Retailing EnvironmentRetailing Environment&&

InstitutionalizationInstitutionalization

Indian Retailing IndustryIndian Retailing Industry

YearYear Retailing in IndiaRetailing in India 80’s80’s synonymssynonyms to to

peddlers, peddlers, Vegetable vendorVegetable vendor

Kirana StoresKirana Stores

Before 90’sBefore 90’s Organized retailing Organized retailing by few Co. owned by few Co. owned retail outlet (textile)retail outlet (textile)Raymonds, Raymonds, Bombay Dyeing, Bombay Dyeing,

S Kumar’sS Kumar’s

90’s90’s LiberalizationLiberalizationGreater EmploymentGreater EmploymentGreat influence of western Great influence of western

lifestylelifestyleHigher purchasing powerHigher purchasing power

This encouraged in setting up retail chains by This encouraged in setting up retail chains by Domestic retailers like Domestic retailers like

Cotton World (Mumbai)Cotton World (Mumbai)Nirula’s (Delhi)Nirula’s (Delhi)Vivek’s & Nilgiris (south)Vivek’s & Nilgiris (south)

Factors behind the changeFactors behind the change

Economic Growth: Economic Growth:

India one of the largest economy in the India one of the largest economy in the worldworld

44thth largest economy in the world largest economy in the world in terms in terms of PPP.of PPP.

UrbanizationUrbanization

9 fold increase in urban population9 fold increase in urban population

Number of cities with million plus population Number of cities with million plus population also increased.also increased.

Conti..Conti.. ConsumerismConsumerism

Consumer more inclined to buy luxurious Consumer more inclined to buy luxurious goodsgoods

Cars, Washing machine, Designer Cars, Washing machine, Designer dresses, Expensive branded personal dresses, Expensive branded personal care productscare products

Because of Rise in capacity, Western media Because of Rise in capacity, Western media influence, aspired for material comfortinfluence, aspired for material comfort

Brand profusionBrand profusion: conscious, everything is branded: conscious, everything is branded

Ease of Proliferation (expansion):Ease of Proliferation (expansion): Ample space, Low Ample space, Low real estate cost real estate cost (developmental stage)(developmental stage)

Retailing EnvironmentRetailing Environment

Like other industry Retail industry is also Like other industry Retail industry is also affected by the external environment affected by the external environment

Economic EnvironmentEconomic Environment Legal EnvironmentLegal Environment Technological EnvironmentTechnological Environment Competitive EnvironmentCompetitive Environment

Economic EnvironmentEconomic Environment

Nature of the Country’s EnvironmentNature of the Country’s Environment

Capitalism Vs. SocialismCapitalism Vs. Socialism

GDP: Direct relationship for retailersGDP: Direct relationship for retailers

Inflation: Inverse Relationship for the Inflation: Inverse Relationship for the retailersretailers

Legal EnvironmentLegal Environment

Govt. use various laws to ensure that retailers Govt. use various laws to ensure that retailers don’t indulge in to unfair trade practices.don’t indulge in to unfair trade practices.

But often these regulations hamper the retail But often these regulations hamper the retail growth in the countrygrowth in the country

Legal & Regulatory problems in India: Legal & Regulatory problems in India:

FDI restrictionsFDI restrictions

Property regulationsProperty regulations

Labor lawsLabor laws

FDI restrictionsFDI restrictions FDI in India had been permitted for a short period prior FDI in India had been permitted for a short period prior

during 1997. during 1997.

