ORGANIZED RETAILING BUSINESS IN INDIA

Major Constraints and Bottlenecks

Emphasis to eliminate barriers to growth

Session II

SOUMITRA MOOKHERJEE

Challenges for Development of Organized Retailing

The large retailers are groping for the right kind of formats
for a geographically diverse country like India. There are
several problems plaguing the industry, in addition to the
glaring absence of FDI.

New Formats developed include a switch from Single Point

retail services to multiple services at one point

Challenges for Development of Organized Retailing

Organised retailing has just made a foray in the country

and is only 4 per cent of the total retailing business. The
growth engines of industry are the grocery, apparel, and
consumer products segments.

The introduction of modern retailing techniques since

liberalization has improved standards in the industry and
the services offered to the consumers.

These traditional Kirana stores have held their ground, in

the face of growing competition, by offering personalized
services, credit facilities and by stocking up products that
were not available earlier.
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Status of Organized Retailing in India and China

China
Retail Industry reforms
began as early as in 1992.

In June 1999 provisional

rules on retailing and
wholesaling
were
formulated and designed
to facilitate progress in
retail business

India
The Industry has largely
been neglected in terms of
policy changes essential for
its development.
The
sectors
revenue
creation, consumer benefits
& employment generation
potential has not been
adequately factored into the
development paradigm.

Status of Organized Retailing in India and China

China
Foreign Direct Investment in the
Chinese retail sector has been
responsible for:
Growth and development of the
sector offering more choices at
lower prices
Excellent
shopping ambience,
management skills, vigour and
tremendous
benefits
to
consumers
Diverse
formats which are
productive and offering of
different useful propositions to
consumers

India

India is missing out on the

benefits that FDI could provide.

Companies from USA, Germany,

Netherlands, France, Japan,
Hong Kong, Thailand, Malaysia
and Singapore could change the
face of our country, which offers
a large and expanding market

Status of Organized Retailing in India and China

China
Foreign Direct Investment in the
Chinese retail sector has been
responsible for:
Pressure on domestic retailers to
perform, which would in turn
make them globally competitive
in the long run
Voluminous purchases of
Chinese goods by overseas
corporations has provided a
direct outlet for their export
Benefits to domestic retailers in
terms of technical know-how

India

Organized retailing has been

granted industry status and FDI
possibility has been announced for
single brand outlets.

No concrete and structured FDI

norms and regulations have been
introduced due to political conflicts
and concern over competitive
pressures on domestic retailers and
kirana shop owners

Status of Organized Retailing in India and China

CHINA

INDIA

The following basic issues need to

be addressed:
Inter-state movement of goods
remain constrained causing a
Positive and timely government
hindrance for large retail chain
policies have propelled the sector
forward to reach incredible heights developers.

Reforms on the real estate, tax,

labour laws and infrastructure
fronts are necessary conditions
for growth.

Proactive and stimulatory policies

need to be put in place.
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Status of Organized Retailing in India and China

CHINA

INDIA

The share of organized sector in

total retailing is 20%. Although
small shops and fragmented
distribution structure is very
much present, the organized
sector has imparted the needed
efficiency.

With a 4% organized sector

share, India is far behind. This
explains the productivity gap,
which pushes down its
performance.

The potential of the retail sector

has been recognized and is
being channeled through
appropriate routes and policies

The potential is enormous and

encouraging. It is the lack of a
strong backing from the
government for reforms that
needs immediate attention.
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Organized Retailing:
Steps for spearheading development
The steps that India could take based on some of the measures
China has already adopted for development of this sector
include:
Allow Foreign Direct Investment
Remove Infrastructural and Other Bottlenecks
Make preferential loans available for development of
highly productive and successful formats in the country
Include development of the retail industry, on a priority
basis in the Five Year Plans.
To quench the need for trained personnel in the industry,
encourage private and government institutes to introduce
appropriate retail courses to impart necessary education
and training.
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Retailing Business: Constraints and Structural Barriers

REAL ESTATE

High real estate and property prices

Shortage of good quality retail space

High rentals for space which is presently available

Soaring demand for space in cities which compounds

shortage.

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Retailing Business: Constraints and Structural Barriers

REAL ESTATE

Debarment of foreigners from owning property in India

which blocks FDI inflow

High stamp duties on property deals.

