ch 1 introduction to retailing

8/6/2019 Ch 1 Introduction to Retailing

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Introduction to Retailing Overview of the Industry

Organized Retailing



Introduction to Retailing

The sea of change can pull customers in many directions. It is our responsibility

to light the way and take care of them… before the competition does.

Definition of Retailing:

Retailing is derived from the old French word ‘retailier’, meaning ‘to cut into small

pieces’.

Retailing is defined as the business activity of selling goods and services to the final

consumer. In simple terms, it implies a first-hand transaction with the customer. It covers

sales of goods ranging from automobiles to apparel and food products, and services

ranging from hair cutting to air travel and computer education.

Retailing involves:

- Interpreting needs of customers.

- Developing good assortment of merchandise.

- Presenting them in an effective manner so that consumers find it easy,

convenient and attractive to buy

According to Philip Kotler, Retailing includes all the activities involved in selling

goods and services directly to final consumer for personal, non-business use.

Retailing involves a direct interface with the customer and the coordination of business

activities from end to end-right from the concept or design stage of a product or offering,

to its delivery and post-delivery service to the customer.

Long ago, the Father of the Nation, Mahatma Gandhi realized the importance of

customer in retailing. He said, “The customer is the most important person on our

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premises. He is not dependent on us. We are dependent on him. He is not an interruption

of our work; he is the purpose of it. He is not an outsider on our business, he is part of it.

We are not doing a favor by serving him; He is doing us a favor by giving us the

opportunity to do so.” This proves the fact that retailing is incomplete without customer.

Retailing is directly dependent on customer.

Growing importance of the retail sector:

Retailing is not only an integral part of our economic structure but also shapes and is

shaped by our way of life. While trading of goods has always been a part of traditional

societies, in recent times the buying and selling of products has become a much more

formalized and brand dominated activity. Its impact on society in general is readily

acknowledged.

Factors illustrating the growing importance of the retail sector:

• Large & increasing contribution to GDP.

• Major employer.

• Retailers diversifying their activities.

• Organization growing on an international scale.

• Size of operations allowing for supply chain control.

• Blurring of areas of retail to include wider areas of business activity.

• Retailing organization is growing & is now comparable with and ever bigger

than manufacturers.

• Development of new products of retailers’ i.e. own brand lines takes large

portion of the market.

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Major types of retailers:

1. Kirana Stores: The Kirana Stores are the original retail formats in India. They

are small, friendly neighborhood stores, which have been offering customized

services to their customers.

2. Specialty Stores: Specialty stores are narrow product line with a deep

assortment, such as apparel store, sporting goods store, furniture stores,

bookstores and florist. A clothing store would be a single line store, a men’s

clothing store would be a limited line store and a men’s custom shirt store would be a super specialty store.

Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer

Crossword, RPG's Music World and the Times Group's music chain Planet M are

some of the examples of Specialty store.

3. Departmental store: Departmental stores are such stores which cater to all

shopping needs of the consumer under one roof under their luxurious settings. It

consists of different several product lines-clothing, home furnishings, household

goods. Departmental Stores are expected to take over the apparel business from

exclusive brand showrooms.

Among these, the biggest success is K Raheja's Shoppers Stop, which started in

Mumbai and now has more than seven large stores (over 30,000 sq. ft) across

India and even has its own in store brand for clothes called Stop!.

4. Supermarkets: Supermarkets are relatively large self-services retail outlets,

they are low cost, low margin, high volume, designed to serve total needs for

food, laundry, and household maintenance products. They earn an operating

profit of only about 1% on sales and 10% on Net worth.

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5. Discount Stores: Discount stores are the stores which offer discounts on the

retail price through selling high volumes and reaping the economies of scale.

True discount stores regularly sell merchandise at lower prices and offer mostly

national brands. The main advantage of such stores is low prices.

‘Big Bazaar’ is one of the very good examples of discount stores.

6. Branded Stores: Branded Stores are exclusive stores either owned or

franchised out by a manufacturer consisting of a complete range available for a

given brand only. There are various companies having their branded stores like

TATA owned Westside, Raymond, Adidas, Reebok, and Pantaloons etc. This

concept is now being used to introduce organized retailing to the second rung

towns.