Approvals were granted to few MNCs like Nanz to set up Approvals were granted to few MNCs like Nanz to set up retail chains and many others too entered through joint retail chains and many others too entered through joint ventures ventures

Example:Example: FoodWorld FoodWorld is a 51:49 joint venture between RPG is a 51:49 joint venture between RPG group and Hong Kong based Dairy group and Hong Kong based Dairy

Farm Farm InternationalInternational

But latter government pulled back the freedomBut latter government pulled back the freedom

As thought of causing threat to the existing Kirana StoresAs thought of causing threat to the existing Kirana Stores

This ban on FDI caused difficulty for foreign This ban on FDI caused difficulty for foreign players to fund huge retail venturesplayers to fund huge retail ventures

But it permitted them to enter through But it permitted them to enter through franchising or technical alliances with Indian franchising or technical alliances with Indian retailers or through licensee routesretailers or through licensee routes

The Department of Industrial Policy and The Department of Industrial Policy and Promotion (DIPP) has proposed: Promotion (DIPP) has proposed:

FDI in single-brand retail to 100 per cent FDI in single-brand retail to 100 per cent

51 per cent FDI in multi-brand retail of 51 per cent FDI in multi-brand retail of electronics goods, computers, sports electronics goods, computers, sports goods and watches.goods and watches.

Conditions under single brand retailingConditions under single brand retailing::

1.1. Products to be sold should be of a `single Products to be sold should be of a `single brand'.brand'.

2.2. Products should be sold under the same Products should be sold under the same brand internationally.brand internationally.

3.3. 'Single brand' product retailing would 'Single brand' product retailing would cover only products, which are branded cover only products, which are branded during manufacturing. during manufacturing.

Will India get benefited with Will India get benefited with FDI in Retail Industry ?FDI in Retail Industry ?

Benefits would beBenefits would be

Pool of foreign exchangePool of foreign exchange

Bring organization in the sectorBring organization in the sector

Provide Employment to thousandsProvide Employment to thousands

Wider choices of products Wider choices of products

Improved shopping experienceImproved shopping experience

Property regulationsProperty regulations

Dearth of good quality retail space in Dearth of good quality retail space in prime locationprime location

Sky rocketing rentals and lease amountsSky rocketing rentals and lease amounts

Hefty stamp duty for property transferHefty stamp duty for property transfer

Urban land ceiling actsUrban land ceiling acts

Urban land ceiling acts:Urban land ceiling acts:

To provide for the imposition of a ceiling (upper limit) on To provide for the imposition of a ceiling (upper limit) on vacant land, vacant land,

Restricting the acquisition of such land in excess of the Restricting the acquisition of such land in excess of the ceiling (upper) limitceiling (upper) limit

To regulate the construction of buildings on such land To regulate the construction of buildings on such land

To prevent the concentration of urban land in the hands To prevent the concentration of urban land in the hands of a few persons of a few persons

So as to avoid speculation and profiteering of few So as to avoid speculation and profiteering of few playersplayers

To bring an equitable distribution of land in urban To bring an equitable distribution of land in urban areas for a common good. areas for a common good.

Labor lawsLabor laws

Retail highly requires additional labors Retail highly requires additional labors during festival seasonsduring festival seasons

But Indian Labor law restricts them to hire But Indian Labor law restricts them to hire temporary workers.temporary workers.

Technological EnvironmentTechnological Environment

Its most important drivers in retailIts most important drivers in retail Computerization ofComputerization of

Inventory Management (VMI)Inventory Management (VMI) BillingBilling DBMSDBMS Bar code ScannersBar code Scanners RFIDRFID

Has shifted the way retailing is conductedHas shifted the way retailing is conducted

Even started using technology to improve Even started using technology to improve shopping environmentshopping environment and pleasant and pleasant shopping shopping experiencesexperiences

Eg: Digital monitor on the shopping Eg: Digital monitor on the shopping cart itselfcart itself

Competitive EnvironmentCompetitive Environment In spite of Indian Retail in nascent stageIn spite of Indian Retail in nascent stage

There is a severe competition among existing There is a severe competition among existing playersplayers

Because of the huge untapped potential in India Because of the huge untapped potential in India which encourages them to expand morewhich encourages them to expand more

Even the unorganized sector pose competition Even the unorganized sector pose competition to the organized one- to the organized one- because of their shiftbecause of their shift

Institutionalizing Retail- A shiftInstitutionalizing Retail- A shift

Store FormatStore Format selected plays a crucial role selected plays a crucial role in in attracting & satisfyingattracting & satisfying the target the target customer.customer.

