off-balance sheet financing that affects the leverage or capital cushion reported by major banks, stating: "...an enormous part of what banks did in the early part of this decade the offbalance-sheet vehicles, the derivatives and the 'shadow banking system' itself was to find a way round regulation." Incorrect pricing of risk The pricing of risk refers to the incremental compensation required by investors for taking on additional risk, which may be measured by interest rates or fees. For a variety of reasons, market participants did not accurately measure the risk inherent with financial innovation such as MBS and CDOs or understand its impact on the overall stability of the financial system. For example, the pricing model for CDOs clearly did not reflect the level of risk they introduced into the system. Banks estimated that $450bn of CDO were sold between "late 2005 to the middle of 2007"; among the $102bn of those that had been liquidated, JPMorgan estimated that the average recovery rate for "high quality" CDOs was approximately 32 cents on the dollar, while the recovery rate for mezzanine CDO was approximately five cents for every dollar.
Another example relates to AIG, which insured obligations of various financial institutions through the usage of credit default swaps. The basic CDS transaction involved AIG receiving a premium in exchange for a promise to pay money to party A in the event party B defaulted. However, AIG did not have the financial strength to support its many CDS commitments as the crisis progressed and was taken over by the government in September 2008. U.S.
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taxpayers provided over $180 billion in government support to AIG during 2008 and early 2009, through which the money flowed to various counterparties to CDS transactions, including many large global financial institutions.
The limitations of a widely-used financial model also were not properly understood. This formula assumed that the price of CDS was correlated with and could predict the correct price of mortgage backed securities. Because it was highly tractable, it rapidly came to be used by a huge percentage of CDO and CDS investors, issuers, and rating agencies. According to one wired.com article:
Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril... Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees. As financial assets became more and more complex, and harder and harder to value, investors were reassured by the fact that both the international bond rating agencies and bank regulators, who came to rely on them, accepted as valid some complex mathematical models which theoretically showed the risks were much smaller than they actually proved to be. George Soros commented that "The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the
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rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility." Moreover, a conflict of interest between professional investment managers and their institutional clients, combined with a global glut in investment capital, led to bad investments by asset managers in over-priced credit assets. Professional investment managers generally are compensated based on the volume of client assets under management. There is, therefore, an incentive for asset managers to expand their assets under management in order to maximize their compensation. As the glut in global investment capital caused the yields on credit assets to decline, asset managers were faced with the choice of either investing in assets where returns did not reflect true credit risk or returning funds to clients. Many asset managers chose to continue to invest client funds in over-priced (underyielding) investments, to the detriment of their clients, in order to maintain their assets under management. This choice was supported by a "plausible deniability" of the risks associated with subprime-based credit assets because the loss experience with early "vintages" of subprime loans was so low. Despite the dominance of the above formula, there are documented attempts of the financial industry, occurring before the crisis, to address the formula limitations, specifically the lack of dependence dynamics and the poor representation of extreme events. The volume "Credit Correlation: Life After Copulas", published in 2007 by World Scientific, summarizes a 2006 conference held by Merrill Lynch in London where several practitioners attempted to propose models rectifying some of the copula limitations. See also the article by Donnelly and Embrechts and the book by Brigo, Pallavicini and Torresetti, that reports relevant warnings and research on CDOs appeared in 2006.
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Boom and collapse of the shadow banking system
Securitization markets were impaired during the crisis In a June 2008 speech, President and CEO of the New York Federal Reserve Bank Timothy Geithner who in 2009 became Secretary of the United States Treasury placed significant blame for the freezing of credit markets on a "run" on the entities in the "parallel" banking system, also called the shadow banking system. These entities became critical to the credit markets underpinning the financial system, but were not subject to the same regulatory controls. Further, these entities were vulnerable because of maturity mismatch, meaning that they borrowed short-term in liquid markets to purchase long-term, illiquid and risky assets. This meant that disruptions in credit markets would
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make them subject to rapid deleveraging, selling their long-term assets at depressed prices. He described the significance of these entities:
In early 2007, asset-backed commercial paper conduits, in structured investment vehicles, in auction-rate preferred securities, tender option bonds and variable rate demand notes, had a combined asset size of roughly $2.2 trillion. Assets financed overnight in triparty repo grew to $2.5 trillion. Assets held in hedge funds grew to roughly $1.8 trillion. The combined balance sheets of the then five major investment banks totaled $4 trillion. In comparison, the total assets of the top five bank holding companies in the United States at that point were just over $6 trillion, and total assets of the entire banking system were about $10 trillion. The combined effect of these factors was a financial system vulnerable to self-reinforcing asset price and credit cycles.
Paul Krugman, laureate of the Nobel Prize in Economics, described the run on the shadow banking system as the "core of what happened" to cause the crisis. He referred to this lack of controls as "malign neglect" and argued that regulation should have been imposed on all banking-like activity. The securitization markets supported by the shadow banking system started to close down in the spring of 2007 and nearly shut-down in the fall of 2008. More than a third of the private credit markets thus became unavailable as a source of funds. According to the Brookings Institution, the traditional banking system does not have the capital to close this gap as of June 2009: "It would take a number of years of strong profits to generate sufficient capital to support that additional lending volume." The authors also indicate that some forms of securitization are "likely to vanish forever, having been an artifact of excessively loose credit conditions."
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Economist Mark Zandi testified to the Financial Crisis Inquiry Commission in January 2010: "The securitization markets also remain impaired, as investors anticipate more loan losses. Investors are also uncertain about coming legal and accounting rule changes and regulatory reforms. Private bond issuance of residential and commercial mortgage-backed securities, asset-backed securities, and CDOs peaked in 2006 at close to $2 trillion...In 2009, private issuance was less than $150 billion, and almost all of it was asset-backed issuance supported by the Federal Reserve's TALF program to aid credit card, auto and smallbusiness lenders. Issuance of residential and commercial mortgage-backed securities and CDOs remains dormant."
Commodities boom Rapid increases in a number of commodity prices followed the collapse in the housing bubble. The price of oil nearly tripled from $50 to $147 from early 2007 to 2008, before plunging as the financial crisis began to take hold in late 2008. Experts debate the causes, with some attributing it to speculative flow of money from housing and other investments into commodities, some to monetary policy, and some to the increasing feeling of raw materials scarcity in a fast growing world, leading to long positions taken on those markets, such as Chinese increasing presence in Africa. An increase in oil prices tends to divert a larger share of consumer spending into gasoline, which creates downward pressure on economic growth in oil importing countries, as wealth flows to oilproducing states. A pattern of spiking instability in the price of oil over the decade leading up to the price high of 2008 has been recently identified. The destabilizing effects of this price variance has been proposed as a contributory factor in the financial crisis.
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In testimony before the Senate Committee on Commerce, Science, and Transportation on June 3, 2008, former director of the CFTC Division of Trading & Markets (responsible for enforcement) Michael Greenberger specifically named the Atlanta-based IntercontinentalExchange, founded by Goldman Sachs, Morgan Stanley and BP as playing a key role in speculative run-up of oil futures prices traded off the regulated futures exchanges in London and New York. However, the IntercontinentalExchange (ICE) had been regulated by both European and US authorities since its purchase of the International Petroleum Exchange in 2001. Mr Greenberger was later corrected on this matter.
Global copper prices Copper prices increased at the same time as the oil prices. Copper traded at about $2,500 per tonne from 1990 until 1999, when it fell to about $1,600. The price slump lasted until 2004 which saw a price surge that had copper reaching $7,040 per tonne in 2008.
Nickel prices boomed in the late 1990s, then the price of nickel imploded from around $51,000 /36,700 per metric ton in May 2007 to about $11,550/8,300 per metric ton in January 2009. Prices were only just starting to recover as of
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January 2010, but most of Australia's nickel mines had gone bankrupt by then. As the price for high grade nickel sulphate ore recovered in 2010, so did the Australian nickel mining industry.
Coincidentally with these price fluctuations, long-only commodity index funds became popular by one estimate investment increased from $90 billion in 2006 to $200 billion at the end of 2007, while commodity prices increased 71% which raised concern as to whether these index funds caused the commodity bubble. The empirical research has been mixed.
Systemic crisis
Another analysis, different from the mainstream explanation, is that the financial crisis is merely a symptom of another, deeper crisis, which is a systemic crisis of capitalism itself. According to Samir Amin, an Egyptian Marxist economist, the constant decrease in GDP growth rates in Western countries since the early 1970s created a growing surplus of capital which did not have sufficient profitable investment outlets in the real economy. The alternative was to place this surplus into the financial market, which became more profitable than capital investment, especially with subsequent
deregulation. According to Samir Amin, this phenomenon has led to recurrent financial bubbles (such as the internet bubble).
Ravi Batra's theory is that growing inequality of financial capitalism produces speculative bubbles that burst and result in depression and major political changes. He has also suggested that a "demand gap" related to differing wage
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and productivity growth explains deficit and debt dynamics important to stock market developments.
John Bellamy Foster, a political economy analyst and editor of the Monthly Review, believes that the decrease in GDP growth rates since the early 1970s is due to increasing market saturation.
John C. Bogle wrote during 2005 that a series of unresolved challenges face capitalism that have contributed to past financial crises and have not been sufficiently addressed:
Corporate America went astray largely because the power of managers went virtually unchecked by our gatekeepers for far too long...They failed to 'keep an eye on these geniuses' to whom they had entrusted the responsibility of the management of America's great corporations. Echoing the central thesis of James Burnham's 1941 seminal book, The Managerial Revolution, Bolge cites particular issues, including:
that "Manager's capitalism" has replaced "owner's capitalism," meaning management runs the firm for its benefit rather than for the shareholders, a variation on the principal-agent problem;
the burgeoning executive compensation; the management of earnings, mainly a focus on share price rather than the creation of genuine value; and
the failure of gatekeepers, including auditors, boards of directors, Wall Street analysts, and career politicians.
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An analysis conducted by Mark Roeder, a former executive at the Swiss-based UBS Bank, suggested that large scale momentum, or The Big Mo "played a pivotal role" in the 2008-09 global financial crisis. Roeder suggested that "recent technological advances, such as computer-driven trading programs, together with the increasingly interconnected nature of markets, has magnified the momentum effect. This has made the financial sector inherently unstable."
Robert Reich has attributed the current economic downturn to the stagnation of wages in the United States, particularly those of the hourly workers who comprise 80% of the workforce. His claim is that this stagnation forced the population to borrow in order to meet the cost of living. Role of economic forecasting The financial crisis was not widely predicted by mainstream economists, who instead spoke of the Great Moderation. A number of heterodox economists predicted the crisis, with varying arguments. Dirk Bezemer in his research credits (with supporting argument and estimates of timing) 12 economists with predicting the crisis: Dean Baker (US), Wynne Godley (UK), Fred Harrison (UK), Michael Hudson (US), Eric Janszen (US), Steve Keen (Australia), Jakob Brchner Madsen & Jens Kjaer Srensen (Denmark), Kurt Richebcher (US), Nouriel Roubini (US), Peter Schiff (US), and Robert Shiller (US). Examples of other experts who gave indications of a financial crisis have also been given. A cover story in BusinessWeek magazine claims that economists mostly failed to predict the worst international economic crisis since the Great Depression of 1930s. The Wharton School of the University of Pennsylvania's online business journal examines why economists failed to predict a major global financial crisis. Popular articles published in the mass media have led the general public to believe that the majority of economists have failed in their obligation to
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predict the financial crisis. For example, an article in the New York Times informs that economist Nouriel Roubini warned of such crisis as early as September 2006, and the article goes on to state that the profession of economics is bad at predicting recessions.According to The Guardian, Roubini was ridiculed for predicting a collapse of the housing market and worldwide recession, while The New York Times labelled him "Dr. Doom".
Within mainstream financial economics, most believe that financial crises are simply unpredictable, following Eugene Fama's efficient-market hypothesis and the related random-walk hypothesis, which state respectively that markets contain all information about possible future movements, and that the movement of financial prices are random and unpredictable.
Lebanese-American trader and financial risk engineer Nassim Nicholas Taleb, author of the 2007 book The Black Swan, spent years warning against the breakdown of the banking system in particular and the economy in general owing to their use of bad risk models and reliance on forecasting, and their reliance on bad models, and framed the problem as part of "robustness and fragility". He also took action against the establishment view by making a big financial bet on banking stocks and making a fortune from the crisis ("They didn't listen, so I took their money"). According to David Brooks from the New York Times, "Taleb not only has an explanation for whats happening, he saw it coming."
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Impact on financial markets
US stock market The US stock market peaked in October 2007, when the Dow Jones Industrial Average index exceeded 14,000 points. It then entered a pronounced decline, which accelerated markedly in October 2008. By March 2009, the Dow Jones average reached a trough of around 6,600. It has since recovered much of the decline, exceeding 12,000 for most of the first half of 2011. Likely, the aggressive Federal Reserve policy of quantitative easing spurred the recovery in the stock market.
Market strategist Phil Dow "said he believes distinctions exist between the current market malaise" and the Great Depression. The Dow's fall of over 50% in 17 months is similar to a 54.7% fall in the Great Depression, followed by a total drop of 89% over the next 16 months. "It's very troubling if you have a mirror image," said Dow. Floyd Norris, chief financial correspondent of The New York Times, wrote in a blog entry in March 2009 that the decline has not been a mirror image of the Great Depression, explaining that although the decline amounts were nearly the same at the time, the rates of decline had started much faster in 2007, and that the past year had only ranked eighth among the worst recorded years of percentage drops in the Dow. The past two years ranked third however.
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Financial institutions The International Monetary Fund estimated that large U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans from January 2007 to September 2009. These losses are expected to top $2.8 trillion from 2007-10. U.S. banks losses were forecast to hit $1 trillion and European bank losses will reach $1.6 trillion. The IMF estimated that U.S. banks were about 60% through their losses, but British and eurozone banks only 40%. One of the first victims was Northern Rock, a medium-sized British bank. The highly leveraged nature of its business led the bank to request security from the Bank of England. This in turn led to investor panic and a bank run in midSeptember 2007. Calls by Liberal Democrat Treasury Spokesman Vince Cable to nationalize the institution were initially ignored; in February 2008, however, the British government (having failed to find a private sector buyer) relented, and the bank was taken into public hands. Northern Rock's problems proved to be an early indication of the troubles that would soon befall other banks and financial institutions.
Initially the companies affected were those directly involved in home construction and mortgage lending such as Northern Rock and Countrywide Financial, as they could no longer obtain financing through the credit markets. Over 100 mortgage lenders went bankrupt during 2007 and 2008. Concerns that investment bank Bear Stearns would collapse in March 2008 resulted in its firesale to JP Morgan Chase. The financial institution crisis hit its peak in September and October 2008. Several major institutions failed, were acquired under duress, or were subject to government takeover. These included Lehman
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Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, and AIG.
Credit markets and the shadow banking system
TED spread and components during 2008 During September 2008, the crisis hit its most critical stage. There was the equivalent of a bank run on the money market mutual funds, which frequently invest in commercial paper issued by corporations to fund their operations and payrolls. Withdrawal from money markets was $144.5 billion during one week, versus $7.1 billion the week prior. This interrupted the ability of corporations to rollover (replace) their short-term debt. The U.S. government responded by extending insurance for money market accounts analogous to bank deposit insurance via a temporary guarantee and with Federal Reserve programs to purchase commercial paper. The TED spread, an indicator of perceived credit
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risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008, reaching a record 4.65% on October 10, 2008.
In a dramatic meeting on September 18, 2008, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke met with key legislators to propose a $700 billion emergency bailout. Bernanke reportedly told them: "If we don't do this, we may not have an economy on Monday." The Emergency Economic Stabilization Act, which implemented the Troubled Asset Relief Program (TARP), was signed into law on October 3, 2008.
Economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner explain the credit crisis via the implosion of the shadow banking system, which had grown to nearly equal the importance of the traditional commercial banking sector as described above. Without the ability to obtain investor funds in exchange for most types of mortgage-backed securities or asset-backed commercial paper, investment banks and other entities in the shadow banking system could not provide funds to mortgage firms and other corporations. This meant that nearly one-third of the U.S. lending mechanism was frozen and continued to be frozen into June 2009. According to the Brookings Institution, the traditional banking system does not have the capital to close this gap as of June 2009: "It would take a number of years of strong profits to generate sufficient capital to support that additional lending volume." The authors also indicate that some forms of securitization are "likely to vanish forever, having been an artifact of excessively loose credit conditions." While traditional banks have raised their lending standards, it was the collapse of the shadow banking
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system that is the primary cause of the reduction in funds available for borrowing.
Wealth effects
The New York City headquarters of Lehman Brothers There is a direct relationship between declines in wealth, and declines in consumption and business investment, which along with government spending represent the economic engine. Between June 2007 and November 2008, Americans lost an estimated average of more than a quarter of their collective net worth, By early November 2008, a broad U.S. stock index the S&P 500, was down 45% from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30-35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans' second-largest household asset, dropped by 22%, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and pension assets lost $1.3 trillion.
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Taken together, these losses total a staggering $8.3 trillion. Since peaking in the second quarter of 2007, household wealth is down $14 trillion. Further, U.S. homeowners had extracted significant equity in their homes in the years leading up to the crisis, which they could no longer do once housing prices collapsed. Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion over the period. U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.
To offset this decline in consumption and lending capacity, the U.S. government and U.S. Federal Reserve have committed $13.9 trillion, of which $6.8 trillion has been invested or spent, as of June 2009. In effect, the Fed has gone from being the "lender of last resort" to the "lender of only resort" for a significant portion of the economy. In some cases the Fed can now be considered the "buyer of last resort."
Economist Dean Baker explained the reduction in the availability of credit this way: Yes, consumers and businesses can't get credit as easily as they could a year ago. There is a really good reason for tighter credit. Tens of millions of homeowners who had substantial equity in their homes two years ago have little or nothing today. Businesses are facing the worst downturn since the Great Depression. This matters for credit decisions. A homeowner with equity in her home is very unlikely to default on a car loan or credit card debt. They will draw on this equity rather than lose their car and/or have a default placed on their credit record. On the other hand, a homeowner who has no equity is a
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serious default risk. In the case of businesses, their creditworthiness depends on their future profits. Profit prospects look much worse in November 2008 than they did in November 2007 (of course, to clear-eyed analysts, they didn't look too good a year ago either). While many banks are obviously at the brink, consumers and businesses would be facing a much harder time getting credit right now even if the financial system were rock solid. The problem with the economy is the loss of close to $6 trillion in housing wealth and an even larger amount of stock wealth. Economists, economic policy makers and economic reporters virtually all missed the housing bubble on the way up. If they still can't notice its impact as the collapse of the bubble throws into the worst recession in the post-war era, then they are in the wrong profession.
At the heart of the portfolios of many of these institutions were investments whose assets had been derived from bundled home mortgages. Exposure to these mortgage-backed securities, or to the credit derivatives used to insure them against failure, caused the collapse or takeover of several key firms such as Lehman Brothers, AIG, Merrill Lynch, and HBOS.
European contagion The crisis rapidly developed and spread into a global economic shock, resulting in a number of European bank failures, declines in various stock indexes, and large reductions in the market value of equities and commodities. Both MBS and CDO were purchased by corporate and institutional investors globally. Derivatives such as credit default swaps also increased the linkage between large financial institutions. Moreover, the de-leveraging of financial institutions, as assets were sold to pay back obligations that could not be
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refinanced in frozen credit markets, further accelerated the solvency crisis and caused a decrease in international trade. World political leaders, national ministers of finance and central bank directors coordinated their efforts to reduce fears, but the crisis continued. At the end of October 2008 a currency crisis developed, with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund.
Collapse in Commercial Activities and Business set ups of the Economy:The economy is facing a sheer drop in the business activities due to lack of demand and indications given by the existing market forces. Many big firms are following a mind-numbing trend of employees layoff that has made the other sector labor force to fear for their job loss. Further, the lack of solubility has lead to many bank failures that in turn led to shutting down many job opportunities. Employment degeneration The employment and Retail Business sectors are among the majors that have got affected by the situation of economic failure and depression. The situation of unemployment in the economy has deserted the people from satisfying their basic requirements for survival.
Less Purchasing power:The economic recession period deprived people of income generation sources that in turn affect their purchasing power. They tend to spend less and save more that too in non-investment sources. The keeping back of money affects the monetary flow in the market that led to the inflation forces enter the scenario. Inflationary forces The inflation gets
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invited that alone becomes enough to worsen the whole situation further. The economy has not to wait for its collapse as soon as it is engrossed by inflation. The awful situation then leads to rise in oil prices, food and basic expenditures that challenge the survival of many sections of society. Such situation needs to be controlled in its initial stages so that the economy gets prevented from recording The Great depression in the global history once again.
Global Recession and Impacts
With the collapse of Lehman Brothers and other Wall Street icons, there was growing recession which affected the US, the European Union (EU) and Japan. This was the result of large scale defaults in the US housing market as the banks went on providing risky loans without adequate security and the repaying capacity of the borrower. The principal source of transmission of the crisis has been the real sector, generally referred to as the Main Street. This crisis engulfed the United States in the form of creeping recession and this worsened the situation. As a consequence, US demand for imports from other countries indicated a decline.
The basic cause of the crisis was largely an unregulated environment, mortgage lending to subprime borrowers. Since the borrowers did not have adequate repaying capacity and also because subprime borrowing had to pay two-to-three percentage points higher rate of interest and they have a history of default, the situation became worse. But once the housing market collapsed, the lender institutions saw their balance-sheets go into red.
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A redeeming feature of the current crisis is that its magnitude is much lesser than that of the Great Depression of the 1930s when unemployment rate in the United States exceeded 25 per cent. Currently, it stands at 6.5 per cent and is predicted to remain around eight per cent in 2010-11. A recession has many attributes that can occur simultaneously and includes declines in component measures of economic activity (GDP) such as consumption, investment, government spending, and net export activity. These summary measures reflect underlying drivers such as employment levels and skills, household savings rates, corporate investment decisions, interest rates, demographics, and government policies.
Economist Richard C. Koo wrote that under ideal conditions, a country's economy should have the household sector as net savers and the corporate sector as net borrowers, with the government budget nearly balanced and net exports near zero. When these relationships become imbalanced, recession can develop within the country or create pressure for recession in another country. Policy responses are often designed to drive the economy back towards this ideal state of balance. A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression, although some argue that their causes and cures can be different. As an informal shorthand, economists sometimes refer to different recession shapes, such as V-shaped, U-shaped, L-shaped and W-shaped recessions.
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Unemployment The full impact of a recession on employment may not be felt for several quarters. Research in Britain shows that low-skilled, low-educated workers and the young are most vulnerable to unemployment in a downturn. After recessions in Britain in the 1980s and 1990s, it took five years for unemployment to fall back to its original levels. Many companies often expect employment discrimination claims to rise during a recession. Business Productivity tends to fall in the early stages of a recession, then rises again as weaker firms close. The variation in profitability between firms rises sharply. Recessions have also provided opportunities for anti-competitive mergers, with a negative impact on the wider economy: the suspension of competition policy in the United States in the 1930s may have extended the Great Depression . Social effects The living standards of people dependent on wages and salaries are more affected by recessions than those who rely on fixed incomes or welfare benefits. The loss of a job is known to have a negative impact on the stability of families, and individuals' health and well-being Scenario on impact of Recession In the globalize market scenario, the impact of recession at one place/ industry/ sector peculate down to all the linked industry and this can be truly interoperated from the current market situation which is faced by the world since approx 2 month and still the situation is not in control in spite of various measures taken to fight back the recession in the market.
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The badly hit sector at present being the financial sector, and major issue being the "LIQUIDITY CRISES" in the market.
In total the recession have turned down the growth process and have set the minds of economists and others for finding out the real solution to sustain the economic growth and stability of the market which is desired for the smooth running of the economy.
Complete businesses/ industry is in dolled rum situation and this situation persist for a longer duration will create the small business to vanish as they have lower stability and to run smoothly require continuous flow of liquidity which is derived from the market.
In present situation down fall in one sector one day leads to a negative impact on the other sector thus altogether everyone feel the impact of the Financial crises with the result of the current recession which started in US and slowly and gradually due to linked global world have impacted everyone.
Solution for the problem still remain at the top of the mind of every one, still everyone facing the impact of recession but how long is the major question which is of great importance. Worlds top industrial market economies are increasingly finding themselves in a recession, or about to tip into one. The collapse of the U.S.s financial market has spread far beyond American shores, resulting in bankruptcies, forced mergers and massive job losses around the globe.
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This financial crisis, which is likely to continue over the next year, just wont seem to rest until it brings the whole world down with it.
With the world poised at a number of critical crossroads-between recession and growth, war and peace, up and down markets, optimism and pessimism-now seems to be a particularly timely moment to reconsider the case for emerging markets. During this difficult year, emerging equity markets have actually held their value more successfully than developed markets, with declines of considerably smaller magnitude than those seen in the U.S., Europe and developed Asia. Could this be a forerunner of an extended period of out performance in these markets, which have held out much promise to investors over the past decade or more but have so far largely failed to deliver?
The term "emerging markets" was coined by the World Bank's International Finance Corporation in the early 1980s. Typically, emerging markets are in countries that are in the process of industrialization, with lower gross national product (GNP) per capita than more developed countries. Of the 130 countries that the international financial community generally considers to be emerging or developing countries, approximately 40 currently have stock markets. Emerging markets became the new frontier of global investing in the late 1980s and saw spectacular returns in the early 1990s, only to be followed by an exceptionally long span of volatile and disappointing returns. These markets seemed to lurch from one period of intense crisis to another with only intermittent spells of relief. The most intense storms during the 1990s were the Mexican peso devaluation of 1994 and its subsequent "tequila effect" contagion, the Asian financial crisis of 1997-1998, and the Russian ruble devaluation and debt default of 1998, which spread systemic risk into developed markets by way of
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the Long-Term Capital Management debacle. Most recently, the Argentine financial crisis has been in the spotlight. During the longest U.S. bull market in history, emerging markets might better have been termed "submerging markets," declining 43% from December 1994 to October 2001, during a period when the S&P 500 index gained 130%. The disconnect between the apparent potential of emerging markets and the actual returns of recent years has been extremely trying for investors, and many have decreased or eliminated their allocation to this asset class.
Despite the current sentiment, there is a strong case to be made that now is an ideal time for emerging markets investment. Like value investing's renaissance in 2000 following the burst of the Internet bubble, market turning points are often unconventional, uncomfortable, and even painful in the short term. It is important to remember that when the economic outlook and investor sentiment are at their worst, even a small turn of events toward the positive can be enough to reignite markets. This paper outlines some key observations that suggest emerging markets offer a compelling investment opportunity at present.
1. Historically Low Valuations Valuation levels are extremely strong for the emerging markets asset class and even more so for active, risk-controlled emerging markets portfolios, which have a single-digit price-to-earnings ratio, with attractive earnings growth forecasts. Overall, compared to other asset classes, the emerging markets are the most attractively valued equities available to investors.
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In addition, from a timing perspective, the emerging markets asset class is selling at historically low valuation levels as compared to similar assets in developed markets. Based on price-to-earnings ratios, for example, valuations are currently half those of developed markets, compared to an average of 0.75 over the past fifteen years. It is hard to imagine that such compellingly strong fundamental value can long be ignored.
2. Economic Triggers - Near Term Of course, valuations alone will not ensure strong equity market returns if there is no improvement in the underlying economic climate. However, as has been demonstrated many times, markets are discounting mechanisms and tend to rise in advance of actual recovery in economic and corporate earnings growth. Emerging markets have historically been especially sensitive to perceptions of the global economic cycle and have tended to be one of the more responsive asset classes in discounting economic change. We saw this in Mexico in the mid-1990s, when the stock market recovered well in advance of the actual turnaround in the economy and currency.
While we believe that the prospective economic recovery in the developed markets from the current global recession is likely to be more drawn-out and less ebullient in the early stages than in past recoveries, we still think that the emerging markets are likely to gain significantly from a discounting of world economic recovery. This anticipation could start within the next six to twelve months, and possibly sooner, based on historical precedent.
In addition, as we consider the world economic outlook, certain areas within the emerging markets are actually among the few pockets of potential strength in
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global growth. Ironically, from a global point of view some of the currently stronger economic growth prospects would be the former state-managed economies of China, Russia and central Europe. Most of the developed economies appear to have uncertain prospects for next year, especially the United States and Japan. The emerging markets, in contrast, appear better poised to recover, having experienced the downturn earlier and in many cases more severely than their developed counterparts.
3. Market Volatility Change as a Spur to Out performance In addition, emerging markets have historically shown good performance when global equity market volatility has reached a peak and then declined. Global market volatilities have continued at a high level after their September peaks, but a reduction of uncertainty regarding world political and economic issues could be expected to reduce volatility levels-which would be beneficial to emerging markets based on past patterns.
4. Economic Triggers - Long Term Beyond the near-term triggers, there are some long-term economic and political developments that may be quietly laying the foundation for a sustained period of better performance from these countries. These would include the world's increased recognition of the strategic importance of developing nations, new models for economic development that stress free markets and individual initiative, and evidence that nations that followed now-discredited approaches to development (such as the old Asian economic model) are already striking out on new paths.
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In the aftermath of the September 11 terrorist attacks on the United States, there is a heightened awareness of the importance of key emerging markets in global security. Recently, for example, the U.S. has stepped up economic assistance to supporters in the war against terrorism, including Pakistan, Egypt and Turkey. It seems likely that a greater degree of political partnership with these nations could well translate into greater investor attention, stronger capital flows and positive market performance.
Beyond the immediate effects of the current anti-terror campaign and its focus on a few key strategic countries, it is also likely that there will be broader support for emerging markets globally, as their pivotal role in the new world order emerges. In his 1997 book The Big Ten - The Big Emerging Markets and How They Will Change Our Lives, Jeffrey Garten, Dean of the Yale School of Management, argues that potential political and economic instability in the emerging markets could create havoc for the world economy.
The changed realities after September 11 and recognition that lack of economic opportunity provides a fertile breeding ground for terrorism are expected to solidify global support for measures aimed at reducing instability in the world's developing regions. Greater stability would be expected to have a positive effect on emerging markets, reducing the risk premium and boosting equity values. Even a focus on just the largest markets would likely boost the overall asset class, as Garten's "big ten" alone accounts for over 60% of total emerging markets capitalization (based on the MSCI Emerging Markets Free index).
Another stimulus to the long-term economic performance of emerging markets is greater recognition of free, open, transparent markets in promoting economic
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growth. Despite the noisy protests of "anti-globalization" groups at recent multinational meetings, there is a growing consensus that economic development promotes personal freedom, and that the two phenomena are closely linked. This viewpoint is persuasively explored by Amartya Sen, winner of the Nobel Prize in economics, in his1999 work Development as Freedom. Greater acceptance of the linkage between economic development, free markets and individual freedom is likely to increase over time, stimulating growth in emerging capital markets.
On the purely economic level, leading economists with influence on emerging markets policymakers, such as Rudi Downburst of MIT, have been arguing that free markets solve problems most effectively. In the essay on "Long-Run Growth in Emerging Countries" in his 2000 book Keys to Prosperity, Downburst shows the importance of three key characteristics for growing economies - openness, macro stability and small government. In our experience, Downburst and other economists of similar orientation are being listened to carefully by policymakers in important emerging economies. Wider acceptance of their views can be expected to promote long-term, stable growth.
Evidence that this is already occurring can be seen in Asia. Asian companies and policymakers demonstrate a clear movement away from the old economic model that prevailed prior to the 1997-98 financial crisis towards a more open, market-driven system. The old model was one in which the consumer saved prodigiously, banks lent carelessly, and borrowing corporations over-invested with poor returns. While creating the illusion of steady growth, this model was in fact unsustainable, as the economist Paul Kurgan pointed out in his now-famous 1994 Foreign Affairs
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article, "The Myth of Asia's Miracle." His view, controversial at the time, was borne out by the Asian financial crisis three years later. While the degree of progress towards a new Asian economic model varies from country to country, our observations confirm a general shift towards a framework where consumers spend more and borrow more. Lending institutions in turn have tighter lending standards, putting corporations into competition for capital and necessitating higher returns on investment. This new paradigm offers the prospect of more sustainable growth and higher valuations for investors. 5. Assessing the Long-Term Fundamental Case Finally, the fundamental case for emerging markets investment remains sound. The two decades since these countries first made forays into the capital markets are only a short period in world economic development and a fleeting moment in history. Yet during this period emerging markets have come a long way in establishing sound fiscal and monetary policies, restructuring their economies, addressing corporate governance, and improving their economic fundamentals. Keeping this in mind, the potential for continued rapid, positive change in these economies and markets is still very strong.
Of course, emerging markets vary a great deal in their political realities, their cultural and national identities, and their legal and economic institutions. Many emerging market populations are still in poverty and lack the basic means for development. Great attention needs to be paid in understanding the multifaceted nature of these countries and to distinguish among the different stages of development. In short, investment in these markets remains challenging. However, we believe that with use of a wide array of information and skilled
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application of disciplined analytical tools, it is possible to avoid troubled areas and selectively invest in high-return countries and companies. Diversification of portfolio risk is also a positive feature of emerging markets investing that investors would do well to keep in mind. Over the past fifteen years, a 40% emerging markets/60% EAFE (The Morgan Stanley Capital International Index for Europe, Australia, and Far East) mix has provided superior risk-reduction and higher returns than a 100% EAFE portfolio, when combined with U.S. equity investments. Global effects A number of commentators have suggested that if the liquidity crisis continues, there could be an extended recession or worse. The continuing development of the crisis has prompted in some quarters fears of a global economic collapse although there are now many cautiously optimistic forecasters in addition to some prominent sources who remain negative. The financial crisis is likely to yield the biggest banking shakeout since the savings-and-loan meltdown. Investment bank UBS stated on October 6 that 2008 would see a clear global recession, with recovery unlikely for at least two years. Three days later UBS economists announced that the "beginning of the end" of the crisis had begun, with the world starting to make the necessary actions to fix the crisis: capital injection by governments; injection made systemically; interest rate cuts to help borrowers. The United Kingdom had started systemic injection, and the world's central banks were now cutting interest rates. UBS emphasized the United States needed to implement systemic injection. UBS further emphasized that this fixes only the financial crisis, but that in economic terms "the worst is still to come". UBS quantified their expected recession durations on October 16: the Eurozone's would last two quarters, the United States' would last three quarters, and the United Kingdom's would last four quarters.
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The economic crisis in Iceland involved all three of the country's major banks. Relative to the size of its economy, Icelands banking collapse is the largest suffered by any country in economic history.
At the end of October UBS revised its outlook downwards: the forthcoming recession would be the worst since the early 1980s recession with negative 2009 growth for the U.S., Eurozone, UK; very limited recovery in 2010; but not as bad as the Great Depression. The Brookings Institution reported in June 2009 that U.S. consumption accounted for more than a third of the growth in global consumption between 2000 and 2007. "The US economy has been spending too much and borrowing too much for years and the rest of the world depended on the U.S. consumer as a source of global demand." With a recession in the U.S. and the increased savings rate of U.S. consumers, declines in growth elsewhere have been dramatic. For the first quarter of 2009, the annualized rate of decline in GDP was 14.4% in Germany, 15.2% in Japan, 7.4% in the UK, 18% in Latvia, 9.8% in the Euro area and 21.5% for Mexico.
Some developing countries that had seen strong economic growth saw significant slowdowns. For example, growth forecasts in Cambodia show a fall from more than 10% in 2007 to close to zero in 2009, and Kenya may achieve only 3-4% growth in 2009, down from 7% in 2007. According to the research by the Overseas Development Institute, reductions in growth can be attributed to falls in trade, commodity prices, investment and remittances sent from migrant workers (which reached a record $251 billion in 2007, but have fallen in many countries since). This has stark implications and has led to a dramatic rise in the number of households living below the poverty line, be it 300,000 in Bangladesh or 230,000 in Ghana. The World Bank reported in February 2009
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that the Arab World was far less severely affected by the credit crunch. With generally good balance of payments positions coming into the crisis or with alternative sources of financing for their large current account deficits, such as remittances, Foreign Direct Investment (FDI) or foreign aid, Arab countries were able to avoid going to the market in the latter part of 2008. This group is in the best position to absorb the economic shocks. They entered the crisis in exceptionally strong positions. This gives them a significant cushion against the global downturn. The greatest impact of the global economic crisis will come in the form of lower oil prices, which remains the single most important determinant of economic performance. Steadily declining oil prices would force them to draw down reserves and cut down on investments. Significantly lower oil prices could cause a reversal of economic performance as has been the case in past oil shocks. Initial impact will be seen on public finances and employment for foreign workers. U.S. economic effects Real gross domestic product The output of goods and services produced by labor and property located in the United Statesdecreased at an annual rate of approximately 6% in the fourth quarter of 2008 and first quarter of 2009, versus activity in the year-ago periods. The U.S. unemployment rate increased to 10.1% by October 2009, the highest rate since 1983 and roughly twice the pre-crisis rate. The average hours per work week declined to 33, the lowest level since the government began collecting the data in 1964. Distribution of wealth The very rich lost relatively less in the crisis than the remainder of the population, widening the wealth gap between the economic class at the very top
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of the demographic pyramid and everyone else beneath them. Thus the top 1% who owned 34.6% of the nation's wealth in 2007 increased their proportional share to 37.1% by 2009.
Typical American families did not fare as well, nor did those "wealthy-but-not wealthiest" families just beneath the pyramid's top. On the other hand, half of the poorest families did not have wealth declines at all during the crisis. The Federal Reserve surveyed 4,000 households between 2007 and 2009, and found that the total wealth of 63 percent of all Americans declined in that period. 77 percent of the richest families had a decrease in total wealth, while only 50 percent of those on the bottom of the pyramid suffered a decrease.
Official economic projections On November 3, 2008, the European Commission at Brussels predicted for 2009 an extremely weak growth of GDP, by 0.1%, for the countries of the Eurozone (France, Germany, Italy, Belgium etc.) and even negative number for the UK (-1.0%), Ireland and Spain. On November 6, the IMF at Washington, D.C., launched numbers predicting a worldwide recession by -0.3% for 2009, averaged over the developed economies. On the same day, the Bank of England and the European Central Bank, respectively, reduced their interest rates from 4.5% down to 3%, and from 3.75% down to 3.25%. As a consequence, starting from November 2008, several countries launched large "help packages" for their economies.
The U.S. Federal Reserve Open Market Committee release in June 2009 stated:
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...the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability. Economic projections from the Federal Reserve and Reserve Bank Presidents include a return to typical growth levels (GDP) of 2-3% in 2010; an unemployment plateau in 2009 and 2010 around 10% with moderation in 2011; and inflation that remains at typical levels around 1-2%.
A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing. Retail organizations exhibit great variety and new forms keep emerging. There are store retailers, non store retailers, and retail organizations. Consumers today can shop for goods and services in a wide variety of stores.
The best-known type of retailer is the department store. Japanese department stores such as Takashimaya and Mitsukoshi attract millions of shoppers each year. These stores feature art galleries, cooking classes, and childrens playgrounds.
A retailer is at the end of the distributive channel. He provides goods and service to the ultimate consumers. This he does through his small organization,
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with the help of a few personnel. In an individual retail store there is not much scope for organization except in the sense that the shopkeeper has to organize o apportions his time and resources. The need for organization becomes essential as soon as he hires people o enters into partnership or takes the help of members of his family in running his store. A retailer deals in an assortment of goods to cater to the needs of consumers. His objective is to make maximum profit out of his enterprise. With that end in view he has to pursue a policy to achieve his objective. This policy is called retailing mix. A retailing mix is the package of goods and services that store offers to the customers for sale. It is the combination of all efforts planned by the retailer and embodies the adjustment of the retail store to the market environment. Retailing mix, a communication mix and a distribution mix. The maximum satisfaction to the customers is achieved by a proper blend of all three. The success of the retail stores, therefore, depends on customers reaction to the retailing mix which influences the profits of the store, its volume of turnover, its share of the market, its image and status and finally its survival.
There are three main phases in the life of a retailing institution. These are: Innovation ( Entry ) Trading Up Vulnerability. In the entry stage, a new retailer enters with new price appeal, limiting
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In the entry stage, a new retailer enters with new price appeal, limiting product offerings, Sparton Stores & Limited services. Its monopoly power over the others is its price advantage, which means that it offers products at low prices so as to get a competitive edge over its competitors.
The Global Retail Industry : An Overview
Retail has played a major role world over in increasing productivity across a wide range of consumer goods and services .The impact can be best seen in ountries like U.S.A., U.K.,Mexico, Thailand and more recently China. Economies of countries like Singapore, Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector. Retail is the second-largest industry in the United States both in number of establishments and number of employees. It is also one of the largest world wide. The retail industry employs more than 22 million Americans and generates more than $3 trillion in retail sale annually. Retailing is a U.S. $7 trillion sector. Wal-Mart is the worlds largest retailer. Already the worlds largest employer with over 1million associates, Wal-Mart displaced oil giant Exxon Mobil as the worlds largest company when it posted $219 billion in sales for fiscal 2001. Wal-Mart has become the most successful retail brand in the world due its ability to leverage size, market clout, and efficiency to create market dominance. Wal-Mart heads Fortune magazine list of top 500 companies in the world. Forbes Annual List of Billionaires has the largest number (45/497) from the retail business.
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GLOBAL RETAIL (Source : CSO ,MGI Study) 1999 150 1.1 0.7 2010 180 3.3 1.8 2010 225 7 3.2
Total Retail (US $ Billion) Organized Retail (US $ Billion) % Share of Organized Retail.
Top Retailers Worldwide Rank 1 2 3 4 5 Retailer Wal-Mart Stores, Inc. Carrefour Group The Kroger Co. The Home Depot, Inc. Metro Country U.S.A. France U.S.A. U.S.A. Germany
(Source: STORES / Deloitte Touche Tomahatsu)
THE INDIAN RETAIL INDUSTRY
Indian retail industry is going through a transition phase. Most of the retailing in our country is still in the unorganized sector. Though retailing in India is undergoing an exponential growth, the road ahead is full of challenges and the recession has created new challenges for retail industry.
The word retail originates from a French-Italian word. Retailer is someone who cuts off or sheds a small piece from something. Retailing is the set of activities
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that market products or services to final consumers for their own personal or household use. It is done by organizing their availability on a relatively large scale and supplying them to customers on a relatively small scale. Retailer is a person or agent or agency or company or organization who is instrumental in reaching the goods or merchandise or services to the end user or ultimate consumer.
Indian retailing today is at an interesting crossroad. The retails sales are at the highest point in history and new technologies are improving retail productivity. Though there are many opportunities to start a new retails business, retailers are facing numerous challenges.
Retail consists of the sale of goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser retailing may include subordinated services, such as delivery. Purchasers may be individuals or businesses. In commerce, a "retailer" buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells smaller quantities to the end-user. Retail establishments are often called shops or stores. Retailers are at the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategy. The term "retailer" is also applied where a service provider services the needs of a large number of individuals, such as a public utility, like electric power.
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Shops may be on residential streets, shopping streets with few or no houses or in a shopping mall. Shopping streets may be for pedestrians only. Sometimes a shopping street has a partial or full roof to protect customers from precipitation. Online retailing, a type of electronic commerce used for business-to-consumer (B2C) transactions and mail order, are forms of non-shop retailing.
Shopping generally refers to the act of buying products. Sometimes this is done to obtain necessities such as food and clothing; sometimes it is done as a recreational activity. Recreational shopping often involves window shopping (just looking, not buying) and browsing and does not always result in a purchase.
India is the country having the most unorganized retail market. Traditionally the retail business is run by Mom and Pop having shop in the front & house at the back. More than 99% retailers function in less than 500sq.ft of area. All the merchandise was purchased at the
Whims and fancies of the proprietor also the pricing was done on ad hock basis or by looking at the face of customer. Generally the accounts of trading & home were not maintained separately. Profits were accumulated in slow moving & non-moving stocks which were to become redundant or consumed in-house. Thus profits were vanished without their knowledge.
The manufacturers were to distribute goods through C & F agents to distributors and wholesalers. Retailers happen to source the merchandise from wholesalers & reach to end users. The merchandise price used to get inflated to a great extent till it reaches from manufacturer to end user. Selling prices were largely
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not controlled by manufacturers. Branding was not an issue for majority of customers. More than 99% customers are price sensitive & not quality or brand sensitive at the same time they are price conscious also. Weekly bazaars in many small towns were held and almost all the commodities were on the scene including livestock. Bargaining is the unwritten law of market. Educational qualification level of these retailers is always low. Hence market is controlled by handful of distributors and/or wholesalers. Virtually there is only one form of retailing & that was mass retail. Retailer to consumer ratio is very low, for all the categories without exception. Varity in terms of quality, styles are on regional basis, community based and truly very low range available at any single given place. Almost all the purchases / buying by mass population was need oriented & next turn may be on festivals, marriages, birthdays and some specific occasions.
Impulsive buying or consumption is restricted to food or vegetables etc. Having extra pair of trousers or shirts or casuals & formals & leisure wear & sports wear & different pair of shoes for occasions is till date a luxury for majority population except for those living in metros. Purchasing power of Indian urban consumer is very low and that of branded merchandise in categories like apparels, cosmetics, shoes, watches, beverages, food, jewellery are slowly seeping into the lifeline of Indian city folks. However electronic and electric home appliances did hold appropriate image into the minds of consumer. Brand name matters in white goods categories. In the coming time also majority of organized retailers will find it difficult to keep balance with rest of the unbranded retail market which is very huge.
Retailing is the most active and attractive sector of last decade. While the retailing industry itself has been present since ages in our country, it is only the
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recent past that it has witnessed so much growth.
RETAIL IN INDIA: OVERVIEW, INFRASTRUCTURE AND POLICIES
For people living in metros, large or small cities, retailing is a familiar phenomenon. Because there are number of markets, different types of shops and many shops competing among themselves for selling similar goods. Even vegetable market is a retail business. Retail business is more unorganized in rural areas and isolated habitats because the shop or a few shops available there may be selling most of requirements of the local people. But still they are doing retailing.
We notice or get involved in activities related to retailing almost each day in our lives our houses are filled with articles obtained through retailing, some of us, who are in marketing, involve in retiling actives to supply goods and/or services to the customers. In fact, most of us become either customers or sellers in retailing transactions very regularly in our daily lives,. Historically retailing has been continuing with the development of a civilized society. There are different kinds of shops in a market. They rang from a hardware store to a sweet shop. You must have noticed that these shops are independent of each other. They have no relation in terms of sharing gains from each others business. Retailing is now taking shape of an organized business where a supermarket/hypermarket is as big as a market of a small city and it comprises of different kinds of product/services providers. It may have extensions to other parts of the city even other cities it means, it has a chain of stores. The many shops available there share the gains of customer presence and plan their selling activities in such a way that most customers are attracted towards the shop and buy
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products/services. Therefore study of retailing requires a systematic and scientific study of different areas of selling involved in it.
Retailing: includes all the activities involved in selling goods or services directly to the final consumer for personal or non-business use. (Philip Kotler).
In other words, Retailing is the sale of goods and services to the ultimate consumer for personal, family or household use. Thus, retailing involves more than selling tangible products. It includes every sale of goods and services to the final consumer. Thus purchase of a service such as reservation of railway ticket, consultancy of a physician, maintenance services of plumber, carpenter, hair-cut etc., dry cleaning, stay at hotel, rental of book/video cassette, home delivery of goods consultation by lawyer/doctor are also a retail transaction.
The term final consumer is key issue in the concept of retailing, the person/s who run the retail shop will not be the ultimate or final or end of the chain customer (end users). The person/s to whom the retailers sell are the final players in buying the goods or services. Intermediate customers can also be frequently found. Examples can be: Maruti Udyog for automobile parts produced by an outsourced manufacturer, a pharmaceutical firm buying chemicals from another firm, a pan whallah getting beetle leaves (pan leaves) from a wholesaler, Liberty Shoes buying readymade shoe soles from a small scale sole manufacturer.
Purchases made by manufacturers, wholesalers, and other organizations for their use in the organization or further resale or industrial uses are not part of retailing. Thus purchase of intermediate products to produce another product,
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for example, purchases of crane for further business use etc will not be part of retailing transactions. Retailing is the final leg in the distribution channel of goods and services.
Retailing involves: Indentifying target markets (Customers) Interpreting needs of the targeted customers Developing goods assortments of merchandise Presenting them in an effective manner so that consumers find it easy and attractive to buy.
Retailing differs from marketing in the sense that it refers to only those activities, which are related to marketing goods and/or services to final consumers for personal, family or house hold use, whereas marketing according to American marketing Association, refers to The process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives. You must be wondering whether all retailing occur through stores or shops. You are right, not all retailing is done through stores or shops, there are numerous examples of non-store retailing, such as, sale of Aquaguard by Eureka Forbes, sale of cosmetics by Avon, catalogue sales by L.L.Bean, Spiegel and Burlington, sale of goods by TV Brands and Asian Sky shop through television, and by Jaldi.com and Yahoo and Amazon.com through Internet etc. also retailing does not need physical presence of retailer or his representative. For example automatic vending machines. You will study these aspects of nonstore retailing in further units.
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Thus, any organization selling a product or service to final consumers whether a manufacturer, wholesaler, or a retailer, is doing retailing, it done not matter how the goods or services are sold i.e., by person, mail, telephone, vending machine, TV, or Internet, also it does not matter where the goods and services are sold, i.e, a store, on the steel, or in the consumers home, or in the virtual world (Internet).
Retailing is one of the most important industries in any country employing major share of workforce. Selling, whether in a store or at the doorstep requires many people. In other world retailing is labour intensive probably many more people are needed to sell most products than to manufacture them. While automation has been widely adopted manufacturing. Trysilinh had yet to manufacturing them. While automation has been widely adopted in manufacturing, retailing has yet to see its presence on a large scale, some retailers have introduced self-service. Some others have stepped into mail order. But in India, these methods are not commonplace. Only a few retailers have brought such changes. Most others stick to consumer sale or personal attention.
PLACE OF RETAILING IN A DISTRIBUTION CHANNEL When you buy a product, you rarely buy it directly from the manufacturer. Most producers of goods and services do not sell their product directly to end or final users. Between you (the final user) and the manufacturers are number of intermediaries. These intermediaries constitute a distribution channel or marketing channel as shown in diagram1.1
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Manufacturer
Wholesalers
Wholesalers
Natl. Stockiest
Natl. Stockiest
Natl, stockiest
Local Stockiest
Local Stockiest
Local Stockiest
Local Stockiest
Retailers
Retailers
Retailers
Retailers
Retailers
Customers
Customers
Customers
Customers
Customers
Customers
Customers
Diagram 1.1 :Channel of distribution of finished product A retailer is the final business in a distribution channel as shown in diagram 1.1 . It is the interface between customers and the rest of the channel. Thus, retailer is a business that sells s products and services to customers for their personal, family or non-business use.
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IMPORTANCE OF RETAILING IN THE ECONOMY The retail sector is particularly important because retailing is the final link in the chain of production which begins at the extractive stages, moves through the manufacturing processes and ends by the distribution of goods (and services) to the final consumer.
Retailing accounts for about 15-20% of the organized workforce in any developed economy it is the second largest employer in the India after agriculture. There are about 6 million retail establishment in India. Of which 4.1 million (70%) sell food products, and related items. An interesting research in this area has shown that grocery stores (56% of all retail outlets). And general stores (13%) dominate rural India. There are 1.8 million outlets in urban India. Of which more than 50% earn between Rs 7500.00 to Rs 25,000.00 daily. Approximately 6.6% of urban adults in India are shop owners. There are about 21% outlets in urban area engaged in service retailing, though no official data is available, the given above figure indicate that this sector may be employing about 15-20% of the organized work force, which is in line with global averages. Retailing accounts for an impressive part of Gross Domestic Product (GDP). The year 1997 -1999 has been a slowdown in economic growth with the GDP growth rate pegged at 4 to 5%. Total retail sales in India reached Rs 5793 billion in 1966 representing around 53% of GDP and 69% of consumer expenditure. Retail sales per capita were Rs 6297 in 1996.
In US the sales of retail sector is about US$2 trillion. In India if private final expenditure is taken as an indicator, the total retail trade in India could be about
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Rs.700000-Rs.800000cr or US$ 16-180 billion (excluding fuels). In US the annual sales of Wal-Mart (Worlds largest retailer). K-mart, and Sears are much greater than the annual sales of proctor and Gamble, PepsiCo, and RJR Nabisco-the three largest consumer products manufacturer. In India, organized retailing is a relatively new concept, still organized retailing accounts for approximately Rs 13,300 cr. It is expected to grow at 28% rate becoming Rs 45000 cr by 2005. The turn over of Indias biggest retailer Shoppers shop is about Rs 210 cr annually. FUNCTIONS OF RETAILERS Retailers have multiple functions. At one end they create market for consumption of the goods and services and on the other hand generate employment for millions of people. Broadly speaking retailers perform following functions: Understanding customer needs and wants Providing an assortment of product or services to consumers: Breaking bulk; Providing services to consumers; Holding inventory, and Providing information to suppliers.
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Understanding customer needs and wants
Providing an assortment of Goods or services
Providing services to customers
FUNCTIONS OF RETAILERS
Breaking Bulk
chccustomerscu stomers
Holding inventory
Providing information to suppliers
Diagram 1.2 : Functions of Retailers
UNDERSTANDING CUSTOMERS NEEDS AND WANTS The first and foremost function of a retailer is to understand its customer; their needs and wants. It is only then other functions of retailer can be performed in a manner satisfactory to the customer such as providing as assortment of products, providing services etc. Once the retailer understand what products and services are desired by customers, other things follow. You will learn more about understanding customers in further units. 1.4.2 Providing an Assortment of Product or Services to Consumers
Retail outlets keep large variety of products and services. You will find around 15000 different items produced by different companies in a typical super
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market. Even a small kirana store has number of brands of soaps, toothpastes and other goods. Provision of such large number of assortment enables consumers to choose a product based on his/her requirements. In other words, providing assortment of products or services provides choice to consumers. While manufacturers. Diagram 1.3 shows a typical arrangement of assortment.
Manufacturer Brand - A
wholesaler
Manufacturer Brand - B
Brand A R E T A I L E R S Brand B Brand C C U S T O M E R S
Manufacturer Brand - C
wholesaler
Manufacturer Brand - D
Brand D Brand E Brand F
Manufacturer Brand - E
wholesaler
Manufacturer Brand - F
Diagram 1.3 : A Typical Example of Assortment
BREAKING BULK Manufacturers normally send their products in bulk (whole cases or cartons) to retailers to minimize transportation cost. The retailers to minimize transportation cost. The retailers offer the product in smaller quantities to suit individual consumers requirements. Breaking large shipments into smaller quantities is called breaking bulk. Now the trend towards organized retailing is developing as a result retail chains are established in an identified geographical
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location. These chain stores purchase and distribute their products in such a manner that there is a minimum loss of time and money in transportation of products to various stores. They in turn provide the profits to the customers in a way by lowered minimum retail price. An example of breaking bulk is shown in diagram 1.4.
PROVIDING SERVICES
Retailers offer number of services to the consumers. Retail outlets may provide some or all of these services to consumers. These services could be: Providing credit and hire purchase facilities (Example: Many automobile and consumer durable retail outlets provide this facility); Providing facilities like home delivery. (Example:- Many super markets provide this facility). Providing product guarantees, after-sale service and dealing with customer complaints (Example: Automobile dealers), Providing information and answering customers queries. (Example: Sales people of retail outlet ) Helping customer to choose a product or service, (Example, most apparel retail outlet help in selecting clothes). Displaying products in such a manner so that customer can see and test them before making their purchase. (Example: many music retail outlets have facilities to play CD or cassette before customer makes his purchase can test these items).
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HOLDING INVENTORY
A major faction of retailers is to keep inventory, so that customers can buy the products when they want. So as customers, we do not have to keep a large inventory at home, knowing fully well that the product will be available at a relatively stable price from retailers when we want them. Thus the customers money is not blocked up in a large inventory and can be put to some other use or in bank earning interest.
PROVIDING INFORMATION TO SUPPLIERS
As the retailer who is the final interface to consumer, it has the benefit of direct consumers reaction. So many manufacturers collect customers response to their products and services from retailers.
This concept of organized retail marketing has caught on like lighting. It creates a distribution network that cuts various intermediary costs and creates a much smoother interface between manufacturer and customer, you will study about this in detail in further units. This organized network which bridges the distance between the manufacturer and the consumer has seen many of the worlds leading entrepreneurs successfully walk down a particularly profitable road. With total sales going up to $6.6 trillion, the industry today is the worlds largest private industry and accounts for over 8 percent of the GDP in western countries. Now, it is Indians turn Today, we stand at the crossroads of a retail revolution. After 50 years of unorganized retailing and fragmented kirana stores with very basic offerings, fixed prices, zero usage of technology and little or no
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ambience the industry has finally begun to move towards modernization, systematization and consolidation. Retailing has now become a key growth area, there has been an attitude change in the way the Indian consumer thinks about shopping, what, and how they buy is now the big question. Over the last decade, there has been a significant evolution in his psyche, a change that has been carefully recorded and documented by behavioral pundits.
Retailers in India like abroad in diverse from such as street vendors to Large groups like ABRL Bharti, Trent, Reliance Retail, Shoppers, Lifestole, Future group, RPG to Multiplex chains like adlabs, Cinemax, PVR, Inox, FR, or food courts ie Blue foods, SRS, Gigabites, spices and Vices are few names in long list and different formats, each type of retailer survives and makes profit by satisfying their target group of customers in most convenient and efficient manner.
Retail industry is a dynamic one as it tries to satisfy changing customer profile and their needs with time. The stores change their format, style of presentation and assortment i.e variety and depth of merchandise as per the requirements of the customers. In this unit, you will study different types of retailers, retail formats and their characteristics features with reference to Indian scenario of organized retail business.
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CLASSIFICATION OF RETAILERS Because there are so many different kinds of retail firms, classifying them all into one neat system becomes difficult, we can use different bases for classifying retail firms. Different types of classification are explained here.
1. LEGAL FORM
The three basic legal forms of ownership are sole proprietorship, partnership and limited liability company (private or public).
Classification of Retailers Based on Legal Form
Proprietorship
Partnership
Limited Company (Private or Public)
Diagram 2.1: Classification of Retailers based on Legal Form
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2. OPERATIONAL STRUCTURE There are three operational structures; the independent trader (usually operating only one retail outlet, the multiple or chain store; and the cooperatives.
CLASSIFICATION OF RETAILERS BASED ON OPERATIONAL STRUCTURE
INDEPENDENT TRADERS
CO-OPERATIVES CHAIN STORES (MULTIPLES)
Diagram 2.2: Classification of Retailers based on Operational Structure
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3. RANGE OF MERCHANDISE Some retail businesses offer a wide range of goods. Examples of these includes variety stores like Marks & Spencer or department stores like Harrods. Others concentrate on narrow ranges like health foods; leather goods, greetings cards and these are called specialty stores or niche retailers .
CLASSIFICATION OF RETAILERS BASED ON MERCHANDISE
Variety Stores (Departmental Stores)
Specialty Stores (Niche Retailers)
Diagram 2.3: Classification of Retailers based on Range of merchandise
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4. DEGREE OF SERVICE Although many retail outlets have been converted or built to self-service or self-selection standards, there are others which offer their consumers services such as delivery, credit, gift wrapping repairs, etc. it is interesting to note that many former self-service retailers are now looking at ways of gaining competitive advantage by adding new customer services.
CLASSIFICATION OF RETAILERS BASED ON DEGREE OF SERVICES
(LOW) Self Service & Self Selection
HIGH Large No. of Consumer Services such as high credit, home delivery, high involvement of sales staff in attending customer needs such as help in selection etc
Diagram 2.4: Classification of Retailers based on Degree of Services
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5. PRICING POLICY Some retailers choose to emphasize low price rather than the service element of their retailing mix. Aldi, the german food retailer, expanded very rapidly in the late 1980s by pricing below the competition. Others choose to price above the competition knowing that they will generate business on the basis of some other attribute such as convenient location or exclusive image.
CLASSIFICATION OF RETAILERS BASED ON PRICING
LOWER PRICE (Discount Stores)
HIGH PRICE (Convenience Stores)
Diagram 2.5: Classification of Retailers based on the Pricing Policy
6. LOCATION Another way to classify retailers is according to geographic location. With the increasing cost of town centre sites and traffic congrestion, many retailers have south edge-of-town loatons, whilst others have preferred to stay in cluster locations in town centres as shown here. Stand alone stores, Shopping Centres of Complex, Destination stores and Convenience stores are based on location.
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7. SIZE OF OUTLET The average size of many multiples branches has increased quite markedly over the past few years as more and more firms become large and medium-space users. The term superstore has been used to define outlets between 25,000 and 50,000 sqft and hypermarkets are those stores over 50,000 sqft. Many outlets are now being built in the 50,000-100,000 sq ft range. The number of Superstores and hypermarkets increased from two in 1963 to 400 in 1986 and reached 1,000 in 1995.
CLASSIFICATION OF RETAILERS BASED ON SIZE OF OUTLET
Small Stores (0-25000 Sq feet)
Suplus Stores (25000-50000 sq Feet)
Hyper Markets (over 50000 Sq feet)
Diagram 2.6: Classification of Retailers based on the Size of Outlet
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8. BASED ON CUSTOMER CONTACT Most retail transactions are conducted by face-to-face contact in retail stores. However significant proportion of retail sales in generated by non-store retailing operations such as order catalogues, telephone selling, e-retailing, vending machines, door-to-door selling or mobile shops.
CLASSIFICATION OF RETAILERS BASED ON METHOD OF CUSTOMER CONTACT
Retailing though stores
Non-Store Retailing
Diagram 2.7: Classification of Retailers based on Customer Contact You will notice that some of these categories overlap but they are all important in specific marketing situations, the conventional and most common classification of retail organization based primarily on operational structure and range of merchandise.
Now we will consider the main formats of retail organization in more detail, most retail for discussed in the following sections have not made a big impact or even unheard of in the Indian context, as the organized retailing is only 2% of total retail sales (Excluding fuels). However, situation has begun to change slowly since 1980s and has gathered momentum in nineties.
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2.1 TYPES OF RETAILERS BASED ON MERCHANDISE AND PRICING As you have seen earlier that the classification was based on the range of operation, and physical characteristics of the stores. Now you will study the classification of stores based on merchandise and pricing mechanism. In Indian context, these classifications may be new or developing in the form and hence you cannot distinctly identify a store by these typical classifications. These are departmental stores, specialty stores and discount stores
2.1.1 DEPARTMENT STORES
A department store is defined as a large store selling A broad variety and deep assortment (to understand bradth and depth of assortment refer Unit 3) Offer considerable customer services and organized into physically separate departments. Large department stores have started appearing in Indian scenario like Shoppers Stop, Vivek & Co., THS and Globus to name a few, but they can not be compared to the departmental stores worldwide. Some of the US large department stores chains are Sears, JC Penny, etc. some large departmental store groups own many branches and these chains are called multiple department stores.
A departmental store is organized into departments selling clothing and accessories, home furnishings and furniture, toys and games, consumer durables, and kitchenware.
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With the success of the hypermarket in Hyderabad, RPG is looking at establishing a wholesalers chain throughout the country, In the next five years, RPG retail is planning to setup 12 to 15 hypermarkets in India. After all Giant has been attracting retailers who prefer quality and good profit margins. According to Mohammed Afzal, a retail shop keeper from Musheerabad area, the store offers single multiple and annual rebate on the goods bought, which is the core attraction for us, Adds another retailer, Mr. Raythaya, from Mehdi: The priced of the product solely depends upon the quantity we buy. If we buy large quantity the price is very attractive.
Hypermarkets are one of the fastest formats in Asia, where a number of international chains intend to invest. For a customer this format helps in bulk purchase of a variety of products, which is made easier with costs being less. The store also ensures maximum stock availability, enforces strict quality control measures with a replacement guarantee within a period. For a manufacturer, the store provides a showcase of brands for a wide target audience through a single point and reduced distribution costs for promoting brands. The success of ventures like Giant and Margin Free markets has lured many into this business. Some of the characteristics of Department Store are: Located in central market area or a major shopping centre, locations supported by potentially large catchments. Availability of parking space. Freedom for the customer to move around the store and view. Relatively high prices with margins large enough to cover heavy staffing, the range of services offered and high accommodation costs.
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Provision of a large number of specialized goods in one location, which allows some associated sales. Availability of personal assistance in shopping added customers services and amenities. Special staff expertise in particular products demonstration. Wide range of customer services such as delivery, credit, the making-up of soft furnishings and the provision of restaurants, cloakrooms, telephones, etc.
2.1.2 SPECIALITY STORES
A Specialty stores has narrow product line with deep assortment (i.e. has more depth in the same product category) and provides a high degree of customer service. You will notice that in complete contrast to Department stores, specialty stores have narrow product line or narrow variety but deep assortment. It means there are few products with a wide variety of range, quality and colour for customers to choose. This offers customers a better selection along with assistance in selection by stores sales people. Examples of this kind in Indian content are: Planet M, Music World and many apparel and shoe stores. Zodiac and Park Avenue (Raymond) are mens specialty store.
A retail store selling a great variety of a particular characteristic group of merchandise is known as an Emporium (Saree emporium, art emporium, etc)
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2.1.3 DISCOUNT STORES
A discount store is a general merchandise retailer that offers broad variety of merchandise, shallow assortment, limited service and low price. Discount stores offer lower price due to limited service and low cost locations. Discount stores tend to have characteristics such as : Very low prices (Value for money) Low gross margins High degree of self-service (no frills attached) Low-cost fittings No free services, such as delivery Reliance on heavy advertising in nearby large population centres Relative isolation of locations from convential shopping areas with consequently (highways). low rents predominantly in edge-of-town sites
The dependence is therefore on shoppers requiring: Good communications Plenty of parking space Visibility of the site from some distance.
The example of discount store chains are Wal-Mart. In India, so far discount stores have not appeared on retail scene in a big way. The reasons are three fold. Unlike most western countries, Indian manufacturers have much higher bargaining power with their retailers. As there are very large number of small retailers and no retail association with the influence negotiate with the
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manufacturers. The other reason is that retailers themselves do not have economies of scale to offer discounts on their own, in general, merchandise retailing, factors like MRP prescribed pricing and single country wide pricing policies adopted by most organized vendors deter the growth of discount stores in the country.
Subhiksha of Chennai was the first chain to adopt discounting as a key strategy. Other food chains and super markets have started offering discounts but in a limited manner. What does subhiksa in Chennai, Margin Free in Kerala. Bombay Bazaar in Mumbai, RPGs Giant in Hyderabad, Big Bazaar in Kolkata, Hyderabad and Bangalore, and Sabka Bazar in New Delhi have in common? Well. They all their products at prices way below the MRP> Discount stores have arrived in India and industry insiders feel that they would spearhead a revolution in organized retailing.
Modern retail formats will have 10-15 percent of the total market in the next ten years and while all formats will co-exist, large discount stores could be front runners in this evolution, says Raghu Pillai, President and CEO, RPG Enterprises. The Rs 6000 cr RPG group of Food World, Health and Glow and Music World fame, opened its first discount store by the name of Giant early this year. The response has been fantastic and we are growing month on month. We believe that this store will generate revenues to the tune of Rs 100 cr annually in three years, he says. If you look at the list of top retailers in the world quite a few would be discounters. Around 60 percent of the business abroad comes from this format. Internationally, the largest retailer in the world Wal-Mart is a discounter, says Kishore Biyani, MD. Bazaar. A part of pantaloon group, Big Bazzar invested a total of Rs 30 cr to have a discount store each in Kolkata, Hyderabad and Bangalore.
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We are doing better than expected, we have around 22000 clients each day with daily sales of Rs 25-30 lakh from all three stores, he adds, both the firms are now on an expansion spree. RPG for instance, plans to have 15 Giant store in the next five years, which would entail total investment of Rs 225 cr. Big Bazaar, would be opening in Gurgaon by the year-end.
We would also be opening three stores in Mumbai, beginning with March12, says Mr. Biyani. The total investment would be Rs 25-30 cr and the turnover expected from each store is around Rs 50 cr. The industry feels that discount stores, besides having advnantages of price, assortment dominance and quality assurance have the ability to quickly build sale and pass on the benefits. However the success would be for retailers who are able to build the sacle fast, manage their operations and all of that while offering value to the customer consistently, says Dipankar Halder, associate director, KSA Technopak.
There are discount specially formats as well when they specialize in a given type of merchandise lines. There are such discount stores (Found in the West in large numbers) adopting an everyday low pricing strategy and they are known as an Every Day Low Price (EDLP) format. A category killer format is a large specialty store featuring an enormous selection of its product category at relatively lower prices. The factory outlet format is owned and operated by the manufacturer selling their discounted merchandise, factory seconds, cancelled orders, etc., at very low prices located in the adjacency of the factory itself. Some of the textiles mills in Mumbai like Bombay Dyeing and Morajee have their factory outlets in the precincts of their factories.
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The warehouse format is a large sale of discounted merchandise by an individual or an organization in the free ambience of a warehouse. This format has a large width and depth of the multi categories in retails. A single price denomination format store retails scrambled merchandise lines at just one price point, which is generally a low price point. Such retail outlets are famous in the US and the best example of this format is the Dollar stores spread across the country. Similar to this are some Indian stores where every item is Rs 5 or 15 mainly having plastic toys or hair clips/bands etc.
2.1.4 SUPER MARKETS, SUPERSTORES AND HYPERMARKETS
A super market is a self-service food store offering groceries along with other merchandise for household maintenance and laundry, etc. and size of under 25000 square feet. They are relatively large, low-cost, low-margin, high volume, self-service stores. Number of supermarkets has come up in most cities in last few years. A typical Indian Super Market is about 3000 sq.ft.
Superstores are large supermarkets (25,000+ square feet0. A superstore has space for offering know traditional goods and services like a pharmacy, a flower shop, a bookstore, a salad bar, a bakery, etc, under one roof (Nilgiris, Bangalore).
A shopping mall is an arrangement of retail stores and other places for leisure time activities such as dining, entertainment, etc., selected on their contribution to an time activities such as dining, entertainment, etc., selected on their contribution to an overall merchandising plan. A mall is spread over a large area
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of more than 2,00,000 sq.ft. and runs as an integrated business by an individual or an organization, to which independent retailers pay for opportunities to participate.
A shopping centre or a plaza is a configuration of five or more tenant spaces of approximately, 1000 sq. ft. each used for retailing developed under one building plan in such a way to have unifled character. (Kannaiya shopping centre in Linking Road, Mumbai, Fountain Palza, Egmore Chennai, Basant Lock in Vasant Vihar, New Delhi). The term hypermarket is reserved for units over 50,000 sq ft of selling area or more, relating groceries, general merchandise goods, pharmacy, flower shop, phote shop, other concessions, etc. with a wide variety of merchandise offerings in large quantities in each category selling huge volume with a wide variety of merchandise offerings in large quantities in each category selling huge volumes at less margins (Ansal Plaza, New Delhi).
Characteristics of above type of retail formats are: Substantial surface car parking spaces under the control of the superstore retailer and servicing the superstore largely or exclusively. A range of 25,000-30,000 individual items, covering most foods and many non-foods (the latter many take up 40 percent of the total selling area.) A broadly similar pricing, service and general marketing strategy to the discount store. The comprehensive in-store use of information technology such as electronic point-of-sale equipment, and advanced food preparation equipment, e.g. for in-store bakeries.
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According to one study daily turnover of an Indian Supermarket averages between Rs 15,000 Rs. 42,000 per day (2008). The total turn over of 763 supermarkets in 1998 in the six cities (Mumbai, Delhi, Kolkata, Chennai, Bangalore and Hyderabad) was Rs 677 cr.
2.2 TYPERS STRUCTURE
OF
RETAILERS
BASED
ON
OPERATIONAL
These are types of retailers which include independent traders, multiple chain stores, cooperative societies, concessionaires, and franchising. They are different from the merchandise-based stores because they have independent supply mechanisms and hence price variations are high. Now you will study these formats in detail.
2.2.1 INDEPENDENT TRADERS
A single individual or sole trader owns the majority of shops in India. Even in US more than 90% of retailers own and operate single stores. Independents are defined as retail organizations (other than co-operative societies) with less than ten branches or no branches. The usual number of branches controlled by the sole trader is one or at the most two. A family mostly owns this type of retail format with high dependence on the owner Kirana shops, drug stores, STD/PCO outlets etc. are very good examples of such retailers.
As most of retail sales come from unorganized retail (organized retail being only 2% of total retail sales), almost 98% retail sales is generated by Independents. However, in developed economies, though there are large
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numbers of independent traders (over 90% in US), their market share is less than 50%.
Advantages of the Independent Traders: As the owner (management) has direct contact with the customers and therefore can quickly respond to their needs. Independent traders can be very flexible owing to their small size. They are not bound by any bureaucratic rules that may restrict retail chains or cooperative society managed stores. So, they can free to locate their store wherever they want and the type of merchandise they sell.
Disadvantages of the sole trader:
These may be summarized as follows: Price competition from retail multiples who can reduce their costs through bulk buying and other economies of scale. Lack of specialist expertise in retail functions, e.g. buying, in store merchandising, accounting, or possibly lack of time to carry them out adequately. Singly store retailers have to rely on owner-managers capabilities to make broad range of retail decisions. The cost of advertisement and promotion is very high for a singly store. Lack of capital to expand and improve the business. Especially in case of networking and use of IT for development of business, the expenditures are too high for a single store. Inertia- the small trader may not with to expand because of the extra problems expansion brings.
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Due to high accommodation costs the independent costs the independent often lacks the advantage of being in a large shopping centre with heavy pedestrian traffic generation. Changing shopping habits brought about by increased car usage has concentrated purchases in large well-located one-stop stores in cities.
2.2.2 MULTIPLE OR RETAIL CHAIN STORES The large multiple retail organization is invariably of the joint-stock company type (either private or public) and therefore in common ownership with a degree of centralized control. A large multiple is defined as an organization (other than a co-operative) with ten or more branches. This form is strongest in department stores, specialty stores, variety stores, food stores, drug stores etc. Their size allows them to buy in large quantities at lower prices, and they can afford to hire specialist to deal with pricing, promotion, merchandising, inventory control etc. Most chains have well defined management philosophies. Consistent strategies with reference to store hours, product assortment, prices, sales personnel, promotion and other policies must be maintained throughout all branches in order to project a particular image of the chain, this calls for centralized decision making which in turn result in difficultie for individual units in adapting to local needs of the target markets. These also limit innovation of individual units. In India many manufacturer own retail chains, which then sell their products only. Examples of this kind of are Videocon Plazas, BPL Gallery, Raymond, Titan watches, etc. Another form of multiple chains is Voluntary Chain, a wholesalersponsored group of independent retailers engaged in bulk buying and common merchandising is called Voluntary chain.
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2.2.3 CO-OPERATIVE SOCIETIES The Co-operative Movement began in Rochdale in 1844. A co-operative society is defined as a co-operative retailing organization trading on co-operative principles, affiliated to the National Co-Operative Movement (through the Cooperative Union) and registered under the Cooperative Societies Acts. Because many retail co-operative societies operate branches they re in this respect similar to multiple chains, but in the form of organization and control they are in many ways quite different.
The principles of the Movement applicable to retailing are: Voluntary and open membership Democratic control; one member ,one vote Payment of limited interest on capital In India cooperatives aggregate at least Rs 400 cr annually. Sahkari Bhandar and Apna Bazar are two leading Mumbai based cooperative chains. Delhi has couple of large cooperatives Mother Dairy of Delhi even distributes fresh vegetables from its milk distribution centres.
Milk cooperatives are believed to have a substantial 10 percent share of the all India market, which is about Rs. 60,000 -70,000 cr. Another form of cooperative is a Consumer Cooperative, which is a retail firm owned by its customers. Such societies can be seen in the educational campuses etc.
In contrast to consumer cooperative, independent retailers who set up a central buying organizations is called a Retailer Cooperative.
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2.2.4 CONCESSIONAIRE
The stopover store format is one that rides piggyback on another retail outlet, say a petrol pump. This stopover format is a concession that offers intent use or ready to eat categories of merchandise.
A Kiosk is one such concessionaire format placed in a mall or a shopping centre or a bus station, airport, etc, a kiosk is a small freestanding open pavilion often open on one or more sides used for information, sales and promotion.
Partnerships and alliances for concessions offer a great deal of opportunity for increasing customer contact, share of mind and share of heart especially in large formats such as departments stores, malls and hypermarkets. By striking trust, or with complementary marketers who are concessionaires, a retailer can add value and convenience, and broaden his relationship with customers. In addition to alliances such as McDonalds with Crossroads, Qwikys with Lifestyle, Ritazza with shoppers stop, retail ventures are trying to link with such concessions as travel, information, entertainment, communication etc. in order to hit upon that winning signature configuration.
It has been a long established practice in Asian retailing, particularly among department stores, to lease space to third departments. These third parties are typically vendors, manufacturers and distributors people with brand ownership and stake in their product lines.
The concessionaire concept is very common in Aia. Initially, the decision to lease out departments was largely a matter of augmenting the retailers own mix
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of goods and services, particularly in areas where he/she lacked expertise or technical capabilities, with the onset of Asian currency crisis, concessionaire agreements become the most viable option for Asian retailers to stay afloat.
Leased departments were thus mainly seen in such businesses as food and beverage, pharmaceuticals, consumer electronics, books and music and video, and the like.
Leased departments have grown steadily in Asian retail, and now account for 30 to 40 percent among most Asian department store retailers. This is a much higher than their US and European counterpart, whose corresponding numbers are typically less than 20 percent. In the north East Asian markets such as Japan, South Korea, Taiwan and China, the concessionaire arrangement is even more extensive. Leased departments may account for up to two thirds or 67 percent of the total store area.
2.2.5 FRANCHISING
Franchising is the granting of sole selling rights within given geographical area. The franchising company (the franchiser) supplies equipment and/or raw materials for a licensee who either pays a franchise fee or a percentage of turnover, or contracts to buy supplies from the franchiser (or a mixture of these methods of payment).
The licensee is also helped in finding a location and is trained all aspects of the business. Generally, franchises are distinguished by three characteristics: The Franchiser owns a trade or service and licenses it to franchisees in return for royalty payments.
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The franchisee pays for part of the system. This is normally in two parts, one as initial fee, which is only a small part of the total amount, second, service fee on turnover on monthly or quarterly basis. The franchisee pays for part of the system. This is normally in two parts, one as initial fee, which is only a small part of the total amount, second, service fee on turnover on monthly or quarterly basis. The franchiser provides its franchisee with marketing and operations system for doing business.
Franchising is beneficial to both franchiser and franchisee. Benefits to franchiser are: covering new the territory, hard work of persons who are entrepreneurs rather than employees, and the franchisees familiarity with local community and conditions.
Benefits to franchisee are: Buying into a proven business with a well known and accepted brand name. Receiving support in areas of marketing, advertising, site selection, training/ staffing, and Borrowing money from banks becomes easier.
The most common problems in franchising business are: Franchiser encroaching on franchisees territory by bringing in another franchisee in the same locality. Exaggerated claim of support by franchiser, and High failure rate.
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Franchising is most frequently found in service retailing such as, car maintenance (Kentucky Fried Chicken, McDonald), etc.
2.3 NON-STORE RETAILING
2.3.1 MAIL ORDER Mail order retailing using the mail to get orders and /or facilitate delivery takes several forms as follows;
Mail Order Catalogues There are mainly of two types the general merchandise catalogue, and the specialist catalogue. Much of the selling is done through network of part-time agents who are paid a commission on the things they sell. The advantages of the general merchandise mail order catalogue to the customer are: free credit Price stability over the lifetime of the catalogue Savings in transport fares and petrol Wide selection of merchandise
Direct Response Advertising
This is the use of advertising in newspapers or magazines to describe a product and stimulate the customer to write or telephone for it. Most national newspapers have a Saturday bargain squares section advertising all manner of postal bargains.
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Direct Mall This is the sue of advertising literature sent directly to the potential customer for the propose of selling goods or services. The Readers Digest have been particularly successful in selling books in this manner and records, tapes and collectors pieces are also sold via direct mail.
2.3.2 DIRECT SELLING Direct selling that is direct selling of the product by salesman to you takes several forms and follows:
Door-to-door Trading
Selling by sales persons is being done to launch new products. A veriety of foodstuffs are also regularly delivered to the doorstep, e.g. milk, brad, eggs, vegetables. Avon cosmetics are sold in this manner.
Mobile shops
These are travelling shops and are distinct from vehicles from which milk, brad, news papers etc, are delivered, vegetables, plastic toys and toehr small goods of house hold use are sold by hand driven carts. Markets (Haats) Haats or rural markets remain the traditional way of retailing in rural and semiurban India. In these markets, sellers bring their merchandise on one particular
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day (s) to particular place. Vegetables, groceries and household items are sold in this type of markets. Names of many localities were derived because on a particular day a haat would be organized there. For example : itwara, Budhwara, Mangalwara, etc.
2.3.3 Automatic Vending Selling out of machines has been part of the retail scene for many years (particularly for making a local telephone call) and there has been something of a recent boom in auto-vending, notably in closed, relatively vandal-proof areas such as sports centres and airports. This possible limitation reduces the main advantage of the machine in that they can be in operation for twenty- for hours a day, seven days a week. Banks are providing this type of service through ATMs.
2.3.4 ELECTRONIC RETAILING
Electronic retailing has tow formats, namely, television shopping and on-line computer shopping services.
Retailing through Television
In this retail format customers watch a TV programme demonstrating merchandise and then place an order over telephone. Major players in India are Asian Sky Shop, TSN, TVC, Telebrands etc.
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Retailing through Internet
In this retail format customers and retailer communicate through an interactive electronic system (internet). After browsing through and satisfying himself customer places an order though internet, phone or by mail. Major retailer in India using this format is Jaldi.com, Indiainfo.com, and Rediff.com. Amazon.com has established itself as a major non-store book retailer.
PURPOSE The overall purpose of the retailing is to provide goods and services wanted by customers and to do so profitably so that business can be sustained. This means if a retailer is to be successful and customer satisfied the retailer must understand, the three core factors of retailing, namely customers, their needs, wants and buying behavior: competition, their strategies: and above all the environment of customers and competition.
3.1 CUSTOMERS
Customers are the most important element for the retailers. To be successful retailer must know its customers. Why customers shop, how they select a shop and how they select among that stores merchandise, thee can be:
Convenience of hours, of location, of shopping ease Assortment of merchandise whether a wide variety or limited Quality and fashion level of goods
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Price generally important at the lower end Services such as credit, delivery, courteous sales staff, assistance in selection, after sales services, return-goods privileges. Excitement such as promotional efforts
If retailer really understands their customers, they can position themselves and plan their merchandise and services accordingly. To a large extent the various combinations of merchandise and services are controllable by the retailer Stores can stay open in the evenings and on Sundays; retailer can decide to stock low priced or expensive goods, to offer many services or bare minimum; to have frequent sales, style, shows and other excitement creating events or none. You will learn in a later chapter why do consumers buy, hw is their buying process, and what re the factors affecting consumers buying behavior. 3.2 COMPETITION A retailers competition does not only come from those competitions who are using the same retail format but also from new competitions who are coming up from new formats.
The competition between retailers using the same type of retail format is known as intra-type competition. Examples of this type of competition are: a department store competing with other department stores; a discount store competing with other discount stores; a supermarket competing with other supermarkets; etc.
Competition between retailers that have similar merchandise but are using different formats is known as inter-type competition. For example competition between department and discount stores.
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To provide one stop shopping and to attract a broader group of consumers, retailers offer a broader variety of merchandise, some of it typically not associated with the store type. This is called scrambled merchandising. For example: grocery shops keeping clothes, sports goods in a drug store, etc
Increased inter-type competition and scrambled merchandising has made it harder to identify and monitor competition for retailers. In a way all retailers are competing against each other for the money spent by the consumer on goods and services. However, the intensity of competition is greatest among retailers when customer view them having the similar retail mix. Retail mix is explained in the next section.
The competition to the retailers may come from same retailer located within the vicinity of the target market or a similar kind of business in that locality. For example, a retailer located in a suburb selling video and music cassettes would have competition with the cable TV and the movie theatre located in that suburban area. The retailer may also face tough competition from the scrambled stores, which in addition to their merchandising products also provide videocassettes on rent. Therefore the retailer has to identify, assess the strengths and weaknesses of his/her competitor while designing the strategy for marketing its products.
3.3 Environmental Trends
This is the third core element of retailing. The environmental factors surrounding the customers and the competition is a major factor confronting retailers. These environmental factors are : changing customers needs, changes
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in demographic composition of customer, changes in technology, changes in business environment, legal framework.
We will see in next few paragraphs what environmental factors are behind the changing retail scenario in the Indian context.
Economic factors
The rate of growth in India has gradually picked up in last two decades. In the eighties it breeched the so called Hindu rate of growth and reached 5 percent levels. Through out the nineties the growth has remained above this level even crossing 7 percent levels. This has resulted in increased buying power and disposable income in the hands of Indian consumers. Apart from growth, Indias large middle class has led to introduction of organized retail formats. You can see many types of retail formats in India now, for example, department stores, specially stores, manufacturer-owned retail chains etc.
As Indian economy gets integrated in the world economy, global trends start affecting Indian economy such as global recession. This gets reflected in consumers buying patterns. Last year (2001) saw drop in sales of leading retailers in India due to the economic slow down.
Demographic factors
There has been significant growth in number of towns and significant increase in population or urban India due to migration from rural areas. Rising prosperity
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and population has driven the population of many cities over 10 laths. This has created interest in large retailers. Many retailers have opened their stores in number of cities now. Prominent among them are Shoppers stop, Food World, Westside, Ebony Piramyd, Pantaloon, Lifestyle, Globus etc.
Social Factors
Nuclear small family is becoming a norm in India with increasing number of women working outside the four walls of home. Thus, there is increase in disposable income of families, however there is paucity of time as in many families both (husband and wife) work.
Psychological factors
Consumerism is on increase in India. Media and cable TV proliferation has given exposure to Indian consumers to new ideas, new life style and new desires. This has fuelled consumer demand. Even in last four years when the economy was not doing as well, consumer durables sales was growing at about 20%.
Similarly, there is increased emphasis on health, personal hygiene, etc. Therefore, many retailers carry low sodium salt, cholesterol free oil, diet coke etc.
Brand profusion
Compared to early eighties, India has seen brand explosion in almost all goods. Earlier there was only one brand of sale, namely, Tata Salt, now there are
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number of brands available. Many goods were sold in loose earlier, now there exists number of established brands, Numerous brands in consumer durables, automobiles, household items, garments etc, have appeared in the Indian retail horizon.
Psychographic change
There has been a perceptible change in the mental attitude of the people at large. People especially in cities have become health conscious. Hygiene is a prerequisite for any investment related to consumption and food items. Due to change in earning, the concept of marketing has also changed.
Demographic Change
The people at large live in big apartments and isolated suburban areas. There is a growth of clusters of population in identified geographical locations. A particular geographic location is populated by people with distinct characteristics of demand and consumption. This indicates that the requirement of different clusters may be different depending upon the type of families living together.
Political Change
Since last two decades, India is facing severe political instability. This is causing frequent policy changes and creation of pressure groups.
Technological changes
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Last decade saw tremendous change in technology specially information technology. Information Technology has provided ways to network and increase market share with profitability. There is a possibility of mutual growth and business with collaborations.
3.2 Price
In the past, price was considered a direct indicator of quality. However, this trend is changing now, as many good quality products are being priced low. Price has become a tool in the markets armor to increase market share without compromising quality.
Today, price is considered an indirect indicator of quality and fashion level of goods. And to an extent it is. Higher quality goods and newest fashions usually command higher prices. Private brands, which are retailers own brands
usually, are priced lower than nationally advertised brands. Often the difference in price between highest and lowest price items does not accurately reflect the difference in quality. Some retailers, for example The Home stores have even introduced their own brands in groceries at lower prices than national brands without compromising on quality.
Consumers often make judgment on products or indeed on the store as a result of his or her response to the prices of merchandise. Thus for example a retailer could adopt a strategy of offering goods at relatively high prices in order to be consistent with a general strategy of appealing to consumers who want exclusively.
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The major appeal of discount stores is their low prices. Many other stores direct the bulk of their promotional efforts, especially their newspaper advertising, to sales and particular goods offered at special low prices. Most supermarket advertising promotes low price specials or leaders, designed to attract customers to the store so that they may then buy other regular price items. Leaders are items sold at a below average mark up sometimes even near cost in order to attract customers to the store.
Despite the overwhelming commitment by many retailers to low prices as the major promotional tool for advertising and display, not all consumers appear to view price as all that important. The poor the very consumers who should be most price conscious do not always seek out the best value, because of ignorance and apathy. Other consumer tends to view convenience, merchandise quality and assortment, and friendliness of clerks as more important than price.
3.2 Promotion
The retailer has to communicate with customers, initially to make them aware of his or her offerings and then to stimulate interest and desire. This is based on the AIDA theory or promotion. A: Awareness I: Interest D: Desire A: Action Awareness: The retailers first task is to make the customer aware of his offerings. It should communicate properly to is its customers through advertisements, window merchandising, product display etc.
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Interest: Next stage of promotion is Interest, if customer shows some interest in the product retailers sales persons can help in knowing the product better. Desire: The third state is desire, it is in this stage the retailer can convert desire of the customer into next stage that is action or purchase. Action: In this stage, customer makes purchase.
In practice few promotions take the customer to all the way from awareness to purchase, but the AIDA framework suggests the desirable qualities of any promotion.
The techniques of promotion available to the retailer include advertising, personal selling, sales promotions and public relations. Through the use of these communication tools the retailer establishes a position in the consumers mind, which hopefully will move the consumer to choose that store in preference to competitors.
Customer service is the best promotional tool for retailers. However, providing services is expensive and full service stores necessarily charge higher prices. As discount stores entered the market with a minimum of services and often the barest of dcor, they were able to significantly undercut the prices at department stores. Department stores then were often forced to cut back on some of their services or to charge for certain ones, such as delivery and alternations. Services include friendly and well trained salespeople, credit, delivery, trading stamps, gift wrapping, bridal consulting, interior decorator consulting, return goods privileges baby sitting availability, alternations, workroom activities and handling of customer complaints and merchandise corrections. Even the store itself, its dcor, pleasant surroundings, rest room facilities and air conditioning is a form of service.
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Other promotional tool for retailers is to continually seek ingenious and innovative ideas to attract customers and make their shopping interesting and exciting. Some examples are: flower shows, fashion shows, import goods spectaculars, exhibitions of various kinds, use of celebrities to meet customers and sign autographs. Some stores attempt to create an urge to buy by continually holding special sales, anniversary sales, games and contests.
3.3. Theories of Retail Change
Four theories of retail institutional change have originated in North America, but they are equally applicable to the other parts of world These are: Theory of natural selection in retailing Theory of wheel of retailing General-specific-general cycle or accordion theory The retail life-cycle theory
3.3.1 Theory of Natural Selection in Retailing
Theory of natural selection in retailing is based on the famous of theory of Charles Darwin of natural selection in origin of species. This an be stated as retail types (or units), which best adjust to their environment, are most likely to survive. In this theory environmental factors play major role in survival of retail type.
The department store is often cited as an example of a retail type failing to adapt quickly to changes in external condition like suburban growth and congestion in
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town centres. However these very factors have helped the growth out-of town stores.
The major environmental factors affecting retailing are:
(a) Changes in the consumer character: (i) (ii) (iii) Demographic, e.g. population age changes Social, e.g. product and service preferences Economic, e.g. changes in real incomes.
(b) Changes in technology, e.g. greater ownership, use of motorcars, food freezers, and microwave ovens. (c) Changes in competition, i.e. changes in the levels of competitive strength within the areas of influence.
If a retail outlet or type does not address to these factors, it may have the fate of dinosaurs
3.3.2. Theory of Wheel of Retailing
This theory, first championed by Professor Mc Nair of Harvard, postulates that an efficient innovatory form of retailing (such as discounting) enters the market and attracts the public by its new appeal. Growth and maturation occur during which market shares are increased, but trading up occurs and finally the firms become high cost, high price retailers once again vulnerable to the next innovator. Reasons for its occurrence include.
(a) Organizational deterioration. As young innovators age they become more conservative and may seek greater social acceptableness. Again,
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they may be unable to recruit management capable of extending the life of the innovation. (b) Economic factors. The popularity of non-price competition produces higher gross margin requirements as an institution matures. It suggests that non price competition is less ruinous than price competition. For example, new type of retail firms (such as discount stores in 1950s in USA) enters the market with low status, low mark-up and low prices. Over time as they become successful, they open more stores offer more services and as a result their costs increase and they have to charge higher prices to their customers. This in turn makes them vulnerable to new entrants who will use the similar strategy, i.e., low mark up and low prices. Diagram 3.3 depicts theory of wheel of retailing.
3.3.3. General-Specific-General Cycle or Accordion Theory
This describes the tendency for retail business to become dominated (alternatively) by generalists, then specialists and then generalists again. The switch to the specialist store from the old time general store occurred because:
(a) The greater variety of customer goods available could not be accommodated in the old general store
The tendencies helping to create the new general store (superstore or hypermarket) include; Joining complementary lines, e.g. meat, groceries and produce
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Creaming, i.e. taking the most popular lines from other retail outlets ranges, e.g. paperbacks, confectionery, to create small but sure profits Scrambling, i.e. the taking of risky merchandise from other outlets means buying high margin, lower stock-turn lines, e.g. unit audio, expensive toys Adding complete ranges borrowed from other institutions, e.g. Marks & Spencer selling food to increase the physical density of shoppers in their stores The growth of shopping centers. Large modern air-conditioned centers, particularly those with a substantial food complement, are somewhat like huge general stores. Note also the return to small convenience stores which are now competing successfully primarily by staying open for long hours.
3.3.4. The Retain Life -Cycle Theory
The retail lie-cycle theory is based on the product life-cycle theory suggests that retail institutions also have life-cycle hitch can be divided into four phases: innovation, growth, maturity and decline just like product life cycle theory
In the innovation stage, the new retailer will have few competitors, rapid growth in sales but low profitability due to start-up costs, etc. In the growth phase, sales growth is still rapid and profitability is high due to the economies of scale now possible. However competitors will spot this and begin to encroach on this market.
At the maturity stage, there are many competitors, sales growth has declined and profitability moderates. In the final decline phase, sales and profits fall and new, more innovatory retailers are developing and growing. It has also been suggested that the life cycle of retail institutions is getting shorter.
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Total retail sales Introduction Growth Maturity Decline
Strategy Variable Profit margin Sales No. Competitors
Time Life Cycle Stage Introduction Growth Low High Low High Very Few Moderate
Maturity Stable Stable Many Direct
Decline Low Declining Many indirect
Retail Scenario in India : Touching Meteoric Scales As the corporates the Piramals, the Tatas, the Rahejas, ITC, S.Kumars, RPG Enterprises, and mega retailers- Crosswords, Shoppers Stop, and Pantaloons race to revolutionize the retailing sector, retail as an industry in India is coming alive.
Retail sales in India amounted to about Rs.7400 billion in 2010, expanded at an average annual rate of 7% during 1999-2010. With the upturn in economic growth during 2010, retail sales are also expected to expand at a higher pace of nearly 10%. Across the country, retail sales in real terms are predicted to rise more rapidly than consumer expenditure during 2010-08. The forecast growth in real retail sales during 2010- 2008 is 8.3% per year, compared with 7.1% for
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consumer expenditure. Modernization of the Indian retail sector will be reflected in rapid growth in sales of supermarkets, departmental stores and hypermarts.
Sales from these large-format stores are to expand at growth rates ranging from 24% to 49% per year during 2010-2008, according to a latest report by Euromonitor International, a leading provider of global consumer-market intelligence.
A. T. Kearney Inc. places India 6th on a global retail development index. The country has the highest per capita outlets in the world - 5.5 outlets per 1000 population. Around 7% of the population in India is engaged in retailing, as compared to 20% in the USA.
In a developing country like India, a large chunk of consumer expenditure is on basic necessities, especially food-related items. Hence, it is not surprising that food, beverages and tobacco accounted for as much as 71% of retail sales in 2010. The share of food-related items had, however, declined over the review period, down from 73% in 1999. This is not unexpected, because with income growth, Indians, like consumers elsewhere, have started spending more on nonfood items compared with food products. Sales through supermarkets and department stores are small compared with overall retail sales. Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about 30%per year during the review period). This high acceleration in sales through modern retail formats is expected to continue during the next few years, with the rapid growth in numbers of such outlets due to consumer demand and business potential.
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The factors responsible for the development of the retail sector in India can be broadly summarized as follows: Rising incomes and improvements in infrastructure are enlarging consumer markets and accelerating the convergence of consumer tastes. Looking at income classification, the National Council of Applied Economic Research (NCAER) classified approximately 50% of the Indian population as low income in 1994- 95; this is expected to decline to 17.8% by 2010-07. Liberalization of the Indian economy which has led to the opening up of the market for consumer goods has helped the MNC brands like Kellogs, Unilever, Nestle, etc. to make significant inroads into the vast consumer market by offering a wide range of choices to the Indian consumers. Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc. The internet revolution is making the Indian consumer more accessible to the growing influences of domestic and foreign retail chains. Reach of satellite T.V. channels is helping in creating awareness about global products for local markets. About 47% of Indias population is under the age of 20; and this will increase to 55% by 2015. This young population, which is technology-savvy, watch more than 50 TV satellite channels, and display the highest propensity to spend, will immensely contribute to the growth of the retail sector in the country. As India continues to get strongly integrated with the world economy riding the waves of globalization, the retail sector is bound to take big leaps in the years to come.
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The Indian retail sector is estimated to have a market size of about $ 180 billion; but the Organized sector represents only 2% share of this market. Most of the Organized retailing in the country has just started recently, and has been concentrated mainly in the metro cities.India is the last large Asian economy to liberalize its retail sector. In Thailand, more than 40% of all consumer goods are sold through the super markets and departmental stores. A similar phenomenon has swept through all other Asian countries. Organized retailing in India has a huge scope because of the vast market and the growing consciousness of the consumer about product quality and services.
A study conducted by Fitch, expects the organized retail industry to continue to grow rapidly, especially through increased levels of penetration in larger towns and metros and also as it begins to spread to smaller cities and B class towns.
Fuelling this growth is the growth in development of the retail-specific properties and malls. According to the estimates available with Fitch, close to 25mn sq. ft. of retail space is being developed and will be available for occupation over the next 36-48 months. Fitch expects organized retail to capture 15%-20% market share by 2010.
A McKinsey report on India says Organized retailing would increase the efficiency and productivity of entire gamut of economic activities, and would help in achieving higher GDP growth. At 6%, the share of employment of retail in India is low, even when compared to Brazil (14%), and Poland (12%).
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Different Forms of Retailing : Emergence of new formats of retailing in India Hypermart 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: a) FOOD RETAILERS
There are large number and variety of retailers in the food-retailing sector.Traditional types of retailers, who operate small single-outlet businesses mainly using family labour, dominate this sector .In comparison, super markets account for a small proportion of food sales in India. However the growth rate of super market sales has being significant in recent years because greater numbers of higher-income Indians prefer to shop at super markets due to higher standards of hygiene and attractive ambience.
b) HEALTH & BEAUTY PRODUCTS