7. Malls: Malls consist of an enclosure having different formats of in-store retailers,

all under one roof. They have variety of shops available close to each other. Most

malls give floor space out to individual shops on lease, and these are enticed by

the economies resulting from the sharing of costs. India's largest shopping arcade

Spencer Plaza (600,000-sq-ft) in Chennai is an example. In malls like these, the

combined brand pull of all outlets is used to create a pull for the mall.Center One, R-Mall, Crossroads, Nirmal Lifestyles, RNA Millennium, In Orbit

malls in Mumbai, Sahara Mall, MGF Metropolitan, DLF Mega mall in Delhi, are

some of the many examples of Malls in India.

8. Hypermarkets: Hypermarkets are larger than a Supermarket, sometimes with a

warehouse appearance, generally located in quieter parts of the city and have low

prices, vast choice available including services as cafeterias.

Big Bazaar, Giant and Super Sabka Bazaar are the three major players in this

segment.

9. Hotel Shopping Plazas: This type has been largely unknown because of its thin

existence. Traditionally hotel retail was restricted to jewellery and handicraft

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items but post 2003 this is changing with various international retailers entering

the market preferring the hotel environment more suitable to get a feel of the

market. Assessing this demand, new upcoming hotels are incorporating distinct

retail areas in their plans on the lines of Grand Hyatt in Mumbai and Leela

Galleria in Bangalore.

10. E- Tailing: The Internet has become a household name in urban India and e-

commerce transactions in India are growing steadily. Many chains and large retail

houses have entered the virtual store business. They are mainly in non-food

retailing business, like clothes, music and business.

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Overview of the industry

The retail sector is India’s largest industry, which accounts for over 10 percent of India’s

Gross Domestic Product but is fragmented and unorganized .It is also the highest

employer by contributing to over 8 percent of total employment. The Indian Retail

Industry has emerged as one of the most dynamic and fast paced sectors on the lines of

Information Technology.

History

Indian retailing for long has been only the mom-and-pop stores or the local kirana stores,

organized retailing rarely existed and it was also very fragmented. The word ‘retailer’was associated with only such stores and a common man could not imagine anything

other than that. For him, a retailer was only a person who sold goods to him after

purchasing from wholesaler.

For Indian retailing, things started to change slowly in the 1980s, when the government

recognized its potential and began opening its economy. Textiles sector (which

companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim) was the first to see

the emergence of retail chains. Later on, Titan, maker of premium watches, successfully

created an organized retailing concept in India by establishing a series of elegant

showrooms.

For long, these remained the only organized retailers, but the latter half of the 1990s saw

a fresh wave of entrants in the retailing business, thanks mainly to the changes in

Government rules and regulations. Since then, the concept of Multi-Outlet retail stores

has gained momentum and is all set to become the de-facto standard in the years ahead.

This time around it was not the manufacturer looking for an alternative sales channel.

These were pure retailers with no serious plans of getting into manufacturing. These

entrants were in various fields, like - FoodWorld, Subhiksha, More and Nilgiris in food

and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books.

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Organized retailing has finally got the push it needed and its importance is increasing day

by day. The consumer in India is now being exposed to shopping as an experience and is

charmed with a host of international brands that too at competitive prices. Today, the

Indian consumer expects wide array of choices and brand options. He has now started

spending more and also demanding more from the retailers.

According to a report prepared by Mc Kinsey and the Confederation of Indian Industry

(CII), India is set to witness retail boom, with the potential to become a US $ 300 billion

market per year by 2010.

According to recent DSP Merrill Lynch report, the key factor providing a thrust to this

retail boom is the changing age profile of spenders. A new set of young earners who are

in their mid twenties has emerged and over seven million people are entering this

category every year. The number of people who earn over US$ 5000 plus per annum is

growing at an intense pace and this is primarily attributed to the rapid rise in young

earners (those in their mid twenties).

Modern retail has entered India as seen in sprawling shopping centers, multi-storied malls

and huge complexes offer shopping, entertainment and food all under one roof. The retail

landscapes is dominated more and more by elaborate shopping malls and super stores,

which are springing up in both metro’s and large non-metro’s. As a result of which nearly

all domestic retail majors have announced huge expansion plans for the next 12-18 month

period with analysts predicting new investments in the region of US$ 1.5-2 billion.