Diversity & Changing nature of the society Diversity & Changing nature of the society has compelled the retailers to has compelled the retailers to changechange their their formats to provide formats to provide complete shopping complete shopping experienceexperience to customers to customers

Thus New Formats built with different Thus New Formats built with different pricing & servicingpricing & servicing strategies strategies

Theories of Institutional changeTheories of Institutional change

Various theories that attempt to explain Various theories that attempt to explain the reasons for institutional changes taking the reasons for institutional changes taking place in retailplace in retail

Wheel of RetailingWheel of Retailing Dialectic processDialectic process Retail accordionRetail accordion Natural Selection Natural Selection

Wheel of RetailingWheel of Retailing Malcom P. McNair’s “ Wheel of Retailing”Malcom P. McNair’s “ Wheel of Retailing”

This theory states that retail institution changes This theory states that retail institution changes takes place in cyclical mannertakes place in cyclical manner

New retailer enters with New retailer enters with

Low status, margin, price formatLow status, margin, price format Latter up-market locations & stock premium goodsLatter up-market locations & stock premium goods High cost, price retailer High cost, price retailer

Three stagesThree stages

Entry phaseEntry phase

Trading up phaseTrading up phase

Vulnerable phaseVulnerable phase

Trading Up Phase

Vu

lner

abili

ty

(Wea

knes

s fo

r n

ew)Entry

Phase

Low StatusLow PriceMinimal ServiceMinimal FacilitiesLimited Product

offering

High CostsConservatism(Narrow)

Metamorphose in to traditional

Fall in ROI

Elaborate Facilities, Maximize customer service, Higher rent locations, Fashion orientationHigher prices, extended product offering

More Exposed Thus more risk

In India “Wheel of Retailing” could be seen In India “Wheel of Retailing” could be seen with the changes taking place in the with the changes taking place in the FormatsFormats

Example:Example:

Kirana Stores were replaced by chain stores Kirana Stores were replaced by chain stores like Apna Bazaar – which in turn faced like Apna Bazaar – which in turn faced competition from Hypermarkets like Big competition from Hypermarkets like Big Bazaar.Bazaar.

Dialectic Process Theory Dialectic Process Theory A melting-pot ProcessA melting-pot Process

Discount Department Store

Average MarginAverage Turnover

Modest priceSuburban location

Modern facility

Department StoreHigh MarginLow turnoverFull Service

Downtown location

Discount Stores Low margin

High turnoverLow price

Self serviceLow rent location

Retail Accordion TheoryRetail Accordion Theory

According to this theory of institutional According to this theory of institutional changechange

The merchandizing mix strategies of The merchandizing mix strategies of retailer changesretailer changes

Keeping the retail prices and margins the Keeping the retail prices and margins the samesame

Conti..Conti..

Strategy MixStrategy Mix

Wide or limited variety of merchandizeWide or limited variety of merchandize Deep or shallow assortmentDeep or shallow assortment

Firms may follow any of the two extremeFirms may follow any of the two extreme

Offer Multiple merchandizing categories with Offer Multiple merchandizing categories with shallow assortment of goodsshallow assortment of goods

Offer Limited goods with deep assortmentOffer Limited goods with deep assortment

Natural Selection theory Natural Selection theory

This theory is based on Darwin’s theory of This theory is based on Darwin’s theory of Evolution.Evolution.