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With growth in income levels, Indians have started spending more on health and beauty products .Here also small, single-outlet retailers dominate the market .However in recent years, a few retail chains specializing in these products have come into the market. Although these retail chains account for only a small share of the total market , their business is expected to grow significantly in the future due to the growing quality consciousness of buyers for these products .
c) CLOTHING & FOOTWEAR
Numerous clothing and footwear shops in shopping centers and markets operate all over India. Traditional outlets stock a limited range of cheap and popular items; in contrast, modern clothing and footwear stores have modern products and attractive displays to lure customers. However, with rapid urbanization, and changing patterns of consumer tastes and preferences, it is unlikely that the traditional outlets will survive the test of time.
d) HOME FURNITURE & HOUSEHOLD GOODS
Small retailers again dominate this sector. Despite the large size of this market, very few large and modern retailers have established specialized stores for these products. However there is considerable potential for the entry or expansion of specialized retail chains in the country.
e) DURABLE GOODS
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The Indian durable goods sector has seen the entry of a large number of foreign companies during the post liberalization period. A greater variety of consumer electronic items and household appliances became available to the Indian customer. Intense competition among companies to sell their brands provided a strong impetus to the growth for retailers doing business in this sector.
f) LEISURE & PERSONAL GOODS
Increasing household incomes due to better economic opportunities have encouraged consumer expenditure on leisure and personal goods in the country. There are specialized retailers for each category of products (books, music products, etc.) in this sector. Another prominent feature of this sector is popularity of franchising agreements between established manufacturers and retailers. Malls In India
Over the last 2-3 years, the Indian consumer market has seen a significant growth in the number of modern-day shopping centers, popularly known as malls. There is an increased demand for quality retail space from a varied segment of large-format retailers and brands, which include food and apparel chains, consumer durables and multiplex operators. Shopping-centre
development has attracted real-estate developers and corporate houses across cities in India. As a result, from just 3 malls in 2000, India is all set to have over 220 malls by 2010. Today, the expected demand for quality retail space in 2010 is estimated to be around 40 million square feet. While previously it was the large, Organized retailers with their modern, up-market outlets, and direct
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consumer interface- who had been a key factor driving the growth of Organized retail in the country, now it is the malls which are playing the role.
Factors such as availability of physical space, population densities, city planning, and socio-economic parameters have driven the Indian market to evolve, to a certain extent, its own definition of a mall. For example, while a mall in USA is 400,000 to 1 million sq.ft. in size, an Indian version can be anywhere between 80,000 sq.ft. and 500,000 sq.ft. By 2010, total mall space in the 6 cities of Mumbai, Bangalore, Hyderabad, Chennai, Kolkata, and National Capital Region (Delhi, Noida, Gurgaon) is expected to increase to over 21.1 million sq. ft. Compared to other big cities, Kolkata and Hyderabad are relatively new entrants in the mall segment, but are witnessing quick growth. Smaller cities like Pune, Ahmedabad, Lucknow, Ludhiana, Jaipur, Chandigarh and Indore, are also expected to see a formidable growth in the growth of malls in the near future. But malls in India need to have a clear positioning through the development of differential product assortment and differential pricing, in order to compete effectively in a growing mall market. Segmentation in malls, like up-market malls, mid-market malls, etc. , proper planning, correct identification of needs, quality products at lower prices, the right store mix, and the right timing, would ensure the success of the mall revolution in India. Impact on Retail industry: The inflation or the economic slowdown is adversely affecting the retail industry. With the suddenly disturbed economical status, consumers are gradually losing interest on buying. And for the interested, the unbalanced income, followed by the economic slowdown, is not meeting their buying requirements. This evolution had soon disappointed the hopes of retail industry. Anyhow, its all a short-term crisis for the retail industry until the things turn around.
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Impact of Recession on Indian Retail Markets
The current meltdown in the world markets is shaking the globe today. Not even a single country seems to be off the hook. The high level of inflation has been a wet blanket for the global markets. The roots of the world markets are nearly pulled away with the heavy downfall of the American financial giants. Amongst many countries, India too not exempted from the impact of world financial crisis. All this is leading to a temporary recess for the markets from a regular busy schedule. However, these fluctuations are not new for global market. For the decades long, markets, across the world, have been witnessing such ups and downs. But the ultimately fact is that the market growth rate is always constantly high when comparing to such downfalls.
The retail market in India is facing slowdown with the ongoing financial crisis happening across the world markets. Since the markets always have internally linked with each other, the impact of the crisis is generally shared among all. The following circumstances are creating unwelcome interruptions to the Indian retail industry. The industry hopes for the best alternations to overcome the acrimonious situations.
Spread of Organized Retailing in India
Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiris as early as 1904, the retail revolution happened with various major business houses
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foraying into the starting of chains of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets, preliminarily. In the Indian context, a countrywide chain in food retailing is yet to be established as lots of Supply Chain issues need to be answered due to the vast expanse of the country and also diverse cultures that are present.
Retail Models in India: Current & Emerging
The Indian food retail market is characterized by several co-existing types and formats. These are: 1. The road side hawkers and the mobile (pushcart variety) retailers. 2. The kirana stores (the Indian equivalent of the mom-and-pop stores of the US), within which are: a. Open format more organized outlets b. Small to medium food retail outlets. Modern trade the organized retailers Within modern trade, we have:
1. The discounter (Subhiksha, Apna Bazaar, Margin Free) 2. The value-for-money store (Nilgiris) 3. The experience shop (Foodworld, Trinethra) 4. The home delivery (Fabmart) While the focus of this note is on modern organized retail trade, we hereunder present insights into the smaller, semi and unorganized retailers.
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Hawkers mobile supermarkets
The unorganized sector is characterized by the lari-galla vendors (also known as mobile supermarket) seen in every Indian by lane and is, therefore, difficult to track, measure and analyze. But they do know their business these lowest cost retailers can be found wherever more than 10 Indians collect a rural post office, a dusty roadside bus stop or a village square. As far as location is concerned, these retailers have succeeded beyond all doubt. They have neither village nor city-wide ambitions or plans their aim is simply a long walk down the end of the next lane. This mode of mobile retailers is neither scalable nor viable over the longer term, but is certainly replicable all over India. Most retailing of fresh foods in India occurs in Mandis and roadside hawker parks, which are usually illegal and entrenched. These are highly organized in their own way. Hawking of food products, cooked food and FMCG products is a very interesting model of retailing. Much has been written about these roadside malls from social security issues to their nuisance value. However, if you put these hawkers together, they are akin to a large supermarket with little or no overheads and high degree of flexibility in merchandise, display, prices and turnover. While shopping ambience and the trust factor maybe missing, these hawkers sure have a system that works.
Kirana/Grocers/ Provision Stores/Mom-and-Pop Stores
Semi-organized retailers like kirana (mom-and-pop stores), grocers and provision stores are characterized by the more systematic buying from the mandis or the farmers and selling from fixed structures. Economies of scale are not yet realized in this format, but the front end is already visibly changing with the times. These stores have presented Indian companies with the
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challenge of servicing them, giving rise to distribution and cash flow cycles as never seen elsewhere in Asia. The model is very antithesis of modern retail in terms of the buyer (retailer)-seller (FMCG) equations. It is not unknown for MNC leaders to link the supply of one line of products to another slower moving line of products. These retailers are not organized in the manner that they could challenge the power of the sellers, most protests have been in the form of boycotts, which really havent hit any company permanently. INTEGRATION OF FOOD INDUSTRY THE KEY DRIVER OF FOOD RETAIL IN INDIA India is worlds second largest grower of fruits and vegetables after Brazil and China. While the agriculture sector has witnessed several leaps of innovation and technological advancements, the processing sector is still in its infancy. Even with less than 4% processing of fruits and vegetables, the Food Processing Industry sector in India is one of the largest in terms of production, consumption within India, export and growth prospects. The government has accorded it a high priority, with a number of fiscal reliefs and incentives, to encourage commercialization and value addition to agricultural produce; for minimizing pre/post harvest wastage, generating employment and export growth. As a result of several policy initiatives undertaken since liberalization in early 90s, the industry has witnessed fast growth in most of the segments. In the following few paragraphs, it can be noted that the processed food market for India is vast and the amount of scope that retail chains would be exposed to is phenomenal taking into consideration the demographics and raise in standards of living. Retailers could throng the market with all these processed and packaged foods with their private labels.
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With the emergence of the big private corporate, NGOs (Non-Government Organizations) and Government organizations into the food processing scene, India is making big in-roads into the Food Processing Industry. These corporates and NGOs have reached out to the farmers and provided them with timely advice and help in the up gradation of farm practices with valuable inputs on various areas of farming from sowing to harvesting which includes quality seed procurement, manures, fertilizers and pesticides etc. Some of the successful models are that of ITCs e-choupal a model that helps the soyabean farmers in contract producing for ITC for its commodity trading business. The PEPSI experimenting with Punjab farmers in growing the right quality tomato for its tomato purees and pastes. Some of the leading food retail chains working with farmers for contract growing greens for supply to their retail outlets etc etc. These successful models are being replicated with required changes all over the country and the food industry is getting integrated more strongly.
India has also seen a flurry of food chain majors like McDonalds, Pizza Hut and Kentucky Fried Chicken finding their place among the Indian consumers. The trend still follows for food chains in India to spread to almost all cities and towns.
These advancements have revolutionized the integration of the Indian Food Industry and has played a vital role in solving, to a large extent, major supply chain issues that prevailed. The trend is that these successful institutional intervention models be replicated and spread in all segments of the food industry far and wide through the country that benefit all the incumbents of the chain evolve. This finally helps the retailer as his supply chain becomes much leaner and vertically integrated. He is in a position to offer a wide variety and highest degree of convenience to his customer.
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ECONOMY
Economic growth at over 5.5% over the last eight years, forex reserves of over $100 billions and a stable government has helped India to look more progressively towards future. The economic development was largely attributed to its dominance in the Information Technology Sector in the global market place and its large English speaking population that made it the ideal choice for back office operations for MNCs world over. The manufacturing sector also provided its might to the economic development by going global hitherto restricting to export of raw materials or intermediaries that has not graduated to supply of end product be it Pharmaceuticals or Consumer Vehicles. All this has translated in higher income levels and more surpluses for the middle class segment that is getting ploughed into the retail sector; again fueling the economy to higher levels. The last five years have seen the PPP of average Indian middle class (over 300 millions) go up several times unleashing the power of purchasing. The retail sector was the greatest beneficiary. The need for a shopping experience combined with the convenience of shopping for the upwardly mobile middle class has been on the major factors for retail boom in India.
EVOLUTION OF ORGANIZED RETAILING
Retailing, one of the largest sectors in the global economy, is going through a transition phase in India. For a long time, the corner grocery store was the only choice available to the consumer, especially in the urban areas. This is slowly giving way to international formats of retailing. The traditional food and
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grocery segment has seen the emergence of supermarkets/grocery chains, convenience stores and fast-food chains.
The traditional grocers, by introducing self-service formats as well as valueadded services such as credit and home delivery, have tried to redefine themselves. However, the boom in retailing has been confined primarily to the urban markets in the country. Even there, large chunks are yet to feel the impact of organized retailing. There are two primary reasons for this. First, the modern retailer is yet to feel the saturation' effect in the urban market and has, therefore, probably not looked at the other markets as seriously. Second, the modern retailing trend, despite its cost-effectiveness, has come to be identified with lifestyles.
In order to appeal to all classes of the society, retail stores would have to identify with different lifestyles. In a sense, this trend is already visible with the emergence of stores with an essentially `value for money' image. The attractiveness of the other stores actually appeals to the existing affluent class as well as those who aspire to be part of this class. Hence, one can assume that the retailing revolution is emerging along the lines of the economic evolution of society.
It was only in the year 2000 that the economists put a figure to it: Rs. 400,000 crore (1 crore = 10 million) which is expected to develop to around Rs. 800,000 crore by the year 2010 an annual increase of 20 per cent. Retailing in India is unorganized with poor supply chain management perspective. According to a recent survey by some of the retail consulting bodies, an overwhelming proportion of the Rs. 400,000 crore retail market is UNORGANIZED. In fact,
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only a Rs. 20,000 crore segment of the market is organized. As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world (source: KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt Salmon Associates).
Currently the retail landscape is filled with Supermarket chains with over 1000 outlets all over the country to increase to around 7000 by the 2010. The success of a couple of Hypermarts indicate the evolution of hypermarkets in the country prominent among them are Giant, Metro, Big Bazaar models. While the average bill value at a supermarket is in the range of Rs.300 per bill, the average bill amount at a Hypermarket is in the range of Rs.750-1000, indicating that the model is in tune with the global models where the average spend is increasing with the shopping experience.
Impact of Organized Retail
Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiris as early as 1905, the retail revolution happened with the RPG group starting the Foodworld chain of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets, preliminarily. The experiment has reaped rich dividends and the group is now foraying into other territories as well. Owing to the success of Foodworld model of RPG group, several new models such as Trinethra, Subhiksha, Margin Free and others have made their foray into this
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sector albeit at regional levels. Today the food retail sector in India is about Rupees Ten Lakh Crores (USD 200 billions) of which the Organized food retail segment is about 1 per cent and increasing at a pace of over 20% y-o-y.
To be successful in food retailing in India essentially means to draw away shoppers from, the roadside hawkers and kirana stores to supermarkets. This transition can be achieved to some extent through pricing, so the success of a food retailer depends on how best he understands and squeezes his supply chain. The other major factor is that of convenience shopping which the supermarket has the edge over the traditional kirana stores. On an average a supermarket stocks upto 5000 SKUs against few hundreds stocked at an average kirana stores.
Though with excellent potential, India poses a complex situation for a retailer, as this is a Country where each State is a mini-Country by itself. The demographys of a region vary quite distinctly from others. In order to appeal to all classes of the society, retail stores would have to identify with different lifestyles. Hence we may find more of regional players and it would take enormously long time before nation wide successful retail chains emerge. This is the main reason as to why the successful retail chains in the country today operate at regional segments only and are not aiming at nation wide presence, atleast for the time being.
In the organized retail industry, the gestation periods are long, institutional funding is difficult, and there is none or little Government support. But the belief among top retailer chains in the country is that the industry will see large
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investments coming once the current ban on foreign direct investment is lifted. But that could be two-three years away. Food and grocery retailing is a tough business in India with margins being very low, and consumers not dissatisfied with existing shops where they buy.
As of now, while Chennai has about five organized food and grocery retail chains, other big cities such as Delhi, Bangalore, and Mumbai average only two-three such chains. Almost all food retail players have been region-specific as far as geographical presence is concerned in the country. To illustrate with examples, the RPG Group's FoodWorld, Nilgiris, Margin Free, Giant, Varkey's and Subhiksha, all of which are more or less spread in the Southern region; Sabka Bazaar has a presence only in and around Delhi; names such as Haiko and Radhakrishna Foodland are Mumbai-centric; while Adani is Ahmedabadcentric. Industry topography in India is such that spreading presence across cities is a tough call. As pointed out by many experts, Organized food and grocery retailing chains going national requires significant investments. Retailing within this sector is not just about the front-end, but involves complex supply chain and logistics issues as well.
The trend and mindset of the present retailer chains in India can be best understood by studying FoodWorld as an example, which came in first in the food and grocery retailing sector. The chain has no plans to venture beyond the Southern region just yet. Current plans are to focus on the Southern markets and achieve saturation. The intention is that by 2010, they could look at the other regions. Subhiksha, a Chennai based discount chain, too wants to be the principal store of purchase for at least 40 per cent of all consumers living within 500-750 meters of the store, that is, within walking distance. This makes the point very clear that the strategy among most existing retail chains of various
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formats is to completely saturate the markets where they are already established players and then move on to virtually untouched areas where the challenge of sourcing resources and extending their supply chain model to best suit the size and expanse of the market would be a challenging task.
Meanwhile, the RPG group plans to take its new formats such as Giant Hypermarkets national over the next three years. Grocery is a large component of this format, but not the only one. To elaborate on the hurdles of going panIndian, fundamentally, the way a basic grocery retailing model works is that the high set-up costs in terms of setting up buying/ distribution infrastructure is gradually amortized over a larger number of stores. The back-end costs without distribution centre costs, or what in retail jargon is called retail administration costs, should stabilize at around 2.5 per cent to 3 per cent of sales.
It can be explained that the obstacles of looking at a pan-India model for grocery are several. Given the federal nature of the country, the weak infrastructure and the major variances in eating habits in different parts of the country, one will have to replicate the retail administration costs for at least each region and therefore the gestation period of the project becomes huge. However, if a model is in place where the upfront store revenues scale very rapidly, then it is possible. Therefore, if one is to attempt a pan-Indian grocery foray, it will have to be in the hypermarket format with its attendant investment numbers and risk profile.
If a close look is taken at the nature of the Indian Retail Markets, it can be seen that there is so much potential to extract from individual regions, that players are in no tearing hurry to spread out. Based on a recent study by a renowned government institution in India, in the six major metros, Delhi has the highest
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per capita consumption of food and grocery, among supermarkets. Chennai, the mecca of retailing, comes at fourth place.
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This shows the high potential the sector presents. Chennai has some five supermarket chains, and each of these are doing well for themselves. So there is enough scope to expand even in one single city in India.
Sabka Bazaar, a supermarket chain restricted to Delhi alone, is now generating sales of about Rs 11 crore from its 19 stores which best illustrates the potential of each individual city. This explains the reason for delay in intentions of retailers to spread far and wide. Pantaloon Retail (India) Ltd, which operates two types of retail formats, made its maiden foray in food and grocery retailing in North India in mid-2010. Big Bazaar, Pantaloon group's discount store chain, has taken off to a roaring start in Delhi. The Pantaloon Big Bazaar in Delhi is the sixth for the group, and the first in North India. It has been found that existing Big Bazaar stores in cities such as Hyderabad, Bangalore and Mumbai attract average footfalls of 20,000 to 25,000 per day, more so during weekends. While Big Bazaar is essentially a discount store retailing product categories ranging from food and grocery to apparel to footwear to home and interior products, food and grocery retailing forms a significant part of the chain's business. Typically, while food and grocery retailing does well at the beginning of the month, the apparel sector sees maximum off take during festivals.
It can be observed that the most popular retail format in India is the supermarket, beside the corner shop/grocery store/mom and pop store. Hypermarkets have very recently come into being and are negligible in number though most retail chains do intend to expand their presence through this format as well very soon. Discount chains are also substantial in number and are growing at a fast pace through the country, predominantly, in the southern region.
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Given that organized retail has been registering growth rates of approximately 40 per cent over the last three years, it is expected to grow to about Rs 35,000 crore in 2010, and close to Rs 70,000 crore in 2010. If projections were to be made considering the current trends in food retailing in India, some years down the line, food and grocery stores will become dominating trade partners for the food industry, which, in turn, will be forced to offer special discounts and trade terms for them to get the shelf space in such stores. Also, once established, instore label brands will become a real threat to the industry as manufacturers will have to compete with the store label brands that are generally very pricecompetitive. As for the spread geographically, strong chances stand that the major chains would spread to the next grade of cities in the country over the next 5 years or so and then progressively start covering every corner of the country. Most chains have already started developing their own unique supply chains that would suit their needs precisely. Replicating the success stories of the big names of the Western nations may still be a distant dream for Indian food and grocery retailers, but at least the winds are blowing in the direction of growth.
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Decadal Analysis of the Food Retail Sector Retailing is a sunrise industry in India with many challenges like exclusion of small farms, management of processing and distribution chains. Evolution of super markets and fast food chains is a recent phenomenon in India. Various demand and supply side factors have contributed towards this growth.
Supply Side: The liberalization of the economy in the 1990s led to a boom in the Consumer Goods Industry with reductions in custom duties and shift from quota to tariff based system. Entry barriers on multinationals were largely removed after which Food Industry majors like Kelloggs, Heinz, Tropicana, etc., entered the Indian food industry. This gave rise to tremendous development of sophisticated supply chain & logistics which eventually and gradually has led to the growth in the food processing & packaging industry
Demand Side: The increase in the income levels of middle & higher income groups in the 1990s coupled with the reduction in poverty levels was a major factor in contibuting to the increase in demand for high quality food retailing services. Changing consumer lifestyles with the steep increase in time value, wide spread change in the Indian family structure from vast Joint Hindu families to more managable nuclear families and increasing level of quality awareness has also helped the cause of the Food Retailing industry considerably. Another major factor that has accelarated the growth of the Indian Food Retailing Sector has been the advent of cable television and the increasing instances of overseas travel by Indians for various reasons.
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Government Policy on Food Retailing - India 100 % FDI in retailing in not allowed per say, foreign retailers can operate in India through joint ventures, where the Indian partner is a export house, Franchising/Local manufacturing/Sourcing from small-scale sector, Cash and carry operations. The McKinsey report states FDI will help the retail businesses to grow from the present $200 billion to $460-470 billion by 2010.
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Growth of supermarkets in most developing countries (Brazil, China,etc.) took off in the 1990s after FDI was allowed in this sector which is not the case in the Indian scenario. Retailing is not regarded as an industry very few banks are willing to invest in this sector. The shortage of warehousing facilities, cold storage and large scale processing units has obstructed the growth of the Food Retailing Industry in India. As Supply chain is fragmented & marked by existence of large number of intermediaries, organized retailing has been a very tough proposition. India is still in the second and third party logistic provider mode while fourth party logistic models have become global standards for logistic providers. Retailing is subject to a plethora of laws and regulations at central, state and municipal/local levels, some of which have been listed below:
- Restrictive zoning legislation limits availability of land for retail/ commercial purposes - Restrictions on interstate movement of food grains deprive farmers from getting remunerative prices. - Restrictive Labour laws - Urban land ceiling regulations, restrictions on shop opening timings, requirements for shops to close once a week - There is no uniform tax structure - multiple layers of taxes.
EMERGING TRENDS Likely Transformation of the Supply Chain:
To counter the unbeatable advantages of convenience of a hop, skip and a jump access and home delivery, organized retailers seem to have just one option offer attractive prices to the consumer. A successful retailer's winning edge will therefore come from sourcing - how best it can leverage its scale to drive
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merchandise costs down, increase stock turns and get better credit terms from its vendors. There are obvious and hidden areas where costs can be pruned and the benefits of this lower cost of retailing can be passed on to customers as lower prices, which in turn should fuel demand. One way of trimming costs is if the pressure points in the long, often unnecessary, supply chain for produce and staples can be identified and suitably dealt with. The food supply chain in India is full of inefficiencies - a result of inadequate infrastructure, too many middlemen, complicated laws and an indifferent attitude.
Corporate and NGO interventions at the farm end in the form of Farm Management Services are emerging to ensure quality and timely supply of produce for the operations. The Farmer-Corporate relationship has helped both the farmers and the corporates in bringing the high quality low cost product to the retail shelf. To ease the burden of the corporate in setting up farm management services, several leading NGO bodies have taken up this activity essentially due to the fact that their operations are mostly at the farm end.
We feel that these farmer-corporate models would be replicated and extended to all the farm end products. With the emergence of Private Label, we would soon find even the retail chains to work with the farm community in developing a efficient supply chain and to leverage on the cost advantage at both ends.
Supplier Retailer Relationships Traditionally the supplier-retailer relation in India comprised several layers such as the national distributor, the regional wholesaler and the end retailer. However this scenario is fast changing with the organized retail increasing its presence in the country where the relationship is directly with the manufacturer. However this new model has been affecting the relationships that the manufacturer enjoys
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with the traditional system which is still the most dominant in the entire retail sector. The issue of differential pricing is being taken up at several forums and the growing dissatisfaction among the traditional retailers is being addressed by the manufacturers. However we see that in the long term, the role of a national distributor would slowly fade away or get restricted to the rural/ upcountry regions.
The supplier-retailer relationship would come under severe pressure as each party would try to squeeze maximum margins out of the other.
Innovations in Transportation Logistics The logistics service providers have been innovating several interesting formats and models for the retail sector. As of now, organized retail chains in India do not, by far, outsource logistical requirements, they develop their own network. This was basically due to the fact that the supply-chain was still in its infancy stage, which has begun to mature and the systems are being well defined. As retail chains begin to focus more and more on the retail end, the logistics support would begin to get outsourced. The logistics service providers have begun to come out with innovative customized solutions for the retail chains such as GATIs model for distribution of Alphonso mangoes throughout the country with the Information Technology support.
We see that the logistics service providers would continue to innovate and develop effective distribution systems for the retail sector.
Formats Currently the retail sector in India is populated with the traditional mom-andpop stores and some 1000 odd supermarkets under organized retail chains. A
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daring few ventured into the Hypermarket segment with successful results and this format is being fast replicated by other players. This experience indicates that the Indian consumer has matured to the next level of shopping experience. Given the Indian conditions and the vast diversity a single format may not be possible for the national presence, but region specific formats may evolve. An interesting observation is that of lack of presence of organized retail chains in the rural/semi-urban centers as over 60% of Indian population is still in these parts. An ideal no frills model to start with, would be ideal for the rural markets, this would help to take them to the next level of supermarket experience.
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Social Trends: Social trends of a country have impact on the scheme of growth of food retailing in a country. India is country that is vast geographically and diverse culturally. This has taken its toll on food retailing with retailers having to adapt to the local cultures and palates of the area in which they have established or plan to establish. This is a major reason for many or most retailing chains restricting their operations to a certain part of the country. But the trends now are slowly moving towards cultural integration where people of all states and diametrically opposite cultures tend to try out foods and materials of other states and communities. This movement towards social integration would make it very feasible in the near future for retailing chains and erstwhile local chains to spread across the country.
Increased income levels and more women willing to make use of their education by joining work has increasingly affected the shopping pattern that is moving towards fulfilling the need of convenience shopping in the form of Supermarkets (now graduating to Hyper format) home deliveries. Indian consumer is quality and price conscious and this awareness would drive the retailers to rework their supply chain relationships. A recent analysis shows that countries go through a distinct food consumption evolutionary pattern. In the first stage the focus is on obtaining basic dietary inputs, the second stage focuses on improving and building basic foods, before moving to the third stage of adding premium food to the diet. Most of urban India has already moved to the third stage and it is a great avenue for food retailers, if they could slowly introduce the rest of India to it. The future would witness creation of specific models/formats one for the upwardly mobile urbanite and the other for the rural markets. Also since the taste habits change from place to place in India, there would emerge a leading
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Online Retailing The single most important evolution that took place along with the retailing revolution was the rise and fall of the dotcom companies. A sudden concept of `non-store' shopping emerged, which threatened to take away the potential of the store. More importantly, the very nature of the customer segment being addressed was almost the same. The computer-savvy individual was also a sub segment of the `store' frequenting traffic. Internationally, the concept of Net shopping is yet to be proven. And the poor financial performance of most of the companies offering virtual shopping has resulted in store-based retailing regaining the upper hand. Other forms of nonstore shopping including various formats such as catalogue/mail order shopping, direct selling, and so on are growing rapidly. However, the size of the direct market industry is too limited to deter the retailers. For all the convenience that it offers, electronic retailing does not suit products where `look and see' attributes are of importance, as in apparel, or where the value is very high, such as jewellery, or where the performance has to be tested, as of consumer durables. The most critical issue in electronic retailing, especially in a country such as ours, relates to payments and the various security issues involved.
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However, using the internet to be able to source products and also check for availability of stock among stores of retail chains has been proven to be effective and cuts down on wastage by a vast amount. It makes logistical support very easy and efficient. The trend in India is such that usage of the electronic medium for business purposes and integrating it into the systems is increasing. This would slowly spread into the retailing sector as well. It has already started in the case of some large retail houses where the affects are here to see. This again would result in the supply chain getting leaner and vertically integrated. Though the initial costs to implement these systems are high, in the long run it results in cost reduction where this privilege can be passed on to the final consumer. Impact of Technology The other important aspect of retailing relates to technology. It is widely felt that the key differentiator between the successful and not so successful retailers is primarily in the area of technology. Simultaneously, it will be technology that will help the organized retailer score over the unorganized players, giving both cost and service advantages.
Retailing is a `technology-intensive' industry. It is quoted that everyday at least 500 gigabytes of data are transmitted via satellite from the 1,200 point-of-sales counters of JC Penney to its corporate headquarters. Successful retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and thereby, save cost. Wal-Mart pioneered the concept of building a competitive advantage through distribution and information systems in the retailing industry. They introduced two innovative logistics techniques - cross-docking and electronic data interchange. Today, online systems link point-of-sales terminals to the main office where detailed analyses on sales by item, classification, stores or vendor are carried out online.
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Besides vendors, the focus of the retailing sector is to develop the link with the consumer. `Data Warehousing' is an established concept in the advanced nations. With the help of `database retailing', information on existing and potential customers is tracked. Besides knowing what was purchased and by whom, information on softer issues such as demographics and psychographics is captured.
Retailing, as discussed before, is at a nascent stage in India. Most organized players have managed to put the front ends in place, but these are relatively easy to copy. The relatively complicated informations systems and underlying technologies are in the process of being established. Most grocery retailers such as Food World have started tracking consumer purchases through CRM. The lifestyle retailers through their `affinity clubs' and `reward clubs' are establishing their processes. The traditional retailers will always continue to exist but organized retailers are working towards revamping their business to obtain strategic advantages at various levels - market, cost, knowledge and customer. With differentiating strategies - value for money, shopping experience, variety, quality, discounts and advanced systems and technology in the back-end, change in the equilibrium with manufacturers and a thorough understanding of the consumer behavior, the ground is all set for the organized retailers.
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Food Safety Issues: As awareness grows about food safety issues, the need for countries to provide greater assurance about the safety and quality of food also grows. The increase in world food trade and the advent of the Sanitary and Phytosanitary (SPS) Agreement under the World Trade Organization (WTO) have also raised interest in food safety requirements. To ensure a strong presence in global markets, India realizes the need to meet these challenges and keep pace with international developments
In India, it has come to the notice of general public of late that very popular food companies could also go wayward as far as food-safety and public health is concerned. This has triggered off a drive by the public and the Government to put more stringent food safety and public health measures in place while manufacturing, storing and packaging of foodstuffs takes place. Most foodstuffs pass through the organized retail channels on their way to the purchase baskets of consumers and therefore the retailers are beginning to realize the need for food safety and security. Grading and standardization measures are being taken at various stages of the manufacturing, processing, packaging and storing of all kinds of food materials.
To ensure food safety and maintain product integrity from the source to the customer (farm-to-plate) the Food Retailing Companies would have to establish a totally integrated infrastructure and services package. This connects and maintains the flow of food from the source (farmers/food growers, farm service centers, market yards, processors, importers) to the customer (foodservice outlets, food processing units, food retailers and food exporters). This package will help eliminate or prevent identified hazards or reduces them to acceptable
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levels. This trend is slowly beginning to take shape with the efforts to integrate and consolidate the supply chain in Indian Food Retailing. The Codex, HACCP (The Hazard Analysis Critical Control Point) and foodhygiene standards have been adopted by the Bureau of Indian Standards, the national standards body in India. Food processing units are being encouraged to adopt these systems on a voluntary basis.
Organizations like VOICE (Voluntary Organization in the Interest of Consumer Education) have undertaken the responsibility to document the existing level of implementation of National Laws concerning labeling and packaging of imported food products, to analyze and compare with the Indian made food products and similar imported food products in terms of adherence of the National Laws, to prepare a well-documented campaign kit for the consumer groups in India on the study to sensitize and build awareness among consumers on seeking and demanding mandatory information on all packaged food products.
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Food Labeling In India With Special Reference to Codex Guidelines Food retailers have realized that they should have a fairly good understanding of the general concepts, role and functions of labeling of food products in view of the various kinds of foods available in the market. Consumers in Indian markets are now only buying products that are labeled and the labels should contain true information about the product, safety and its quality having the required standard that may not threaten the health or safety of any single individual. Knowledge of food standards for labeling as prepared by national (PFA) and international authorities (Codex) is essential for food retailers.
The Codex Alimentarius Commission body implements the joint FAO-WHO food standards program, the purpose of which is to protect the health of consumers and to ensure fair practices in the food trade. In view of this, it is pertinent to follow its rules and regulations in matters of food safety and labeling. The decisions made by Codex have profound effects on economics and the health and well beings of citizens around the world. The fact that 165 nations are members of Codex and this membership represents 98 percent of the worlds population further illustrates the great influence Codex has. Most retailers in the organized food retailing industry in India have begun to insist on labeling that has to be standardized as awareness among consumers has increased considerably. Standards on labeling have become mandatory with a specific mention of the name of the food item, and date of manufacture and storage instructions. Where the scope of Codex Standard is not limited to prepackaged foods, a provision for labeling of non-retail containers may be included. In such cases, the provision may specify that information on provisions shall be given either on the container or in the accompanying documents, except that the name of the product, lot identification, and the name and address of the manufacturer or packer shall appear on the container.
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Annexures: 1. Indias Top Food Retailers Food World FoodWorld has become Indias largest and fastest growing supermarket chain. Today, over 89 stores offer customers a variety of brands at a very reasonable price. FoodWorld in India, is an alliance between the RPG Group in India with Dairy Farm International of the Jardine Matheson Group. Food World aims at establishing 100 stores all over Tamil Nadu, Andhra Pradesh, Karnataka and Maharashtra by mid-2010 with a turnover of Rs.500 crores.
Trinethra is a supermarket chain that has predominant presence in the southern state of Andhra Pradesh with 66 stores spread over 8 districts of the state. Their turnover was Rs. 78.8 crores for the year 2010-03. This figure is expected to touch the Rs.100 crores mark by 2010-04. The Trinethra group came into being as a single store in the year 1986. They plan to saturate their presence through out the state of Andhra Pradesh before venturing into two more southern states of the country. The group plans to venture into the lower level regions like smaller towns and mandals by using the franchisee-model. They are also very clear that they would be setting up three hypermarkets in the state soon.
Apna Bazaar, the Rs 140-crore consumer cooperative society with a customer base of over 12 lakh, plans to cater to an upwardly mobile urban population a first for the 55-year-old chain that has mostly been identified with the middle class. The plans include trimming and training the workforce, opening new outlets and focusing on the FMCG sector. Now, the cooperative has 80 outlets in Mumbai, Thane and the neighbouring Konkan region. It has recently opened
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its first shop outside the state in Goa . The revenue target for 2010-04 is Rs 150 crore. The chain plans to remain open all days of the week and this itself is expected to fetch about Rs 10 crore a year. Big Bazaar Pantaloons
After Bangalore, Hyderabad and Kolkata, BIG Bazaar, a division of Pantaloon Retail (India) Ltd has stretched its brand to Mumbai by opening three hyper markets in the city. Offering discounts ranging from 5 per cent to 60 per cent, discount stores is still a nascent concept in India. Big Bazaar launched its stores in Bangalore, Hyderabad and Kolkata in 2001. Marking an investment of Rs 10 crore into this new division, Pantaloon is expects to record the highest turnover from its Mumbai stores to the tune of almost Rs 80 crore from Mumbai alone within the first year of operations. But the turnover from its other Big Bazaar stores in Bangalore, Hyderabad and Kolkata is Rs 50 crore this year. Big Bazaar claims to be India's first chain of hypermarket discount stores.
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Margin Free The Kerala-based Margin Free discount stores, the `pure retail' chain with arguably the largest presence in the country. The retail store chain is uniformly spread across the 240-odd Margin Free franchisees in Kerala, Tamil Nadu and Karnataka. Margin Free draws inspiration from the undying loyalty of its customers who have wholeheartedly welcomed all its growth plans in the past. Margin Free plans to open huge hypermarkets (50.000sq.ft each) in Ernakulam, Thiruvananthapuram and Kozhikode in the immediate future. Subhiksha
The Chennai-based retail food and pharmacy chain Subhiksha supermarket and pharmacy is in expansion mode. it plans to go national and have 400 stores in the next two years. Currently, Subhiskha has a strong presence only in Tamil Nadu and Pondicherry with over 150 stores. The decision to expand outside Tamil Nadu, is because the city has reached saturation and also, the purchasing power is high in larger metros. Subhiksha stores sell household items and medicines at significant discount to normal prices. The retail chain earned a total revenue of Rs 235 crore in 2010-03. The first Subhiksha store was opened in Tiruvanmiyur in Chennai in March 1997. Today, the chain has about 164 outlets in Tamil Nadu and Pondicherry. In 1997-98 Subhiksha was making a turnover of Rs 12 crores and a profit of Rs 10 lakhs. In 2010 it has grown to Rs 224 crores turnover and Rs 3 crores profit. Major plans are on in Karnataka to open 40 stores in Bangalore in the next nine months and another seven stores in Mysore in the same period. In all, it is intended to open at least 250 stores by 2010. The group is looking at extending operations in Karnataka and also venturing into the Maharashtra, Andhra Pradesh and Gujarat markets.
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Nilgiris Muthusamy Mudaliar opened a small bunk shop in Ooty. That was in 1905 and the beginning of a long story in procurement and customer satisfaction. In 1936, the shop moved to Bangalore with its registered office on Brigade Road, a small shop exactly where the huge mother store is now located. The first expansion happened when Muthusamy Mudaliar's son Chenniappan, also the chairman, established Nilgiris as a modest store carrying Nilgiris' own products, mostly dairy and bakery. Eventually, it evolved into a supermarket when Mr Chenniappan visited the U.S. and Europe and was influenced by the old supermarket concept in the west. This chain has now blossomed to cover a vast region in South India with 26 outlets and annual sales of about Rs.2300 Millions. They plan to open an additional 30 outlets in their next phase of expansion.
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MTR The MTR Group of Companies promoted by the family of MAIYAS took birth in the year 1924 with the commencement of a Restaurant in Bangalore. Later in 1976, MTR ventured into the business of retailing of Groceries and other household general items by opening a Department Store. MTR first brought out a packaged, processed food product. Subsequently, efforts were made to extend the distribution of the above products to few other prominent Retail Stores in Bangalore, such as Nilgiris, Vijaya Bakery, Shivananda Stores, Home Needs etc. The response was found to be very encouraging in terms of sales of the above products. Consequently, a major step with respect to marketing was taken by the Group in the year 1983. It was during 1983 that MTR appointed Distributors in Bangalore, Madras, Hyderabad and Vijayawada with a view to capture business opportunities in the said markets.
Janatha Bazars & HOPCOMS Cooperative Departmental stores were started with Government patronage in the early 1960's at a time when shortage of basic goods was the order of the day. Poor marketing strategies hindered their progress in the field. Total membership - 11,680 farmers, with 100 tonnes of horticultural produce being traded per day in eight districts. In 1998, each cooperative society was made independent, sixteen of which were subsequently federated at the state level, as members of the Karnataka Horticulture Federation. Presence of MNC chains
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Metro AG
Opened its first Indian outlet in Yeshwanthpur, Bangalore on a sprawling 6,500 square metres area. Proposed to open one more centre in Bangalore during November 2010. Capital expenditure for these two centres is Rs.176 crores (35 million euros). Employ 300 local people and head quarter will employ 750 local people.
Scenario of retailing in India The retail scenario is one of the fastest growing industries in India over the last couple of years. India retail sector comprises of organized retail and unorganized retail sector. Traditionally the retail market in India was largely unorganized; however with changing consumer preferences, organized retail is gradually becoming popular. Unorganized retailing consists of small and medium grocery store, medicine stores, subzi mandi, kirana stores, paan shops etc. More than 90% of retailing in India fall into the unorganized sector, the organized sector is largely concentrated in big cities. Organized retail in India is expected to grow 25-30 per cent yearly and is expected to increase from ` 35, 000 crore in 2010-05 to ` 109, 000 crore ($24 billion) by 2010. Quick facts on Indian Retail sector Indian Retail sector is the fifth largest global retail destination.