India retained its position as the world’s most attractive market for mass merchant and

food retailers according to management consulting firm AT Kearney’s 2008 Global

Retail Development Index (GRDI). The Index, an annual study of retail investment

attractiveness among 30 emerging markets found Asia had overtaken Europe as a

dominant region for global retail expansion, with a growth rate of over 40%. AT

Kearney’s Global Retail Development Index (GRDI), which ranks 30 emerging countries

based on a set of 25 variables including economic and political risk, retail market

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attractiveness and retail saturation levels, has retained India’s position at the top. The

report said that the Government of India has gradually started taking all necessary steps.

On the permission to allow FDI up to 51 per cent in single-brand retail, the report said.

“This has triggered market-entry announcements from some retailers and has signaled to

international retailers that India is serious about opening up the sector. India is at the peak

of attractiveness for retailers right now, with a $350-billion retail market expected to

grow 13 per cent this year.”

Retailing provides jobs to a large number of Indians and is the largest contributor to

India's GDP. But the flip side of the coin is that the average size of each of the retail

outlets in India is only 50 square feet and though a large employer, the industry is very

unorganized, fragmented and with a rural bias.

The Indian retail industry is unorganized

There are nearly twelve million retail outlets in India and the number is growing. Two

thirds of these stores are in rural location. The vast majority of the twelve million stores

are small "father and son" outlets. According to the "Retailing in India" report published

by the PwC Global Retail Intelligence Program, share of the unorganized sector is 98%.

The Indian retail industry is fragmented

Retail stores in India are mostly small individually owned businesses. The average size of

an outlet is 50 s.q. ft. and though India has the highest number of retail outlets per capita

in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest in the

world.

The Indian retail industry has rural bias Nearly two thirds of the stores are located in rural areas. The retail industry in rural India

has typically two forms: "Haats" and "Melas". Haats are the weekly markets: they serve

groups of 10-50 villages and sell day-to-day necessities. They are frequently used as

replenishment point for the small village retailer. Melas are larger in size and more

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sophisticated in terms of the goods sold. Mela merchandise would include more complex

manufactured products such as televisions.

Even in urban areas, organized retailing in India is restricted to the top few cities of the

country only.

Organized retail currently accounts for only three percent of the $ 230 billion retail

industry in India.

A report by property consultants Knight Frank says the retail boom has spread to Tier II

and Tier III cities, too. Of the 361 malls under construction, 227 are in the top 7 cities,

while the remaining 134 are coming up in the smaller cities.

Knight Frank estimates that besides the new malls, close to 35 hypermarkets, 325 large

department stores and more than 10,000 new outlets are also under development.

Leading the retail boom is the National Capital Region and in particular its satellite towns

of Gurgaon, Noida and Ghaziabad. With the mall culture gripping ht e ballooning

upwardly mobile population, this survey expects another 25.39 million sq ft of retail

space adding o the current stock of 10.6 million sq ft. of the 78 malls slated to come up

in the NCR, 35 will be in Delhi alone.

Mumbai presents a different picture with the retail boom taking the suburbs by storm but

bypassing the island city. Here, poor infrastructures, lack of fresh space for new

construction and high real estate costs have stymied growth.

Retail is currently enjoying its sunrise status, but the market dynamics are set to change

drastically in the near future. As retail formats mature across the country, it will be

imperative for retailers to brand themselves for competitive advantage and as employers.

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Classification of Indian retail sector:

a) FOOD RETAILERS

There are large number and variety of retailers in the food-retailing sector Traditionaltypes 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

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.

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E) DURABLE GOODS

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.

