584 5962 dhiraj choudhary--mtc wac1b
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GLOBALIZATION:
REVOLUTIONIZING RETAIL INDUSTRY IN
INDIA
An Article
In partial fulfillment of the
requirements of the course of
Written Analysis and Communication-I
Submitted to
Prof. Rohini Patel
ByAnupama Jangid
Dhiraj Kumar ChoudharySection B
on20th of Jan 2007
`
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
Abstract
The president of MTL had diversified it with the objective of future growth
potential and making it less vulnerable to any economic fluctuation. The earlier
president was handling all the businesses himself and so a second line of
leadership had not been groomed. The untimely death of the president led to a
situation of leadership vacuum throughout the businesses. The situation is further
complicated by the fact that most of the acquired businesses are actually not
doing much business in terms of sales and profits. So it is advisable to divest
some of the businesses and to integrate and establish the proper top management
within the organization.
No of Words = 109
2
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
Table of Contents:
Abstract ....................................................................................................................2No of Words = 109 .............................................................................................. 2
Table of Contents: ................................................................................................... 3
GLOBALIZATION:
REVOLUTIONIZING RETAIL INDUSTRY IN
INDIA
Introduction:-
Retailing is defined as an activity that ensures that customers
derive maximum value from the buying process. It involves activities and steps
needed to place the merchandise made elsewhere into the hands of customers or
to provide services to the customers.1 It organises the availability on large scale
and supply them to consumers on a relatively small scale. In the process itprovides the accessibility of location, convenience of timing, convenience of size,
information and lifestyle support. Retailing has always been an integral part of
economic development.
Retail Scenario in India:-
1
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
The Indian retail industry is currently estimated to be a US$
200 billion industry and organised retailing comprises of 3 percent (US$6.4
Billion) of the retail industry. (Exhibit:-1) With a growth exceeding 20 percent
per annum over the last 5 years, organised retailing is projected to reach US$ 23
Billion by 2010.2 India is the last large Asian economy to liberalize its retail
sector. Organised retailing in India has a huge scope because of the vast market
and the growing consciousness of the consumer about product quality and
services. The greatest advantage is that it is the least saturated among all the
global markets which implies lower barriers for global players. Whether the
changes taking place in the Indian retail landscape represent evolution or
revolution is a matter for conjecture. However, nobody can doubt that a dramatic
transformation is under way. In its nature, the Indian retail market is in sharp
contrast to the global situation. Most of these outlets are basic mom-and-pop
stores with very basic offerings, fixed prices, and no ambience.
Retail sales in India amounted to about Rs.7400 billion in
2002, expanded at an average annual rate of 7% during 1999-2002.4 (Exhibit-
2)4 .The proportion of retail sales to GDP increased from 42.8% in 1996 to 45%
in 2000. The total number of retail outlets is increasing by 7% per year.5 A recent
estimate suggests there are more than 13 million operational retail outlets in
India. Ninety six percent of these outlets are small with average area of less than
500 square feet.6 India's per capita retailing space is the lowest in the world. 7
Sales from large-format stores are to expand at growth rates ranging from 24% to
49% per year during 2003-2008.8 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.(Exihibit:-3)4
Exihibit:-2
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
Trend of Retail Sales and Growth
0
5000
10000
15000
20000
25000
30000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0
2
4
6
8
10
12
14
16
18
20
Retail Sales Rs.'000 Billion % Growth
The factors responsible for the development of retail industry in India
in context with Globalization:-
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.
The National Council of Applied Economic Research classified
approximately 50% of the Indian population as low income in 1994-95;
this is expected to decline to 17.8% by 2007. Traders have benefited from
an economy which gave rise to a growing number of middle-class with
higher levels of disposable income and accelerating convergence of
consumer tastes.9
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 2015.10 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.
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
Shift in consumer demand to foreign brands like McDonalds, Sony,
Panasonic, etc.
Shift in consumer buying behavior and expectations.
Very few significant competitors due to which new entrants can get theearly mover advantages.
Operational competitive advantage through strong processes and
infrastructure.
Potential for high market capitalization.
Exihibit:-423
What factors make India conducive to cost-effective marketing
0
10
20
30
40
50
60
70
80
90
100
Sizeofthe
market
Developed
media
Awareness
ofbrands
Quality
conscious
consumers
Profit
Potentialin
best
market
segments
Premium
Different Forms of Retailing:-11
Hypermarkets (>5000 sq. ft.)