India retail market is dominated by the unorganized sector. The top five companies in retail hold a combined market share of less than 2%.
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The Indian retail market has been ranked by AT Kearney's eighth annual Global Retail Development Index (GRDI), in 2009 as the most attractive emerging market for investment in the retail sector.
Currently the share of retail trade in India's GDP is around 12 per cent, and is estimated to reach 22 per cent by 2010.
According to Government of India estimate the retail sector is likely to grow to a value of ` 2,00,000 crore (US$45 billion) and could yield 10 to 15 million retail jobs in the coming five years; currently this industry employs 8% of the working population.
India continues to be among the most attractive countries for global retailers. According to the Department of Industrial Policy and Promotion, approximately US$ 47.43 million was the amount of Foreign Direct Investment (FDI) inflow as on September 2009, in single-brand retail trading.
More than 80% of the retail sector in the country is concentrated in the large cities. A study reveals that among the more than 20 locations, for organized retail in India, Mumbai was found to be the most preferred location followed closely by Bengaluru in the second position. Key Players in Indian Retail Sector
AV Birla Group has a strong presence in apparel retail and owns renowned brands like Allen Solly, Louis Phillipe, Trouser Town, Van Heusen and Peter England. The company has investment plans to the tune of ` 8000 9000 crores till 2010.
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Trent is a subsidiary of the Tata group; it operates lifestyle retail chain, book and music retail chain, consumer electronic chain etc. Westside, the lifestyle retail chain registered a turnover of ` 3.58 mn in 2010.
Landmark Group invested ` 300 crores to expand Max chain, and ` 100 crores on Citymax 3 star hotel chain. Lifestyle International is their international brand business.
K Raheja Corp Group has a turnover of ` 6.75 billion which is expected to cross US$100 million mark by 2010. Segments include books, music and gifts, apparel, entertainment etc.
Reliance has more than 300 Reliance Fresh stores; they have multiple formats and their sale is expected to be ` 90,000 crores ($20 billion) by 2009-10.
Pantaloon Retail has 450 stores across the country and revenue of over ` 20 billion and is expected to touch 30 million by 2010. Segments include Food & grocery, e-tailing, home solutions, consumer electronics, entertainment, shoes, books, music & gifts, health & beauty care services.
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Indian Retail: The Road Ahead
With around 13% contribution to the GDP and 7% employment of the national workforce, retailing no doubt is a strong pillar of the Indian economy. What it requires is more corporate backed retail operations that have started to emerge over the past couple of years. Year 2001 has been an important year in the history of retailing when Wal-Mart emerged as # 1 company in the Fortune 500 list. This has never happened before when a retailer was at the top of the list. Over 50 of the Fortune 500 companies are retailers and 25 of the Asian Top 200 companies are retailers. Also, in terms of shareholders value it has performed considerably better than the banking, insurance and consumer industries yielding a return on investment of 18%. However, when we look at Indian retail in the global context it bears no water.
Instead of comparing total global retail industry with Indian retail industry, lets compare Wal-Mart alone with Indian retailers. Here are ten interesting facts: 1. The annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail industry (estimated at about $180 billion) and almost 100 times more than the turnover of HLL (India's largest FMCG company). 2. The size of any Wal-Mart store is much higher than the size of any existing shopping mall in India. 3. Wal-Mart has over 4,800 stores (over 47 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) have more than 10 stores.
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4. New stores opened annually by Wal-Mart are about 420, much higher than all organized Indian retailers put together. 5. The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail industry (one of the most fragmented in the world) employs about three million people. 6. Wal-Mart has around 30,000 suppliers throughout the world and more than 600,000 SKU's on its web site, a number that cannot be compared. 7. Daily customers are about 15.7 million (almost equivalent to Mumbai's entire population). 8. Time between each Barbie Sale at Wal-Mart is just two seconds (same rate at which babies are produced in India!) 9. One-day sales record at Wal-Mart (11/23/01) $1.25 billion (roughly two third of HLL's annual turnover). 10. None of the Indian organized retailer has ventured overseas where as WalMart is now in 10 countries and will expand to 21 countries in two years.
Retail: A strong pillar of Indian economy Retailing is the last mile infrastructure to access and deliver goods to consumers. Retail forms the backbone of the nation's delivery system and its importance can be exemplified by the network of 15,000 KVIC outlets which support 4 lakh plus small and medium handicraft manufacturers across the country.
It also serves as the last mile infrastructure to the manufacturers as well as the government for tax collection. For instance, the success of the VAT proposal
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depends on its being able to be implemented at the retailer level, but nobody has consulted with them as a body yet on this issue. Furthermore, retailing is also an important and large contributor to the GDP and a major employment generator. In India, for the last four years its contribution to the GDP was around 13%. The sector gainfully employs 6-7% of the total workforce in India.
Changing Retail Landscape Indian retail is fragmented with over 12 million outlets operating in the country and only 4% of them being larger than 500 square feet in size. This is in comparison to 0.9 million outlets in USA, catering to more than 13 times of the total retail market size as compared to India. Thus India has the highest number of outlets per capita in the world with a widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per person). Recently, majority of store formats have hit India. Yet traditional format stores namely the kirana shops, pan/bidi shop, hardware shops, weekly haats and bazaars form the bulk. Formats like department stores, malls, speciality stores as well as discounters are shaping the burgeoning organized sector in India.
Though still in its infancy with less than 2% share of the retail sector, organized retail has definitely struck its roots in India. What we are looking now are more corporate backed organized retail operations. Till seven years back organized retail was largely restricted to the southern India, barring the Bata chain. Organized retail has now shifted gears and is moving ahead with accelerated speed throughout the country, without any direct incentive provided by the government. Organized retail is growing at a rate of about 40% per annum over the last three years.
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With a size of Rs. 15,000 crore (USD 3 billion), organized retail is very much on track according to KSA Technopak's projections made in 1999 based on inhouse research. The projections claimed that organized retail would grow to be a Rs. 35,000 crore (USD 7.1 billion) by 2010.
Retailing in India Past, present and future
Executive summary Retailing, considered a sunrise industry today after infotech, is the most happening industry with almost all the big players vying for a share of the coveted pie. Buoyed by a strong increase in private consumption (see raph), retailing is one industry that is waiting to explode.
Today however, organized retailing is less than 2 per cent of the retailing industry in India, that is, about Rs 5,000 crore.(see table) Therefore, there is no real retail revolution in India; the industry is still in the stages of infancy. Share of Organized Retail 1999 Total Retail (US $ Billion) Organized Retail (US $ Billion) % Share of organized Retail. 150 1.1 0.7 2010 180 3.3 1.8 2010 225 7 3.2
Organized retailing is bound to grow tremendously provided the right marketing strategies are adopted. Retail businesses have broken rank and seem poised to surge ahead with renewed vigor, optimism, confidence and capability.
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There is an incredible amount of activity in terms of creation of retail-riented space across India. As per some estimates, there are over 200 retail mall projects under construction or under active planning stage spanning over 25 cities. This may translate into over 25 million sq. ft. of new retail space in the market within next 24 months. Huge retail formats, with high quality ambience and very courteous and ambivalent sales staff, are the regular features of retail formats in most Asian countries. However, in India except for a few big towns where modern retailing formats abound, these features are grossly missing. ETIG expects organized retailing to slowly penetrate the second rung and smaller towns which will catapult the growth rate for the sector.
Even though the big retail chains are concentrating on the upper segment and selling products at higher prices like Crossroads, Akbarally's and Shopper's Stop, retail stores are sprouting that cater to the needs of middle class. With a huge middle class population, the retailers like RPG's
Foodworld are tapping this market. The market is flooded with products branded and unbranded. The customers are in a dilemma as to pick which one. Simon Bell of AT Kearney says "There is a close relation between the growth of brands and the growth of the organized retailing.Companies selling branded products prefer to have big and organized retail outlets such as supermarkets where they can be differentiated from unbranded products"
Though doubts have been cast on the future of Indian retailing it is our belief that the retail boom is yet to happen. While the industry is in the introduct-ion stage in most geographies, it has just entered the growth region in the metro
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cities. Today, the right product mix, right sourcing strategy, and the right communications are the mantras for success.
This paper begins by analyzing the retail formats in the present Indian scenario and proceeds to outline the key strategic factors in retailing. In the last part the paper shows the challenges facing retail and our recomme-ndations for making organized retailing a success. Organized retail formats in India
Each of the retail stars has identified and settled into a feasible and sustainable business model of its own. Shoppers' Stop - department store format Westside - emulated the Marks & Spencer model of 100 per cent private label, verygood value for money merchandise for the entire family Giant and Big Bazaar - hypermarket/cash & carry store Food World and Nilgiris supermarket format Pantaloons and The Home Store - speciality retailing Tanishq has very successfully pioneered a very high quality organized retail business in fine jewellery
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Structure of the retailing industry according to ownership patterns: An unaffiliated or independent retailer A chain retailer or corporate retail chain A franchise system A Leased Department (LD) Vertical Marketing System (VMS) Consumer Co-operatives
A new entrant in the retail environment is the 'discounter' format. It is also is known as cash-and-carry or hypermarket. These formats usually work on bulk buying and bulk selling. Shopping experience in terms of ambience or the service is not the mainstay here. RPG group has set up the first 'dis-counter' in Hyderabad called the Giant. Now Pantaloon is following suit. Two categories of customers visit these retail outlets. 1. The small retailer. For example, a customer of Giant could be a dhabawala who needs to buy edible oil in bulk.
2. The regular consumer who spends on big volumes (large pack sizes) because of a price advantage per unit.
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Key Strategic Factors in Retailing
The key to success is identifying a superior value-promise and who is in a better position to do it than retailers? Retailers are the closest to the point of purchase and have access to a wealth of information on consumer shopping behaviour. Retailers have some unique advantages for managing brands such as continuous and actionable dialogue with consumers, control over brand presentation at point-of-sale, control over shopping environment, display location/adjacencies, and signage. And they have used this advantage with tremendous success. The 3 stages of evolution of the trade channel are shown in the exhibit below: EXTENDED LIMITED DIRECT
MANUFACTURER MANUFACTURER MANUFACTURER
DEPO/CNF
DEPO/CNF
DISTRIBUTOR
RETAILER
RETAILER SHOPPER
SHOPPER
SHOPPER
As seen, the role of the intermediary is being diminished gradually, which has obvious implication of backlash of the trade channel upwards towards the suppliers. This is more severe in countries such as India, where the channel economics in favour of the middlemen is still strong enough given the fragmentation of the retail sector. Therefore when FoodWorld, the largest grocer in India has a direct supply contract with over 20% of its key suppliers,
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it gives rise to conflict of interest with the distribution infrastructure that suppliers have painstakingly built over the years. Thus companies like HLL have evolved a distinct distribution channel altogether (called Modern Trade) to service the needs of such large grocers. Even the mom and pop stores (known as kirana shops) are affected due to this unfair back-end advantage extended by the supplier to its leading accounts (the emerging supermarket chains). The strategies adopted by the retailer to compete with branded goods are illustrated by the following diagram. Branding the store and following a private label strategy is the key strategy which helps the retailer to compete with branded product
Leverage Brands
Maximize customer traffic & Profitability.
Keep Formats Constsnt.
Brand the Store
Strong Private Level Stratergy
Optimize Assortment
Loyalty Cards.
Develop New Formats.
Reinvigor ate Existing For
Pricing & Promotion Strategry.
Online shopping.
Challenges Ahead For Retailing
The unorganized nature of retailing has stunted its growth over several years. "Lack of industry status affects financing prospects and stunts growth of the industry", says Kishore Biyani, managing director, Pantaloon Retail India. In
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the current scenario, only players with deep pockets have been able to make it big. In addition to the advent of Internet, there are many other challenges which retailers have to address.
Human Resources Availability of trained personnel and retaining the human resources is a major challenge for these big retailers. The bigwigs like Crossroads offer high compensation and create a cohesive environment that makes an employee proud to be a part of such big retail chains.
Space and Infrastructure To establish a retail shop / mall, the real estate and the infrastructure are very vital. The expenditure and availability on both the accounts do hinder the growth of the retail chain. The lack of secondary infrastructure also affects the logistics and supply chain management for retail companies.
Absence of retailer friendly laws India still does not have retail-friendly laws especially relating to the movement of goods from one state to another. Retailers need to put in a whole lot of products from different parts of the country - at times from outside the country - on the shelf. But question of multiple tax levels is an issue. Then there are laws like shops cannot be open for all seven days, shops have to be open after or close before a certain time which affects operations.
Lack of technical know-how The Indian government does not encourage any foreign direct investment (FDI) in the retail industry. FDI is normally one of the ways of getting technical
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inputs. And because of this dearth of FDI in this sector, develop-ment in terms of people, skills etc is happening the hard way.
Future perspective We should see fundamental shifts in the way Indians shop in the very near future. The Year 2010 could well be a landmark year for organized Indian retailing. According to a recent study done by ETIG the organized retail industry is expected to grow by 30 per cent in the next five years and is expected to touch Rs. 45,000 crore. Thus, the growth potential for the organized retailer is enormous. In the next 2-3 years, India will finally see operations of a number of very serious international players- notwithstandi-ng the current restrictions on FDI in retail. Metro from Germany is a very successful and resourceful retailer and their cash & carry format should offer a good run for money to others. Some others will also find perfectly legitim-ate ways to operate in India, for example, Marks & Spencer, Mango and Shoprite.
Change Accelerators The following factors will be significant in driving growth in the retail sector: Consumer factors
Increase in income
Working women Changes in lifestyle demand for global trends
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Supply side factors
Growing importance of retailing in political and economic agenda
Real estate reforms to be undertaken in the next 24 months Major restructuring of the manufacturing sector easing product
supply constraints for efficient retailing
Reduction in import duties-offering more global sourcing options
Which categories will grow? The single biggest opportunity in India in organized retailing is bound to be food and groceries; it is in this sector that the largest amount of consumer spends is concentrated. This sector has maximum opportunity for investm-ents and entrepreneurs to come in and try to make the supply chain a little more efficient.
Consumer durables is another promising sector because, with increasing purchasing power, consumers tend to spend the most on this category. Also, there is nothing to prevent a company from putting up shops outside the city limits, because consumer durables are a premeditated purchase. Further-more, availability of finance options has increased spending in this sector. Third are home products - with increasing private ownership of homes by relatively young couples, across most major cities in India, national retail chains offering home furniture (and accessories) have great potential.
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Finally, personal care products, pharmaceutical products, and healthcare services have tremendous growth potential. Recently, we have seen some interest from organized healthcare players like Max, Fortis, Birlas and the Reliance group
Where is this growth going to happen? The top 15 cities in India cater to 33 per cent of total urban population, but as high as 38 per cent of Sec A and B (the top two socio-economic consumer strata) urban population. The next 15 cities only add to another 7 per cent of Sec A and B population. So logically the focus will be restricted only to the top 15 cities. Research conducted by KSA Technopak, shows that today 96 per cent of total organized retail is in the top 10 cities, of which the top six cater to 82 per cent. However, the rate of growth will be higher in the bottom four of the top 10, which will have a 20 per cent share by 2010 against the present share of 15 per cent.
Which formats will grow? KSA Technopak's research suggests the top four formats to emerge in the next five years are: * Shopping Malls * Specialty Stores (in new categories such as office products, specialty food, optical and travel) * Departmental Stores * Supermarkets
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Recipe for Success
Focus on the consumer: It is clear that consumers have changed and they are looking for something different. Understanding their evolving needs, aspirations and lifestyles is the underlying key to success for any retailer. The primary emphasis should be on access, experience and service and the secondary emphasis on product and price. There should be an effort to improve service by having better trained sales staff, better availability of products, and minor but important conveniences, e.g. delivery of goods either to the car or even home. Collaborative advertising and promotion can then round off this effort
Brand the store: branding the store will increase volume and enhance customer loyalty.Branding is critical to maintaining competitive diff-erentiation in an increasingly challenging retail environment. However, the brand needs to be clearly communicated to the customer.
Develop private label brand: Private labels act as margin generators, increasing sales volume by positioning the label as providing higher perceived value to consumers. In the long run, they also increase the retailers bargaining power with national brand suppliers. Private labels generate customer loyalty by providing exclusive products, which works towards differentiation strategy, much sought after by the retailers.
In terms of geography some entrepreneurs should put efforts in creating custom-developed solutions for tapping the rural and semi-urban spending potential. Even in non-metro urban centres, there are very good oppo-rtunities in looking at starting or expanding operations. Some cities that should see greater organized retail action in the future would be Ludhiana, Chandigarh,
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Lucknow, Nagpur, Ahmedabad, Surat, Pune, Kochi, Thiruvananthapuram, Guwahati and Bhubaneshwar.
In terms of format malls have a sustainable competitive advantage over other formats. Consumer preferences are shifting towards malls from traditional markets. As a result of consumer shifts, retailers also prefer to be located in malls in anticipation of higher footfall. KSA Consumer Outlook 2000SM shows that increasingly consumers prefer "All Under One Roof destination for shopping as well as eating out and entertainment. These findings together indicate an excellent potential for a mall with the following features: a superior well-managed leisure experience targeted at all members of the household comprising of shopping, dining and entertainment, all under one roof a wide range of products and services proximity to homes
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THE STRIKING NEW FACE OF RETAIL IN INDIA.
Who says great retail is only for the metros?
This city in Gujarat has the state's largest textile market and is India's centre for the diamond trade. It also holds the distinction of being one of India's cleanest cities. It is Gujarat's second largest city with a population nudging 30 lakh as of 2001 and is home to some of industry's giants -- Reliance being the most prominent among them. This is Surat, which is now experiencing a retail revolution of sorts. Surat belies the general feeling that the retail revolution as we know occurs only in the metros. A walk along the main Ghoddod or Athwa Lines areas - akin to Mumbai's Bandra or Colaba - is like walking through a large shopping mall. Here, you'll find every brand, all kinds of products in every shape, shade and size and all types of food! You'll also find four of Surat's supermarkets here -from the cosy Mother's Inn to the 3-storied Dhirajsons. All these are changing the way Surat shops.
Two of the largest supermarkets in Surat are Dhirajsons, run by the Modi family and Sahaj Superstore owned by the Patel family. Both offer valuable lessons in how organized retail in smaller towns can succeed. Despite dramatic changes in the retail scene, Surats retailers feel the need for a shift in mindset, habits, more modern restaurants and theatres to drive lifestyle changes. And this is already happening. Here we profile three leading retailers from Surat.
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Dhirajsons
Theirs is a rags to riches story. Started as a small 400 sq. ft. general store in Surat's Chowpatty-Athwa Lines area, Dhiraj Modi and his sons built a retail chain of four stores, a total of 56,000 square feet in Surat's prime retail area and are today considered the pioneers of organized retail in Gujarat. The Dhirajsons Megastore is the flagship of the chain. At 15,000 sq. ft. spread over three stories, it stocks 38,000 active SKUs and employs 200 staff directly. Consumer spending has reduced slightly, agrees Rajnikant Modi, but he says, "We still average Rs 400 a bill and around 800 bills a day." Going by his figures, Dhirajsons sales are around Rs 20 crore a year, just from Dhirajsons Megastore. This makes the store the largest in Surat in terms of sales. The Megastore has around 3,000 footfalls a day, of which Modi estimates 50 per cent are buyers. There are 9 cash counters, each linked to a LAN and an automated inventory system which can be tracked everyday. The whole system cost him Rs 5 lakh. Every SKU is bar coded with the entire bar coding system costing Rs 2.5 lakh (each machine bought at Rs 50,000-70,000 five years ago) but it has been worth it according to Modi. The Megastore has a 4,000 sq. ft. parking facility which accommodates 14-15 cars and 25-30 two-wheelers free of cost. Modi estimates his investment in all this at around Rs 15 crore over the past two years.
Expansion is on the cards. Says Modi, "We target a growth of at least 10-15 per cent a year from now on." He understands very clearly that to finance expansions in Surat itself he will need to maintain that rate. The Megastore yields gross margins of between 15-20 per cent and net of 4-5 per cent, which has to grow to aid expansion. Although there have been several proposals from surrounding cities like Bharuch, Navsari and Billimora, Modi wants to
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consolidate in Surat first before stepping foot elsewhere. Acquisitions and mergers are one way of consolidating which fulfils a part of their vision statement - that of creating a chain of retail stores for total dominance in Surat.
From one store in 1992, Dhirajsons now has a conglomerate of outlets for all kinds of products along with a supermarket of 10,000 sq. ft. - all totalling 10,800 sq. ft. all within 2 km of the Megastore. Excess stock is kept at a warehouse 4 km away. Earlier in 2010, the Modis bought over Kutchhi's Supermarket in the upmarket Parle point area. Rajnikant Modi intends to
convert this into a successful supermarket, offering FMCG and kirana at competitive prices.
Dhirajsons' latest expansion is into lifestyle retailing with the acquisition of Rita Supermarket, located about 1 km from the Megastore, for a reported sum of around Rs 6 crore. With 26,000 sq. ft. carpet area, the new store, christened Dhirajsons Lifestyles, will have 4 levels, stocking garments and accessories for men, women and children. Says Modi, "We believe there's scope for such a store in Surat. With our brand name which stands for trust and quality in Surat, we can make headway into this segment." The lifestyle store is slated to open by Diwali 2010. Prices will be reasonable, says Modi. According to him, "here, you may find some prices even lower than those in Mumbai. This we can do by sourcing it right -- driving bargains with vendors and passing on the difference to customers." Certainly all the best sourcing practices and pricing policies will have to be used if Dhirajsons is to gross the targeted break-even sales of Rs 35 crore from Dhiraj Lifestyles in the first full year, 2010. Going one step further, Modi is in advanced talks with Mumbai-based bookstore Crossword, to become part of
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Dhiraj Lifestyle. And there's an added bonus -- Barista - which may slip in with Crossword. If he pulls it off, it'll be another feather in his cap. In fact, he is confident of bringing in music chains like Planet M to Surat. Talking like any other professional large-scale retailer, he says Dhirajsons is all about providing the right retail experience and attractive environment to drive sales.
The Modis certainly do have a lot of retail experience to make it all work -- with 80 years of retailing behind them and a name that stands for trust, quality and personal touch. "That's our strong point", smiles Modi. "My father and indeed almost every member of the family even today know most of our regular customers by name. We maintain these relations religiously and believe this touch will make us successful, more than any shop, store or product." Travel adds to thinking and experience, continues Modi. The Modi family has seen every supermarket and store in India and overseas. They have visited Hong Kong, Dubai, Singapore, UK and USA over the past 8 years to understand retailing better and develop vendors. Today, all the display equipment is imported from Italy. UAE based vendors supply crockery and other goods via Mumbai to Surat. Regular customers at Dhirajsons, however, feel that imported goods are priced very high. Does this restrict his sales? Says Modi, "Far from it. Surat is not as price sensitive as Mumbai is. Here people would pay even disproportionately for imported goods." This seems a legacy of Surat's dominance in the gems and textiles industries, where more often than not, generation of unaccounted money had to be balanced by spending it -thereby creating price insensitivity.
Education forms a continuous process for the Modis. They have sent people to the Landmark course, Arun Virani's retail course and even checked out the retail
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courses at Manipal and Nirma Institute in Ahmedabad. "It is a never ending course -- we have to stay ahead of the others", affirms Modi.
This year Dhirajsons became a private limited company and as expansion and growth targets become ambitious, Modi is not averse to listing his company on the Ahmedabad stock exchange too. Currently, finance is from internal accruals and banks. Modi says banks have been very visionary in their belief in retailing and Dhirajsons, backing him all the way. Local government is a major issue. "Give me some government support and retailers can do just as well as any overseas chain," he affirms.
Rajnibhai Modi takes a walk every half an hour around his Megastore. He meets old friends and regular customers, talking to them, addressing them personally. The Modis have a vision statement, which they call the six steps to success -prominent amongst them is 'personalised public relations' which Modi does every day. Surveying his shop, he says, without a hint of pretension and with a gleam in his eyes, "I want to be known as the Dhirubhai of retailing in Gujarat."
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SahajSuperstore
Sahaj, just under 2 years old, is the youngest of the new format retailers in Surat. At 30,000 sq ft, it is the largest single store in Surat, possibly in Gujarat, says its young Chairman Mahesh Patel. It certainly has the largest number of SKUs in Surat - 100,000 spread over 3 floors in the Adajan area of Surat, not exactly as upmarket as Athwa Lines or Chowpatty, where its largest competitor Dhirajsons is located. In a way, Sahaj defies the prime rule of retailing: location, location and location. "When we started in 2000," remembers Patel, "this location was somewhere out of the town. Every one said it's a risk and to be honest, I myself wasn't sure we would succeed. But then, business is a risk, and we took it." He had some experience in retailing, having spent 13 years in his chemist shop. "We visited all the shops and stores in India and found that, unlike overseas, there existed no real departmental stores, at least in Gujarat. I believe in a real departmental store, you should get 90-95 per cent of all your requirements under one roof. That's exactly what Sahaj Superstore offers." Patel says in spite of misgivings, Sahaj was constructed in 11 months flat with a Rs 2-3 crore investment. He is very appreciative of banks, local financiers and his own family, all of whom trusted his instinct. "We have met all the projections that we forecast when we approached them for financing," he says proudly.
Today, Patel says his store has an average bill value of Rs 400 and more than 800-900 bills a day, from footfalls of around 2,000 a day. By these figures, that's Rs 3.2 lakh a day, Rs 100 lakh a month and Rs 12 crore a year. He has an ambitious target to touch Rs 100 crore by 2010 - 8 times current sales. He says high targets are a must to inspire his staff which number 150 currently.
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Sahaj is spread over 3 floors, with split levelling and no elevators. Says Patel, "Every floor can be reached by walking not more than 10 steps before reaching a sales floor. This ensures the customer doesn't get tired and goes through a larger array of goods than in an elevator." It also keeps costs of electricity and maintenance low. Sahaj has sections for white goods, garments, processed foods, toys and provisions. Credit cards are accepted preferably for purchases above Rs 100 per bill. FMCG goods are priced below MRP - a result of hard negotiations with 1,000 plus suppliers for discounts and passing on the reduced prices to the customers. This puts margins under pressure but increases turnover. Patel is clear, "Right now we are driving turnover. We have to develop a clientele. Two years from the time we started, we are still in the investment mode."
Sahaj pays serious attention to consumer feedback. For example, customers were getting tired of the same arrangement of a few counters. He got them rearranged last month. Sahaj has parking for 75 cars, has 1 ATM of the Surat Textile Bank and runs privilege schemes to retain customers.
Sahaj has its own LAN system with 20 computers which update stocks and sales every day. Each section has its own CEO who handles day-to-day work and customer care. Its 8 cash counters and scanners update stock every day. Says Patel, "We have to computerise keeping in mind today as well as the near future. When we bought bar code scanners, they cost us Rs 30,000. Such changes will be helpful in our expansion plans." Patel has 3 bar code machines. He also has 50 cameras, which represent Rs 5-6 lakh of investment.
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Nearly 90 per cent of his wares are branded in FMCG, RMG and processed foods. Just over 5 per cent are private labels, mainly in pulses, grocery and rice. Grocery of all kinds accounts for 40 per cent of total sales and 60 per cent of his goods are priced below MRP. He has 3 chillers and a host of vending machines for ice cream and soft drinks where he stocks dahi, milk and other chilled products. His staff handles all display, activity and sales on its own.
There is no vendor-managed inventory yet. "We can display and run schemes and promos as per our requirement and feel, rather than be bound by companies requirements," explains Patel. Which is why he is not looking at food courts, food services or events to drive growth.
There are 1,000 vendors with 10 per cent of them supplying 65 per cent of all goods. "But if customers want even one product, then I have to get a vendor. I may not buy regularly, but I need him on the rolls." All vendor data is online, with reports on outstanding and on time delivery sent to Patel every morning. Local vendors deliver almost every hour, but even the national ones deliver on fixed days. When he expands, then his bargaining power will increase. Currently, he has no warehouse, what he can stock in the store limits inventory.
What about the future? Patel says his catchment extends as far as Valsad and Vapi to the south and Bharuch to the north. People have approached him to start off Sahaj in their towns, but as of now, he has his hands full in Surat. "We will expand in Surat city, which I believe has enough potential to take in many more stores. We will look at rentals or ownership, as the case may be, but expansion within Surat will definitely be required to meet our self set targets." Patel intends to expand directly into Athwa Lines area which is where ownership
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rates can be as high as Rs 10, 000- 40,000 a yard depending on location and space. Sahaj is a privately held company and Patel has no immediate plans to go public.
Unlike Dhirajsons who have 85 years of retail experience, Patel is new to the field. But the ideas are there already, the options being explored. His son is being groomed for higher studies, possibly an MBA later on. "I myself am not even a graduate," muses Patel in his third floor expansive office, "But I want my next generation to be up to date. They will develop this shopkeeping into a full scale business - and lead the way in retailing in Gujarat."
A V Sons
Started in 1992, New AV Sons is managed by Raju Modi, and is located at Parle Point, the centre of Surat's happening retail scene. At 4,000 square feet, he stocks 15,000 SKUs and is one of the larger supermarkets. Today, there are two AV Sons within 3 km of each other. New AV Sons clocks up 250 bills a day from its 5 cash counters, each bill of Rs 250-400 - that's nearly Rs 60,000 a day - or Rs 18 lakh a month, which suggests annual sales at Rs 3 crore or so. He delivers home free of cost with no minimum level of purchases. Although he does not have credit card payment facility as yet, Rajubhai says he is in discussions with HDFC Bank for the credit card machine linkup. New AV Sons has 45 salesmen and encounters nearly 1-2 per cent shrinkage. Though his store had a computer since 1992, he went in for the automated inventory management on computer only in 1999-00. He also has a bar coding machine which cost him Rs 2.5 lakh and Rs 15,000 a year for AMC. All the 15,000 SKUs are now bar
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coded. All his 5 POS are linked to the LAN and hence to the accounts, all of which cost him Rs 1.5 lakh.
What has been the effect of these stores on other kirana/grocery/general stores? Says Patel, "We found that three kirana stores in our immediate neighbourhood have shut down, but beyond our area, we find not much change. Sales have fallen, we hear, but since these shops are still on, obviously, things aren't very bad." He has schemes, promos and freebies and offers home delievery but does not have loyalty cards.
Another interesting story is of Harisons departmental store located right next to Dhirajsons Megastore on Athwa Gate. At less than 1,000 sq. ft., it is no match for the 15,000 sq. ft. megastore, but is definitely trying. His people accost you outside the steps of Dhirajsons with a pamphlet extolling the virtues of Harisons. Innovation is the name of the game. For example, Harisons delivers your purchases made between the 5th and 15th of every month, of over Rs 1,500- 2,000 free of charge anywhere in Surat. He also lists products which he sells 10-15 per cent lower than Dhirajsons, which is in any case lower than the MRP.
Harisons realised that none of the major supermarkets want to deliver home and that's the segment he's pitching for. However, not all have been so lucky. Some smaller kirana stores have lost clientele.
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Surat is a city that cares for its money differently. Its citizens don't mind paying for quality, time and ambience. Retailers here are armed with selling acumen and a will to experiment. Already retailers are reaching out to companies and other institutions to allow employees to buy at discounted prices at their stores. For example, Reliance gives employees Rs 1,300 as vouchers to spend in select retail stores. You could shop at a supermarket and get discounted theatre tickets or vice-versa. None of this is out of bounds in a city that can change its lifestyle, driven by increasing incomes, greater awareness and ability to spend.
Conclusion - How can it be done? For a start, these retailers need to invest much more in capturing more specific market intelligence as well as almost real-time customer purchase behavior information. The retailers also need to make substantial investments in understanding/acquiring some advanced expertise in developing more accurate and scientific demand forecasting models. Reengineering of product-sourcing philosophies - aligned more towards collaborative planning and replenishment should then be next on their agenda.
The message, therefore, for the existing small and medium independent retailers is to closely examine what changes are taking place in their immediate vicinity, and analyse whether their current market offers a potential redevelopment of the area into a more modern multi-option destination. If it does, and most commercial areas in India do have this potential, it would be very useful to form a consortium of other such small retailers in that vicinity and take a pro-active approach to pool in resources and improve the overall infrastructure. The next effort should be to encourage retailers to make some investment in improving
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the interiors of their respective establishments to make shopping an enjoyable experience for the customer.
Retail Realities: Unorganized market: Rs. 583,000 crores Organized market: Rs.5,000 crores 5X growth in organized retailing between 2000-2010 Over 4,000 new modern retail outlets in the last 3 years Over 5,000,000 sq. ft. of mall space under development The top 3 modern retailers control over 750,000 sq. ft. of retail space Over 400,000 shoppers walk through their doors every week Growth in organized retail on par with expectations and projections of the last 5 years: on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2010-06
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Major players:
FOOD AND GROCERY Foodworld Subhiksha Nilgris Adani- Rajivs Nirma-Radhey
FASHION Shoppers Stop Westside Lifestyle Piramyd Globus Ebony Pantaloon
OTHERS Viveks Planet M Music World Crossword Lifespring Gautier
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Key Categories:
11% 2% 3%
4% 7%
12%
9%
52%
Transport
Housing
Food beverage and tobacco