Today trend is the development of integrated retail cum Entertainment centers or

shopping malls. An increasing number of retailers are focusing on malls now as opposed

to stand-alone developments. While the number of shopping malls has seen a massive

surge in the recent past in the metros and their suburbs, the latest trend in this sector is the

increasing focus on providing leisure activities such as multiplexes, facilities for kids'

entertainment, eateries etc. within the mall premises. Customer less the time consumes

and more entertainment with his family in malls because they within shopping mall

number of retail shop and variety of products and selected the product they want. Good

environment in mall. Less crowed and These are enclosed, air-conditioned, multi-level

malls of at least 100,00 sq ft. Critical to these malls is the concept of the anchor, the key

outlet or store around which other outlets cluster. The most popular Indian anchors

include Shoppers' Stop, Globus, Pantaloon, Lifestyle and hypermarkets like Big Bazaar

and Giant. Cinemas also often anchor malls. Driven by the lucrative tax breaks, the old

single screen theatres are being divided into three-five smaller screens, as was done in the

US, years ago.

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Key drivers of retailing in India

• Consumer Pull

In the pre-liberalization market, the power rested clearly with the manufacturers. Intoday’s demand-led market, it’s the consumer who calls the shots. Over the last decade,

there has been a significant evolution in the Indian consumer, mainly due to the

liberalization of the consumer goods industry that was initiated in themed-eighties and

accelerated through the nineties, combined with a growing consumerism driven by the

media, new opportunities and increasing wealth. A. F. Ferguson & Co . had carried out a

brief survey among consumers across income segments to understand their spending

pattern. An analysis of the `monthly purchase basket of the consumers surveyed indicated

that the average monthly households spend on food and grocery related items varied

across income segments. For instance, in the case of upper income households, the

average spend was around Rs 4,200 per month. As against this, the average spend in the

case of a middle income household was around Rs. 2,850 and lower income households

Rs. 1,250 per month.

• Rising incomes

Over the past decade, India’s middle and high income population has grown at rapid pace

of over 10 percent per annum. Though this growth is most evident in urban areas, it has

also taken place in rural areas. Further the number of households earning above Rs. 1,

50,000 per annum is about 50 million today and is expected to grow to80 million by

2010. This growing high income population is triggering the demand for consumer

goods, leading to proliferation of higher quality/ higher priced products. With increase in

double-income households and working women, there is an increasing pressure on time

with very little time being available for leisure. These changes in consumer behavior alsoaugur well for the retailing industry.

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• Explosion of media:

There has been an explosion in media as well during the last decade. Kick-started by the

cable explosion during the Gulf War, television has accelerated to a point where there are

more cable connections than telephones in Indian homes (225 million vs. 23 million), and

about over 100 channels are being aired at all times. This media bombardment has

exposed the Indian consumer to the lifestyles of more affluent countries and raised their

aspirations and expectations from the shopping experience- they want more choice,

value, service, experience and convenience of more affluent countries and raised their

aspirations and expectations from the shopping experience- they want more choice,

value, service, experience and convenience.

• Change in consumer behavior

There has been a change in shopping behavior in present urban India where consumers

are looking for convenience. That is, they want everything under one roof and a bigger

choice of products. With an increase in double-income households, people do not have

much leisure time and seek the convenience of one-stop shopping in order to make the

best use of their time. They also look for speed and efficiency. Increased awareness has

also meant that consumers now seek more information, variety, product availability,

better quality and hygiene as well as increased customer service. The concept f “Valuefor Money” is picking up.

As malls and supermarkets offer the option of entertainment along with shopping,

younger couples prefer to shop there along with their kids. Also driving the retail industry

is impulse buying spurred on by higher brand awareness.

Consumer niches have begun propelling the market and are becoming more important,

with positive and negative sub- segments of consumers gaining significance. The growth

accelerator has definitely been the working woman, with the money spent by her

averaging 1.3 times that of a housewife.

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• Consumer cycle

The consumer cycle starts with the industry dictating the market. Eventually over time

the distributor gains control over the market; at this stage the distributor becomes an

important link between manufacturer and customer. When the market starts developing

its horizons, retailers turn into the vital link in this supply chain. India is entering the third

stage where retailers control the market. Being closest to the link to the consumer in the

supply chain, retailers benefit accordingly. Manufacturers spend a lot of money

promoting a product, but if it’s not on the shop-shelf, consumers won’t be able to buy it.

Manufacturers have also realized that retailer recommendations matter, particularly in

smaller towns where retailers are figures of authority or opinion leaders.