According to this theoryAccording to this theory A retail institution will survive in a competitive market A retail institution will survive in a competitive market

only if it is willing to change its only if it is willing to change its

• PricePrice• Product line Product line • LocationLocation• Promotional strategiesPromotional strategies

According to the social, economical, legal and According to the social, economical, legal and technological changestechnological changes

Wal-Mart Wal-Mart

Wal-Mart's dilemma in IndiaWal-Mart's dilemma in India

The No. 1 retailer is eager to set up The No. 1 retailer is eager to set up store, but local regulations still pose a store, but local regulations still pose a challenge to its entry strategychallenge to its entry strategy

Wal-Mart identified India to be its fastest growing Wal-Mart identified India to be its fastest growing sourcing market. sourcing market.

More significantly, they identified India, the More significantly, they identified India, the second most-populous nationsecond most-populous nation and and fourth largest fourth largest retail market retail market in the future as its home market in the future as its home market becomes increasingly saturated. becomes increasingly saturated.

The dilemma for Wal-Mart is India's complex FDIThe dilemma for Wal-Mart is India's complex FDI

Which currently bar international retailers from Which currently bar international retailers from directly entering the Indian market directly entering the Indian market

To set up shop in India foreign players have to To set up shop in India foreign players have to opt for opt for franchising dealsfranchising deals with local partners or with local partners or enter enter joint-venture joint-venture partnerships with Indian partnerships with Indian companies.companies.

Indian government did somewhat relax its Indian government did somewhat relax its FDI rules earlier this year.FDI rules earlier this year.

Allowing "single-brand" retailers such as Allowing "single-brand" retailers such as Nike or Gucci to own 51 percent of their Nike or Gucci to own 51 percent of their business operations in India.business operations in India.

However, this still stops Wal-Mart, since it However, this still stops Wal-Mart, since it sells a variety of brands (multi-brands) in sells a variety of brands (multi-brands) in its stores.its stores.

Anil Rajpal, associate director of retail with Anil Rajpal, associate director of retail with global consulting firm Kurt Salmon global consulting firm Kurt Salmon Associates -Technopak suggested Wal-Associates -Technopak suggested Wal-Mart to enter through joint-venture-Mart to enter through joint-venture-wholesale model in India. wholesale model in India.

i.e. for direct customers through joint i.e. for direct customers through joint ventureventure

And for wholesale go for And for wholesale go for cash and carrycash and carry strategy.strategy.

Cash & Carry Concept

Cash and carry is a form of trade in which goods are sold from a wholesale warehouse

operated either on a self-service basis, or on the basis of samples

Though wholesalers buy primarily from manufacturers and sell mostly to retailers, they also perform many value added functions.

wholesaler arrange the transport of the goods themselves and pay for the goods in cash and not on credit.

Tesco, the 3rd largest retailer in the world,

Planning to open its first wholesale Cash & Carry outlet in India by the year end

Tesco already has presence in India through a joint venture with Tatas (Trent)

Stores are located in Mumbai , Bengaluru , Ahmedabad and Chennai.

Each of Tesco's international businesses also has a community plan, which include initiatives to help consumers to be green and meet 'our commitment to be a zero-carbon business by 2050,'

January 20, 2010

Tesco will open 3 cash and carry stores in Mumbai, Delhi and Bangalore in a 50:50 JV with Trent

Also assist Trent in increasing its retail presence of its hypermarkets ‘Star Bazaar’ from current 4 stores to 50 stores in next 5 years.

To apply this strategy Wal-mart is ready to open To apply this strategy Wal-mart is ready to open latter this year in Punjab latter this year in Punjab Bharti Wal-Mart Private Bharti Wal-Mart Private Ltd’sLtd’s cash-and-carry and back-end supply chain cash-and-carry and back-end supply chain management operations.management operations.

The store will be a one-stop shop that meets the The store will be a one-stop shop that meets the day-to-day needs of day-to-day needs of TradersTradersRestaurant ownersRestaurant ownersCaterersCaterersFruit and vegetable resellersFruit and vegetable resellerskiranaskiranas

other retail store owners, offices and institutions. other retail store owners, offices and institutions.

How Wal-Mart is How Wal-Mart is different different