Healthcare Miscl
Entertainment
Clothing/Footwear Furniture/Home
FUTURE GROWTH POTENTIAL OF RETAIL MARKETING IN INDIA. The overall retail market in India is likely to grow by 36% to touch Rs 8,00,000 crore by 2008 from the current level of Rs 5,88,000 crore, according to an Associated Chambers of Commerce and Industry of India (Assocham) study
The study points out that of the overall retail market, the organized sector in retail marketing is expected to touch Rs 16,000 crore by 2008 from the present size of Rs 5,000 crore. The retail market at Rs 5,000 crore, includes the organized food and grocery (Rs 600 crore). Assocham president Mahendra K Sanghi said that initiatives from all the state governments, and the Centre are
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prime factors that will encourage the entry of the organized sector into retailing in the next few years.
These initiatives include allocation of land at concessional rates, grants of loans at liberalised interest rates to promoters of shopping malls, and rationalisation of state levies. He pointed out that the expansion and diversification of the organized sector in retail marketing is currently under way because of the demand factor. The other reason which substantiates major foray of the organized sector into retail marketing is the availability of real estate and infrastructure facilities in most of the states for setting up retail stores. Such laws will no longer be there in the near future as liberalisation has already reached its advanced stage and states are competing with one and another for attracting investment. This will motivate and encourage the foray of organized sector into retailing, particularly when the entry of FDIs into retailing is being strongly opposed by a section of society and polity as well, according to the release.
According to Assocham estimates, the retail sector will create 50,000 jobs annually in the coming five years.
The retail sector is the second largest source of employment and job market is receptive to retailing experience, with business schools focussing on the sector and large retailers setting up retail academies.
Over the last few years marketers having studied the Indian organized retail sector have concluded that India currently is in the second phase of the retail
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evolution cycle. Indian consumers today have become more demanding with their rise in standard of living and changing lifestyles. The major factors that have fuelled this growth are the increase in disposable income of the people, improved lifestyles, increased international exposure and high awareness among the customers. These macro level factors alone cannot be held responsible for this spectacular market growth. Simply having the money to buy does not necessarily translate into an actual purchase. The Indian consumers have used the retail boom to their advantage. They now have many more options than before and exert their power of knowledge very well. The retail market in India has started looking up after facing slowdown with the financial crisis across the world markets. The inflation or the economic slowdown adversely affected the retail industry. With the suddenly disturbed economic status, consumers gradually lost interest on buying. The effect of recession on the demand of various categories of goods is not the same. The recession has not affected retailers dealing in essential commodities and the food sector. The most affected sectors are the home appliances, footwear and textile.
The current economic environment is bad for most retailers, but it has particularly hit the mid-level and upper-middle level retail giants that have to still maintain inventory while many of their customers go discount shopping at clearance stores or at smaller chains.
Recession, however, has not affected all product categories equally. A few luxury goods like real estates, textiles, automobiles are strongly affected while most of the necessity goods have not experiences such a slump. The approach for coping with an economic slump depends on a product's category which varies according to a products' brand category. An increase in market share during recession is very difficult since every rupee matters, during this time to
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consumers and this leads them to use greater discretion while making purchasing decisions. They refrain from trying new brands and tend to stick with brands they trust. As a result, businesses often find it difficult to position their brands in a market during a recession. But despite these difficulties, business can gain success if they position their brands keeping in mind their product brand category and the expectations of their consumers. The present study tries to study the purchase behaviour of consumers for aspects like frequency of shopping, footfall of consumers for luxury items, response to discounts, higher spending and frequency of purchase for luxury items for various retail formats.
Counter Measures Retail Pricing Strategies in Recession Economies A recession economy can cause severe price destruction and can force retailers to react strategically. Resource abundant firms may use a predatory pricing strategy to maintain their predominant position in a market, but resource-scarce firms must join the price destruction war. However, even for the wealthiest firms, aggressive pricing may not be the solution for success in a recession economy. Many studies have pointed out that the overuse of price as a promotional tool may damage the prestige of the brand (Chapman and Wahlers 1999). It is dangerous for firms to rush into price competition without considering the possible side effects (i.e., the consumer perception of the quality of products or services). Firms need to consider both internal and external influences on pricing when forming a sustainable strategy to cope with price destruction.
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2.2 Internal Influences on Pricing To deal with the price destruction caused by a falling economy, the most prestigious brands may be able to resist price attacks by competitors and preserve their competitive edge. Nevertheless, most companies need to participate in a price war. The most costefficient companies may be able to survive by driving the firms that are short on resources out of the market (Guiltinan and Gundlach 1996). It is understandable that resources, whether intangible or tangible, are the key for companies to outperform their competitors during episodes of price destruction. Thus, as stated by the resource-based school of thought, a resource-based view should replace the product-based view in marketing decision making (Wernerfelt 1989). A resource-based approach to marketing suggests that a long-term cultivation of corporate level resources and capabilities will bring the organization a sustainable competitive advantage (Barney 1986). Indeed, since the 1960s, models of strengths, weaknesses, opportunities, and threats have been widely applied to strengthen organizations competitive advantage by promoting both environmental analyses and resource-based strategies. Firms make a constant effort to use internal strengths to seek external opportunities and to eliminate potential damages from outside threats. Firms are advised to select resources that are compatible with themselves and that enhance their capability in acquisition and cultivation in order to build up long-term competitive advantage.
Despite the global economic recession, Indians seem to be quite confident of the economy picking up in the near future they have a firm belief that the global recession will have a limited impact on Indian economy due to large domestic consumptions. Though, the recession has had some impact on Information Technology, real estate and manufacturing sectors still economists are of the
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opinion that India will not suffer a great impact. Most Asian economies are models of prudence, unlike American and European households where borrowing is up to the hilt. Asias emerging economies have witnessed their GDP growing at an annual rate of 7.5 percent over the past decade, two-and-ahalf times as fast as rest of the world. In a recent study, A.T. Kearnes Global Retail Development Index 2008 suggested that India is still the best investment destination for the retail sector followed by Vietnam.
A few large corporate houses involved in the Indian retail sector have planned to go ahead with their expansion strategies as per the schedule, despite the world financial turmoil. The Consumer Confidence Index study (2008) further revealed that while Indians intentions to spend on personal comforts such as new clothes, home improvements/ decorating, technology products are stronger than the global average, their intention to spend on holidays and out of home entertainment is much lower. In a nutshell, this indicates a general tendency among Indians to lead a comfortable day-to-day life by cutting out the frills. For the marketers, investment in brands today is necessary to secure brand loyalty for better times ahead. Ken Favaro, et.al (2009) is of the view that the retailers should use the following five rules for retailing in recession times. But even in these tough times, retailers may win new business and gain customer loyalty by focusing on people who are not their best customers but yet by making sure they offer what those customers really value and demand. 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.
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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
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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 organized 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. Organized retailing in India is gaining wider acceptance. The development of the organized 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 organized 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 worldclass 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.
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Retail Sector in the East: Current Scenario, Growth Prospects and Upcoming Projects
The retail sector in Eastern India is largely Kolkata-centric. The city of Kolkata has come a long way in terms of retail maturity with a proliferation of brands and organized retail chains. Shopping trends in the city have witnessed a radical shift over the recent years; from the conventional trader run stand alone shops to more organized & large retail formats. Evidently, the future of retailing in the city lies in new-age shopping malls, which provide variety, value and convenience in a more comfortable environment. This is also evident by a surge in the consumer spending on branded goods in the recent times; for example the city's Music World outlet has recorded the highest earnings per square feet amongst all its outlets in the country. The city has also welcomed the other retail chains such as Pantaloons, Westside and Shoppers Stop.
Though Kolkata has been a bit late in catching up with the retail revolution in the country, the city has great potential to become a retail hub in the near future. Going by the 1991 census, the city qualifies as the second largest metro market in India; nearly one out of every six shops located in the countrys top 25 cities, can be traced to Kolkata. To a market strategist, Kolkata undoubtedly is an ideal location for the growth of the retail industry.Besides being the principal retailand-services market to a vast hinterland comprising of the eastern and northeastern states of the country, the city also serves as a center of trade and commerce for the region. Its proximity to Bangladesh, a country of 13 crore consumers, and to the South-East Asian markets, is another factor for which the city is fast merging as a vibrant business center. The Kolkata Port and the Haldia Port are also instrumental in acting as gateways to landlocked countries like Nepal and Bhutan. The disposable incomes of Kolkatans have also been on
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the rise according to a report by the National Council of Applied Economic Research (NCAER), about 62% of the households in Kolkata had annual incomes of up to Rs.18, 000 in 1985-86; while just a decade later, the figure had touched Rs.25,000-77,000 for some 61% of the households. The city truly represents an amalgamation of the advantages of a metro city, and the comparatively modest living costs of a non-metro town Lately, Kolkata has emerged as a strong prospective destination in the expansion plans of retailers and is now perceived as a latent but highly potential market. Prominent retail chains like Music World, Westside, Dominos, Pizza Hut, Shoppers Stop, WillsSport, Barista, and Pantaloons have already established their presence in the market. Apart from these new-age, large retail chains which have started operating successfully in the city, there are a large number of traditional, specialized markets like the Bowbazar market, Bagri market, China bazaar, Lake market, Burrabazar market, Chandni market, etc., and high-street markets at Park Street, Esplanade area, Camac Street, Shakespeare Sarani, Gariahat, which offer a wide variety of items like stationary items, dairy products, electronic goods and appliances, glassware, crockery, wooden furniture, jewellery, musical instruments, fruits, flowers, vegetables, fish, flesh meat, textiles, spices, dry fruits, sugar, salt, groceries, paints, hardware items, etc. Besides these markets, there are small-format, nonbranded shopping complexes/malls like the A/C Market, Vardaan Market, New Market, and the Shreeram Arcade, which offer a wide variety of items, from garments, watches, and footwear, to consumer durables like household electronic gadgets.
The local retail chains which have become household names in Bengal include Arambagh Hatcheries Ltd., Khadims, and Sree Leathers.
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Operational since 1998, Arambagh Hatcheries Ltd. is today one of the foremost companies in the marketing of poultry products Encouraged by the success of its chicken brand , and the realization that there was a void in the Kolkata market for quality food stuff sold under a single roof , the company took the initiative in starting convenience stores named Arambaghs Food Mart in 2000. An aggressive expansion strategy has seen the companys physical strength grow to 14 outlets in Kolkata, with another 5-6 outlets being in the pipeline. Each of these stores are between 500 & 800 sq. ft. in dimension , and packed with at least 4000-4500 food and other FMCG items . Good quality , the right quantity, use of correct weights, and a low MRP are the main factors which have contributed to an impressive growth of this chain . Arambagh has tie ups with Nicco Park, Kwality Walls,Kellogs India and Frito Lays, among others. These tie ups help the chain in product and services promotion. Both Khadims and Sree Leathers are local footwear companies which have been tremendously successful, and have now reached out to international markets. Khadims has exclusive showrooms not only in West Bengal, but also in states like Bihar, Jharkhand, Tripura, Orissa, Madhya Pradesh, Andhra Pradesh, Karnataka, Gujarat, and Tamil Nadu.The company offers products like Premium shoes, Gents shoes, Ladies shoes, Kidsshoes, and Leather Accessories. Khadims has become the destination for people from all walks of life, with a great range of footwear to choose from. The motto of the company is to provide good quality fashionable shoes at affordable prices.
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Sree Leathers entered the Kolkata market in 1987 with its first outlet in the city at Lindsay Street, which became hugely successful. The companys second mega outlet at Free School Street, which has a floor area of more than 7500 sq. ft., provides a great shopping experience to its customers. Today the company has a number of outlets scattered over West Bengal, Orissa and Bihar, and has ventured into the international markets of the Middle East, Singapore, Maldives, USA, Denmark, Greece, Germany, Netharlands and Austria. Sree Leathers has started a new R&D section under the guidance of Italian and German experts, to enhance the comfort level of its products, and has plans of setting up a modern footwear factory at Kasba Industrial area in Kolkata.
The two prominent fun-entertainment/amusement parks in Kolkata which have gained immense popularity among the masses, particularly children, are Nicco Park, and Aquatica.
Situated in Salt Lake, and spread over an area of 40 acres, Nicco Park, promoted by the Nicco Group, can be termed as the Disneyland of West Bengal, with a variety of unusual and exciting games and rides like the Toy Train, Cable Car, Tilt-a-Whirl, Water Chute, Water Coaster, Flying Saucer, Pirate Ship, and Moonraker. The Cave Ride is the latest addition, and is perhaps the only of its kind in this part of the world.
Aquatica, an 8-acre water park, is situated at Rajarhat in Kolkata, which came up in 2000. This Theme Park offers visitors a cool respite from the heat and grime of city life. The park, which can accommodate around 5000 people, has an artificial river meandering through it. Visitors can swim and wade in the river water, which is recycled every hour for maintaining the cleanliness. Aquatica has breathtaking rides such as the Black Hole, Tornado and Wave
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Pool. The Aqua Dance Floor, where visitors can sway to non-stop music, has water-spraying nozzles on the roof which fill the surrounding air with water. Aquatica also hosts big events and programmes like fashion shows which are great crowd-pullers.The medium and large-format, branded and non-branded shopping complexes-malls which have come up in Kolkata, and are operating successfully, are : Forum: It is a two lakh square feet mall, situated on Elgin Road , in South Kolkata with Shoppers Stop as anchor .This shopping mall established by Sunsam properties within the Saraf Group was opened to the public in March 2010 , with the launch of Shoppers Stop. Along with the retail brands having their outlets, the Forum also houses, a 300 capacity food court and a 4auditorium multiplex called INOX. The multiplex, INOX has been the first of its kind in the city, having a sitting capacity for over 1000 viewers, and situated over 30000 square feet. Hence it can be really a great experience of shopping and movie-going for the Kolkatans, who do not want to compromise on the quality aspect. The retail outlets at Forum have witnessed almost 30-35 % increase in sales after the opening up of the multiplex in 2010. Most retailers are extremely happy with the growth rate and expect their sales to increase further in the coming months .At INOX , ticket sales have been averaging at almost 90% of the theatre capacity the highest box office sales amongst all the multiplexes in the country . Forum has truly changed the experience of Kolkatans with regard to shopping and entertainment in the city .
22 Camac Street: This large format-shopping complex is located on Camac Street .The retail brands like Pantaloons ,Westside , Pizza Hut , Planet M, Grain of Salt and Add Life , have already set up their outlets in the complex. It has 4
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distinct blocks with a common atrium. The most advantageous aspect here is its huge parking space in the basement. It also houses smaller multi-branded outlets. The footfalls stay steady throughout the week and gets to an uncontrollable high over the weekend .Some of the outlets rank among the leading individual retail outlets of the country . The total floor area of the complex is 380,000 square feet , and has 4 restaurants and 3 banquet halls Metro Plaza: Situated on Ho Chi Minh Sarani , this is basically a large scale retail cum office development area . The lower three floors with an area of 50,000-60,000 square feet is meant for retail business. Along with the retail units there is also a space for Bowling which is frequented by younger people. Emami No. 1: This mall is located on Lord Sinha Road . Its close proximity to the Chowringhee-Park Street belt helps it to cater to a large section of quality conscious consumers. The usual facilities of power backup, vertical transportation and parking are available over here. The biggest disadvantage that it faces is its car parking area, which has a meagre capacity of just 70 cars at a time. The biggest attraction here is its Landmark bookstore on the third floor, which has a wide range of books, music and stationary items. City Centre: The recently inaugurated City Centre project adds another feather to the already vibrant retail business in the city. The project, promoted by industrialist Harshvardhan Neotia, and located at Salt Lake, has been designed by one of Indias best known architects, Charles Correa. City Centre is a dynamic mix of shopping mall, Cineplex (INOX), entertainment area, food court, offices, and residences- nestling amidst open spaces, lush greens, and the contours of an ideal cityscape.
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Big brands like Shoppers Stop and Adidas have set up their shops in the complex. There are several aspects to City Centre ; with no boundaries to separate it from the street, it is open to everyone- all income and age groups. The Complex has a parking space for as many as 800 cars, 14 entry and exit points, and large spaces to amble around. The City Centre, which is the singlelargest architectural endeavour in Kolkata in recent times, has truly changed the way the city looks, and complements the citys artistic heritage. The location of the project makes Salt Lake the epicenter of not just its immediate population (nearly half a million), but also of the upcoming, adjoining township of Rajarhat (with an expected population of about 750,000). Enclave: Spread over 36,000 sq. ft., the Enclave, has come up at up-market Alipore, and has five shopping levels, and an open-to-sky atrium. The complex, promoted by the Calcutta Metropolitan Group, has fine restaurants including Food Bar, Red Bar, Cookee Bar, coffee shops, a childrens entertainment zone named Kool Kids, among other facilities. Another prominent supermarket which offers a wide range of products, and provides customers with a great shopping experience, is C3- The Market Place. The shop commands over 6100 sq.ft. in the heart of Kolkata, at Lee Residency, 26, Lee Road. The approximately 25,000-strong product menu includes a wide range of products like fresh fruits and vegetables, rare herbs, groceries, ready-to-eat food, personal-care items, confectionaries, chocolates, home-care products,
newspapers, magazines, and so on.
Though the retail business mainly revolves around Kolkata, towns like Durgapur, Siliguri and Haldia also have the potential of becoming busy retail addresses. Already, the Durgapur City Centre project, promoted by Bengal Shristi Infrastru-cture Development Ltd., has come up in Durgapur, in Burdwan
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district. The project, which was inaugurated on the 10 th of August, 2010, is a modern, multi-facility, multi-utility, urban plaza, spread over a sprawling 370,000 sq.ft. It is a confluence of shopping, commerce, entertainment, education, recreation, health, hospitality, medical amenities, and premium residential accommodation. Lush green open spaces, an integrated
entertainment multiplex, and various other urban amenities, provide a fascinating experience. Durgapur is well-connected by both rail and road, and the project location is easily accessible from the bordering towns of Asansol, Ranigunj, Santiniketan, and Burnpur. A number of prominent projects in the retail sector are coming up in Kolkata. Some of these are:
South City: The upcoming, 31-acre South City project promises of a lifestyle of int-ernational standards. The project will have four 35-storey residential towers, a sprawling club, a shopping mall with entertainment zones, and a multiplex. Moderntechnology will ensure earthquake resistance, high-speed elevators, adequate fire-fighting and protection systems, internal security and traffic management, and all conceivable civic comforts. The in-complex South City Academy, spread over 3.5 acres, will be equipped with a learning resource center, gym, cafeteria, an auditorium for extra-curricular activities like debates, dramatics, and sports, and a soccer field. The South City Club will have an airconditioned sports center, guest rooms, banquet facilities, swimming pools, a dining restaurant, a pub lounge, a business center, and a health club, among other things. The mega complex will also have Indias largest shopping mallthe Junction, spread across an area of 700,000 sq.ft., which will have large anchor stores, a multiplex, a food court, a six-screen Cineplex, an entertainment zone, and parking space for nearly 800 cars.
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The team behind this big venture comprises a host of experienced architects and Dev-elopers. Among them are : Dulal Mukherjee & Associates (the principal architects);Smallwood Reynolds Stewart Stewart & Associates Inc., the Atlantabased international design consultants; Peridian Asia PTE Ltd., Singapore-based landscape architects; Meinhardt (Singapore) PTE Ltd., structural consultants; and MN Consultant, structural engineers. Mani Square: Mani Square, a proposed project on a 4-acre plot next to Apollo Gle-neagles Hospital on E.M.Bypass, will have a 500,000 sq ft. space, which will include a technology park, a 6-screen multiplex , a food court , business club , a multilevel 1000-car parking area , a 40,000 sq ft. hypermart ( Giant ), as well as other direct retail stores .Designed and engineered by SAA Architects of Singapore and Meinhardt of Australia , and promoted by the Mani Group, Mani Square will be the single stop solution to all requirements of modern-day professionals and customers . The project will have ready-to-use centrally airconditioned offices with 100% power back-up ,lease-lines and round-the-clock support services , which will be extremely attractive for IT and ITeS companies .Retail giants like Lifestyle , Westside , Shoppers Stop and Cineplex majors like Shringar and PVR have already shown interest to set up units in the complex . Fort Knox: Fort Knox, a mega jewellery mall, owned and promoted by the Fort Group, is scheduled for a September, 2010 inauguration. The project, a 9storied complex, on an area of approximately 80,000 sq.ft., will have an estimated 37 showrooms, 40 offices, backed by 4 lifts, 8 escalators. The Fort Group is confident about eliciting a positive consumer response, and providing the customer with a comfortable, secure, and refreshing shopping experience,
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by creating access to the best products, from the best jewellers, at the best prices. The project, which is coming up at Camac Street, will have a formidable line-up of security measures including alarm system with instant links to the police headquarters and fire services, 24-hour armed security guards, etc. Gariahat Mall: Gariahat Mall, which is coming up at an area between the Gariahat crossing, and the Rashbehari- EM Bypass Connector, will approximately be of 80,000 sq.ft., and will be accessible from every point in the southern belt of the city. The 5-floor structure will boast of world-class facilities and ambience, an expansive atrium, high ceilings, capsule lifts, and multi-level access up to the top floor. The scientific fusion of lofty ceilings, flat slabs, and a central atrium illuminated by natural light, is intended to evoke a sense of space, height, and depth. While an entire block has been earmarked for the anchor shop, the 3 rd and the 4 th floors are entirely reserved for jewellery outlets, and the 5 th floor will house restaurants and eating places. Toplight Commercials Ltd. (TCL), one of the prominent real-estate developers in Kolkata, and the promoter of the mall, expects to complete the project by December, 2010. Metropolis: The 1,41,000 sq.ft. Metropolis will be one of Kolkatas newest retail-cum-entertainment addresses. The complex will have a 4-screen, 1000seater Cineplex, a 6- outlet food court, a sports bar, a restaurant, and a 350capacity car park. Being developed by the Calcutta Metropolitan Group (CMG), the Metropolis is designed by the reputed architectural firm, Peddle Thorp International of Hong Kong, and will come up at an area adjacent to CMGs prestigious existing residential complex, Hiland Park, which has about 900 apartments and 35 penthouses. Metropolis will have the Hyatt Regency, ITC Sonar Bangla, Peerless Hospital, and Udayan Condoville among its distinguished neighbours.
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Pam Shopping Centre: The marvellous Pam Shopping Centre, promoted jointly by Pam Developers, and the Kolkata Municipal Corporation, is scheduled for an end-August (2010) inauguration. This 60,000 sq. ft. eyecatcher at Rashbehari Avenue, will boast of a unique reflective glass curtain, and an artistically landscaped entrance ramp, besides having five levels of shopping. The Complex will have shops selling a wide range of products including garments, and jewellery. Homeland: Homeland, a 1,00,000 sq. ft. exclusive shopping mall, promoted by the Merlin Group, is coming up in the heart of Central Kolkata, close to Chowringhee and Elgin Road crossing. The five-storied, centrally airconditioned shopping center will have stylish spaces ranging from 300 sq. ft. to 2000 sq. ft., and spacious exhibition and product launch area. The mall will also have ATM centers at convenient points, internationally styled caf and food stops, 24-hour power backup facility, and adequate car parking facilities. Silver Springs: Silver Springs, a prestigious joint venture project between Bengal Silver Springs Projects Ltd. and the Kolkata Municipal Corporation, is due for a December, 2010 completion. Shapoorji Pallonji has done the piling of Silver Springs, and renowned architect J.P.Agarwal has designed the project. The project will have around 500 residential flats, 10 high-rises of 18 and 14 stories, a magnificent shopping mall named Silver Arcade, of 70,000 sq.ft. area, and a Spring Club of an area of 70,000 sq.ft. The vendors at the shopping mall include Mainland China and a Hyundai dealer- showroom. Silver Arcade will be a G+3 mall, with the 3 rd floor being taken up by Mainland China for 3 speciality restaurants; while the 2 nd floor will have a Food Court with 17 multi-cuisine food counters. The mall will be backed by a large parking space for 150 cars. Silver Springs will boast of a modern, up-market residential
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complex, the shopping mall, Silver Arcade, a Montessori School, an AC Community Hall, among other new-age facilities.
Bhubaneshwar is another city, which has the potential of becoming a retail hotspot in the East. The city is fast developing into a bustling center for economic activity, with software giants like Infosys and Satyam have already set up their offices. This is giving rise to a new breed of consumers with high disposable incomes; thereby creating lifestyle and aspiration levels at par with other fast-moving metropolitan cities. Bhubaneshwar represents two faces of retailing - one, a traditional store evolving with time, and another, a recently inaugurated mall from a group that is credited with having revolutionized the retail scenario in Kolkata. Satyam Shivam Sundaram: This 25 year old multi-brand department store is famous for its offerings in textiles and ready-to-wear garments. The uniqueness of the store lies in its ability to inculcate the latest retail concepts in terms of selection and display of merchandise in-store ambience, and other attractive features. This 8,000 sq ft. store, which is being upgraded to a 16,000 sq ft. one, spends a good amount of money annually on brand-promotion exercises. At the store, half of the retail space is devoted to menswear , 25 % to womens wear , 15% to childrens wear , and the rest 10% to teenagers . About Rs. 25 lakh in systems, while the standing stock of merchandise is worth about Rs. 5 crore. Forum Mall: Bhubaneshwars Forum mall, launched on 29th of March,2010, is expected to bring in a turning point in the citys retailing and retail real-estate development. Located at Kharvel Nagar, Unit III, in the Central Business District, the mall is the brainchild of Rahul Saraf, the man who masterminded the success of Forum at Kolkata. The 4-level Forum mall has a total area of
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170,000 sq.ft., with 115,000 sq.ft. devoted to the retail and F&B. The ground, first, and second floors, is dedicated to pure retailing, while the food court and entertainment zones are located on the third floor. The top floor is reserved for IT and related business and trade. The prominent brands that have taken space in the mall include Big Bazar (anchor), Pizza Hut, Moustache, Dukes, Sree Leathers, Baskin Robins, Planet M, among others. The upcoming brands include Benetton, Blackberrys, Chandrani Pearls, Bata, and Siyarams. The mall has received a great response; the average footfalls being 7000 per day, with expectations of an increase to 8000. Forum has not only become a shopping destination for the people of Bhubaneshwar, but also for people from surrounding areas like Cuttack and other towns in the state.
The retail revolution is slowly making changes in lifestyle in smaller towns also. This is evident from the fact that even a small town like Bhagalpur in Bihar, today has its own shopping mall. The already operational shopping center, named Sriyash Aap Ka Apna Bazar, located at Jiwan Sagar Towers, D.N. Singh Road, has been promoted by the Kishorepuria Group of Companies. The 2 floor- Rs.1.10 crore project has about 11,000 sq.ft. of total retail space, and offers a wide range of products like garments, appliances, furniture, cosmetics, electronic items, among others. The mall, which has a parking space for 10 cars, and 50 motorbikes, has received great response- the average footfalls being 900-950. There are plans to further improve infrastructural facilities in the complex; a well-equipped food court is coming up, with Hindustan Lever Ltd. (HLL) as one of the possible partners.
The East is fast emerging as a formidable retail market. The spread of retailing beyond Kolkata would create an integrated retail zone which would change the way people in this part of India work and live.
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The Indian Retail sector may soon see the worlds biggest retailer, Wal-Mart Stores, Inc. on its radar. The $245billion company has reportedly initiated studies on the Indian market and is working on a big-bang entry, once FDI norms are relaxed.The company is interested in India as a destination for stores of there own, exploring possible opportunities for presence. However, for business reasons, Wal-Mart does not say much about specific investment plans. The US-based gaint operates 1,494 stores in the international market. Wal-Mart plans to open 120 to 130 additional stores in the existing markets in current fiscal.
UPCOMMING PROJECTS.
Punjab weddings get colour. Punjab will soon get malls specially designed for wedding like Omaxe mall coming up in Patiala. Marriages in Punjab government to acquire more gaiety, with wedding-malls coming up in the state. Multi-crore real estate major Omaxe is setting up a state of the art wedding-mall in Patiala, attracted by the states rich lifestyle and high per capita income. Spread over 2,75,000 square feet and with an investment of Rs.140 Crore, Omaxes weeding-mall is likely to be completed in two and a half years.
The mall, located in the city near historical Baradari Gardens, will provide its customers shopping-cum-entertainment facilities. With a showroom, banquet halls, a hotel, and a multiplex, it will be a one-stop destination for the entire range of wedding related items.
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The mall will also have offer trousseaus, jewelleries, banquet items, beauty parlors, whitegoods, lifestyle products, furnatureand furnishings, floral, decorations, and mehndi artists. Right from getting to organising honeymoon tours, all kinds of services will be avialable at Omaxes wedding mall. Speaking to Business Standard, Senior Vice president Kunal Banergi said they chose Patiala in place of Ludhina, Jallandar and Amritsar because of high literacy (81 percent), high per capita income (Rs 28,354) and the royal legacy of the city. Moreover, Patiala is close to Chandigarh and Ludhina. Benergi said that wedding market in India was of Rs 50,000 crore and it was growing. On average, an upper middle class family spends between Rs 500,000 and Rs 15 lahg on wedding. Punjab has a high population of NRIs, who can spend about Rs 25 lakh on wedding. Keeping all these factors in mind, omaxe has designed a wedding-mall where a marriage can be arranged with all purchase, even at Rs 3 lakh, very much within the reach of an average Punjabi family. The wedding mall will have two huge banquet halls where four marriages can take place simultaneously But the Chief Characteristic of the mall would be the shopping complex, Banerji said, The objective was to aid shopping by saving the consumer frequent visits to the market. Retail Education in the East
The retail sector, which is poised for robust future growth, needs more and more professionally qualified personnel, with specialized knowledge in retailing. It is thus necessary to have more and more business schools in the country, which offer specialized courses in retailing.
The need for providing quality retail management education has been recognized by the ICFAI Business School in Kolkata, which offers a
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comprehensive retail management programme that enables the students to critically analyze the retailing process, the environment within which it operates, and the institutions and functions that are performed. The course aims to make students aware of the differences between retail marketing strategy and financial strategy, and provides knowledge of merchandise management. The programme inculcates analytical skills useful for retail decision-making, and provides a foundation for those students who plan to make career in the field of retailing or related disciplines. The course covers critical topics like understanding the retail customer, and institutions; retail marketing strategies; retail organization & management; pricing strategies; retail selling; logistics & information systems, etc.
Recently, the International School of Business & Media has, in its newly inaugurated campus at Salt Lake, Kolkata, started offering a 2-year full-time Post Graduate Programme in Management, with retail management as on of the specializations. The course covers essential topics like retail organization & management; introduction to risk management; retail location analysis; branding the retail organization; retail marketing & sales strategy, etc. This course has been launched looking at the tremendous growth potential of the retail sector in the coming years, and aims to gear up students to the rapidly changing business environment.
Quality retail education is necessary to create a vast pool of qualified retail management professionals who can tackle the challenges of this intensely competitive industry. To cater to the increasing demand for technically efficient workforce in the retail sector, more and more management institutions in the country should design and introduce innovative retail management programmes.
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Anglo-Dutch petroleum giant Shell is coming to expand its retail marketing activities in India Anglo-Dutch petroleum giant Shell is committing a sum of Rs 250 crore to expand its retail marketing activities in India. Vikram Mehta, chairman of Shell group of companies in India, said the petrol stations will be established in the South. Shell, which announced the launch of its first petrol station in India at Bangalore after a gap of 28 years, intends to launch these stations on its own. We are not willing to disclose how many stations will be established for this amount. Our national roll-out will occur after the first phase is completed, Mr Mehta said. Shell is the single largest corporate investor in India, having invested $825m (around Rs 3,500 crore), he added. It has the permission to launch as many as 2,000 petrol stations. The giant got the Union governments nod for the retail foray only in September this year. The group intends to adhere to the prescribed norms of opening petrol stations in rural centres. The government norms stipulate that 5.5% of each players petrol station network be in rural areas. The group has a MoU with MRPL to lift the stock for
petroleum. MRPL, which is now a part of the ONGC stable, runs a 12m tonne refinery in Mangalore. Each Shell station will stock petrol and diesel, besides having a convenience store. Mr Mehta said that Shell intended to stick to
knitting and was not looking at investing in any petro-chemical venture in India.
Factors needed to promote the Sector in West Bengal A number of important issues need to be addressed suitably to foster the further growth, and ensure competitiveness of the retail sector in West Bengal/Kolkata. These can be summarized as follows : The principal issue with the development of retail in Kolkata is the acquisition of appr-opriate spaces for retail, and the cost thereof in the city. One of the main
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components of the cost of such spaces is the incidence of tax in terms of Kolkata Municipal Corporation Act, 1980. The KMC Act stipulates that an amount of 40% of the annual value as determined u/s 174 of the Act will be the amount of tax, in addition to which the premises that are used for nonresidential purposes (which includes all retail and commercial establishments), there will be an additional levy of surcharge of 50% of the above tax. This effectively translates into a tax of 60% on the annual value (being the gross annual rental reduced by 10% for maintenance) of a property, which is an extremely high tax threshold. Formatted retail, which is a developing industry, cannot afford such high rates of tax which it must effectively bear to transparently acquire property for the conduct of its business in Kolkata.
These rates are amongst the highest in the world, and discourage the growth of the retail business. The municipal tax in Kolkata is so high, that the total expense on commercial, rental premises becomes much more expensive than in other fast growing cities like Bangalore, Hyderabad, Chennai, etc.
Property Tax rates for commercial, tenanted premises in different cities: Kolkata (KMC) 18.90 5.58 7.75 5.76 3.21 3.00 Banglore Chennai Delhi Gurgaon Navi Mumbai
(All Figures are Property Tax in Rs./sq.ft./month) It is thus absolutely necessary for the concerned authorities to take necessary steps for rationalization of the municipal tax rates in Kolkata to prevent loss of business, employment, and development opportunities.
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The relevant provisions of the Shops & Establishment Act stipulate that a commercial establishment of any kind (which includes a retail operation) must allow its employees one and a half day of leave for every week of work. It also stipulates the total number of hours that any establishment can remain open for business on any working day. In this competitive environment virtually every retail, entertainment and food business requires to conduct its business every day of the week and provisions like this severely inhibit their profitability. A number of retail environments have been asked to pay an entertainment tax for the music that they play in their stores. In fact it has also been reported that such taxes also demanded if a television is used inside such an establishment. This is our view in punitive since such music or television is not intended to provide any formal entertainment. There is confusion about the size, number and nature of the signage that a commercial establishment is allowed to display outside its premises. The KMC has of late begun to demand tax on such signage at the same rates as are applicable to hoardings. A standard needs to be instituted proportionate to the area occupied by a commercial establishment indicating dimensions of the free signage permitted by the establishment so that there is no confusion that is allowed to persist in this connection. The issue of fixing of Maximum Retail Price (MRP) by manufacturers, which is making retailers uncompetitive, needs to be addressed urgently. The rigidity of the Weights & Measures Act, which empowers the arrests of members from the Board of Directors of a company, is another issue, which demands immediate attention.
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Kolkata is an ideal location for the growth of the retail industry. The inherent advantages of West Bengal/Kolkata need to be exploited fully by strengthening the governmental/administrative support mechanism. A comprehensive, rational retail support policy can go a long way in making the sector act as an engine of growth for the state economy.
Conclusion In India the retail sector is the second largest employer after agriculture, although it is highly fragmented and predominantly consists of small independent, owner managed shops .There are over 12 million retail outlets in India , and organized retail trade is worth about Rs.12,90,000 crore (September,2010). The country is witnessing a period of boom in retail trade, mainly on account of a gradual increase in the disposable incomes of the middle and upper-middle class households. More and more corporate houses including large real estate companies are coming into the retail business, directly or indirectly, in the form of mall and shopping center builders and managers. 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 sweeping, 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 narrowing down the spending differences 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 deliver
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more better-quality products and services to the consumers, resulting in increase in operational efficiencies and decline in costs for the supply chain. India is one of the complex real estate markets in the world due to the large degree of variation and inconsistence in the market practice and regulatory norms. A combined effort by both central and state governments in terms of appropriate zoning laws, transparency in ownership, and availability of loans for retail land, is very much necessary for reducing existing bottlenecks. Accordance of industry status to retail in India is an issue that needs to be addressed soon. Recognition would ease financing prospects, as well as standardize and unify taxes for the industry. An alignment of the retail sector with the tourism sector could also promote India as a global shopping hub. For the retail sector to achieve further growth, the spread of organized retailing has to become a national phenomenon. According to KSA Technopak, a leading consulting firm, the organized sector will grow to almost Rs.30, 000 crores by 2010, representing 6% of the total retail market. The top 6 cities will account for 66% of total organized retailing. Although many international retailers and brands still regard India as too difficult, they would welcome the opportunity to create an appropriate joint venture, if they felt India was changing. 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.
Low marketing and advertising budgets will work out:
To rectify the things, right solutions are always expected. Whether the market growth is slower or faster, its potential should not be left unused. Anyways, new and innovative solutions must be invented to answer the current market slump.
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Cutting down the marketing and advertising budgets will reduce the financial burden on retailing industry. Marketing and advertising are the supreme factors for the retail industry to penetrate more into retail market. Following innovative marketing and effective advertising at low prices will be a brilliant move for the present day market trends.
Challenge to get more customers at low cost: In this current meltdown, driving the customers to the retail stores seems high and dry. But, the markets always have a hidden potential despite the slump. Today, the changing market trends demand the retail industry to expand its reach to the more customer touch points so as to drive them to the retail points. Low investments and high returns are now made possible with the arrival of technology enabled marketing services. The retail industry should realize that it would be at a fair advantage of including technology enabled marketing services to unfold the immense retailing opportunities.
Present communication channel is ineffective and involves high costs: The present channel for customer communication is apparently ineffective which the retail industry has been following for the decades. Moreover, it always involves high costs too. The outdated communication channels should be modified according to the changing market trends. Now, an uninterrupted marketing channel, which will be continuously tied to the shoppers, is needed to boost up the retail industry. Going beyond the traditional marketing at low prices will cut down the high costs and brings good returns.
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How should Indian retailers sell their product? The Indian retail industry is now beginning and growing day by day. multi brand. Furthermore, vertical marketing systems constantly threaten to bypass large manufacturers and setup their own manufacturing. The new competition in retail marketing is no longer between independent business units but between whole systems of centrally programmed networks (corporate, administered, and contractual) competing against one another to achieve the best cost economies and customer response.
In India the retail sector is the second largest employer after agriculture, although it is highly fragmented and predominantly consists of small independent, owner managed shops .There are over 12 million retail outlets in India , and organized retail trade is worth about Rs.12,90,000 crore (September,2010). The country is witnessing a period of boom in retail trade, mainly on account of a gradual increase in the disposable incomes of the middle and upper-middle class households. More and more corporate houses including large real estate companies are coming into the retail business, directly or indirectly, in the form of mall and shopping center builders and managers. 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 sweeping, 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 narrowing down the spending differences between the consumers of larger metros and those of smaller towns.
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Other measures
1. Focus on customers who are loyal neither to the firm nor to their competitors. 2. Close the gap between the customers needs and the current offering. 3. Reduce the bad costs, those producing benefits customers wont pay for. 4. Cluster the stores according to local similarities and differences in customers needs and purchase behavior. 5. Retool the processes customer research, merchandise planning, performance management, strategic planning to position the company in a much better manner.
International Retailers eyeing Indian Market.
Retailer Wal-Mart Marks & Spencer 7-Level Carrefour Auchan Shoprite Dairy Firm Metro
Type Hypermarkets Lifestyle stores Supermarkets Multi-format retailer Hypermarkets Supermarkets Multi-format retail Cash & Carry
Status Wait & watch Already in Evaluating Postponed Entry Evaluating Opening in Mumbai. Tied up with RPG Already in
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Mango Landmark
Apparel retail Lifestyle stores
Already in Already in
How can it be done? (Past, Present & Future) For a start, these retailers need to invest much more in capturing more specific market intelligence as well as almost real-time customer purchase behaviour information. The retailers also need to make substantial investments in understanding/acquiring some advanced expertise in developing more accurate and scientific demand forecasting models. Reengineering of product-sourcing philosophies - aligned more towards collaborative planning and replenishment should then be next on their agenda. The message, therefore, for the existing small and medium independent retailers is to closely examine what changes are taking place in their immediate vicinity, and analyze whether their current market offers a potential multioption destination. If it does, and most commercial areas in India do have this potential, it would be very useful to form a consortium of other such small retailers in that vicinity and take a pro-active approach to pool in resources and improve the overall infrastructure. The next effort should be to encourage retailers to make some investment in improving the interiors of their respective establishments to make shopping an enjoyable experience for the customer. Finally, the most important determinant of our growth is the quality of our people.HLL is deeply privileged to continue to attract the very best talent as the number one preferred employer at leading campuses. Retailers are also
redevelopment of the area into a more modern
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encouraging diversity in our talent skills, especially for newer businesses, and are also bringing in a large number of talented women. Training programmes have been revamped to expose entrants to local and global business -- staff spends time in Indian villages and international cities -- all within a 12-month training programme.A wide variety of categories and global operations provide enormous development opportunities through organized career planning. A lot of emphasis has always been placed on skill development -- today we are also concentrating on building individual and leadership capabilities. Retailers are offering an energizing and empowering environment enabled by creating small teams focused on key initiatives. We have found this the best way of combining both scale and speed. Deeper in the company, in factories and offices, we are unleashing the talent and creative potential of all employees through initiatives such as TPM.
In conclusion, let me say that our most valuable assets are its brands and people. Today's market is very dynamic and increasingly competitive. We have confidence in our strategy and are learning to grow even in declining markets. We are putting in place key enablers to build our capability for sustained high performance. We have brands with rich heritage and strong consumer equity. We have people who bring the power of their ideas and execution to exploit the full potential of our brands towards delivering continued profitable growth for our country.
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TOPIC 4 REVIEW OF AVAILABALE LITERATURE
EXCUTIVE SUMMARY The Indian Retail sector has caught the worlds imagination in the last few years. Topping the list of most attractive retail destination list for three years in a row, it had retail giants like Wal-Mart, Carrefour and Tesco sizing up potential partners and waiting to enter the fray. Indias retail growth was largely driven by increasing disposable incomes, favorable demographics, changing lifestyles, growth of the middle class segment and a high potential for penetration into urban and rural markets. However, with the onset of the global financial crisis, Indian retailers have been suffering from the effects of rapid credit squeeze, high operating costs and low customer confidence.
The impact of current slowdown in Indian retail sector is summarized along key operating parameters as follows:
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Impact of slowdown on key parameters Top line /Sales Bottom Turnover Line/Profitability Stock Turns/Rotations Store Expansion Working Availability Footfalls Cost Competitiveness Cost Finance of
Capital Real Estate Real Availability Cost Tier Expansion
Estate
II/III Advertising Spends
Attrition
Headcount/Recruitment Investments in IT Intensity of consumer Promotions
Positive Impact
No Impact/Status Quo
Adverse Impact
In this report, we have suggested strategies for the retail sector to help cope with impact of slowdown and validated them through extensive discussions with key players in the industry.
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Strategies to help cope with the recession Manage Costs Optimize costs (Cut costs in a way that doesnt harm the business) and optimize resources. Key amongst them are: - improve labor productivity - manage inventory efficiently, - renegotiate the rentals Adopt a revenue share model against fixed share model . Implement technology specially in areas of manpower training, real estate management, supply chain and logistics management and day-to-day store operations Streamline store processes, increase store visibility, manage staff effectively and look into store layout and product range and Classify stores clearly into categories: profitable, high cost-high sale, low cost-high price and unviable and take action accordingly for each category Invest in consumer research, paying close attention to the diversity present in Indias geography, to be more sharper in delivery Forge alliances and partnerships to leverage on each others financial muscle and expertise Offer competitive in-store labels to earn higher margins a win-win situation for both customer and
Optimize technology usage
Efficient store management
Re-evaluate store expansion plans
viability
Decode consumer behavior
Enter into alliances and leverage expertise
Develop private labels
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retailer (the key is to improve quality of in-store brand) Build competent management supply chain Focus on logistics in terms of minimizing the costs and knowledge aggregation Leverage on technology and expertise of foreign players Think beyond the metropolitan cities, target the opportunity offered by the rapidly developing and largely under-penetrated Tier II, Tier III and rural markets Stand out of the crowd and keep offering new ideas, services experiences to the customers
Tap under penetrate markets
Innovate
Some of our thoughts on future outlook and how it may impact behavior in retail sector are as follows: It is widely believed that the current slowdown might last for 24 30 months depending on government incentives in increasing spends on infrastructure, development initiatives and other activities to stimulate the economy We expect an increased focus on value retail in the coming months and a shift away from lifestyle goods, thanks to the impact of the current slowdown There is expected to be increasing action in food retailing and FMCG products as this segment is largely insulated from the slowdown, while sectors such as home furnishing are less favored Retailers are likely to start closing unprofitable stores and rationalize capital expenditure, as a part of cost optimization
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Churn in malls is likely to increase in the short term when some retailers opt for low-rent premises as a means of sustenance in the current economic situation As Tier I cities become saturated, retailers may move to Tier II, Tier III cities where profits are higher due to lower rentals and operating costs There are going to be increased investments in shortening of supply chain. This is mainly due to the incentives offered by the government and the potential for higher profit margins The frequency with which retailers liquidate slow-moving goods by offering discounts to reduce inventory is likely to increase. The long term prospects for retail chain expansion are still very attractive and this period of uncertainty is seen by retailers as an important consolidation imperative for an industry that has been growing at 30-40 percent p.a. over the past decade. INDIAS RETAIL JOURNEY- FROM GEAR FIVE TO GEAR. In the past few years, Indias retail journey seemed picture perfect with the most attractive stops still unexploited and under-penetrated. Favorable
demographics, steady economic growth, easy availability of credit, and large scale real estate developments were fuelling the growth of Indias approximately USD 25 billion organized retail market. The opportunity was there for all to see and India was the destination of choice for top global retailers. In this environment, Indias own blue chip companies like Reliance, Bharti and RPG diversified to add retail to their sector portfolio. All things considered, it was a good time for Indian retail.
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This was the scenario till a few months ago. Enter the global meltdown and India did not find itself completely insulated from its harsh effects. As per the Cartesian survey, almost all key industries in India have been negatively impacted by the slowdown and retail is no exception. Industry-wise Impact
An impact score of 0-15 indicates low impact An impact score of 16-50 indicates moderate impact An impact score of > 50 indicates high impact With the Q3 growth numbers of FY2008-09 at 10-12 percent as against 35 percent of the previous year, the happy grins are fast turning into nervous smiles. While the sector is still registering decent growth, the heavy investments made during the boom period may weigh the retailers down.
Organized retail penetration - Gap created by slowdown
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LIVING IN UNCERTAIN TIMES As per KPMGs survey, even though almost all retailers believe that the current uncertainty is only near term and is likely to persist for 12-18 months, there exists certain degree of skepticism in achieving targets. This is clearly indicated by the Cartesian study where 53 percent of retailers confidence levels have been shaken.
Disappointing Footfalls A large number of retailers have experienced a drop in footfalls which is mirrored by slowing Same Store Sales (SSS) growth figures. This also adversely impacts the time taken to break-even for new stores. SSS at some of Indias biggest retail groups have become negative for the first time in six years.
Although retailers are trying their best to combat this slowdown through constant promotional offers and deep discounts, consumers are expected to cut down on their discretionary spending. With the global recession having no clear end in sight, consumers see sense in saving for a rainy day.
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According to KPMGs survey, 70 percent of the respondents stated that the slowdown has adversely affected their footfalls.
Player Average
Liquidity under pressure The slowing sales are resulting in lower inventory turnover and increasing working capital requirements for retailers. This in turn has resulted in liquidity pressures for many retailers. To free the cash that has been locked, a large number of companies have been trying to reduce the inventory on their books and shorten working capital cycles. Working Capital on the rise Decline in Inventory Turnover
Margin contraction- Interest burden adversely impacts profits On their part, retailers have been trying to compensate for falling sales by curtailing expenses. This has countered the effect of the topline on operating margins leaving it largely unaffected. However, with working capital requirements and expansion capital being financed through sizeable debt,
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interest costs have significantly dented the bottomline.
Funding constraints A large number of retailers are highly leveraged and rely on fresh equity funding for growth, which is difficult to come by in the current market. Banks are increasingly hesitant to finance retailers in the context of falling demand and low profitability. Working capital requirements have also been difficult to meet as 60 percent of KPMGs survey respondents confirmed the drying up of credit. Roll out delays to compound problems The organized retail space was expected to receive investments to the tune of USD 25 billion over the next 4-5 years. However significant delays in retail real estate development and opposition to organized retail has resulted in delays in investment. A large number of retailers have not been able to meet their stated expansion plans. Currently, with higher cost of funds and a slowdown in demand, developers are likely to delay more projects in the near future.
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The slowdown and delay in development of quality mails have hindered our expansion plans to a large extent. Amit Kumar, Head, Retail, Fashion@bigbazaar
Besides the weak economy and the feeble consumer sentiments, the disappointing retail growth is also attributed to Poor supply chain management and weak support infrastructure Poor infrastructure Underdeveloped supply chains, lack of strong cold chains, poor warehousing facilities, bad roads, etc. have been contributing to increased logistic costs for the retailers. Globally, the logistics cost component to the total retail price is around 5 percent, while in India it is as high as 10 percent Absence of a mature Third Party Logistics (3PL) industry Poor infrastructure (roads, communication and power) makes logistics and transportation in India extremely difficult. Further, internal operations of retailers, such as warehouse processes and distribution, are usually fairly ad hoc and inefficient. Retailers are keen to outsource their logistics to 3PL. But there is an absence of a mature 3PL player providing high service levels at competitive prices. Fragmented supply base The supply base is highly fragmented with a large number of intermediaries squeezing the margins of all involved, which also includes the retailer. This not only has an adverse affect on the margins but also results in cases of mishandling, theft and increased instances of shrinkage. Rentals skyrocketing to all time high
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As real estate prices skyrocketed, retail rentals also touched unsustainable levels eating directly into the profit margins of retailers. Until a few months back, store rentals were 300 to 400 basis points higher than even international levels. Retail rentals in Linking Road in Mumbai, South Extension in Delhi and Brigade Road in Bangalore have risen about 50 percent in the past 3 years. Rentals eating into profit margin of retailers Mistakes by retailers have also added to external troubles Crowding in unattractive locations Another reason for slow growth in organized retail is poor choice of locations. Clustering is a common theme in retail in India and retail malls appear wherever real estate is available rather than where they are actually needed. This has resulted in attractive city centers being devoid of malls and newly developed areas having too many. Inability to compete with traditional retail Organized retailers have not been successful to provide services that match those of kirana stores. The true reason of their troubles is that the business capacity of the kirana shop owners and buyers is high in India. Mom and Pop stores already have a model that is preferred by consumers and is also cost efficient. The big stores are still trying to get their model right in providing an alternative to neighborhood retailers who offer convenience, credit and personalized service. Over reliance on debt funding The rapid expansion in retail space in recent years was largely debt funded. This has resulted in substantial leverage, which has added to retailers financing risks in the recent scenario. The declining interest coverage clearly indicated that a large number of retailers are highly leveraged and are battling high interest payments. Interest coverage declining across players
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Whatever be the reason, we believe that players who take immediate strategic measures are likely to be the dark horses. Be it store rationalization, change of supply chain, consolidation of operations, improvement in IT infrastructure, retailers need to think quick to protect their margins and toughen up for more challenging times.
STRATEGIES TO HELP RETAILERS COPE WITH THE SLOWDOWN Consumers are currently sitting on the fence and the challenge for retailers will be to offer the right baits to get them back to stores. Retailers have to focus on growing profits through sales growth and not mere cost-cutting strategies. There will be a sharp cut in overall sales growth this year, but a marked improvement in bottomlines with players focusing on efficiencies"- Kishore Biyani, Chief Executive Officer, Future Group
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Toughen internal efficiencies Managing Costs: Subdued quarterly results, staffing cuts and frozen budgets have increased the scrutiny on each rupee spent. When KPMG asked its respondents to name the most important focus area in the current times, about 90 percent of the retailers highlighted costs as their focal point and the remaining 10 percent mentioned evaluating store viability and revision of expansion plans as their main concern.
Cost Cutting: Cost cutting is inevitable in a downturn, but strategic decisions with a long term view should be the key focus while making cost containment choices. Many retailers have made the mistake of cutting those costs that are easiest and fastest. An effective strategy should be one that identifies the costs least important to delivering what customers value. This requires a deep
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understanding of customers needs and re-evaluating the business activities that actually deliver what customers value and the ones that do not. This ensures that the costs cut now do not harm the future potential of the business.
In mid 2008, Kishore Biyani announced a new strategy for his group: Garv se bolo hum kanjoos hain - Translated Say Yes, I am stingy with pride With this campaign, the company aimed to save USD 36.5 million in a period of one year. The idea was to openly accept that cost-cutting needs to be implemented and then aggressively eliminate inefficiencies. The move ensured that internal overlapping of functions was avoided within various departments. At the back-end, human resources and information technology were integrated in an organized manner. Resource optimization: A retailer wants to better manage its back- end centers, supply chain and stores while improving its profitability. Each customer amongst his millions is defined by a different buying history, a different buying propensity, and a distinct servicing cost. This raises several questions.
Given the capacity and costs for each channel, which of the customers, should receive what kind of offers, through which of the channels? What will happen if some parts of the business are outsourced as against building in-house capabilities? Would it be viable to initiate a new model? In each case the answer is it depends. The best way to allocate resources depends on the nature of the resources and the constraints at hand: For example, in order to conserve resources, Vishal Retail too has decided to look at centralizing some of its operations. It has already closed its large distribution centers in Mumbai and Kolkata and opened a centralized warehouse in Gurgaon, near Delhi. Future Group has merged the back-office operations of its different stores to lower costs amid the global economic slowdown. Our back- end operations
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have been converged to cater to multiple formats as a part of our cost-cutting and efficiency enhancing exercise, Rajan Malhotra, Chief Executive, Big Bazaar. The group is also considering reducing the size of some Big Bazaar stores, and closing the worst performing ones. Companies need to review their optimization strategies in the changing environment, as with effective optimization they are likely to be able to bring about savings leading to improved competencies even in an unfavorable climate. Improving labor productivity: Retailers are turning their attention towards employee productivity to boost sales. Many retailers are going slow on hiring in back-end operations with training staff high on their agenda. Koutons Retail has increased the performance target for its employees to deliver more. We have motivated our employees to give that extra 25 percent in the quality and quantity of work they do, --D P S Kohli, Chairman, Koutons Retail India. Vishal Retail is planning to start a performance-based remuneration process in its back-end operations, whereby employees will get higher perks and salaries based on their performance. Though we cant do much about labor cost at front-end operations, we are considering performance-based remuneration at the back-end. We are encouraging our people to work harder so that they bring in more efficiency into the system, Manpower retention and training: Inspite of a downturn, the requirement for skilled manpower still persists. Companies need to understand how to retain their most desirable staff while ensuring their future development. This becomes a bigger concern particularly when management development costs are under pressure, as this is a leadership challenge. One of the common problems with retail firms is that they hire fresh graduates without any experience in the retail sector. This has led to over-ambitious expansion plans which has left the firms struggling. The current downturn has highlighted this issue and made firms realize that to succeed they need experienced talent with an understanding o the ground realities faced by the Indian retail sector.
With scarcity of an experienced talent pool, talent development has to be brought in-house. The need is to focus on selected senior managers, to develop