With shopping attitudes changing, the Indian market today desires value- added products

and services with good ambience and brands, which only a retailer can provide. Hence,

good relations are a must. Manufacturers are ready to pay listing fees to get retailers to

stock a product, or display charges to place it prominently.

• Emergence of rural market

The rural market is beginning to emerge as an important consumption area, accounting

for over one-third of the demand for most key consumer durables and non- durables, INresponse, manufacturers of consumer goods- both FMCG’s and durables – have begun

developing new products (LG television, shampoo sachets, Ruf n Tuf jeans) and

marketing strategies (using a village ‘Haat” for brand promotions) with the rural

consumers in mind.

• Establishment of Supply Chain

Over the past few years, the consumer goods sector has been transformed by increased

liberalization, continuous reduction in customs duty, a shift from quota to tariff-based

systems for imports and sophistication in manufacturing. Entry restrictions for

multinationals have been removed in nearly all sectors. All these has enabled chain

retailers to enjoy better range depth and sourcing options as well as improved average

margins. There has been a proliferation in the range across all categories, with a

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simultaneous increase in the supply of products and quality retail space. According to a

study, there are over 18,000 stock- keeping units (SKUs are products and their variants,

of type and size, counted individually), while most retailers have the space for at most

5,000 – 7,000 units.

• Emergence of Hubs as Retail Activity

Chennai was considered a `traditional', conservative' and `cost-conscious' market, but

proved to be the home ground for most of the successful retail names - Food World,

Music World, Health and Glow, Vitan, Subhiksha and Viveks -to name a few. The choice

of Chennai as the `retail capital' has surprised many, but a variety of factors acted in its

favor. Chennai, in spite of being a rapidly growing metropolis offers reasonable realestate prices, one of the most critical elements for the industry. Chennai has been

witnessing a high industrial growth and increasing presence of the MNCs, both in the IT

sector as well as outside it. The industrial boom has led to the emergence of new

residential areas with aggregation of professionals as well as a rapid increase in the

number of `double-income' households and growth of the nouveau riche/upper middle

class with increased purchasing power. These have been combined with the increasing

need for touch and feel shopping (especially for the large migrant population). All the

factors have acted favorably in nurturing the industry.

• Expansion of Family-Owned Businesses:

The most successful of these are the Rs.150- crore Viveks, the forty year old Chennai

consumer durables chain, the Rs 50-crore Pantaloon apparel retail business, and

Bangalore’s food retailer Nilgiris. With the new-age demanding consumer preferring to

shop in these big retail chains, traditional ‘bania’ shops will face a difficult time trying tomeet consumer expectations. The process is likely to be kick-started by grocery stores

transforming into supermarkets since the margins in the grocery trade are the lowest in

the business.

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• New Entrepreneurs

The growing attractiveness of the retail trade has begun to attract new entrepreneurs with

ideas, and venture capitalists with funds. Subhiksha, an innovative discount grocery chain

started from Chennai is one of the most successful retail start-ups of the recent past.

Venture capitalists like ICICI and IL&FS are also increasingly willing to invest in retail

business.

• Building Chains around Brands:

Apparel, footwear and consumer durable brands have driven the growth of specialty

chains and upgraded existing multi-brand outlets. Some like Reebok claim to have

entered retailing because of the paucity of suitable multi-brand retailing options.

However, many of these are emerging as large retailers (Titan, Madura Garments,

Raymond) today, and appear to be committed to developing their retail businesses. Thus

there is an extension of consumer brand-seeking i.e. promise, trust, comfort, and image;

from products to stores.

• Foreign Retailers Looking for Entry Options:

The increasing attractiveness of the sector has drawn the interest of a number of global

retailers. With the opening of the economy, more and more MNC’s have entered the

Indian Business arena through joint ventures, franchisees or even self – owned stores.

The very first MNC to get into the business was Spencer’s and the Diary Farm

International, a $10 billion Hong-Kong based company, and a part of the Jardine

Matheson group.

While the foreign retailers cannot start operations on their own mainly because of the FDI

restrictions on the sector, a number of companies, including Tesco, Carrefour and Ahold,

are exploding entry options. In apparel, Benetton, Lifestyle and Zegna are already in

business; Diary Farm has a number of retailing joint ventures in India.