Large supermarkets (3,500 - 5,000 sq. ft)
Mini supermarkets (1,000 - 2,000 sq. ft)
Convenience store (7,50 - 1,000 sq. ft)
Discount/shopping list grocery (
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
Component of Indian Retail Sector:-12 (Exhibit:-5)
A) FOOD RETAILERS
Food retail contributes 62.7% in the total retail sales. It has increased
substantially by 85% to Rs. 7,039 billion in current terms during last 5 years. 13
Food sales accounted for about 63% of supermarket sales and 60% of
convenience stores. Traditional types of retailers, who operate small single-outlet
businesses mainly using family labor, dominate this sector. In comparison, super
markets account for a small proportion of food sales in India. However, now a
days super markets are becoming more attractive due to higher standards of
hygiene and attractive ambience.
B) CLOTHING & FOOTWEAR
Global-brands such as Marks & Spencer, Lacoste, and Benetton have established
their retail presence in the country through the franchising route. In fact, a large
number of Indian brands have also adopted the franchising route for expansion
due to the relatively lower level of investments involved.
C) DURABLE GOODS
The Indian durable goods sector has seen the entry of a large number of foreign
companies (LG, Hyundai, Samsung etc.) during the post liberalization period.
Intense competition among companies to sell their brands provided a strong
impetus to growth for retailers doing business in this sector.
D) CATERING
Home-grown as well as international restaurant chains present in both high street
locations and malls represent the organized Food and Beverage sector. Most of
the multinational foodservice chains like McDonald's and Pizza-Hut have adopted
the franchising route to set-up their Indian operations and expand their market
presence. Coffee retailing has emerged as a successful example in this segment
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
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. This has attracted
Global real-estate giants like DLF to establish malls and retail stores. As a result,
from just 3 malls in 2000, India is all set to have over 300 malls by 2007.18
(Exihibit:-6)
By 2007, total mall space in cities of Mumbai, Bangalore,
Hyderabad, Chennai, Kolkata, and National Capital Region is expected to
increase to over 26.1 million sq. ft.19 Smaller cities like Pune, Ahmedabad,
Ludhiana, Jaipur, Chandigarh, etc. are also expected to see a formidable growth
of malls in the near future.(Exhibit:-7)
Challenges:-
Despite the presence of the basic ingredients required for
growth of retail industry in India, it still faces substantial hurdles that would
retard and inhibit its growth in the future. One of the key impediments is the lack
of FDI status. This has largely limited the growth of 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.
Exhibit:-84
Importance of Key Concerns for Consumer Companies
0
10
20
30
40
50
60
70
80
90
CostOf
RetailSpace
FDIcontrols
Unorganised
sector
competition
Storageof
urbanretail
space
Partnership
laws
9
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
Exhibit:-94
Consumer Companies cite Key distribution Concerns
0
10
20
30
40
50
60
70
Large
geographical
area
Infrastructure
constraints
Distribution
costs
Fragmented
market
Lackof
national
distribution
networks
Lackof
distribution
hubs
Discussion Regarding FDI:-
Much has changed since the government of Rajeev Gandhi
began the long, slow and painful process of opening up the economy. Indias
consumer markets started to look a little more like world markets, as global
brands became increasingly recognized and the share of organized retail in the
market began to grow. The Indian Retail Council was formed in 2000, under the
auspices of the Confederation of Indian Industry.20 This Council is expected to
enable the industry to lobby for unified tax laws, rational octroi, labor laws and
tenant laws.
Given the attractiveness of the Indian retail sector, foreign
retailers like Wal-Mart, Carrefour SA, and Tesco Plc. were keen to enter this
growing market, despite the Indian retail sector being closed to foreign direct
investment. 21 However, global companies with manufacturing bases in India, are
allowed to retail their products manufactured in India. Foreign retailers can only
enter the retailing environment through franchising agreements. In February
2006, the Indian Government had announced its decision to allow FDI of up to
51% in single brand retailing. However, 100% FDI is permitted in wholesale
trading.
There are apprehensions in certain quarters that FDI
in retailing would lead to unfair competition and ultimately result in large scale
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN 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.
.
Exhibits:-
Exhibit:-124
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
13
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Exhibit:-323
Selected Indian Retailers
Companyand itsretail
presence
No. ofoutlets
Retailspace
(Sq. ft.)Format
Productbasket
Expectedturnover
2001-2002(Rs. Cr.)
Investment made so far andexpansion plans Increase in
retail presencespace/cities/stores/investment
/turnover etc.
BataNationwide
1500 +App.