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their capabilities to coach and mentor others. Indian players have already started to take steps to curb this problem and are opening academies to meet their manpower needs. In 2008, two companies Bharti Retail and Vishal Retail announced the launch of retail training academies in Ludhiana and Delhi respectively. The 2 facilities are expected to churn around 5,000 trained persons every year. The new schools are in addition to the existing academies including Spencer's Pragati, Subhiksha Retail Institutes in Mumbai, Delhi, Bangalore and Hyderabad, and Future Learning and Development Academies in Ahmedabad, Bangalore and Kolkata. Inventory Management: In any retail operation, restraining inventory cost is of utmost importance. Improper inventory may result in stockouts for some of the categories whereas excess stock for others. Lower inventory turns are likely to have negative impact on ROI and more so for categories where gross margin is quite low like fruits and vegetables, milk, staples, mobiles, etc. In addition, higher inventory may result in obsolete stock, margin leakages, damages and high carrying cost (interest, space, handling costs, etc.). Retailers should aim to: Reduce stockouts When an item in not available it reduces direct sales and can lead to customers shopping elsewhere Buying huge quantities of goods at low prices but then being unable to sell the stock may lead to increased cost of inventory. Increase inventory turnover and, in turn, reduce excess inventory stock- This is both important and difficult as it may require a change in retailer mindset and tough decisions in terms of write- downs. In India shrinkage is equivalent to 2.9 percent of retail sales and is the highest in the world. Reducing shrinkage through well-defined processes for physical counting of inventory, digital surveillance, Electric tags, etc might effectively save costs and improve.
Avoid Bargain hunting
Increase Inventory turnover
Control shrinkage
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Bringing down Real estate costs: Real estate rentals constitute the biggest cost item for retailers at about 10-15 percent of sales. Quite frequently it has been observed that one of the major costs for retail stores i.e rental cost is ignored by retailers. Renegotiating Real estate costs: The current environment is conducive for retailers to re-negotiate the rentals and bring down this cost. Large retailers like the Future group, reliance retail and Aditya Birla Retail are in the most of furiously renegotiating rentals to bring down costs, some players have managed a 40 to 50 percent reduction in store rentals.
Rent constitute major chunk of retailers cost Entering into revenue sharing model as against fixed rental model Although previously developers and landlords were unwilling to enter into revenue sharing model, they are now ready to lease out their empty spaces. The model under which retailers share a percentage of their sales with real estate companies is seen as a fair way of sharing risks between the two stakeholders. Revenue-sharing model increase the responsibility of the developer to bring in footfalls in the mail by providing good upkeep of the infrastructure. The model is sustainable during the downturn as the retailers do not have to take the hit alone. Players can leverage the opportunity by collaborating with developers to work out a win-win model and a revenue sharing deal. We believe this is the way forward for all the retailers as it is beneficial for both the developer and the retailer, Kishore Biyani, Chief Executive Officer, Future Group.
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Leveraging Information Technology Organized retail in India faces many hurdles in the absence of proper supplychain infrastructure and development of effective electronic payment and delivery channels. The technologies that retailers have deployed over the years, to serve their distributed networks, are without standards. Going forward, technology is likely to be a key differentiator to bring about efficiencies, save on costs and offer better services to customers. The problem with old technology is that there are no standards and in many instances, one does not integrate with another. All the elements within the retail industry right from data warehouses, logistics, supply chain, store management, point of sale, etc. are likely to get impacted positively with the usage of technology be it RFID, GPS, intelligent video analytics, point-of-sales terminals or sensor-based shopcarts, etc. Although Indian retail chains have started deploying these technologies, there still exists a challenge to implement them simultaneously and make the process more efficient. The advantages of implementation of technology could be scaled manifold by carefully choosing solutions in context of the said business and by use of technology in following domains: Manpower training: Retailers need to gear up with good people management programs. One way this can be done is through certification programmes. Such programmes are likely to enable employees to upgrade their basic skills in retail operations and result better utilization of the available resources. Real Estate Management: Information technology can be leveraged to provide project management capabilities to monitor the progress of store launches. Timely launch of retail outlets can provide a good head- start for retailers and save significant funds as well. Supply chain visibility: IT can help retailers set up basic forecasting, replenishment and supplier management solutions to improve supply chain management. Starting from sensor based inventory management to RFID based control over the inventory coupled with GPS based tracking; IT can help in maintaining the optimally minima inventory enabling reduced input costs.
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Store operations: Innovative use of Intelligent Video Analytics, point- ofsales terminals and sensor-based shop carts can help retailers enhance customer experience and simultaneously reduce costs by controlling shrinkage. Logistics management: Retailers can leverage IT for back-end support and 3PL companies for physical infrastructure such as warehouse space and a transportation fleet. GPS technology is extremely useful in real time tracking of the goods moment. Case Example Shoppers Stop: Fifteen percent of Shoppers Stops net worth is invested in IT. The company has reaped its benefits through reduction in shrinkage levels and enhancing customers experience. Shoppers Stop has one of the lowest shrinkage levels in the industry (0.4 percent) We have found that 50 to 55 percent of a customers experience revolves around two components: The availability of merchandise, and the ease and speed of a billing process. Out of the two, the availability of merchandise is more important. Here, I see IT playing a much more important role.-- B.S. Nagesh, Managing Director, Shopper's Stop Future Plans: Since the base of Shoppers Stop IT structure is more or less in place, progressively a large part of their investments is expected to be inclined towards user education. The company plans to invest in understanding its customers using CRM technologies by building data warehousing, data-mining, and CRM capabilities. There is also likely to be further investments in enhancing corporate governance, information insight, scaling and managing SKUs, network and infrastructure management, and disaster recovery.
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Reevaluating store viability and expansion plans With catchments turning unviable, rampant store closures and format rationalization is on the cards. Rationalization is likely to intensify in coming quarters. Retailers may need to shut down unviable stores to conserve cash and inventory. Given high debt levels and dormant equity market, capital for growth has become scarce. Expansion plans need to be re-looked because of capital scarcity and catchment reassessment.
Efficient store management Even after setting up stores, retailers may face issues in running stores efficiently. There are currently no streamlined and defined processes for allocation of products/categories, inventory management (both on shelf and in back room), workforce management and store infrastructure management.
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Issues facing retailers New Marketing inadequate:- Insufficient hype during store launch, Customers lack of regular in store events Store visibility:- Store not distinctly visible within mall or on street outside Loyalty and Staff knowledge and motivation:- High attrition rates, low Spend product knowledge, poor customer interaction skills, inadequate competition and incentives Product range:- Wear range of certain categories Price Perception:- Price communication not strongly brought out through VM and product adjacencies Layout and VM:- Reduced shoppability due to layout and VM not being optimal GC management not aggressive:- Inadequate monitoring and incentives on GC recruitment targets Costs Rent:- Very high rentals, poor retail to carpet and carpet to chargeable ratios. Low packing density of options Power:- Absence of monitoring mechanisms and metrics for power control Personnel:- Large number of idle personnel leading to high costs
Players need to take multiple initiatives to fix retail basics and ensure growth to meet the targets Decode consumer behavior India is a diverse nation with multi-lingual, cross cultural population spread across different geographical regions. Retailers have to recognize the fact that a strategy that holds true for a particular region and set of people may not hold true for others. While India has a great market potential, most retailers tend to ignore the basic fact about the diversity of its customer base. Any retailer who does not do his ground work in terms of understanding his customer needs stands a great risk of failing even with one of the best models at hand.
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A case in point is discount shopping in India. Indian discount shopping is still fragmented because of diverse culture while western retailers are able to treat the entire customer base as one. This helps them gain benefits of large scale promotions and offers. The opportunity lies with the Indian retailers to customize discount seasons based on festivals of different regions. However, annual planning of sales based on geography and festivals is still at a nascent stage in India. Retailers should recognize that consumer is the king and cannot be ignored. The true metric of success may not be in terms of number of new stores added by a company, rather, increase in same store sales through a thorough understanding of consumer requirements. According to KPMGs survey, while attracting the customers was one of the top concerns of the retailers, investment in consumer research was not amongst their top priorities. Retailers have started espousing different approaches to seize a share in consumers wallet. Some of the strategies adopted by retailers:
Offering Discounts
Most retailers have advanced off-season sales plans and some have extended discount sales periods from 15 days to a month. The discounts on offer have gone up from 25-30 percent to 40 percent, even higher for certain lifestyle products Lowering Prices Certain retailers are moving towards adopting First Price Right approach. Under this the retailer does not offer discounts, rather directly competes on the selling price by offering best price without any mark downs. Offering Value Companies are offering innovative value added services like Added Services happy hours on shopping deals, offers for senior citizens, contests for students, lottery gains, etc Leveraging With an aim to keep customers longer on the shop floor and partnerships increase conversions, retailers are now pitching to partner with manufacturers, service providers, financial companies, etc. to create a buzz around certain product categories
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KPMG believes that companies that invest in CRM and consumer research analytics may stand to gain against those who take customers for granted. Big Bazaar has set up Customer Advisory Boards (CABs) as a measure for receiving valuable customer feedback. Through CABs the management aims to get closer to customers and give them a platform to voice their opinions about the stores. CABs consist of 8-10 influential people of the community like local doctors and lawyers who hold meeting and collect feedback from consumers. The feedback is then assessed and implemented by management to develop better customer relationships. Entering into alliances and leveraging expertise In the current scenario retailers should be on lookout for opportunities to partner with foreign retailers as it could possibly bring in the much- needed capital and expertise. The relationship could involve joint contribution by parties with shared control/ownership and has some degree of exclusivity attached to it. Retailers can also consider entering into an alliance with: A retailer from the same channel A retailer from a different channel Vendors Back-end service providers like third party logistics players and IT service providers Alliances enable retailers in entering new markets, categories, expanding value proposition and capturing new consumer segments. While globally, its a common trend, Indian retailers are slowly recognizing the importance of such partnerships and therefore actively seeking for opportunities to unlock value.
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Tap new consumer segments Reliance retail has tied up with Pearle Europe to launch a chain of optical stores in India
Extend into new Enter into categories geographies Future Group is leveraging Blue Foods expertise in food and beverages (F&B )
new Enhance proposition
value
Fabindia has acquired a 25 percent stake in UK's bohemian women's wear retailer EAST, to help FabIndia sell its garments in UK AB Retail acquired 90 percent stake in Trinethra from India Value Funds to gain a strong retail footprint in South India
For tapping the kids segment in India, Spencer retail has tied up with Woolworths for marketing its Chad Valley range of toys
Spencer's entered into partnership with specialists like Sankalp, Rajdhani, Yo China and Singapore based Bread Talk to open chain of food outlets in its stores
Shoppers Stop has entered into an alliance with Mothercare UK to expand its value proposition in mother care and kids wear section Trent, has entered into a joint venture with Inditex Group to develop and promote Zara stores in India and thus leverage on Zaras international experience
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Its the time of Private Labeling Private labels enable retailers to offer quality products and earn higher margins. The retailer also derives many advantages of using private labels. In-store labels are at least 5-20 percent cheaper across various categories. This is because they cut out middlemen costs and pass on the benefit to the consumer. Private labels enhance the bargaining power of the retailer while negotiating with manufacturer (national/ international) brands. In the long run, the retailer can use the Private Labels to attract customers to his outlet. Thus, many retailers are considering increasing their private label offerings significantly. Aditya Birla Retail is aggressively pursuing the strategy of promoting sales of private labels. Currently, the segment accounts for around 3 percent of its total sales. A B Retail, which operates supermarket and hypermarket formats, under More for You food and grocery chain, is targeting to increase private label sales to 10-15 percent in the next 2-3 years. When we asked Mr. Amit Kumar, Retail head, Fashion@bigbazaar on private labeling, he said that he plans to increase his private labels from 60 percent to 90 percent in the next three years. According to him private labels provide four key merits: Gives the opportunities to stand out from the crowd Helps maintain consistency in stocks. Outside brands may or may not be available in the future leading to a potential loss of customers. Enables retailers to control margins by improving their bargaining power Facilitates movement into a planned environment. Since private labeling requires long term planning, it enables the retailers to understand all the nuances of its products as against an opportunity stock which could turn into an opportunity cost in the long run Globally, own label brands contribute to 17 percent of Retail Sales with a growth of 5 percent per annum. International Retailers like Wal-Mart of USA and Tesco of UK have 40 percent and 55 percent own label brands representation in their stores, respectively. In India there is an increasing trend towards acceptance of Private Label brands and thus their penetration is on the rise especially in the Apparel, Consumer Durables, Home Care and FMCG segments. Overall, in India, Private Labels constitute 10-12 percent of the organized retail product mix.
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Private label penetration (%)
Players like Shoppers Stop, Tata Trent, Pantaloon, Reliance, Spencers, Subhiksha, and Vishal have moved towards adopting private labels to address consumer needs and to increase profitability of their retail businesses. In India, very few players are into own manufacturing of private labels and are dependent on third parties For example, Vishal Retail is increasingly shifting from manufacturing to third party sourcing primarily because of increase in categories for private labeling and volumes.
Recession spears private label appeal Private labels are likely to continue to grow in the current financial environment as cash-strapped consumers' perception of the products as a 'cheaper option' changes. Part of private label growth in a recession is permanently sustainable. As consumers learn about the improved quality of private labels in recessions, a significant proportion of them are likely to remain loyal to private labels, even after the necessity to economize on purchases is no longer required. Higher profile, quality-focused private label brands are likely to prosper as consumers begin to reassess their views of own-brand goods. Also, with increase in competition and rising pressure on margins, private label are increasingly getting attention due to the aggressive marketing of retailers at par with branded goods.
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Today with the margins that the FMCG companies offer, no one can survive. Even global retailers such as Wal-Mart, Carrefour and others are successful because of their strong focus on private labels. No retailer can survive on high rentals and low margins, adding that margins on private labels are higher, as much as 35-40percent- Thomas Varghese, Chief Executive Officer, Aditya Birla Retail.
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Build a competent supply chain management system Strengthen support infrastructure With the large players like Reliance, Bharti - Wal-Mart, Tatas entering into in retail market, there is likely to be enhanced focus on improvements in logistics and supply chain infrastructure. Retailers as well as third party logistics providers may increase their investment in logistics infrastructure. To gain cost leadership in the market, big players may have to minimize costs by developing supply chain infrastructure. Warehouses, distribution centers and transportation are likely to see modernization. Warehouses A large number of players in this industry are small / medium entrepreneurs running the warehouse for one or more companies. The scale of these warehouses is not large enough to tap large scale economies or justify investments in higher standards. However, going forward, the implementation of VAT regime is expected to drive consolidation and hence larger scale warehouses. Also the rapid growth of organized retail is expected to drive sophistication and efficiency in warehousing practices. Cold Chain There is an untapped potential of USD 2.6 billion for providing efficient cold storage facilities.15 Driven by a growing demand for convenience foods, we expect retailers to partner with logistics specialists to meet their cold chain infrastructure needs. Third Party Logistics (3PL) 3PL market in India is still in a relatively nascent stage. However, realizing the cost benefits that these companies bring, retailers are gearing up to use 3PL services for their logistics function. As the sizes of retailers grow with a potential for scale economies, we foresee them to move to 3PL service providers.
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Backward integration There is a need to reduce the number of intermediaries so as to increase the efficiency and profitability of retailers. One of the ways to do that is to integrate the functions in the supply chain. There have been initiatives in this regard in rural India following the governments approval of contract farming and land leasing. This is likely to allow accelerated technological transfer, capital inflows and assured market for crop production. This is likely to eliminate the intermediaries sucking away a large chunk of the margins. Pepsicos contract farming in Punjab, ITCs e- chaupal and Mahindra Shubhlabh services are examples of this vertical co-ordination leading to an increasingly efficient supply chain. Optimize Processes IT can help retailers optimize their processes in a lot of ways including improving forecasting accuracy, reducing stock-outs, increasing sourcing efficiency, increasing product movement visibility, reducing lead time and optimizing transportation. Starting from sensor based inventory management to RFID based control over inventory, IT can help in maintaining optimal inventory resulting in reduced input costs. Venture into under penetrated markets: Rural Retailing India has witnessed a rapid increase in incomes with per capita incomes soaring to USD 1000 in 2008 from miniscule USD 418 in 1998. The growth has not been restricted to urban India, as the per capita income in rural India has grown by 50 percent in past 10 years. Among key reasons for the latter are rising commodity prices, improving productivity and higher production. The increasing availability of basic infrastructure, improving access to funding, employment guarantee schemes, better information systems and growing literacy are together
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ITC CHOUPAL SAGAR :A Successful Rural Retailing Model CONCEPT Hub and spoke model involving engagement with farmers in rural India. A rural shopping mall where farmers can sell their commodities and can buy almost everything including cosmetics, garments, electronics, appliances and even tractors. It serves as an agri-sourcing centers, shopping centers, and facilitation centers IMPACT Chaupal Sagar stores have become meeting point for farmers to transact commerce and exchange useful information. ITC awarded Innovation for India Award 2006 for e-Choupal in the Social Innovations category for business organizations. e-Choupal specially cited in the Government of Indias Economic Survey of 2006-07 for its transformational impact on rural lives. e-Choupal is one of the top five alternative channels for LIC Policy sales, and accounts for 10percent of the national weather insurance market helping bring prosperity to rural households. With additional fiscal incentives provided by the government, rural India is set to witness further boost in overall farm incomes. Overall, there is a huge market which is waiting to be served, ready to splurge, willing to explore new products and services. Retailers can tap on their wallets given they do their homework well. According to India Retail Report 2009 by Images, "India's rural markets offer a sea of opportunity for the retail sector. The urban-retail split in consumer spending stands at 9:11, with rural India accounting for 55 percent of private retail consumption." As per IBEF, rural India accounted for almost half of the Indian retail market, which was worth about USD 300 billion. With most of the retail markets getting saturated in Tier I and Tier II cities, the next phase of growth is likely to be seen in the rural markets. Major domestic retailers have started setting up farm linkages. Few examples include, DCMs Hariyali Kisan Bazaars, Pantaloon Godrejs joint venture Aadhars, ITCs Choupal Sagars, Tatas Kisan Sansars and Reliance Fresh are some of the established rural retail chains.
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Many Retail players are capitalizing on rural India s potential by Partnering with farmers Triveni (Khushali bazaar) Triveni aims at increasing the association of rural communities. Currently the company has 2 owned and 4 franchises stores. Each store provides to farmers agri inputs, agri equipment for sale and rental, irrigation equipment, cattle feeds, FMCG, petrol, diesel, two wheelers and tractors, and other goods to complete the farmers basket of goods ITC (e chaupal) IITC procures all materials directly from the producers, thereby cutting down the middlemen all together It pays upfront to the producers, meaning there is no credit system HUL (Shakti) Access to the remote rural areas and market potential Sell its products through women self-help groups who operate like a direct-tohome team of sales women in inaccessible areas where HLL's conventional sales system does not reach
Godrej Agrovet (Aadhar) Complete solution provider to the farmers rendering farm advisory services, credit facility to farmers, providing up to date information on weather, price, soil & water testing facility, FMCG / consume durables, etc. to farmers Reliance Retail (Fresh & Fresh plus) Focusing on sourcing directly from farm gate for Fresh & Fresh Plus. Aimed at connecting farms & unorganized retail by setting up 1600 farmsupply hubs across the country. Tata (Tata Kisan Sansar) Provide end-to-end solutions, right from what crops to grow to how to sell them for the maximum returns M&M (Shublabh) Shublabh interfaces with bank for the financing w.r.t the fertilizer and seeds firm ,as well as for the delivery of produce to the end buyer and payment to farmer
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DCM (Hariyali Kissan Bazaar) Caters for about 15-20,000 farming households and at least 70,000 acres of agricultural land.
Innovate: categories, services, business models In todays world of internet technology, globalization when everyone is connected and well informed; retailers have to ensure that they continuously understand the pulse of their customers and design their offerings accordingly. This requires not only in-depth understanding customer requirements but also thinking laterally to come up with innovative solutions which would make the retailers stand out of the crowd. With rapid globalization, increased connectivity and heightened awareness the consumer is much more conscious about his needs and requirements. He not only seeks to purchase a product but also the entire shopping experience. KPMG believes that players, who can customize their offerings according to the specific needs of the Indian consumer, are likely to emerge as a leaders. Retailers have to start appreciating this fact and take out their thinking hats to plan innovative solutions for their customers.
The current environment is a good time for generating trials; the consumers are actively looking for the best value and may therefore be more than willing to experiment. Internationally, with consumer currently debating over whether or not to spend their hard-earned money on that next cup at Starbucks, McDonald's has a perfect opportunity to prove that their Premium Roast coffeea step up in price for McDonald's, but still cheaper than Starbucks is a pretty tasty brew. Innovation and newness should be the name of the retail game in India. As an industry we have to be radically different in our approach towards consumers, product offering, market segmentation and competition. This would create demand within the target segment and in turn help attain viability for the business model. Instant gratification as envisaged by the promoters in the past actually reduced the share of the pie resulting in the repelling impact as witnessed today.- Anurag Rajpal, Vice President (Apparel), Spencers Retail.
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Mom & Me Stores : A Unique Specialty Retail Model Business Model Target Audience A specialty concept started by The primary target for company Mahindra & Mahindra's in January includes -9 to 9 2009 Store size: Range between 5,000 and which means women who are 10,000 sq.ft Stores to be located in expecting, to Metros, major cities at high street or mothers who have kids up to the age of mall locations The concept provides 9 years, various functionally important and kids from 0-9 years products that offer safety and quality products that are currently lacking in India Product Offerings Add ons Product basket would comprise of Value added services like feeding area, maternity wear, fashion apparel for play area babies, toddlers & young kids, toys & for kids, nappy change area, and other games, wellness products for mothers facilities and babies, nursery and furnishings, like a stroller to use at the store, travel & safety reading lounge, products, personal products, foods, etc. etc. Partnership with international brands: M&M will conduct morning coffee Startrit, Brainy Baby, Mary Meyer, meetings, CAM, Bugaboo, Evenflo,and Avado consultations with experts and many such more events to be a source of knowledge and expertise for customers The website will also serve as a f forum for customers to share information
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Big Bazaars Chaos Theory Evolved to evolved to cater to the Indian Mindset Concept A value for money hypermarket that subscribes to the notion that chaos in stores increases sales. Mr. Kishore Biyani realized that in abroad hypermarkets have long, narrow aisles, suitable for individuals shopping around carts which wont work in India, so in big bazaar he created multiple clusters within every store. The stores are designed as an agglomeration of bazaars with different section selling different categories. The U-shaped section and islands have proved to be more appropriate for the Indian context than long aisles. Brought in the innovative concept of sabse saste 3 din which offers, deals and discounts, helping ensure that there is something for everyone in the family to shop for, and customers get 'valuefor-money'. Impact Big Bazaar and Food Bazaar to be hived off into independent companies. Big Bazaar is eyeing a turnover of USD 1700 million by the next financial year. In 2007-08, Big bazaar clocked 110 million footfalls. Kishore Biyani awarded the 'Retail Face of the Year at Images Retail Awards 2007.
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FUTURE OUT LOOK "We predict an increase in 'value for money' category and a decline in lifestyle category. Also we might see lesser aggression in stores expansion and focus on store productivity, shrinkage and loss reduction"Narayanan Ramaswamy, Executive Director, KPMG
Retail
Every usage High ticket retail Impulse purchase High end luxury Value Format Home furnishings/ Books/Music/ Apparel/ fashion The past six months have been difficult for the retail industry. Retail has been one of the seven industries in the country that have been severely impacted by the downturn in economic conditions. The sector has entered into a mode of correction removing some of the flab that had accumulated over the past 5 years of rapid expansion. Almost all retailers that we met with were redrawing their expansion plans and seriously evaluating options to close out poor performing stores. These efforts are expected to intensify over the next few months. There could be some Merger and Acquisition (M&A) activity that has been missing of late with the long-term players likely to consolidate and move ahead strongly.
There is a consensus however within the sector that this restructuring exercise may continue for the next 12-18 months before retailers begin another serious round of expansion. The long term prospects for retail chain expansion are still very attractive and this period of uncertainty is seen by retailers as an important consolidation imperative for an industry that has been growing at 30-40 percent p.a. over the past decade. The relatively low rates of penetration of organized retail in most categories coupled with the sheer attractiveness of Indias demographic and
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economic environment is expected to continue to add momentum to overall prospects of this sector in the long term.
Short term outlook The current slowdown is expected to last 2430 months conditional on government incentives in increasing spends on infrastructure, development initiatives and other activities to stimulate the economy. In light of the effects of the slowdown, we expect an increased focus on value retail in the coming months and a shift away from lifestyle goods. The focus is likely to shift towards food retailing and FMCG products as this segment is largely insulated from the slowdown. Retailers may start focusing on cost reduction by closing the unprofitable stores and rationalization of capital expenditure. Churn in malls is likely to increase in the short term when some retailers may find it difficult to sustain in the current economic situation, instead opting for low rent premises. As Tier I cities become saturated, retailers are likely to move to Tier II, Tier III cities where profits are higher due to lower rentals and operating costs. There are going to be increased investments in shortening of supply chain. This is mainly due to the incentives offered by the government and the potential for higher profit margins. The frequency with which retailers liquidate slow moving goods by offering discounts to reduce inventory are expected to increase
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TOPIC 5 ISSUES EMERGED India is the fifth largest retail market globally, with a size of INR 16 trn, and has been growing at 15% per annum. Organized retail accounts for just 5% of total retail sales and has been growing at 35% CAGR. Though the journey has so far been rather mixed,organized retail is being tipped as one of the biggest gainers from growing consumerism and rising income. Indias robust macro- and microeconomic fundamentals, such as robust GDP growth, higher incomes, increasing personal consumption, favourable demographics and supportive government policies, will accelerate the growth of the retail sector. We have structured the report broadly In three parts (1) Learning from the past (2) Consolidation (3) View on future (4) Critical issues 1) Learning from the Past: During 2005-2007, the sector was in a hyper growth phase. In pursuit to capture market, companies made strategic as well as operational errors which has been broadly classified as follows: i. Race for increasing retail space resulting in haphazard growth ii.Unviable formats iii.High lease rentals iv.Manpower costs and productivity issues v.Poor backend infrastructure vi.Entry of too many new players 2) Consolidation: During the global slowdown phase of 2007-2009, the Indian retail players paused to realize their past mistakes and took time and effort to reorganize themselves: i.Focus on profitable growth ii.Exit from unprofitable stores / formats iii.Rental renegotiation / revenue sharing arrangements iv.Reduction in salaries / higher manpower productivity v.Significant investments in backend vi.Exit of unsuccessful new entrants Industry also witnessed failures like Subhiksha and Vishal Retail with many other existing players still trying to fine tune their operation
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Learning from the past Hyper Growth Frenzy - The Indian organized retail revitalization is already reflecting in improved financials over the past few quarters and this trend will sustain in the coming periods as well. However, the sector underwent a hyper growth phase during 2005-2007. The companies got carried away and committed strategic and operational errors, which they subsequently realized. Race for increasing retail space resulting in haphazard growth - Organized retailers entered the race of adding retail space without proper due diligence on the catchment area, mall density and acceptability of organized retail. Retail space addition was looked upon as a key success factor and was a key market cap driver. This resulted in haphazard growth, with several malls coming up within a square km in places like Gurgaon and Ahmedabad, which impacted footfalls and store viability. Unviable formats - Various formats mushroomed during the hyper growth phase. Retailers were looking to create some niche positioning for which they were ready to experiment. Large retailers expanded into numerous specialty formats ranging from mobile phones, beauty, health, wellness, media, entertainment, catalogue retailing, tea and snacks kiosks, etc. Some of these ideas were ahead of their time, as the modern Indian shopper had just begun emerging. In their attempt to get a higher share of the consumer wallet, retailers ignored the value proposition for the consumer High lease rentals -Retail is a tough business to operate; PAT margins are as low as 2-3%. Indian organized retail follows the lease rental model due to high real estate costs and paucity of quality malls. Lease rentals should ideally be 3-6% of sales depending upon the format. However, rentals in a few specialty stores touched Rs 300/sf/month during the heydays - in a period of two years, lease rentals in general increased 50-70%. The increase was more evident in FY08 and FY09 due to decline in same store sales growth. Manpower costs and productivity issues - Aggressive store opening plans resulted in retailers keeping a bench of new recruits. Trained manpower was scarce, which resulted in salaries of experienced professionals going through the roof. However, lack of properly trained manpower and people with sales and
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retail mindset resulted in poor productivity for the industry and impacted performance. Poor Backend infrastructure- Focus of organized retail during 2005-2008 was faster store openings, with little focus on strengthening backend activities like vendor development, supply chain management, inventory management, logistics and reducing wastage. This resulted in companies having high cost of logistics, poor fill rates (70% of the required SKUs or goods) and stockouts (lack of automated ordering systems and real time inventory), and very low inventory turns (loads of slow moving inventory in stock) Entry of too many players- The hyped phase resulted in the entry of houses like Reliance, Bharti, Aditya Birla Group, India Bulls, Mahindra, Godrej, DCM, Marico, Dabur, etc with already established players like Tata, RPG, Future Group, Raheja, etc. Most of the players that entered the space had no prior experience in retailing nor were there any synergies with their existing businesses. Many players just entered to create a footprint, which could later be sold to foreign players in event of opening up of FDI in retail. Methodological Issues: 1. Supply Chain Supply chain dynamics is a critical factor for growth and profitability of modern trade due to following reasons: Regional variances exist in demand patterns which result in differences in goods distributed to cities/rural area . Value conscious consumers demand lower prices, which require retailers to be cost efficient It can assist retailers in creating strong customer value propositions, such as being more cost effective, providing fresher products, better product assortment and have a better reach. 2. Innovation and Marketing The importance of branding is imperative in todays increasingly crowded retail marketplace which not only comprises several brands but is also characterized by the consumer's fickle mindedness about choosing products. Innovations in Retail Sector Launching of new formats (SIS, Value, etc.) Customer loyalty programmes that enable retailers to use customer data to generate new product ideas, build brands, launch marketing and promotional campaigns
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Creation of private labels that, over time, can be marketed, branded and positioned as unique and well recognized brands Development, creation and implementation of customer service standards that delight and excite consumers as they interact with retailers Creation of new distribution channels such as non-store channels where the staff visit consumers at their homes and bring merchandise, allowing consumers to display products in their homes, understand product features, etc. Companies are focusing on making marketing strategies more efficient at lowest possible cost. Some vehicles that are being increasingly used are:
3. Private Label products a major growth driver for retailers Since Indian consumers are value conscious, Retail & Consumer companies are launching a range of private labels products in order to meet the demands of value conscious consumers, to develop product portfolios and to improve margins in a retail environment where efficiency and competitiveness is imperative While low-price private labels exist, retailers are changing their focus from a price game to one that involves developing a portfolio of brands with distinct positioning for each brand. Retail chains are trying to understand unfulfilled demands existing in Indian market through need-gap analysis and are incorporating demographic and psychographic indicators. Indias major retailers expect to embark upon the following strategies for their private label products range of offerings
4. GST will benefit retailers After much deliberation, the Empowered Committee (EC) of State Finance Ministers finally released the First Discussion Paper on 10 November, 2009 on the implementation of a dual GST in India. The nation-wide implementation of a dual GST signals the next generation of tax reforms designed to remove the barriers of trade through a common market in India and to accelerate the countrys growth prospects.
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The dual GST will have a material impact on businesses. The taxable events under the dual GST regime would be significantly different from those prevalent under the existing excise and value added tax provisions. Besides, there will be major differences in terms of the tax base, the rates of tax, the manner of levy and collection thereof, the manner of utilization of input tax credits etc. It is therefore apparent that trade and industry must gear itself up for the GST, not only from a business efficiency standpoint but also from a compliance standpoint In particular, the impact of the GST on the retail sector is likely to be extremely significant, given the significant growth of the retail sector and hence its relative size, but also because of the nature of the dual GST itself Some of the key advantages for the retail sector under the GST regime: i. GST will benefit retailers - Cross border retail trade between States can get easier with GST and this would help many retail companies to expand their distribution optimally. The tax will also have a significant positive impact on the supply chain of retail operations. However, most importantly, the dual GST is expected to operate in a manner that all of the input taxes paid on procurement of goods and services by retail companies will henceforth be eligible for a complete offset. ii. Major tax issues impacting retailers and how GST can assist - The retail sector currently faces the significant challenge of an inability to offset the service tax credits pertaining to several input credit services, including the most significant cost for retail companies of property rentals, as also non-creditable central sales tax on inter-state purchases of goods. Similarly, on imports,the retail sector is unable to offset the countervailing duties against output taxes. Under the proposed GST regime, these challenges will entirely disappear since the retail sector would be able to offset the entire input taxes, whether paid at the Central level in the form of the CGST or at the State level in the form of SGST against its output CGST and SGST respectively. Even with regard to inter-State sales of goods, the sector can offset the input taxes of the CGST and SGST against the output IGST which is applicable on such inter-state sales. iii. Simplified Compliance Requirements From excise standpoint - The retail sector typically undertakes activities such as packing and repacking of goods procured in bulk quantities into retail packs.
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Such activities with reference to specified products are treated as deemed manufacture under the current excise laws and accordingly are liable to excise duty. The retailers have to ensure timely payment of such taxes, filing of returns etc. leading to practical difficulties and increased compliance costs. Further, the additional excise duty burden is possibly borne by the retail sector as increases in the price of products may not always be possible. The GST regime can help address some of these problems From excise standpoint - Currently the retail traders need to deal with different compliance procedures in different states. Besides adding to compliance costs, these pose problems in maintenance of uniform and consistent reports and accounts across all states. This leads to serious IT systems challenges. The GST regime would reduce the currently prevalent disparities in compliance procedures across different states to a large extent thereby paving the way for a far lower tax compliance cost for the retail sector Uniform threshold limits under proposed GST regime - The current tax structure lacks uniformity, in terms of prescribed threshold limits and periodical compliance requirements. The threshold limits prescribed by the different State VAT laws vary from INR 0.2 mn to INR 0.5 mn. Under the proposed GST regime, a uniform SGST threshold across states is recommended at a gross annual turnover of INR 1 mn both for goods and services. However, the threshold for CGST for goods is proposed to be kept at INR 15 mn with a similar high level for services as well. In addition, there would be a compounding cut-off at INR 5 mn of gross annual turnover and a floor rate of 0.5% across the States Differing thresholds for CGST and SGST will be relatively difficult to administer as compared to administering uniform thresholds across the two taxes. Further, differing thresholds across goods and services will also pose problems. Clearly, uniform thresholds are a better option from a business standpoint. The retail trade has a stake in ensuring uniform thresholds. However, should the differential thresholds remain intact, the retail sector would need to adopt in order to ensure that it is both compliant under differing thresholds as well as able to fully offset its input taxes. The impact of GST on tax collection from Retail sector: is expected that the dual GST will comprise CGST and SGST of 8% each. If this assumption becomes a reality, it would mean that the overall revenues could decline due to reduction in the current aggregate rate of 20% (approximately) comprising federal excise of 8% and the State VAT at the typical rate of 12.5% by four percentage points. However, this will be balanced by the fact that the federal GST will now apply throughout the chain and will no longer be restricted to manufacturing
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e will enable the state governments to maintain tax revenues from the retail sector, notwithstanding the reduction in the State GST rate from 12.5% to 8%. The important and independent point however, is that the GST will surely incentivize an explosion in consumption and therefore it plays to the larger story around the fact that Indias economic growth is essentially domestic consumption led growth
enhancement of revenue for both the Central and the State Governments. The retail sector is at the centre piece of this great consumption led growth story. Consequently, the GST will undoubtedly ensure that the tax revenue from the retail sector will significantly rise in the times to come. Summary The key benefits of the GST for the retail sector are as follows distribution
ffer lower prices for goods through increased offset efficiencies as also lower compliance cost
SGST and IGST collections. 5. Workforce management practice is at nascent stage According to the Indian Labor Market Report 2009, published by the Tata Institute of Social Sciences (TISS), retail is the largest employer among the emerging sectors in India. Hiring in the retail sector is projected to increase in the future due to several new entrants, including well-known global names, entering the sector as well as the range of formats that retailers plan to adopt Growth in the Indian retail sector and the corresponding demand for talent has highlighted the need for effective workforce management systems. A closer look at the industry suggests that in general, HR practices in workforce management are in the nascent stages of development. To understand the challenges in acquiring. developing and retaining a retail workforce, it is important to understand the context of talent in the retail sector:
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is somewhat scarce high turnover of greater than 40 percent, with even the larger and more established retailers facing attrition rates, which can be higher than in other sectors
infrastructure Talent Acquisition Organized retailing is highly manpower intensive. At the lower levels, there is requirement for large number of support staff,such as customer care associates. It is essential to hire employees with the right hard and soft skills, customer service ethic,etc. Employers have explored various options of meeting workforce requirements from hiring students on a part-time basis to entering into agreements with management schools to offer programmes in retail management for line staff and store managers
multinationals and other retailers -end operations like HR and merchandise management, FMCG companies are targeted as sources for potential hires
content and courses in retail management internal hiring to fill talent requirements. Employers are increasingly using technology and outsourcing services to manage large scale staffing programmes. 5. Sustainability and green marketing Sustainability is becoming a business imperative and involves securing businesses for the future. Sustainability issues are affecting retailers across every point of the business model. Converging influences are forcing sustainability issues to the top of the corporate agenda and are impacting every function and business unit. Consumer awareness, pressure on commodity and energy prices, scarcity of raw materials, together with regulator and competitor actions are combining to ensure businesses cannot ignore the environmental and social dimensions of how they operate. Understanding the strategic implications of the drive for sustainability and factoring it into corporate decision-making is
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to secure the future and enhance commercial performance Sustainability has internal and external implications for costs, risks and commercial performance. The commercial logic for assessing and minimizing energy, carbon, water and commodity usage is clear. A more efficient use of key inputs and reductions in waste offers cost-saving opportunities Therefore, leading companies are opting for a two-pronged mandate
needed to manufacture and operate Consumers are becoming increasingly attuned to sustainability issues and demanding retailers to keep pace with their changing expectations. Most consumers in India are in the early stages of thinking of sustainability as a high-cost option or a luxury that normal people cannot afford. Retailers, therefore, assume an important role in promoting the accessibility of sustainable products to all consumers. In todays economic climate, consumers want to understand why a price premium exists so they can make an educated choice on which products best fit their emotional, ethical and functional needs. At present, the three major sustainability issues facing retailers are Climate change - The measurement of retailers carbon footprints and those of their products is seen as an important step in enabling retailers to understand and mitigate their impacts on climate change. Although the carbon footprint labeling of individual products by selected large retailers is a step forward, the initiative is at a relatively early stage and to date lacks the critical mass and public awareness to drive significant changes in consumer behavior Waste - This issue is at the top of the agenda for both consumers and retailers. There is a widespread call for reducing the overall amount of packaging, more guidance on recycling and more education and emphasis on re-use. This area needs co-ordination and leadership, ideally from the industry, working closely with local authorities and other experts Supply Chain - Ensuring security of supply is considered to be a goal which can be compatible with social compliance and something that retailers can work on together. Responsible procurement brings with it many issues for retailers and these are perceived to become more pressing as environmental pressures become increasingly felt. Collaborative efforts seem to be the most effective response to many of these issues in terms of increasing the impact and reassuring consumers
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Green Marketing Green marketing, which initially emerged in the early 1990s in the developed countries, involves the procuring and supplying of products or services that have a lesser or reduced effect on human health and the environment, as compared to competing products or services that serve the same purpose. The goal of a green marketing program is to implement approaches that enable companies to purchase and supply products or services of a high quality, at the most reasonable cost, while also lowering the impact on the environment and human health. Green marketing has the potential to impact sustainable consumption and also result in significant shifts in demand and supply. While the development of these items is at a nascent stage, consumers are helping drive Research & Development efforts due to increasing awareness about climate changes and rising energy prices, heightened focus on health and safety, and the desire to help contribute to the preservation of the environment. Green marketing typically aims to satisfy customers and improve the quality of the environment. Retailers must take several initiatives to shift their focus from niche to mainstream consumers, make green products affordable and thereby contribute in solving environmental issues Aspects related to development of green marketing initiatives in India are - Some retailers are not focusing on green marketing at this time since their consumers are not demanding environment-friendly products and services. - Some retailers indicate that they are choosing to focus on improving operations and strengthening the profitability of their ventures, before addressing non-core activities, like sustainable practices and development - Selected retailers, such as McDonalds, are committed to reducing their carbon footprints. To that end, the company removed preschoolers from its restaurants and found a way to direct cool air from ACs to the coke system which results in chilled coke. The company, in addition to using biodegradable packaging, also constantly refreshes air in their restaurants; during low volume periods, McDonalds adjusts fresh air refreshment levels to reduce carbon emissions some of the practices include
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s since plastics and packaging are high costs items -branded linen bags or persuading them to bring their own bags by charging them for the purchase of plastic bags thermal bills which are 20 percent the size of A4 paper-based bills
Few initiatives that retailers can undertake upon creating sustainable business practices are -
jute bags
-branded linen bags
material
uce the quantity of paper consumed, (i.e. two-sided copying/printing and multiple-page in one page copying/printing)
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t thermal bills
magazines, corrugated cardboard, etc.)
-by mode , insulators and foaming agents that have minimal effect related to ozone layer destruction and global warming
events the sensitizing taglines in the products (e.g., Think Climate Wash at 300C.) - A carbon footprint is the total set of greenhouse gas (GHG) emissions caused by an organization,event or product. Retail space carbon footprint reduction is gaining importance due to the emergence of green building concepts and also the increased focus on establishing energy efficiency in stores - Many supermarket chains have been assessing transport usage and are exploring alternatives to transportation and distribution by road. Some global retailers have:
required their fleet vehicles to use more efficient vehicles and therefore, lower the level of emissions
- The water footprint of a business (i.e. the corporate water footprint) is defined as the total volume of freshwater that is used directly or indirectly to run and support a business. It is the total volume of
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water use, to be associated with the use of the business outputs. The water footprint of a business consists of two components
supporting activities)
- Switching to renewable sources of energy, such as wind and solar power, to operate offices helps reduce carbon emissions. Investing in renewable energy also supports the uptake of green energy which is vital in moving towards a low-carbon economy
and GHG emissions emitted during manufacturing of the product is important -efficient ovens, refrigeration and air-conditioning is important since these tools are the major users of energy in retail stores
lights when they are not needed - Physical supplies are running out faster than previously predicted, competition for remaining resources is intensifying and in the medium-term we are likely to see changing weather patterns that lead to volatile output levels. Many retailers have been working with suppliers to reduce packaging waste associated with the products sold Rural livelihoods - The use of retail goods leading to sustainable livelihoods for indigenous artisans and craftsmen is increasing, as locally made handicrafts, fabrics and ecologically beneficent and natural products find place in retail outlets that position themselves as sensitive to sustainable business practice - Greening the supply chain through healthier products and environmental quality is emerging as large international groups who follow a uniform global policy with respect to green procurement enter India
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- Retailers need to encourage and help customers to change their behaviours. The retail sector can effectively influence lifestyles changes since it is in daily contact with consumers moods, preferences and expectations.
Some issues that retailers can explore include:
food products ng overconsumption: Replacing buy one get one free offers with promotions for greener (low carbon) products could have a significant impact on consumer choice
Key Findings - Organized retail will form 10% of total retailing by the end of this decade (2010). - From 2006 to 2010, the organized sector will grow at the CAGR of around 49.53% per annum. - Cultural and regional differences in India are the biggest challenges in front of retailers. This factor deters the retailers in India from adopting a single retail format. - Hypermarket is emerging as the most favorable format for the time being in India. - The arrival of multinationals will further push the growth of hypermarket format, as it is the best way to compete with unorganized retailing in India.
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Key Issues and Facts Analyzed The research report also addresses the issues and the facts that are critical to the success of Indian retail industry in general & organized retail industry in particular. - Evaluation of current market trends. - Profile discussion of key players in this sector. - Analysis of various challenges and opportunities before the industry. Key Highlights of the Market - What is the market size and scope of the Organized Retail in India? - What and where are the growth prospects and issues related to the industry? - What are the factors driving growth in this sector? - Size of organized market segment wise and its growth prospects. - Who are the major players in Indian Retail Industry, their presence and strategies being used by them and their market positioning? - What are the opportunities & challenges in front of the retailers in India and emerging trends there? . These all mention above are the key challenges and factors emerged in the study of the research and should be kept in mind while deciding the future way of Indian Retail Industry.
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TOPIC 6 OBEJECTIVES OF THE RESEARCH
The retail sector is in trouble, with consumer confidence at its lowest in years and consumers facing higher living costs on almost every front. Retail confidence has plunged to a five-year low, suggesting the key sector may soon slip into a recession, the Bureau for Economic Research (BER) warned yesterday. Its index for retail business, which comprises 14% of the economy, fell to 52 points in the first quarter of this year from 71 points in the previous quarter, suggesting sales volumes contracted in that period. Rising inflation and slower consumer spending, the main engine of economic growth, had eroded profit margins and sales were also expected to fall in the second quarter, the BER said. Two successive quarters of contraction would technically put the retail sector which has been hardest hit by rising interest rates into a recession. The BER has made a significant downward revision to its forecast for overall consumer spending, senior economist Linette Ellis said. We now expect it to increase by between 2% and 3% in 2010, compared to an estimated 7% in 2009 and 8% in 2008.
Falling sales? Figures from Stats SA today will also show whether retail sales fell in January, after declining by 0,5% in December and 0,2% in November the first annual falls in five years. Retailers have been hit the hardest by a cumulative four percentage point increase in lending rates since June 2006, which is expected to curb economic growth to between 3% and 4% this year from 5,1% last year. They have also suffered from a spate of unplanned power outages in January.
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Small firms that cannot afford to buy backup generators have been most affected, and business groups have warned power constraints could force many small retailers to close. The BER retail confidence index has tumbled from a record high of 91 index points to 52 points in the second quarter of last year. In the past, such a dramatic turnaround in and low level of retailer confidence typically signalled the beginning of a recession in this sector, it said. Growth slows Quarterly gross domestic product data from Stats SA has shown that growth in retail trade, which includes hotels and restaurants, has slowed for five quarters in a row. But the sector still managed to grow 2,1% in the final quarter of last year. This was unlikely to carry on in the first quarter, the BER said. Retailers for semi-durable goods such as clothing and footwear, non-durable goods such as food and beverages, and durable goods like furniture and household appliances all reported lower sales volumes. Furthermore, the majority of the BER's respondents expect retail sales to continue to contract during the second quarter of 2008, it said. The fall in confidence could also be blamed on increasing margin pressure and plunging profitability, which may reflect the inability of retailers to pass on rising costs to consumers. Inflation has soared in the past year, with the headline consumer price index surging 9,3% in December. The retailers were effected simply because the retail industry depends on the ability of people to be able to buy stuff. That might seem like an obvious statement, and of course businesses rely on customers to buy products, but the retail industry is directly effected by this. While a paper company might rely on other companies to buy the paper products, a retailer is directly effected by the consumers. When the average person all of a sudden doesn't have the money to make ends meet, they won't have money to do anything. That means that they don't have the money to go out to eat, or go shopping as much. It was seen during the holiday season when sales were slower than they have been in the past few
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years. Black Friday was roughly unchanged from last year, but most other days were not as good. When the customer doesn't have money to spend this effects everyone. When the retailer isn't making as much money, the retailer is forced to slash hours, and then slash jobs if they have to take that step. It isn't easy for the retail sector when there is no money to go around. I worked in retail during the recession, but was lucky enough to work for a company that was able to weather the storm well. Retail is still going to be effected because retail still needs those consumer dollars. The job losses aren't going to go away though, and they are the last thing to rise again. As the jobs come back the money for the retailers will come back. The retailers will be able to hire more people, and this will help the economy as more people have jobs again. The retail industry was one of the harder hit industries during the recession. It is hard to rely on the dollars of the consumer to stay afloat, and then see those dollars go away. Hopefully things will start to pick up as the recession seems to be ending, and the money will be again flowing from the wallets of the consumers. Retailers are likely to cut prices in future to create demand. Gibson Vedamani, CEO of Retailers Association of India told PTI, The present slowdown should not last more than six months. Value retail is already back on track. Retailers may reduce prices in the next few months in an effort to make people buy more. He said, As of January, they (retailers) are limiting inventories because it is critical in maintaining gross margins. According to him, there is nothing much to worry about because, the midsegment consumption is steady. Moreover, the steps taken by the government to curb inflation and interest rates has helped the industry, Liquidity position is much better now than it was till a week back. Companies in the retail sector have been working better now with the secured loans that banks have been forthcoming with.
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The Economic Impact of a Recession Possible Winners and Probable Losers Winners It has been argued that a recession has advantageous economic side-effects, both in general terms and in relation to individual sectors of the economy. It speeds up the process of business evolution, forcing companies to reduce costs and adopt new practices. A slowdown in the property market opens up opportunities for first-time buyers, partly because prices fall in general and partly because the buy-to-let sector contracts, making more properties available7. Businesses (and individuals) are more likely to think in terms of greater efficiency. They may, for example, look to switch to renewable sources of energy or insulate their properties. This will provide work for other businesses in this sector. Losers Manufacturing: The manufacturing sector has declined at a record rate as consumers rein in their spending. Construction companies have been badly hit by deteriorating economic conditions, particularly house builders. Services: Some analysts suggest it will be the service sector (e.g. retail, leisure and financial services) that will suffer the most, noting that it has already suffered its biggest fall in output since 1996. The service sector constitutes 75% of the total economy. Many of the companies most likely to suffer in a recession are those in the middle of their sector, where the sector itself does okay but consumers shift around within it: Designer stores survive because their clients, the wealthy, are insulated against recession. Most bargain stores survive as many consumers trade down. Those that suffer are the likes of M&S and Debenhams as consumers trade down or hold fire. The same is true in the hotel and restaurant industries, where it is three and four star businesses that are reporting the most significant downturns. Although in a creative sense, the Arts can thrive during a recession, it can suffer as state subsidies are cut, contributions from businesses reduce, backers for projects are harder to find and patrons look to reduce their outgoings.
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Public Sector: Cost-cutting in the public sector is also highly likely. Sources report that government departments have been asked for updated plans for job cuts, and that ministers are to draw up plans for a new efficiency drive and have been asked to reduce administrative budgets by 5%.
Summary: For many people, the reality of a recession will be a complex interrelationship between falling property prices, rising costs and the burden of personal debt. As expected, those most at risk from its economic and social effects are those on low incomes, which may be sub-divided into the likes of the elderly, the disabled and those with young children. Importantly, during a recession, many more people, who under normal circumstances would expect to at least get by, would fall into the at risk category as their circumstances changed, often through no fault of their own.
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TOPIC 7 HYPOTHESIS 1 2 3 4
Non-involvement of Government in retail industry. Stock performance of the major players. Business performance of major players. Considering all market conditions favorable as per laws and investment policies.
To accomplish this study, the following hypotheses were formulated, based on the literature review to ascertain the buying behaviors of consumers during recession. H1: The type of retail format would positively affect a change in frequency of shopping. H2: The type of retail format would adversely affect the footfall of consumers for luxury items. H3: Customers who shops frequently are more likely to respond to discounts vis --vis others. H4: Customers who shop frequently are more likely to spend a higher amount for shopping. H5: Customers who shop more frequently are likely to witness higher fluctuations for luxury items than for regular items. Limitations The study focuses and emphasizes on a sample size of 50 in and around Metros due to the time and cost constraint. Since the area of study has only been Metros and also on a select sample of 50 the results may or may not be applicable to the other cities in India.
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TOPIC 8 RESEARCH METHODOLOGY
MEANING OF RESEARCH
Research refers to a search for knowledge. It can also be defined as a scientific and systematic search for relevant information on a topic. Intact it is an art of scientific investigation. Research methodology is prepared to describe not only the research procedure and method adopted for the achievement of the project but also the logic behind the use of this method so that the result can be capable of being evaluated by the others; its main aim is keep the research on the right track. It includes research design, sampling procedure, and method of data collection and analysis procedure pertaining to the act.
The proposed investigation is tentatively based on the following materials and methods:
Sources of the data collection To conduct the investigation, data will be collected from both primary and secondary sources: 1 Primary data: Primary data will be consolidated mainly through Questionnaire that will consist mainly of feedbacks from the retailers and the consumers, the agents and supporting staff of major retail players in the market.
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2 Secondary data: Secondary data will be collected mainly through Journals online contents and market trends Magazines and feedback from financial experts
The data collected was first collated into digital form. Quantitative Analysis was then done on the data collected using SPSS 12.0 SAMPLING TECHNIQUE A sample of 100 respondents was chosen based on Random Sampling Technique. RANDOM SAMPLING TECHNIQUE In this sampling technique each and every unit of the universe has the same chance of being included in the sample. The selection of the units depends upon the element of chance and it is not affected by the investigator's bias. A sample is considered a simple random one of its members are drawn in such a way that each observation of the universe has an equal chance of being included in the sample and every possible combination of observations in the universe is the same chance of being included. QUESTIONNAIRE A questionnaire is a set of questions relating to the enquiry. I have used the structured type of questionnaire in which I have used one type of questions:
CLOSE ENDED QUESTION In this type of questions there are limited choices to respondent. The respondents have to choose the answer from the choices given.
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ANALYSIS OF DATA The analysis of the data through light on the different aspects of the survey work. For the analysis worktables are used to describe the response to the various questions asked to the individuals during survey. The number of responses to a given question is shown in it. Based on these tables, bar charts and graphs are made for the ease of understanding and to make things more clear. MARKETING RESEARCH Marketing research is the systematic design, collection, analysis a reporting of data and findings relevant to a specific marketing situation facing the company.
Marketing research process
Define the problem and research objective
Develop the research plan
Collect the information
Analyze the information
Present the findings in Report
Make decisions
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ANALYSIS AND INTERPRETATION
1. What is your family income rupee in lakhs? (Per annum)
Fam ily Incom e
15% 42% 0.5 to1 1 to 2 2 to 3 31% 12% 3 and more
Interpretation: In Udaipur and Metros city majority of people who goes to retail outlets are belong to the categories of Rs.3 lakhs and more. These people in percentage are 42%. Second highest income group is comes under the category of Rs.1 to 2 lakhs. Third highest income group is comes under the category of Rs. .5 to 1 lakhs. Forth highest income group is comes under the category of Rs. 2 to 3 lakhs.
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2. How much income you spend on Retail outlets?
Part of income spend on retail outlets