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• Technological Impact

Technology is probably the most dynamic change agent in the retailing industry. The

computerization of the various operations in the retail store – including inventory

management, billing and payments as well as database (of customers) management –

widespread use of bar coding, point-of-sale terminals and Management Information

Systems (MIS) has changed the face3 of retailing drastically. Apart from providing the

retailers with better & timely information about their operations, the technology also

performs such tasks as preventing theft (through the hi-tech Electronic Article

Surveillance System), promoting the store’s goods and creating a better shopping

atmosphere. This is done with the help of Closed-circuit televisions, video walls, in-store

video networks, and other forms of interactive applications – ranging from CD-ROMs to

virtual reality – to let customers select and buy products.

They make the customers life a lot easier by facilitating the use of credit cards, debit

cards and smart cards. Toll-free numbers have brought about a revolution in consumer

ordering & feedback mechanisms. These also pave the way for tele-shopping and net-

shopping. Emerging technologies also facilitate just-in-time management of certain

products within the store.

• At 271 million, one of the largest consuming base in the world, forming 27% of

the total population.

• A high spending community below 45 years comprises 81 percent of the

population.

• A young population with 54% population below 25 years

• Increased literacy from 44% in 1965 to 70% in 2003

•

Increase in working women from 1.3 million in 1961 to 4.8 million in 1998.

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Contribution of Retailing to Indian Economic Sector:

1. Real estate: The retail industry’s real-estate requirement will be in millions of

square feet. This will release for productive use large tracts of land lying with various

government agencies such as the ports, the armed forces, railways, mill land and so on.

2. Tourism/Outbound shopping: One of the best features of any city that attracts

a large number of tourists every year—London, Singapore, Dubai, New York and so on

—is a well-developed shopping environment. Organized retailing will help significantly

in developing our cities as tourist destinations. And, if well-marketed and managed, it

can significantly enhance government revenues, apart from spreading the word about

ethnic Indian brands across the world.

3. Higher GDP: The value that retailing can add to the economy should not be

underestimated. Organized retailing has huge potential, which could lead to higher GDP

growth and also generate employment. Organized retailing could also bring about the

transformation of the agricultural supply chain, remove inefficiencies in the distribution

of consumer goods and improve productivity while providing consumers with a better

range of products at better prices in a better ambience at the same time.

4. Outsourcing opportunities: If organize retailing is a $200 billion industry, how

big can its outsourcing opportunities be? Pretty big, including everything from supply

chain management to pilferage control to loyalty management. Checkpoint Systems has

launch its pilferage prevention system and Venture Infotek has come in with tractionmanagement for loyalty programmes.

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The benefits are difficult to quantify, but clearly they will be huge. In countries

where retailing and modernization has progressed, it has favorably affected the value-

capturing capacity and modernization of the farming industry. It has also restructured the

supply chain for all FMCG products, driven end-costumer prizes down on a sustain basis,

created significant employment opportunities, been a source of considerable revenue for

both State and Central Governments, and in general been a catalyst for creating

considerable national wealth.

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Evolution of Organized Retailing

The much needed organized retailing in India is already taking place. It originally began

in the south. The availability of land at prime locations coupled with lower real estate

prices compared to Delhi and Mumbai made multi-storied shopping complexes possible.

As a result of this, Chennai and to a lesser extent Bangalore and Hyderabad- has emerged

as a centre of organized retailing. In fact, in Chennai, nearly 20 % of food sales is now

accounted for by supermarkets and an equal share of consumer durables is sold through

specialty chains such as Vivek’s.

It took almost two years of recession for this concept of shopping to take root in major

cities like Mumbai and Delhi. Recession brought down the prices of property in these

cities, and it was during this slump that big business houses took notice of the potential in

retailing.