10,00,000Brand chain
Shoes andAccessories
800 NA
KodakNationwide
890+ 5,00,000 Imaging chain
PhotographyProcessing
andPeripherals
700 Plans 200 stores every year
MarginFree Kerala
214 2,50,000Discount super
marketsGroceries 550 NA
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
LibertyNationwide
360 2,00,000 Brand chainShoes and
Accessories500
(domestic)
Total turnover Rs. 600 cr.Planning 10 company ownedRevolution Stores with an
investment of Rs. 25 cr.
RPG RetailFood
World,MusicWorld,
Health &Glow,
Super Store& Grant
110 4,93,000
Supermarket/specialty stores, Hyper
market
Food, Music,Health and
Beauty,Groceries, etc
460
Investment so far Rs. 132 cr. Rs.60 cr. Investment every year toadd 30 outlets of Music World,
more Health and Glow outlets 25food world stores and 4 grand
hypermarkets
Titan Ind. 314 2,30,000 Brand ChainWatches,
clocks andJewellery
446(Independent
stores)
Total company turnover ofRs.709 cr. More than 375 stores
by March 2002.
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
RaymondNationwide
263 4,00,000Speciality
stores
Fabrics,Apparels,
accessories400
Planning 100 exclusive storesfor its apparels brands, Park
Avenue & Parx. More stores inDubai, Bangkok and Sharjah.
ShoppersStop Ltd.
39338 4,09,000Dept.
Stores/Bookstores
ClothingAccessories,Home fashion,
Books
28518 Shoppers Stop with atargeted turnover of Rs. 500 cr
by 2004. And 6 more Crosswordstores.
Nilgiris (12Cities)
26 89,000 Super market
Groceries,dairy products
andconfectioneries
230 Investment so far Rs. 35 cr
Subhiksha
112 1,25,000Discount
supermarket
Food,provisions and
pharma200 NA
Tamil Nadu
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
PantaloonRetail,
Pantaloonstores,
franchisees, Big
Bazaar in 9
cities
13+34+3 3,38,000Dept.
stores/hypermarket
Clothing,utilities andgroceries
175 Investment so far Rs. 100 cr
Vivekgroup,
Tamilnadu,Karnataka
36 2,00,000 Super markets
Consumerelectronics and
homeappliances
173 Investment up to Rs. 35 cr
Apollo 90 NA Brand PharmaChain Healthcare/Pharma 120 250 outlets in next 3 yrs.
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Exhibit:-513
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Exihibit:-621
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
Exhibit-724
20
Operational Malls/Shopping Centres as on 31 August
2005
Built-up Area in
sq.ft
No of
Malls
Delhi - NCR 6,533,374 29
Mumbai, Navi Mumbai
& Thane 6,575,000 27
Kolkotta 741,660 3
Chennai 1,350,000 2
Bangalore 1,260,000 5
Pune 1,230,000 5Hyderabad 695,000 5
Others 3,179,830 20
Total All India 21,564,864 96
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
Exhibit:-10
Sr.
No. Factors Description Implications
1
Barriers toFDI
FDI not permitted inpure retailingFranchiseearrangement allowed
Absence of global playersLimited exposure to best
practices
2Lack ofIndustryStatus
Government doesnot recognize theindustry
Restricted availability offinance Restricts growthand scaling up
3
StructuralImpediments
Lack of urbanizationPoor transportation
infrastructureConsumer habit of
buying fresh foodsAdministered
pricing
Lack of awareness ofIndian consumers
Restricted retail growthGrowth of small, one-storeformats, with unmatchablecost structure Wastage ofalmost 20%-25% of farm
produce
4 High Cost ofReal Estate
Pro-tenant rent lawsNon-availability ofgovernment land,zoning restrictionsLack of clear
Difficult to find good realestate in terms of locationand size High land costowing to constrainedsupply Disorganized nature
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
ownership titles,high stamp duty(10%)
of transactions
5
Supply ChainBottlenecks
Several segmentslike food and apparel
reserved for SSIsDistribution,
logistics constraints restrictions of
purchase andmovement of foodgrains, absence of
cold chaininfrastructure Long
intermediation chain
Limited product rangeMakes scaling up difficultHigh cost and complexityof sourcing & planningLack of value addition andincrease in costs by almost15%
6
ComplexTaxationSystem
Differential sales taxrates across statesMulti-point octroi
Sales tax avoidanceby smaller stores
Added cost and complexityof distribution Costadvantage for smallerstores through tax evasion
7
MultipleLegislations
Stringent labor lawsgoverning hours of
work, minimumwage payments
Multiplelicenses/clearancesrequired
Limits flexibility inoperations Irritant value inestablishing chainoperations; adds to overall
costs
8
CustomerPreferences
Local consumptionhabits Need forvariety Cultural
issues
Leads to productproliferation Need to stocklarger number of SKUs atstore level Increasescomplexity in sourcing &
planning Increases the costof store management
9
Availability
of Talent
Highly educated
class does notconsider retailing a
profession of choiceLack of proper
training
Lack of trained personnel
Higher trial and error inmanaging retail operationsIncrease in personnel costs
10
ManufacturersBacklash
No increase inmargins
Manufacturers refuse todis-intermediate and passon intermediary margins toretailers
References:-
22
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
. Dunne P M, Luch R F and Griffith D A (2002), Retailing, Thomson SouthWestern, 4th Edition, p. 7.
