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by Pradipta Bagchi IBM Global Services India Private Limited
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Table of Contents 1 Introduction ................................................3 2 Global Retailing ...........................................3 3 Type of Retailers:.........................................5 4 Characteristics of Retail Industry ................6 5 Operational Issues.......................................8 6 Strategies in Retail.......................................9 7 IT in Retail..................................................11 8 IT players in Retail field..............................12 9 Retail scenario in India...............................13 10 References: .............................................14
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Retailing is the business where an organization directly sells its products and services to an end consumer and this is for his personal use. By definition whenever an organization be it a manufacturing or a whole seller sells directly to the end consumer it is actually operating in the Retail space. This industry has traveled a long way from a humble beginning to a situation where worldwide Retail sales is more than $ 7 Trillion . Retailing has played a vital role worldwide in increasing productivity across a wide range of consumer goods and services. The impact can be best felt in countries like USA ,UK ,Mexico ,Thailand and more recently in China. Economies of countries like Singapore , Hong Kong and Malaysia are also heavily boosted by the Retail Industry. It is a changing Industry and old traditional ways of doing business has lost relevance nowadays. It is an Industry which is heavily dependent on consumer spending . In this ecosystem consumers play the most important role. As a result of this, Retailers are continuously challenging themselves to find out ways and means of identifying customers need . They are busy in devising new strategies to have an atomic level understanding of consumer demand.
2 Global Retailing
The top 200 Retailers alone contribute for 30% of worldwide demand. Retail sales is generally driven by people’s ability (disposable income) and willingness (consumer confidence) to buy goods and services. Money spent on household consumption worldwide has increased by 68% between 1980 and 2003. The leader has unquestionably been the USA where some two-thirds or $ 6.6 trillions out of the $ 10 trillions American economy is consumer spending. Consumers are spending around $ 3 trillions on discretionary products and services. Retail turnover in the European Union is around Euros 2000 billion and the average growth in this sector seems to be following an upward trend. The Asian economies (excluding Japan) are expected to grow at 6% consistently till 2005-06. Positive forces at work in Retail consumer markets today include high rates of personal expenditures, low interest rates, low unemployment and very low inflation. Negative factors that impact retail sales involve weakening consumer confidence.
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Top Retailers of the World : Rank Country of Origin
Name of Formats Company
Wal -Mart Discount, Hyper market, Supermarket, Superstore, Warehouse Cash& Carry , Convenience, Discount, Hypermarket, Supermarket Cash and Carry
Home Depot Kroger
DIY, Specialty Convenience, Specialty, Warehouse Discount, Supermarket,
Cash& Carry, Department, DIY, Hypermarket, Specialty, Superstore Department, Discount Drug, Supermarket, Warehouse Discount, Superstore Department, Specialty Mail Order,
7 8 9 10
US US US US
Target Albertson’s Kmart Sears
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3 Type of Retailers:
Retail Organizations have shown great variety and different format of stores are coming up quite rapidly. Generally Retailers can be of six types. 1. Specialty Store This stores are characterized by narrow product lines but with deep assortments such as Apparel Stores , Sporting goods store, Furniture store ,Florist and Book store. Under this also there could be specializations like limited line store ( eg. Men’s clothing store) and Super specialty store (eg. Men’s custom shirt store ). Example of such stores are Athlete’s foot ,Tall men. 2. Departmental Store Several Product Lines –typically clothing ,home furnishing and household goods with each line operated as a separate department managed by specialist buyers and merchandisers Examples Sears, JC Penny , Nordstrom. 3. Supermarkets Relatively large ,low cost ,low margin high volume ,self service operation which is designed to cater total needs for food, laundry, household maintenance products .Supermarkets earn an average profit of only 1 percent on sales. Example : Safeway, Kroger. 4. Convenience Store These are the stores which are relatively small in size and they are located near residential area , normally remains open seven days a week and carrying a limited line of high turnover convenience products at slightly high prices. Many have added take away sandwiches , coffee and pastries. Example : 7Eleven ,Circle K 5. Discount Stores Standard merchandise sold at lower prices with lower margin but higher volumes. Actual discount stores regularly sell merchandise at lower prices and offer mostly national brands. In Discount retailing , Discount specialty retailing is also present eg. discount electronic store or discount book store Example : Wal- Mart (all purpose discount store) , Kmart . Specialty : Crown Bookstore.