Traditionally the retail industry in India was largely unorganized, comprising of drug

stores, medium, and small grocery stores. India is now rapidly evolving into an exciting

and competitive market place with potential target consumers in both the niche and

middle class segments. Manufacturer-owned and retail chain stores are springing up in

urban areas to market consumer goods in a style similar to that of malls in more affluentcountries. Even though big retail chains like Crossroads, Saga and Shopper’s Stop are

concerting on the upper segment and selling products at higher prices, some like RPG’s

Food World and Big Bazaar are tapping the huge middle class population. During the

past two years, there has been tremendous amount of interest in the Indian retail trade

from major players as well. Over the years, international brands like Mc Donald’s,

Swarovski, Lacoste, Domino’s, and Pepsi, Benetton among a host of others to come in

and thrive in India.

The growth in the Indian organized retail market is mainly due to the change in the

consumer’s behavior. This change has come in the consumer due to increased income,

changing lifestyles, and patterns of demography which are favorable. Now the consumer

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wants to shop at a place where he can get food, entertainment, and shopping all under one

roof. This has given Indian organized retail market a major boost.

Organized retailing has a very long haul ahead. The process of getting into newer forms

of purchasing has been gradual because of traditional buying habits and the manner in

which traditional retailers manage relationships. There is no specific international format

or an existing role model that can be easily adapted and applied in the Indian context.

India is going through that phase which the US experienced in the eighties and nineties.

In order to develop the right proposition one needs to go through the learning curve. The

growth and development of organized retailing I India will be driven by mainly two

factors- low price and benefits the consumer can’ resist. Economies of scale will drive

down the cost of the supply chain and increase the benefits offered to the customer. From

product-based shopping, the emphasis will shift to experience-based shopping.

All these factors signal the prosperity of organized retailing in India. Organized retailing

in India is now being catapulted through the different stages of its growth to its

culmination in maturity. There is a growing consumerism that is paving the way for

greater consumer orientation and consumer enlightenment. More emphasis is given on

establishing a robust and cost-effective supply chain backed by fast developing

technology. Now it has become of utmost importance of creating a liberalized economic

platform that will enable global retailers to set up shops in India through various methods

that are permitted now such as joint ventures, licensing, franchising, etc.

Retail market in the organized sector in India is growing can be seen from the fact that

1500 supermarkets, 325 departmental stores, and 300 new malls are being built.

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Organized v/s Un-Organized Retail Sector

In the developed economies, organized retail is in the range of 75-80 per cent of total

retail, whereas in developing economies, the unorganized sector dominates the retail

business. The share of organized retail varies widely from just one per cent in Pakistan

and 4 per cent in India to 36 per cent in Brazil and 55 per cent in Malaysia (Table 2.2).

Modern retail formats, such as hypermarkets, superstores, supermarkets, discount and

convenience stores are widely present in the developed world, whereas such forms of

retail outlets have only just begun to spread to developing countries in recent years. In

developing countries, the retailing business continues to be dominated by family-run

neighbourhood shops and open markets. As a consequence, wholesalers and distributors

who carry products from industrial suppliers and agricultural producers to the

independent family-owned shops and open markets remain a critical part of the supply

chain in these countries.

According to Indian Retail report 2008, at present, India's retail sector is largely

unorganized, with about 15 million tiny outlets catering to consumer needs across the

country and employing second-largest number of people after agriculture.

Organized retail is now focused primarily on the 300 million urban "middle classes'' andan additional 200 million rural rich, who form a consumer market worth more than

US$100 billion.

So, there is enough ground for the modern and the traditional formats to co-exist.

The small retail stores are an important source of jobs, providing about 7 per cent of the

total employment in India. Moreover, they are providers of employment of the last resort.

Anyone without a job and proper education can set up a local retail outlet.

However, India is not an integrated homogeneous market; it is a hierarchy of markets

catering to people of many different income levels and tastes. For example, both Sony

and a local brand can coexist, catering to market segments.

Entry of sophisticated branded products affects the unbranded mass market only

marginally in a country such as India.

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Moreover, in malls where the large retail chains set up their stores, typically, there will

also be many small shops which will attract people.

Further, the street-corner shops will have some advantages over big stores located many

miles away in shopping plazas.

In India, transportation and parking are big problems for people who want to visit

shopping malls.

For them, it is more convenient and cost-effective to purchase many of their daily

requirements from the neighbourhood stores, especially as these establishments stock

goods that are in particular demand in the locality.

Hence, the local kirana stores can very well survive.