40 30 No. of 20 respondents 10 0 no.of respondents 37 26 16 8 0 75% 0
13
10% to 15% to 20% to 25% to 50% to 37 26 13 16 8
Percentage of income
Interpretation: In Udaipur and Metros city 37% people spend, 10% to 15% of their Income on retail outlets. 26% people spend, 15 to 20% of their income on retail outlets. 13% people spend, 20% to 25% of their income on retail outlets. 16% people spend, 25% to 50% of their income on retail outlets and so on.
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3.Areyou
aware
about
the
Retail
outlets
in
your
city
no 7%
yes no
yes 93%
Interpretation: In the Udaipur and Metros city the people who goes to retail outlets aware the concept about the retail outlets. According to research 93% people are aware about the retail.
4. Have you ever visited in any of these Retail outlets?
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Interpretation: According to the survey majority of people are aware about the concept of Retail outlets. Most of the people have visited in different Retail outlets people says they are know about all the retail outlets like Vishal Mega Mart, Ebony, Ansal Plaza, Elites Arcade, Subhiksha. But 80 people say they have visited the Vishal Mega Mart, 63 people say they have visited to Ebony, 77 people says they have visited Ansal Plaza and so on. 5. Do you prefer to buy from Retail outlets?
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Preference Of customer
21% yes no 79%
Interpretation: Different people have different perception about the retail but the people who go to retail outlets in between 79% people are like prefer to purchase from the retail outlets. Remaining 21% people goes to retail outlets to see the new trends, for entertainments.
6. How frequently you visit there?
How Frequently customer visit In Retail Outlets
7% 5% 19% 23% Daily Once a week Twice a week Once a month 15% 31% Twice a month More than that
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Interpretation: Most of people like to go for Retail outlets once in the month and these people like to go on generally on Sunday or holidays. Percentages of these people are 31%. Then the people like twice a month the Percentages of these people are 23%. 19% people goes to retail outlets once a week, 15% people goes to retail outlets twice a week and so..
7. From where you make the regular purchase?
Customer Regular Purchase
Retail Outlets 67 Wholesaler 32 Company Any others Outlets 37 41