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6. Off Price Retailers. Merchandise bought at less than regular wholesale prices and sold at less than retail prices. Often left over goods , irregulars obtained at reduced prices from manufacturers and other retailers. Factory outlets are owned and operated by manufacturers and they normally carry manufacturer’s surplus ,discontinued and irregular goods. Example : Mikasa (Dinnerware ) and Dexter(Shoes).
4 Characteristics of Retail Industry
The spectrum of Retail Industry is quite wide in nature. Retail serves consumers through a small grocery store to a huge departmental store. Retail Industry is heavily dependent on consumer spending. In fact 2/3 of US GDP is coming from Retail business. Retail is the second largest industry in US. It has employed 23 Million people . During economic slow down consumer spending decreases and it poses threat to the Retail industry. Consumers confidence is one of the key drivers of the industry. Decline in Small Stores It is observed that small independently owned stores are gradually loosing their foothold in the market place. These stores are generally called “Mom and Pop” stores and they offer limited merchandise to the consumer. These store are facing stiff competition from the large departmental stores or superstores and in this process they are closing down their shutters. In many locations the arrival of a superstore has forced nearby independents out of business. In the book selling business Barnes & Noble superstore or Borders Books and music usually puts smaller bookstores out of business. This is a major characteristic prevailing worldwide. But it is also true that many small independent outlets still thrive by knowing their customers better and providing them with more personalized service. Internet and E-Commerce Internet the ubiquitous medium has opened a new avenue in front of the Retailers. It has offered an opportunity to the consumers to shop from the home. As it stands today overall Retail sales through internet may not be that significant but gradually it is gaining popularity amongst consumers. Amazon.com is the company which is very successful in this E commerce domain.
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Repositioning of Departmental Stores The appeal of big departmental store is in the wane and they are trying to reposition themselves. They are repositioning their product lines to survive in this highly competitive market eg. A departmental stores which is supplying general merchandise to the consumer is changing themselves to a giant apparel store. Rise in Discount stores Supremacy of Discount store is also one of the distinct characteristics of Retail Industry today. Discount stores offer money back guarantee, every day low price etc to lure customers. They also provide floor help and easy access to the merchandise to facilitate the consumer. Wal- Mart the worlds largest Retailer comes under this category of Retail store. Category Killers There are Retailers who actually concentrate on one particular product category and grab a lion’s share of that market and outperform their competitors. They are called Category Killers. Toys R Us (Toy market ), Home Depot (Home Improvement) , Staples (Office Supplies) are the examples of such Retailers who have grabbed a major market share in that product category and they have forced a reduction in the number of players in that product segment. This is also a distinct trend observed in the current Retail market. Ten years back there were number of players in the toy market and no one was controlling more than 5% of market share but now the number of players has come down to six and Toys R Us is enjoying 20% market share. Direct Marketing With the advancement of technology Retailers have found another sales channel through which they can reach the consumer and this is direct marketing. Direct marketing has their root in direct mail and catalog marketing (Land’s End and LL Bean). It includes telemarketing, television direct response marketing. (Home shopping network, QVC) . Although an overwhelming majority of goods and services is sold through stores, non store Retailing is also growing at a faster rate. Direct selling is $9 Billion industry with around 600 companies selling door to door. Avon ,Electrolux ,Southwestern company ,Tupperware and Mary key cosmetics are the examples who have adopted this strategy successfully. Demographic Changes Retail industry is impacted by the demographic changes. As a result of this change taste of the consumer is undergoing a change and it creates a demand for certain products. World wide Retailers are keeping a close watch on this change and they are trying to realign themselves with this change. Mergers and Acquisitions Retailers who want to dominate the market place have adopted the strategy of mergers and acquisitions. This is also one of the distinct trends in Global Retail Industry today. Instead of achieving an organic growth Retailers can grow Page 7 of 14
significantly with the help of mergers and acquisitions. This helps them to occupy more shelf space in the market place. As the volume increases they are establishing better control over their suppliers and they are reducing the procurement cost and in that way they are boosting their profitability. This is driven by the economic growth factors, size ,revenue pattern and the customer demand. Sears and Land’s End merger is one of the significant mergers which has happened in recent times. Another important example would be Nikes acquisition of Hurley, a well known surfing brand. This has helped Nike to enter in to a new market segment.