Country Organized Retailing Traditional Retailing

Malaysia 50% 50%

Thailand 50% 50%

Philippines 35% 65%

Indonesia 25% 75%

South Korea 15% 85%

China 10% 90%

India 2% 98%

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Share of Organized Retailing in selected countries

Consumer behavior and retailing decisions

Consumer behavior refers to the mental and emotional process and the observable behavior of consumers during searching, purchasing and post consumption of a product

or service. Consumer behavior involves study of how people buy, what they buy, when

they buy and why they buy. It blends the elements from psychology, sociology,

sociopsychology, anthropology and economics. It also tries to assess the influence on the

consumer from groups such as family, friends, reference groups and society in general.

Buyer behavior has two aspects: the final purchase activity visible to any observer and

the detailed or short decision process that may involve the interplay of a number of

complex variables not visible to anyone.

Factors Affecting Consumer Buying Behavior

Consumer buying behavior is influenced by the major three factors:

• Social Factors

• Psychological Factors

• Personal Factors.

Social Factors

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Social factors refer to forces that other people exert and which affect consumers’

purchase behavior. These social factors can include culture and subculture, roles and

family, social class and reference groups.

Psychological Factors

These are internal to an individual and generate forces within that influence her/his

purchase behavior. The major forces include motives, perception, learning, attitude and

personality.

Personal Factors

These include those aspects that are unique to a person and influence purchase behavior.

These factors include demographic factors, lifestyle, and situational factors.

Consumer decision-making process generally involves five stages:

Information Search

Problem Recognition

Purchase Action

Alternative Evaluation

Post purchase Actions

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Retail outlet selection and brand selection:

There are three fundamental patterns, which a consumer can follow and they

could be:

(I) Brand first, retail outlet second

(ii) Retail outlet first, brand second

(iii) Brand and retail outlet simultaneously.

A consumer wanting to buy a car may collect information on brands and purchase it from

a retail outlet based on his perception of price offered or after sales service provided by

the outlet (typically, search for information on brands is followed by retail outlet

selection in durables). In certain product categories, especially where `category killers'

exist, consumers may think of the retail outlet initially and then the brands (television,

refrigerator and audio products retailed through outlets like Vivek and Co. in the South,

could be an example).

One more dimension may be to compare brands in the evoked set at retail outlets which

also exist in an evoked set of their own. This is highly possible, especially in the Indian

context where dealers develop a social relationship with consumers, especially in semi-

urban and rural areas. Primary research could be used to discover the specific sequence

involved in a situation of this kind. A `brand first' dimension may need feature-based

advertising and a `retail outlet first' dimension may require a set of point-of-purchase

(POP) materials and special training to sales personnel to recognize the needs of

consumers.

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Some statistics derived from Indis-report.com

• Retailing of mobile handset and accessories will grow to Rs. 5000 crores by

2010.19.

• Third party logistics market is estimated at US$ 20 billion by 2011.• Demand for private labels in the rise, will grow further.

• In-house brands will see a growing demand amongst the retailers and will also

ensure margin stability.

• India’s fast moving consumer goods (FMCG) industry has introduced 251 new

products up to October 2007, as against 191 in the same period last year.

• The Indian healthcare IT market is expecting a growth rate of 22% says a

Springboard Research report.

• India's food and beverages sector, growing at 9%, is expected to attain US$

117.25 billion by the end of this year.

• With 54% of its 1.1 billion people aged below 25, it is one of the world's largest

markets for TV.

• India's food service industry is expected to grow 48% to US$ 667.49 million in

the next two years.

• According to a report by PriceWaterhouse Coopers, India could grow to almost

90% of the size of the US economy by 2050

• According to Confederation of Indian Industry, Yes Bank study, India's US$

35.17 billion rural retail market is expected to cross US$ 45.22 billion by 2010and US$ 60.29 billion by 2015.

• The size of the luxury market in India is estimated at around US$ 3.5 billion, and

could easily leapfrog to US$ 30 billion by 2015.

• Indian consumer spending will quadruple to US$ 1.77 trillion by 2025, from

about US$ 431.69 billion in 2005 due to a jump in its middle-class population and

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a rise in household income, according to a McKinsey study.

ch 1 introduction to retailing

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