Rigid building and zoning laws, strong pro-tenancy laws

and absence of clear titles to owner ship are some of the
common problems.

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Retailing Business: Constraints and Structural Barriers

LABOUR LAWS

Working hours are restricted with shops required to close

one day of the week

Hiring of part time employees is difficult.

These rigidities in the law constrain the operations of

modern retail outlets.

Lack of competent and qualified manpower and

workforce as per trade specific requirements
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Retailing Business: Constraints and Structural Barriers

LABOUR LAWS

The biggest challenge the organized retailer in India faces is

getting trained manpower.

The need for informative and useful undergraduate courses (to

standardize the sector and to remove the stigma attached to
employment in the retail sector), are some of the other areas
that merit attention.

Most academic institutions are now offering specialized

diploma programs (in the field of retail management )
independently or through JVs with established players, which
would be a pragmatic solution to the above problem.

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Retailing Business: Constraints and Structural Barriers

TAXATION STRUCTURE

A Corporate Tax rate of 38 per cent, which would be 45

per cent for a foreign business

Tax imposed on basic foodstuffs

Varying sales tax rates across states, which makes Supply

Chain Management (SCM) difficult.

Import Duties should also be brought down further.

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Retailing Business: Constraints and Structural Barriers

BUREAUCRACY

The existence of a layer of petty bureaucracy that requires

licenses for everything is time consuming and harassing.

Approval process is quite complex and time consuming

State and city licenses required for trading.

Separate licenses are required for dealing in various

commodities like textiles, baby foods, food products, etc

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Retailing Business: Constraints and Structural Barriers

INFRASTRUCTURE STATUS

Lack of basic and adequate infrastructure

Shortage of power supply, particularly in the satellite and

small cities, where small players are establishing retail
showrooms and units

Absence of adequate parking space

Non availability of sufficient operating space in

appropriate locations
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Retailing Business: Constraints and Structural Barriers

AVAILABILITY OF CREDIT AT COMPETITIVE RATES

Credit Policy of RBI does not spell out any credit allocation
norms or customized preferential loan structure for this
sector

Bank credit is available, but some revamping of the loan

structure would be beneficial considering the high entry
costs and capital intensive nature of the project

Facilitate development of productive and successful formats

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Retailing Business: Constraints and Structural Barriers

SUPPLY CHAIN FRAMEWORK

Need to focus on the following areas for enhancing

value chain efficiency:
-

Central Warehousing or Decentralized Warehousing

Product assortment and Product Display
Investments required for sustaining operational excellence
(e.g. Fresh Foods, Beverages)
Facility and technology for Storage, warehousing,
sourcing, product movement
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Retailing Business: Constraints and Structural Barriers

SUPPLY CHAIN FRAMEWORK (Contd)
Need to focus on the following areas for enhancing value
chain efficiency:
- Sales forecasting and planning
- Product stock tracking and periodic replenishment
- Inventory control and Improving working capital
management
- Vendor management and procurement scheduling
- Improving working capital management
- Proper Logistics support for marketing of agricultural
commodities and processed foods.
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Retailing Business: Constraints and Structural Barriers

Agricultural Goods: Mode of Production & Distribution
-

Consolidation of land holdings

Displacement of small farmers and increase in ownership

of large land size

Better Technology and progressive farming

Farmers can directly supply to ORR Outlets, without

channelizing through intermediaries
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Retailing Business: Constraints and Structural Barriers

RETAIL BRANDING

Typically, this is a long term objective, and cannot happen in

haste as brand building requires customer adoption and loyalty

Need to Reinvent Retail Branding concept and apply the

micro branding approach (e.g. consumer: person branding)

Lack of awareness and brand image may be a binding

constraint on firms ability to differentiate between the rival
firms

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Retailing Business: Constraints and Structural Barriers

RETAIL BRANDING
Customers: What They Want
- High Quality Service
- High level of Satisfaction
- Customer Delight
- Value for Money

Two circles of competencies

Brand Competencies

Retail Competencies
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Retailing Business: Constraints and Structural Barriers

CONSUMER EXPERIENCES

The present focus of retail managers is Profit on sale, with

minimal emphasis on profit on Customers

Customers needs to be addressed timely and efficiently

How should customers be dealt with:

What you say and how you initiate dialogue

All inclusive phenomenon
Staff interaction
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