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7. KSA Technopak (I) Pvt Ltd, the India operation, (n.d.). Retrived on Jan 17,2007 from
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http://www.ciionline.org/industryMonitor/index.html11. Industry Sectors Retailing overview (n.d). Retrived Jan 17, 2007 from
(http://www.indiainbusiness.nic.in/india-profile/ser-retail.htm#6 )
12. Images of India Retail Report (IIMA 2005, p. 1-26) (n.d.) Retrived Jan 16,2007 from \\192.168.240.1\Clubs\Consult\Sectoral Reports and Articles\Retail
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17. Consumer Markets in India the next big thing? (KPMG International2005, p. 22)18. 'Retail Real Estate: Malls in India 2005'(n.d.). Retrived Jan 17, 2007 from
http://www.imagesretail.com/mall_book.htm19. 'Retail Real Estate: Malls in India 2005'(n.d.). Retrived Jan 17, 2007 from
http://www.imagesretail.com/mall_book.htm20. Indian Retailing Part1, (Euromonitor 2005 p.12). Retrived Jan 17, 2007
from http://www.gmid.euromonitor.com21.Industry Sectors- Retailing overview (n.d). Retrived Jan 17, 2007 from
http://www.indiainbusiness.nic.in/india-profile/ser-retail.htm#6.
23
http://www.indiainbusiness.nic.in/http://www.ciionline.org/industryMonitor/index.htmlhttp://www.in.kpmg.com/industries/industries_cm.asp#cm3http://www.ciionline.org/industryMonitor/index.htmlhttp://www.imagesretail.com/india_retail_report.htm(ksa)http://www.ciionline.org/industryMonitor/index.htmlhttp://www.ciionline.org/industryMonitor/index.htmlhttp://www.ciionline.org/industryMonitor/index.htmlhttp://www.indiainbusiness.nic.in/india-profile/ser-retail.htm#6http://www.gmid.euromonitor.com/http://www.imagesretail.com/mall_book.htmhttp://www.imagesretail.com/mall_book.htmhttp://www.gmid.euromonitor.com/http://www.ciionline.org/industryMonitor/index.htmlhttp://www.in.kpmg.com/industries/industries_cm.asp#cm3http://www.ciionline.org/industryMonitor/index.htmlhttp://www.imagesretail.com/india_retail_report.htm(ksa)http://www.ciionline.org/industryMonitor/index.htmlhttp://www.ciionline.org/industryMonitor/index.htmlhttp://www.ciionline.org/industryMonitor/index.htmlhttp://www.indiainbusiness.nic.in/india-profile/ser-retail.htm#6http://www.gmid.euromonitor.com/http://www.imagesretail.com/mall_book.htmhttp://www.imagesretail.com/mall_book.htmhttp://www.gmid.euromonitor.com/http://www.indiainbusiness.nic.in/ -
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA
22. Sue J F Evans (n.d). International Perspective on Developments inRetailing:Major Impact and Implications for India. (AT KEARNEY). RetrivedJan 17, 2007 from http://www.atkearney.com/main.taf?p=5,3,1,79
23. Sinha and Dwarika, Retail Management An Asian Perspective. ThomsonLearning, Singapore, 2005
24. Foreign direct Investment in Retail. (ICICI Bank-2005) Retrived on Jan2007 fromhttp://www.icicibank.com/pfsuser/aboutus/investorelations/pressrelease/jan25-2001.htm
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http://www.atkearney.com/main.taf?p=5,3,1,79http://www.atkearney.com/main.taf?p=5,3,1,79
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