No of user
S1 Wholesaler Series1 32 Retail outlets 67 Company outlets 37 Any others 41
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Interpretation: According to research study 67% people says they like to purchase from retail outlets regularly and 37% people prefer to purchase from company outlets, 32% from wholesaler and 41% people prefer to purchase from small retail shops.
8. Do you think that by purchasing from Retail outlets reduce duplicacy?
Reduction of duplication
50
No.of respondents
43
40 30 20 10 0 Strongly Agree 11 Agree 43 11 26 15 5 Neither Strongly Disagree Agree Nor DisAgree 26

Factors Series1
Series1
15
Interpretation: According to research, People rate factors on the matter of reduction in Duplicacy, the factors which are strongly agree, agree, neither agree nor disagree, disagree, strongly disagree in which 43% people are agree, 26% are neither agree nor disagree, 15% people are disagree and 11% people are strongly agree.
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9. What do you like the most about the Retail outlets? (Please give the rank from 1 to 8) Ist Preference. 8 IInd IIIr 7 d 6 Weightage Factors Latest Trend Branded product Quality Product Infrastructure Services Window Shopping Family Shopping Time Saving Mean:20 0 8 4 8 4 4 16 16 24 12 8 16 20 4 16 16 4 12 8 16 4 20 40 472 376 328 4.72 3.76 3.28 IVth VIth VIIIt h 4 4 0 16 4 8 16 20 20 4 12 16 36 8 8 24 332 396 3.32 3.96 VIIth Vth 24 12 24 0 12 12 12 4 532 5.32 IIIrd 28 12 16 40 16 12 8 12 16 8 8 16 8 0 0 0 576 588 5.76 5.88 IInd Ist IVt h 5 Vth VIt 4 h 3 VIIt h 2 VIIIt h 1 Total Mea n Rank
Total number of respondents / Sample size.
Interpretation: According to survey about what people like most about the retail outlets. I have asked the people to give the rank according to their liking about the Retail. In statement I included Eight factors which are Latest trend, Branded product, Quality product, Infrastructure, Services, Window shopping, Family shopping and Time saving.
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According to the survey the respondents given first preference to the Branded product as compare to the Quality product, Infrastructure, Services, Window shopping, Family shopping and Time saving and given second preference to the Latest trend as compare to the Quality product, Infrastructure, Services, Window shopping, Family shopping and Time saving. I have given the higher rating to the first preference rating as 8 and second preference as 7 and third preference as 6 and so on. Then I have multiplied these rating to their preference and got total rating. Then I have divide the Total by the total number of respondents (100) and I got the mean value and then given the rank. I gave the first rank to the Branded product which is having highest mean value and second rank to the Latest Trend and third rank to the Quality product and so on..
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10. What do you think about the pricing of Retail outlets?

Pricing of retail outlets 50
No.of respondents
42
40 30 20 10 0 Series1 5 Very poor 5 Poor 17 Average 42

Factors
26 17 10
Series1
Good 26
Very good 10
Interpretation:-
According to research, thinking of People about the pricing of retail outlets, the factors very poor, poor, average, good, very good in which 42% people have average, 26% have a good ,10% people have very good, 17% people have poor and 5% people says very poor.
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11. Are you satisfied with the services provided by them?
Satisfaction level
60
No. of respondents
51
50 40 30 20 10 0 Series1 Highly 19 satisfied 51 Neither 16

Factors Series1
19
16
11 3 Dissatisfie 11 Highly 3
Interpretation:-
According to research, People rate their satisfaction level with the factors which are Highly satisfied, Satisfied, Neither satisfied nor dissatisfied, Dissatisfied, highly dissatisfied in which 51% people are Satisfied the service provided by the retail outlets, 19% people are saying they are highly satisfied with the service,16%people are neither satisfied nor dissatisfied, 11% people are dissatisfied the service and 3% people are highly dissatisfied the service.
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12. Which factor do you most consider while purchasing the domestic needs? (Please give the rank from 1 to 7)
Ist Preference. Weitage Factors Convenience Location Discount Sale Credit Option 0 8 8 And 12 7
IInd 6
IIIrd 5
IVth 4
Vth 3
VIth 2
VIIt h 1
Total Mea n
Rank
20 16 12
24 20 12
32 20 8
8 24 24
4 12 24
4 0 8
468 428 376
4.68 4.28 3.76
Ist IVth VIth
16
16
44
244
2.44
VIIt h
Product Availability
12
24
12
28
20
444
4.44
IIIrd
Branded Product 36 More reasonable 24 price Mean:-
8 12
16 8
0 4
16 12
8 16
16 24
460 388
4.60 3.88
IInd Vth
Total number of respondents / Sample size.
Interpretation: In the Question I have try to cover all the factors which generally people consider while purchase the domestic needs. In statement I included seven factors which are Convenience, Location, Discount And Sale, Credit Option, Product Availability, Branded product and More reasonable Price.
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According to the survey the respondents given first preference at the time of purchasing domestic needs to the Convenience as compare to the Location, Discount And Sale, Credit Option, Product Availability, Branded product and More reasonable Price and given second preference to the Branded Product as compare to the Location, Discount And Sale, Credit Option, Product Availability and More reasonable Price..
13. Future of Retail outlets in Jaipur is bright?
Future of retail outlets

60 No. of respondents 50 40 30 20 10 0 Strongly Series1 58 Agree 22 Neither 10 Factors Disagree 7 Strongly 3 Series1
Interpretation:-
People of jaipur says the future of Retail outlets is bright in jaipur they excited to know that their are other big industry house are entered in retail business very shortly like reliance is coming in retail segment with the name of Reliance Fresh, Tata, Bharti are yet to come. Bharti is coming
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in retail segment with the tie up world largest Retail Company Wallmart, pantaloon,Bigbazaar. According to research, the factors strongly agree, agree, neither agree nor disagree, disagree, strongly disagree, in which 58% people are agree, 22% are Strongly agree ,10% people are neither agree nor disagree, 7% people are disagree and 3% people are strongly disagree regarding the future of retail outlets.
CONCLUSION The name of the project Causes and Impact Of recession In Indian retail Sector. I did my research study in Udaipur and Metros city and people who are visit to Retail outlets and having the knowledge about retail outlets are included in sample and the sample size is100 deliberately taken by me. I selected the people randomly and its include all age group which goes to retail outlets in this research study I included all the age group to reduce the biasness. I conclude that people like to visit the retail outlets most probably at the end of weekend and holidays. A person who regularly goes to retail outlets is generally purchase from retail outlets and most of the people are agree that purchasing from retail outlets reduce duplicity. Retail outlets provide better price for quality product. According to the survey the response of the people regarding service that retail outlets provide average quality services. People like to purchase the branded product and these retail outlets provide the different branded product according to the requirement of customers. Most of the people like to purchase their domestic needs according to their convenience.
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LIMITATION
Although I have made my best efforts to get as accurate data as possible but even then the data used in this report is subjected to some limitations and these limitations.
USE OF MAGAZINES AND ANNUAL REPORTS: The various publications magazines have been used to get the information but sometimes the information that is presented may be inadequate. INADEQUATE KNOWLEDGE: Customers dont have sufficient knowledge about the services provided by retail outlets so that they may give wrong information also CHANCES OF HUMAN ERROR Some respondents have not given the proper answers, they are not aware of the objectives undertaken for research purposes. TIME CONSTRAINT Time has also affected the research due to less availability of number of days; sur vey was conducted in few days. LACK OF CO-OPERATION OF SOME RESPONDENTS Some Respondents do not properly Cooperated for giving answers the basic reason they are giving for non cooperation was non-availability of time.
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Changing face of retail and its implication on consumer behaviour. QUESTIONNAIRE NAME ADDRESS ______________________________ ______________________________ ______________________________
1. What is your family income rupee in lakhs? (Per annum) 0.5 to 1 ( ) 2 to 3 ( ) 1 to 2 ( ) 3 and more ( )
2. How much income you spend on Retail outlets? 10% to 15% ( ) 25% to 50% ( ) 15% to 20% ( ) 50% to 75% ( ) 20% to 25% ( ) 75% and above ( )
3. Are you aware about the Retail outlets in your city? Yes ( ) No ( ) 4. Have you ever visited in any of these Retail outlets? Vishal Mega Mart ( ) Ebony ( ) Elites Arcade ( ) Subhiksha ( ) Others ____________________ 5. Do you prefer to buy from Retail outlets? Yes ( ) No ( ) Ansal plaza ( )
6. How frequently you visit there? Daily ( ) ( ) Once a month ( ) ( ) Once a week Twice a Month ( ) ( ) Twice a week More than that
7. From where you make the regular purchase? Wholesaler ( ) Retail outlets ( )
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Company outlets ( )
Any others
__________________
8. Do you think that by purchasing from Retail outlets reduce duplicacy? Strongly agree disagree ( ) Disagree ( ) ( ) Agree Strongly disagree ( ) ( ) Neither agree nor
9. What do you like the most about the Retail outlets? (Please give the rank from 1 to 8) Latest trend ( ) Infrastructure ( ) Family shopping ( ) Branded product ( ) Quality product ( ) Services ( ) Window shopping ( ) Time saving ( )
10. What do you think about the pricing of Retail outlets? Very poor Good ( ) ( ) Poor very Good ( ) ( ) Average ( )
11. Are you satisfied with the services provided by Retail outlets? Strongly agree disagree ( ) Disagree ( ) ( ) Agree Strongly disagree ( ) ( ) Neither agree nor
12. Which factor do you most consider while purchasing the domestic needs? (Please give the rank from 1 to 7) Convenience ( ) ( ) Credit Option ( ) ( ) More reasonable price ( ) Location ( ) Discount & Sale Branded product
Product availability ( )
13. Future of Retail outlets in Udaipur and Metros is bright? Strongly agree ( ) Agree ( ) disagree ( ) Disagree ( ) Strongly disagree ( )
Neither agree nor
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The sample comprised of hypermarket,supermarket,departmental stores and kirana stores. It constituted more of kirana stores as shown in Figure 1. The various retail outlets in the sample included Pantaloons, Shoppers Stop, Spinach, Westside, Big Bazaar, Food Bazaar etc. Footfall in FIGURE 2 means the number of people visiting these stores. It has been found that according to 72% of the retailers there has been a decrease in footfall. No change observed in footfall of kirana stores.
FIGURE 1
FIGURE 2 Frequency of regular customers in FIGURE 3 implies that most of the regular customers used to shop for more than once a week before recession.
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Change in frequency of shopping as shown in FIGURE 4 suggests that 60% of the retailers found that their regular customers have been less frequent now for shopping. Hence people have changed their frequency of shopping.
FIGURE 3 Change in frequency of shopping
FIGURE 4 Customer response towards sales, discounts and schemes as in FIGURE 5 shows that most of the retailers find that their sale boosts up during sales, schemes and discounts. This is because people are cautious of spending
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money now.
FIG URE Purchase of luxury Items This is evident from FIGURE 6 that the sales of luxury items have decreased during the past few months. This shows that customers have cut their expenses on luxury items.
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It has been found as shown in FIGURE 7 that 60% of the customers spend their money on household items. Customers spend their money on necessity items like grocery etc which means recession has not affected the sale of necessity items.
It may be observed from Table 1 that a very high positive correlation of 0.721 significant at 0.01 levels exists among the Type of retail format and the change in frequency of shopping. This suggests that Hypermarkets, supermarkets witness a greater change in shopping behavior than the kirana stores. Hence, Hypothesis 1 stands proven. Also the type of retail format has a very high negative correlation with footfall in consumers which has been estimated at -0.524 (significant at).01 levels). Hence, Hypothesis 2 is proved.
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Correlation Analysis: TABLE 1 Change Resp on Busines in Chan Most Freque freque se Type s footfal ge in spend l t luxur in g nc y perform nc y o anc e y Type 1 -0.236 -0.206 .721(** disco 0.26 -0.093 0 items .524(* ) Busines unt s *) s -0.236 1 .649(* 0.179 -0.36 -0.327 0.238 -0.125 perform *) anc e Footfall 1 0.168 -0.23 -0.161 0.051 .524(* .649(**) .764(** *) ) .509(* .578(* Frequenc -0.206 0.179 0.168 1 -0.2 *) .623(* *) y Change -0.2 1 0.041 *) 0.303 -0.232 i .721(* -0.36 .764(* *) n Respons 0 *) -0.327 -0.23 .509(** 0.041 1 .534(* frequenc .612(* *) e ) *) to y Change discounts -0.161 0.303 1 i 0.26 0.238 .623(** .612(* .649(* n luxury Most *) -0.093 -0.125 0.051 ) .578(** -0.232 *) .534(* 1 items spendi ) *) .649(* ng Change 0.158 -0.277 -0.26 .428(*) -0.116 *) 0.137 -0.291 .524(* i *) n billing In case of Hypothesis 3 i.e. Customers who shop frequently are more amt likely to respond to discounts vis--vis others is proved since the correlation coefficient 0.509 found is highly significant at 0.01 levels. It may further be observed from the same Table 1 that Customers who shop frequently are more likely to spend a higher amount for shopping which is found to be as 0.578, is highly significant at 0.01 levels. Hence the hypothesis 4 is proved. The above Table 1 also suggests that Customers who shop more frequently are likely to witness higher fluctuations for luxury items than for regular items as a very high negative correlation coefficient of -0.623 has been found. It indicates that shopping for luxury items faces more fluctuations than regular shopping items, which indicates that customers shopping for luxury items may be postponed in times of recession but they continue to shop for regular items.
Chan ge in billin g amt 0.158 -0.277 .524(* *) -0.26 .428(* ) -0.116 0.137 -0.291 1
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Conclusion The research showed that recession has affected the sale of luxury items while there has been no effect on the sale of necessary items.The major reason is that the numbers of people visiting the malls have decreased and there is a change in the shopping pattern of the customers. People have not cut down their expenses on grocery items and personal care products. The luxury brands are the ones that have been the most affected. Also retailers are reducing their inventories considering the drop in sales. In order to increase the footfall, various promotional events are carried out by the retailers. Retailers are cutting down prices to boost up the sales. Customers are switching from their regular brands to others brands that cost them less.
Recommendations for the retailers The retailers should spend on Online Marketing during Recession. They should also indulge in cost cutting, reach their customers, target markets, build long term relationships, available at all hours, low cost for inventory, and increase sales promotion schemes. Lastly, creating value along with delivering delight to the customer is what is most important.
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TOPIC 9 IMPORTANCE OF STUDY RESEARCH Liberalization of the Indian of the Indian economy and rationalization of business procedures have already ensured a high economic growth with a rapidly expanding base for the manufacturing and hi-end services sectors. Fresh avenues for gainful employment to a predominantly young and talented population have created disposable incomes that translate in to higher consumption and thus better opportunities for all verticals of Retail to flourish. Slowdown in Indian Economy myth or reality for retail players? The current slow down in the Indian economy notwithstanding, the retail segment in the country seems to be in for a big time expansion led by most major Indian business majors and global players. Even though the CB Richard Ellis report released in April 2008, placed India at a dismal number 44 in the list of preferred destinations for global retailers looking to expand, fresh announcements in the media belie this fact. However, going through these years of learning nearly all stake holders in the industry are re-considering their retail plans. A need for consolidation in retail business is evident and to give it effect many have hit the drawing boards again not necessarily means that there is any down turn in the industry. In spite of the fast track growth of the retail industry, India is still undergoing through the initial development phase of modern retail. Private consumption & Retail The countrys dynamic retail landscape presents a grand opportunity to investors from across the globe, to use India as a strategic business hub. With the changing face of retail, the Indian consumer is in for a rapid transformation. With retail spending growing at double digit, Private Final consumption Expenditure (PFCE) at current prices was estimated at Rs. 26,07,584 crore in 2007-08 as against Rs. 23,12,105 crore in 2006-07.
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INDIA RETAIL MARKET (at prevailing market prices) Retail Segment INDIAN RETAIL MARKET (Rs. Crore) 2006 2007 Growth 2007 >2006 (%) Clothing, Textiles & Fashion 113,500 Accessories 131,300 15.7 Jewellery 60,200 69,400 15.3 Wathes 3,950 4,400 11.4 Health Services & Beauty Care 3,800 4,600 660 ORGANIZED RETAIL (Rs. Crore) Growth 2006 2007< 2006 (%) 21,400 29,800 39.3 1,680 2,300 36.9 1,800 2,150 19.4 400
2007
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21.4 Pharmaceuticals 42,200 48,800 15.6 Consumer Durables, Home 48,100 Appliances/equipments 57,500 19.5 Mobile handsets. Accessories 21,650 & Services 27,200 25.6 Foot Wear 13,750 16,000 16.4 Furnishings, Utensils, 40,650 45.500 11.9 Food & Grocery 743,900 792,000 6.5
65.0 1,100 1,540 40.0 5,000 7,100 42.0 1,740 2,700 55.2 5,200 5,750 49.0 `3,700 5,000 35.1 5,800 9,000 55.1
Furniture-Home & Office
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Out-of-Home (Catering) Services
Food 57,000 71,300 25.1
3,940 5,700 44.7 1,680 2,200 30.9 1,560 2,400 53.8 55,000 78,300 42.4
Books, Music & Gifts
L13,300 16,400 23.3
Entertainment
38,300 45,600 20.0
Total IMAGES F&R Researh
1,200,000 1,330,000 10.8
As per the Images F&R Research estimates for India Retail Report the Indian Retail market stood at Rs. 1,330,000 crore in 2007 with annual growth of about 10.8 per cent. Of this, the share of organized Retail in 2007 was estimated to be only 5.9 per cent, which was Rs. 78,300 crore. But this modern retail segment grew at the rate of 42.4 per cent in 2007, and is expected to maintain a faster
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growth rate over the next three years, especially in view of the fact that major global players and Indian corporate houses are seen entering ;the fray in a big way. Even at the going rate, organized retail is expected to touch Rs. 2, 30,000 Cr (at constant prices) by 2010, constituting roughly 13 per cent of the total retail market. The consumer spending is ultimately pushing the economic into a growth-andliberalization mode. The Indian market is becoming bolder by the day, with the economy now expected to maintain its growth at over 8-9 per cent and average salaries being hiked by about 15 percent, there will be lot more consumption. A short recount of the factors that have earned India the top spot among the favoured retail destination.
HEALTHY INVESTMENT CLIMATE A Vibrant Economy India topped A T Kearneys list of emerging markets for retail investment for three consecutive years and stood 2nd only being Vietnam this year. The 2nd fastest growing economy in the world, the 3rd largest economy in terms of GDP in the next 5 years and the 4 th largest economy in PPP terms after USA, China & Japan. India is rated among the atop 10 FDI destinations. Barring recent political disturbances, India has been sailing smooth ;with 2 nd stage reforms in place, India can be reasonably proud of having put in place some of the most widely accepted Corporate Ethics (Labor Laws, Child Labor Regulations, Environmental Protection Lobby, Intellectual Property Rights, and Social Responsibility) and major tax reforms including implementation of VAT, all of which make India a perfect destination of business expansion.
In terms of international tourist spending, India is the fastest-growing market in Asia Pacific, according to the Visa Asia Pacific release. The economic has been growing at about 9 per cent a year, which shows that Indias growth rate can actually exceed that of China by 2015. The Indian economy is expecte to grow larger than Britains by 2022 and Japans by 2032, to become the third-largest
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economy in the world after China and US, and finally become the second largest economy after China by 2050, so the global forecasts say.
A report by investment banker Goldman Sachs, credits India with the potential to deliver the fastest growth over the next 50 years with an average rate of more that five per cent a year for the entire period. All these are clear portends in terms of investments and returns. Total FDI (foreign direct investment) inflow in 2007-08, was to the tune of USD25 billion up 56% over previous year with investments in infrastructure development and capital market continuing to flow in at a rapid pace. To sustain an ambitious GDP growth target of nine per cent per annum, India needs to invest around USD 500 billion in development of infrastructure over the next five years. Of this, about USD 150 billion is expected to come from foreign investment. Indian retail industry itself has attracted total investment of over Rs. 20,000 crore in creating infrastructure, systems & shop-fit.
At the heart of the India growth, story is its population, the generators of wealth, both as producers and consumers. With the largest young population in the world over 890 million people below 45 years of age, India indeed makes a resplendent market. The country has more English speaking people than in the whole of Europe taken together. Its 300 million odd middle class, the Real consumers, has attracted th attention of the world, and as the economy grows so whole of Europe taken together. Its 300 million Indians earn a salary of over USD 19,500 a year, a figure that is set to rise to 140 million by 2011. The number of effective consumers is expected to swell to over 600 million by this time sufficient to establish India as one of the largest consumer markets of the world. Indias consumers are in a metamorphosis. As spending powers and habits change in India these voices are becoming more difined, more demanding and more adventurous. The retail boom in India is driving three categories of retail product investment, namely consumer brands, retail formats and shopping centers. Each of these product categories is undergoing massive attention.
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THE RETAIL REVOLUTION In this land of 15 million retailers, most of them owing small mom and pop outlets, we also have a modem retail flourishing like never before. There is little room for conflict as evidenced from the fact that India presents a unique case of consumption-driven economy: while the US reels under recession, where supply clearly outstrips demand. India confronts inflation, where Industry and retailers are as yet unable to provide what the consumer demands. Over the last few years Indian retail has witnessed rapid transformation in many areas of the business by setting scalable and profitable retail models across categories. Indian consumers are rapidly evolving and accepting modem retail formats. New and indigenized formats such as departmental stores, hypermarkets, supermarkets, specialty and convenience stores, and malts, multiplexes and fun zones are fast dotting the retail landscape.
THE INDIAN RETAIL MARKET SEGMENTS The Indian retail market has been gaining strength, riding on the sound vibes generated by a robust economy that has given more disposable incomes in the hand over the consumer who will keep demanding better products and services, and a better shopping environment.
SHARE OF ORGANIZED RETAIL TO TOTAL MARKET Retail Segment % organized 2004 2005 2006 2007
Clothing, Textiles & Fashion Accessories

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13.6% Jewellery 2.0% Watches 39.6% Foot Wear 25.0% 2.3%
15.8%
18.9%
22.7%
2.8%
303%
43.5%
45.6%
48.9%
30.3%
37.8%
48.4%
Health & Beauty Care Services 6.0% 7.6% 10.6% 14.3%
Pharmaceuticals 1.8% 2.2% 2.6% 3.2%
Consumer Durables, Home Appliances/equipment 7.8% 8.8% 10.4% 12.3%
Mobiles handsets, Accessories & Services 6.5% 7.0% 8.0% 9.9%
Furnishing, Utensils, Furniture-Home & Office 6.7% 7.6% 9.1% 11.0%
Food & Grocery 0.5% 0.6% 0.8% 1.1%
Out-of-Home Food (Catering) Services 5.7% 5.8% 6.9% 8.0%
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Books, Music & Gifts 9.8% 11.7% 12.6% 13.4%
Entertainment 2.6% Total 3.0% 3.6% 4.6% 5.9% 3.3% 4.1% 5.3%
IMAGES F & R Research
In the overall Retail pie Food and Grocery was the dominant category with 59.5 per cent share, valued at Rs. 792,000 crore, followed by Clothing and Accessories with a 9.9 per cent share at Rs. 131,300 crore. Interestingly, out-ofhome food (catering) services (Rs. 71,300 crore) has overtaken Jewellery (Rs.16,000 crore) to become the third longest retail category, with a 5.4 per cent market share-this largely reflects the massive employment appointments to youngsters in the services sector and accompanying changes in consumer lifestyles.
Consumer durables (Rs.57,500 crore) is the fifth largest retail category followed by Health & Pharmaceuticals (Rs.48,800 crore), Leisure retail (Rs.16,400 crore). Footwear (Rs.16,000 crore) Health & Beauty Care services (Rs.4,600 crore) and Watches & Eyewear (Rs.4,400 crore) in the order. In the Organized retail segment the picture is different altogether. Clothing & Fashion Accessories is the largest category with 38.1 per cent of the market share, valued at Rs. 29,800 crore, followed by Food & Grocery accounting for 11.5 of the organized retail market at Rs. 9,000 crore. Footwear with 9.9 per cent of the organized retail market share at Rs. 7,750 crore, Consumer Durables with 9.1 per cent market share at the foruth place (Rs.7,100 crore), and Out-ofhome food (catering) services and Furniture, Furnishings & Kitchenware retail in the order.
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The mobile & accessories retail market has shown fastest growth in 2007 (25.6%) over the previous year, the other two prominent categories being outof-home food (catering)j services where growth was 25.1 per cent and books, music & gifts leisure category which achieved 23.3 per cent growth. Indias biggest USP and asset base is its youthful population, whose appetite for leisure and entertainment is galloping at 14 per cent p.a. With the rapid addition of malls with multiplexes there is a coming together of leisure retail, cinema and gaming. It is indeed difficult to analyze each of these components in isolation. All players are after all trying to get to capture a share of consumers mind his time and money. As the consumers spend on leisure and entertainment increases, the mix of his spends is going through a churn like never before. Leisure and entertainment are recession proof. The affluence across the country has touched a large part of the population and there is no looking back. Multiplexes, leisure retailers across books, music, gaming all form a shared existence and whilst the shares of the pie keep shifting the overall leisure and entertainment business is well on its way to a Rs. 60,000 Crore mark by 2010-11.
In the organized retail segment, however, the fastest growth was recorded in the tiny health & beauty care services category (660 crore), which grew at the rate of 65 percent in 2007 over the previous year again a reflection of rise in sevices sector employment that demands proper grooming. The second fastest growing organized retail category is that of Entertainment (53.8%), followed by the mobile phones & accessories and the food & grocery retail categories, both of which achieved 55.2 per cent growth in 2007. Much of the stupendous growth opportunity in Catering services (25.1%) and leisure retail (23.3%) categories was utilized by the unorganized retailers because organized players could not keep up to the desired growth momentum. A closer study of the retail growth story at constant prics shows that in both these categories growth of organized retail was higher in 2006 (41.7% and 26.1% respectively) as compared to 2007 (37% and 25%).
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At constant prices, growth in the fashion & accessories retail category, both in the overall market and the organized retail segment, have been consistently positive since 2004: while the overall market grew 12.8 per cent in 2007, the organized segment grew 35.5 per cent.
In jewellery retail, the overall market growth was higher in 2007 (9.6%) as compared to the previous year (9.2%) but growth in organization The overall market growth in the time wear category has declined from 10.7 per cent in 2005 to 9.7 per cent in 2006 and further down to 8.9 per cent n 2007. However, growth in organized retail was higher in 2007 (16.6%) as compared to 2006 (14.8%). Popularity of mobile phones is to a large extent responsible for the dampening of the overall market growth in this category while the renewed enthusiasm in the organized segment is on account of the fillip from luxury brands and offerings that are positioned more as a hi-end lifestyle statement than in the functionality aspect of the product.
Foot Wear retail, the overall market a well as its organized segment, has grown faster year after year but growth 2007 was especially remarkable: the overall market grew 12 percent in 2007 as against a 9.0 per cent growth in 2006 while the organized segment grew 42.3 per cent and 36.4 per cent respectively for the two years. The global brands have actually turned he heat on, and the domestic brands too appear to have accepted the challenge n the true spirit.
Growth in the health and beauty care category has been remarkable in 2007, though the organized segment growth in 2007 (57.5%) was slightly lower as compared to 2006 (59.1%). The demand is stupendous built organized players have hardly much to boast of in terms of innovative concepts and global standards when it comes to providing the customers with an experience ;that is superior and radically different from what the unorganized segment offers. This pharmaceuticals and specialized clinical services all at one place.
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Another category that merits special mention is Furnishings and Furniture retail, where the overall market grew at seven per cent 2007 a compared to just 3.2 per cent in 2006 m thanks to the housing sector boom. The organized segment also grew faster at 29.7 per cent in 2007 as compared to 23.1 per cent the previous year, but this Rs. 45,500 crore category calls for better attention from organized players. Is India ready for ready-to assemble furniture? May be not but surely the market will change in next couple of years. Global players need to understand that Indian homes are different and so are the Indian environments, maintenance standards. At present most large players entering this segment are busy experimenting and in the process have lost monies too.
Consumer durables and the mobile phone & accessories categories have both grown faster in 2007 as compared to 2006. At constant prices, the overall food & grocery retail market grew slightly higher at 2.3 per cent I 2007 as compared to a 2.2 per cent annual growth in the previous two years But the organized retail segment in this category is simmering in the true sense a 50 per cent growth in 2007 as compared to 42.9 per cent in 2006, and lot moe fireworks can be expected this year and the years ahead. Valued at Rs. 9,000 crore, this organized market constitutes barely 1.1 per cent of the total food & grocery retail market.
Time wear (48.9%) and Footwear (48.4%) are the most organized of all organized of all retail categories. Clothing & fashion accessories retail comes next with the organized segment controlling 22.7 per cent of the market.
With the given rapid pace of retail growth, it is expected that Indian retail market (estimated at current prices) will be excess of Rs. 18,10,000 crore by year 2010: organized retail will likely exceed Rs. 2,30,000 crore, accounting for nearly 13 percent of the total market 2010. This growth will call for a greater availability of quantity retail space in the country.
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SPACE AND THE FREEDOM TO GROW Each time one takes stock of the countrys retail estate scenario, one invaariao, one invariably comes across statistics to show that every city in the country is bursting at the seams with shopping centre activity. If mall space were to be taken as an indication of the level of activity, we find that the country has witnessed nearly 12- fold growth in the last five years, with total mail space having increased from just about 3.7 million square feet in 2002 to ever 47 million square feet in 2007. Also, the opening up of the real estate sector to FDI has brought India in the international investment spotlight. FDI inflow in to the sector has propelled the realty sector growth at over 30 per cent per annum. There is yet a lot more to unfold on Indias retail landscape in the years ahead.
Shopping centers Currently, there are about 280 operational shopping centers in various formats and sizes (including some partly operational), and this number is expected to rise to almost 500 by end-2010. Of the new malls coming up, 40 per cent are concentrated in the smaller cities. Shopping centre business alone is estimated to become a Rs. 40,000 crore business by 2010-11.
By 2011 India will have an additional 280 hypermarkets, 3200 supermarkets, 400 department stores, and approximately 1,200 mega speciality stores & category killers and 20,000 exclusive brand outlets across the various retail categories. Malts alone will provide an additional 200 million square feet of gross leasable quality retail space (GLA) by year 2011.
The emergency of Shoppi9ng Centers is already beginning to define a new lifestyle for India. There is no doubt a huge demand for clean, contemporary shopping and entertainment complexes that will house Indias brands and retail formats and offer New India an exciting and rewarding shopping experience for the whole family. A number of winning solutions will doubtless emerge over the next few years but the dominant centers for the long term will be those that
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are designed around the Indian consumer and cater to the long term specific needs of a particular location. A shopping center doesnt serve all India. It serves consumers living largely within a five to fifteen kilometer radius of that center So a successful shopping center in Trivandrum will be designed differently to one in Udaipur and Metros. The tenant mix will be different. The food court will have a different menu offer and local services such as transport and logistics will be tailored to the needs of the local community.
Organized retailing in small-town India is already growing at over 50-60 per cent a year, compared to 35-40 per cent growth in the large cities. About 200 tier III cities with population of less than 2 million and another 500 rural towns have the potential to be the hub for rural markets, where organized retailing can effectively set base each of theses 700 centers will on an average be catering to about 1,000 villages.
Supply chain, Logistics & Infrastructure Organized retail is a function of strong supply chain and robust physical infrastructure. Basic supply chain framework takes care of operational performance at each nodal point fro order to delivery. In view of this, major retailers will have to continuously upgrade their back-end, front end and supply chain dynamics in order to provide a standard of value and services to their customers.
Corporate bigwigs such a Reliance, AV Birla, Tata, Goderej, Bharti, Mahindra, ITC, RPG, Pantaloon, Raheja and Wadia Group are expected to invest close to ERs. 1 trillion in the business of retail overt the next five years. Reliance Retail is investing Rs. 30,000 crore in setting up multiple retail formats backed by a 68- strong distribution network, with expected sales of over Rs. 100,000 crore by 2010. The Future Groups Pantaloon Retail and RPGs Spencers are also going all out to maintain their dominant position on Indias retail horizon. Subhiksha has earned global accolades for its fast-track growth. The Lifestyle India, India bulls, Wash wan Group, Vishal Retail, petroleum majors IOCL, BPCL & HPCL, and others are firming up more and more ambitious retail
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expansion plans by the day. While global retailers Metro AG and Shoprite Holdings increase th3ir presence on the Indian retail landscape, the Bharati-walmart combines is scouting locations fro their joint retail venture. The recent tieup between Tata and Tesco further adds to the action in retail.
Regional Retailers Realizing the big picture of retail regional retailers too are waking up to position themselves strong against MNCs and Indian Corporate big wigs jumping into the ring. But the match has only just begun and promises to be a show stealer. Some of the larger regional players are looking to ite up with international retailers. Although multinational and large Indian retailers clearly have he advantage of size and power, local companies have survived by adapting. As the big guns introduce new branding strategies, improved merchandising and management techniques, local retailers are fast to catch up and emulate to coexist.
The big players in what has traditionally been a fragmented market makes existing food retailers look really tiny, even in the case of large regional chains that have been around for years. The South particularly has a large concentration of such businesses which are giving the MCN / Corporate Retailers a run for their money.
Even as multinational retailers are firming up their India strategies, franchising is emerging as the preferred option. Franchise activity is expected to pick up I tier-II cities as well. According to a Frost &Sullivan Research, the overall Indian third-party logistics (3PL) market, estimated at about USD 890.3 billion in 2005, retail support sectors that offer immense opportunity for investment and growth.
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Need to give Indian retail a face of India India Brand Story can travel across the globe with Delhi Hat type hopping cum entertainment centers opening not only across India but all over the world Public private partnership can revitalize the formats like KVIC run Khadi Bhawans, one of the largest retail networks I the world, and also govt. state run emporia.
As India emerges as one of the most potential markets for global brands and retailers and retail reinvents the way modem Indians celebrate heir spending power, India that takes pride in its rich culture, heritage, art, craft, and variety or ware must capitalize on this ever escalating consumerism and channelize the spending towards healthy consumption of overall development of the country.
Employment Generation Modernizing retail will se some 15 million people engaged in retail and retail support activities by 2010 including front end retail operations, supply chain, logistics, process & infrastructure development and supplies.
Retail Formats There is strong emergence of India specific retail formats irrespective of the size. For example, hypermarkets, super markets or convenience stores that are emerging in India today are specifically designed for the Indian consumer. A store in India will have non-vegetarian section sealed-off from the rest of the store out of respect for group of consumers. Spices, vegetables and grains are seen stacked high in a special section. Retailers in India have realized he relevance of designing and executing world-class hypermarket formats in India, specifically catering to the Indian consumer yet offering world-class products at prices that India can afford.
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Indian department stores stock brands that Indian consumers want and design their store layouts based on their few years of experience. But this experiences us unique to them alone. A new entrant has all those lessons to learn. The existing players are developing a sophisticated knowledge base on consumption patterns and preference that are a critical tool in defining competitive positioning going forward.
Public Private Partnership (PPP) As there is not must scope in creating more high street within cities, Govt. needs to explore public private partnerships for regenerating district centers, office complexes, railway spare land, post offices etc. There should be restriction of developing multi-storied malls in new cities and new city planning needs to create paces for more high street concepts for future developments.
PPP can effective work for revitalizing: Co-operatives with Facelift & Vendor Management Khadi Bhawans & State Emporia Neighborhood Markets Corporation and state authorities owned/managed district centers & office complexes Collaboration to use spaces and resources of Post Offices, Banks, Railways (Railway Land, Platforms, In-train Shopping Marts, Restaurants, Entertainment)
JUST THE RIGHT TIME TO THINK RETAIL Developments indicate that this is just the right time to think retail. Fuel and passenger vehicles are two of the mega businesses that can tremendously gain in the evolving scenario.
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ENTERING THE RETAIL DRIVEWAY The auto sector needs to explore innovative collaborative opportunities with the retail sector to add value to the shopping experience of passenger vehicles. So far operated through dealership net work with showrooms mostly in net-sohappening premises, auto showrooms are now beginning to move to retail centers to grab attention of new generation upwardly mobile customers. With increasing income, easy credit facilities and change every year new found attitude (initially stared with mobile handsets) Indian consumers are likely to make spontaneous decisions on automobile buys as well.
Oil companies unable to raise prices of transportation fuels in line with rising global crude oil prices are now looking at alternate revenue streams a major reason why added emphasis is being placed on forecourt retailing. Fuel forecourts with 24x7 convenience retail concepts (merchandise & services retailing) within cities and on the highways offer huge scope for expansion of retail. The concept has the potential to create excitement and initiate activities in small towns and cities as well. Modem retailing in India will no more be restricted to the metros and major cities. Oil stations scattered throughout the countrys landscape can ensure that smaller towns are also exposed to modem retailing to modem retailing formats.
As more and more highways come up, linking small and big towns with villages, swank new fuel stations are innovating with retail stores, highway services, motels and entertainment. Such stations become destination points and soon open up avenues for residential and commercial development.
An emerging trend in the global retail petroleum industry is the growing entry of retail format such as supermarkets, large discount stores and mass merchandisers who are placing fuel dispensers in their parking lots to provide added value and convenience to consumers. Hypermarkets that have ventured into the retail petroleum business have met with considerable success due to
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competitive fuel pricing, discounted prices linked to loyalty programmers and cross-merchandising. Indias oil majors can certainly take the lead to fuel the retail growth collaborating with real estate developers, auto companies, consumer brands, retailers and service providers. This will also facilitate travel & tourism in no small measure. This has happened across the globe and is now happening in India. Travel and tourism are to other sectors that will immensely benefit connecting with retail. Railway worldwide offer a plethora of opportunities for the consumer products, brands, retailers, services, leisure and entertainment majors to connect with large number of passengers- both locals and tourists. Not only the stations, platforms and subways that railways own and operate but also 1000s of trains passenger or goods offer huge scope as the largest moving media for brand and public messages, in-rail retailing besides of course providing the logistics & real estate support to the retail industry. RURAL RETAILING With several stats in the country permitting retailers to purchase produce directly from farmers, the farmers too are adapting to the new opportunity to cultivate assigned crops and take special care of the same. This gets them instant credit at higher prices than what they received from the erstwhile traders/middlemen. Corporate retailers like ITC, Godrej, Reliance, AV Birla and many others have already established the farm linkages. Indian farmers are finally making good money, after centuries of social and economic exploitation. The Indian government too has chipped in with qa massive loan waiver works Rs. 60,000 crore to lighten the farmers debt burden. Indias rural markets offer a sea of an opportunity for the retail sector. The urban-rural split in consumer spending stands at 9:11, with rural India accounting for 55 per cent of private retail consumption. Indeed the market can be tapped with focused attention and strategy.
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Indias rural markets offer a sea of an opportunity for the Retail sector. The urban-rural split in consumer spending stands at 9.11, with rural India accounting for 55 per cent of private retail consumption. Currently the Indian retail market is estimated at Rs. 1,330,000 crores, and almost half of this growing retail market at present lies in rural India, which is a tremendous growth sector that needs to be tapped with care. According to National Council of Applied Economic Research (NCAER) reports, rural India is home to 720 million consumers across 627,000 villages. Seventeen per cent of these villages account for 50 per cent of the rural population as well s 60 per cent of rural wealth. This implies that reaching up to just 100,000 plus villages will ensure access to most of the rural opportunity.
The urban market undoubtedly continues to grow but with most of the retail initiatives concentrated in the metropolitan and Tier-I and Tier-II cities, these markets are fast getting saturated. Realizing this, most of the big retail companies have started targeting the Tier-III cities and the rural towns to spur their growth. The bottom of the pyramid market is for sure now looking attractive for companies wanting to explore new turf. Hariyall Kisan Baaars (DCM) and Aadhars (Pantaloon-Godrej JV) have already set up rural retail bubs. Choupal Sagars (ITC) has done the same and so have Kissan Sansars (Tata), Reliance Frsh, andothers like the Naya Yug Bazaar. Opportunity in Indian Retail Favorable demographic and psychographic changes relating to Indias consumer class, intonational exposure, availability of quality retail space, wider viability of products and brand communication are some of the factors that are driving the retail in India. Over the last few years, many international retailers have entered the Indian market on the strength of rising affluence levels of the young Indian population along with the heightened awareness of global brands, international shopping experiences and the increased availability of retail real estate space. Development of India as a sourcing hub shall further make India a an attractive retail opportunity for the global retailers. Retailers like Wal-Mart, GAP, Tesco,
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JC Penney, H&M, karstadt-Quelle, Sears (Kmart), etc, stepping up their sourcing requirements from India and moving from third-party buying offices to establishing their own wholly owned / wholly managed sourcing & buying offices shall further make India an attractive retail opportunity for the global players.
Manufacturers in industries such as FMCG, consumer durables, paints etc are waking up to the growing clout of the retailers as a shift in bargaining power from the former to he later becomes more discernible. Already, a number of manufacturers in India, in line with trends in developed markets, have set up dedicated units to service the retail channel. Also, instead of viewing retailers with suspicion, or as a Necessary evil as was the case earlier, manufacturers initially all retailers foraying to acknowledge the channel member to be partnered with for providing solutions to the end-consumer more effectively. Tough lucrative opportunities exist across product categories, food and grocery, nevertheless, presents the most significant potential in the Indian context as consumer spending is highest on food. Further, wet groceries i.e. fresh fruits and vegetables is the most promising segment within food and grocery though initially all retailers foraying in to this segment had to face had wide spread protest form traders, small shop keepers. The next level of opportunities in terms of product retail expansion lies in categories such as apparel, jewellery and accessories, consumers durables, catering services and home improvement. These sectors have already witnessed the emergence of organized formats though more players are expected to join the bandwagon. Some of the niche categories like Leisure and entertainment (Books, Music and Gifts in particular) offer interesting opportunities for the retail players. Currently the fashion sector in India commands a lions share in the organized retail pie. This is in line with the retail evolution in other parts of the world, where fashion led the retail development in the early stags of evolution and was followed by other categories like Food & Grocery, Durables etc. Fashion across lifestyle categories makes up for over 50 per cent of organized retail and with
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the kind of retail space growth that India is witnessing we can certainly foresee a very healthy prospect for the fashion industry. As nations become richer, they people start appreciating luxury goods and fine dining. India has over one million such people and this number is expected to triple by 2010. A recent report divides consumers for luxury goods into four categories luxuriated: source of affluence is largely traditional and inherited. New rich: adequate spending power and are acquiring orientation to luxury: Getting there acquiring spending power and spend mainly on education, housing and large automobiles: Mid-effluent: are also acquiring orientation to luxury but unlikely to indulge beyond a limit.
The most important categories for luxury goods consumers are housing, travel, education, higher and automobiles, electronics and other home improvement products besides fashion, lifestyle and fine dining. The most important reason for luxury retail not raking off in India so far has been the lack of luxury retail environment. The presence has been primarily confined to luxury hotels with shopping plazas. FDI or No FDI, India needs more retailers & Increased retail Governments favorable talks on Foreign Direct Investment (FDI) last year ignited ambitions in many of the global players to be among the first movers into a virgin retail territory i.e. India. The issue of FDI has been debated time and again as the Indian Government has been under pressure to open up further. The policy makers continue to explore areas where FDI can be invite without hurting the interest of local retail community. The Government of India allows FDI only in the cash and carry formats and to the extent of 51 per cent in single brand retail. This brings an opportunity for Indian enterprise to collaborate either global majors and bring in global best practices in the business of retailing.
Pro-active policy making for retail industry would be welcome to ensure that the consumers benefit from choice, availability, better quality & beneficial pricing. All the current talk of retail industry growth has been buoyed by the growth of Indian macro economy over the last few years. Once the industry
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growth rate stabilizes, this comfort factor would need attention & all futuristic growth plans need to be rational about this.
Identifying growth areas, crossing barriers, creating new markets satisfying classes as well as serving the messes, Indian enterprises need to expand the horizon of Indian retail.
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TOPIC 10 TENTATIVE CHAPTER SCHEME
The research work contains various chapters. Further it will be continued to the core of the study i.e. research methodology. Thereby moving to a stage where we can test our hypothesis and draw conclusion.
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TOPIC 11 BIBLIOGRAPHY Journals: 1. Business World 2. The Franchising World. Internet: 1. francchiseindia.com 2. Google.com 3. Altavista.com "Recession". Merriam-Webster Online Dictionary. Retrieved 19 November 2008. "Recession definition". Recession definition. Microsoft Corporation. 2007. Retrieved 19 November 2008. -12-01). "The Changing Business Cycle". New York Times: p. 222. "What is the difference between a recession and a depression?" Saul Eslake Nov 2008 "Business Cycle Expansions and Contractions". National Bureau of Economic Research. Archived from the original on October 12, 2007. Retrieved 19 November 2008. The Holy Grail of Macroeconomics-Lessons from Japan's Great Recession. John Wiley & Sons (Asia) Pte. Ltd.. ISBN 978-047082494-8. Key Indicators 2001: Growth and Change in Asia and the Pacific". ADB.org. Retrieved 2010-07-31.
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Washington Post-Robert Samuelson-Our Economy's Crisis of ConfidenceJune 14, 2010". Washingtonpost.com. 2010-06-14. Retrieved 2011-01-29. The Conference Board-Consumer Confidence Survey Press Release-May 2010". Conference-board.org. 2010-03-25. Retrieved 2011-01-29. -01-27). "WSJ-Robert Shiller-Animal Spirits Depend on Trust". Online.wsj.com. Retrieved 2011-01-29. -04-14). "Presentation by Richard Koo-The Age of Balance Sheet Recessions". Businessinsider.com. Retrieved 2011-01-29.
The Return of Depression Economics and the Crisis of 2008. W.W. Norton Company Limited. ISBN 978-0-393-07101-6. How Much of the World is in a Liquidity Krugman.blogs.nytimes.com. 2010-03-17. Retrieved 2011-01-29. Trap?".
"Predicting U.S. Recessions: Financial Variables as Leading Indicators". MIT Press. Grading Bonds on Inverted Curve By Michael Hudson The Yield Curve and Predicting Recessions (March 2006). FEDs Working Paper No. 2006-7. Signal or Noise? Implications of the Term Premium for Recession Forecasting[dead link] Labor Model Predicts Lower Recession Odds". Blogs.wsj.com. 2008-01-28. Retrieved 2011-01-29. Leading Economic Indicators Suggest U.S. In Recession January 21, 2008
Financial Market Returns and Long-Term Investment Strategies, 3rd, New York: McGraw-Hill, 388. ISBN 9780071370486 From the subprime to the terrigenous: Recession begins at home". Land Values Research Group. June 2, 2009. "A downturn in the property market,
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especially in turnover (sales) of properties, is a leading indicator of recession, with a lead time of up to 9 quarters..." -06-07). "Why Home Prices May Keep Falling". New York Times, June 6, 2009. Retrieved 2010-04-10. Recession Predictions and Investment Decisions by Allan Sloan, December 11, 2007 Recession? Where to put your money now. Shawn Tully, February 6, 2008 NASDAQ Composite Index ($COMPX) - Stock chart, Index chart - MSN Money". Moneycentral.msn.com. Retrieved 2011-01-29. Rethinking Recession-Proof Stocks Joshua Lipton 01.28.08 Recession Stock Picks Douglas Cohen, January 18, 2008 -11-11). "Recession Puts Halfway Rule to the Test". Online.wsj.com. Retrieved 2011-01-29. Economy puts Republicans at risk 29 January 2008
Books: Recessions and Depressions: Understanding Business Cycles By Todd Alan Knoop
The End Of Reform: New Deal Liberalism in Recession and War By Alan Brinkley
Beat the 2008 Recession: A Blueprint for Business Survival By Nicholas Bate
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Recession Proofing Your Business By Frank, Vickers Book on recession: Recession Challenge By Ramesh Kumar Tehlani Crash Proof: How to Profit from the Coming Economic Collapse. By Peter Schiff and John Downes Heart and Sold: How to Survive and Build a Recession-Proof Business. By Valerie Fitzgerald. Selling in a Recession : 21 Tips and Strategies for Strategies for Finding New Business tough Economy, or Sales Prospecting Secrets, Sales Motivation, Negotiating Tips & More to Increase Sales. By Matthew Aaron Living Well in a Down Economy For Dummies. By Tracy Barr The Complete Tightwad Gazette. By Amy Dacyczyn
Made to Stick: Why Some Ideas Survive and Others Die By Chip Heath and Dan Heath. The Laws of Simplicity By John Maeda.
The Storm: the World Economic Crisis and What It Means By Vince Cable Meltdown: the End of the Age of Greed By Paul Mason
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Fools Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe By Gillian Tett The Crash of 2008 and What It Means: the New Paradigm for Financial Markets By George Soros Indian Retail Sector - A Primer By Nitin Mehrotra
Retail in India By Joseph, Mathew C. Soundararajan, Nirupama

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1

TOPIC 2 LOCATION/AREA OF STUDY

Share in GDP of U.S. financial sector since 1860

Increased debt burden or over-leveraging

Boom and collapse of the shadow banking system

Impact on financial markets

Credit markets and the shadow banking system

Global Recession and Impacts

The Global Retail Industry : An Overview

(Source: STORES / Deloitte Touche Tomahatsu)

THE INDIAN RETAIL INDUSTRY

recent past that it has witnessed so much growth.

RETAIL IN INDIA: OVERVIEW, INFRASTRUCTURE AND POLICIES

Understanding customer needs and wants

Providing an assortment of Goods or services

Providing services to customers

Providing information to suppliers

Diagram 1.2 : Functions of Retailers

Brand A R E T A I L E R S Brand B Brand C C U S T O M E R S

Brand D Brand E Brand F

Diagram 1.3 : A Typical Example of Assortment

PROVIDING INFORMATION TO SUPPLIERS

Classification of Retailers Based on Legal Form

Limited Company (Private or Public)

Diagram 2.1: Classification of Retailers based on Legal Form

CLASSIFICATION OF RETAILERS BASED ON OPERATIONAL STRUCTURE

CO-OPERATIVES CHAIN STORES (MULTIPLES)

Diagram 2.2: Classification of Retailers based on Operational Structure

CLASSIFICATION OF RETAILERS BASED ON MERCHANDISE

Variety Stores (Departmental Stores)

Specialty Stores (Niche Retailers)

Diagram 2.3: Classification of Retailers based on Range of merchandise

CLASSIFICATION OF RETAILERS BASED ON DEGREE OF SERVICES

(LOW) Self Service & Self Selection

Diagram 2.4: Classification of Retailers based on Degree of Services

CLASSIFICATION OF RETAILERS BASED ON PRICING

LOWER PRICE (Discount Stores)

HIGH PRICE (Convenience Stores)

Diagram 2.5: Classification of Retailers based on the Pricing Policy

CLASSIFICATION OF RETAILERS BASED ON SIZE OF OUTLET

Small Stores (0-25000 Sq feet)

Suplus Stores (25000-50000 sq Feet)

Hyper Markets (over 50000 Sq feet)

Diagram 2.6: Classification of Retailers based on the Size of Outlet

CLASSIFICATION OF RETAILERS BASED ON METHOD OF CUSTOMER CONTACT

Retailing though stores

2.1.1 DEPARTMENT STORES

2.1.2 SPECIALITY STORES

2.1.3 DISCOUNT STORES

2.1.4 SUPER MARKETS, SUPERSTORES AND HYPERMARKETS

2.2 TYPERS STRUCTURE

2.2.1 INDEPENDENT TRADERS

Disadvantages of the sole trader:

2.3 NON-STORE RETAILING

Direct Response Advertising

2.3.4 ELECTRONIC RETAILING

Retailing through Television

Retailing through Internet

3.3 Environmental Trends

3.3. Theories of Retail Change

3.3.1 Theory of Natural Selection in Retailing

The major environmental factors affecting retailing are:

3.3.2. Theory of Wheel of Retailing