5 Operational Issues
In order to survive in this Industry, which is driven by the consumer demand Retailers need to successfully counter the operational issues. If the Retailers fail to diagnose and address those operational issues their existence will be jeopardized. Supply Chain Management and Logistics The process of getting goods to the customer has been traditionally known as Physical Distribution. Physical Distribution starts at the factory and it ends at the store. Nowadays the definition of Physical distribution is expanded and a broader concept has come which is Supply Chain Management. Ideally Supply Chain Management encompasses the material flow from supplier’s suppliers to the final destination. Retailers need to have a grip on that whole chain in order to control the procurement and delivery cost. This will help them to choose the right supplier for the merchandise. Retailers need to come out of the constricted view about the supply chain which is viewing the market as a point to point destination, instead they need to consider the holistic picture which is a part of Market Logistics. Market Logistics involves physical flow of materials from point of origin to the point where it meets the customers requirement. This Demand Chain orientation can help them to cut down the procurement cost to a great extent. IKEA the global furniture retailing giant has successfully addressed this issue and they are able to sell quality furniture at a much lower cost than his competitors. Pricing In Retailing environment pricing has become a burning issue to the retailers. Customer’s expectation from a Retail store has become very high and customers are looking for more and more bargain prices. This situation can be referred as Price drought . Price deflation is taking hold in the Retail environment and any reduction in volume is complicating the scenario further. This trend is quite evident in Apparel and Consumer goods market. Pricing seems to be a key positioning factor and must be decided in relation to the target market , Assortment mix and competition. Strategic pricing has become an important strategic tool to the retailers. Airlines Page 8 of 14
Industry started this strategic pricing technique where the underlying philosophy is not all consumers want a particular product at the same time and the degree of demand will also vary. With this idea in mind different consumers are charged different prices for the same product or service. Retailers need to adopt the right pricing tactics in this environment of fierce competition. Retail stores markdown the price for some items to attract people, this is called traffic building. They also run storewide reduction sell. It is observed that a shoe Retail outlet sells 50% of the product at normal mark up , 25% of the product at 40% mark up and remaining 25% at cost. Some Retailers have done away with sales pricing and they are resorting to everyday low price (EDLP). It leads to lower advertising cost , greater pricing stability and higher Retail profits. Wal- Mart uses this kind of pricing strategy. Sales Channels Design of sales channel is also a key operational issue in today’s Retail industry. Technology has become one indispensable business component and Retailers need to make use of this successfully. Retailer needs to come out from the mindset of traditional store retailing and they need to use all available channels to reach a wider consumer community. Amongst Non store Retail channels Internet and E commerce is gradually gaining popularity. Consumers do not need to come to store for buying goods or service they can do that over a click of a button from their drawing room. Retailers need to derive benefit from that . Marketing through call centre or catalogue marketing is also an emerging trend . Retailers need to choose sales channels carefully and need to use all those channels effectively to acquire more customer centricity. Ultimate objective here is to offer a consumer a tailor made shopping experience and to provide more easy access to his product and service offering.
6 Strategies in Retail
A business firm can not travel in an unplanned way . To encounter the business challenges in a highly competitive environment and to find out a sustainable growth road map Retailers need to realize the importance of strategic planning. Strategic planning can be viewed as a stream of decisions and activities which lead to Effective business strategies which help the organization to fulfill its objectives. Retail landscape is changing rapidly and in this changing economic environment Retailers need to find out the right strategy which will help them to cope up with this environment and empowers them to take right decisions for the future. Adopting correct strategy will help the Retailers to optimize their resources and also it will give an edge over its competitors. Margin and Turnover are the two important parameters of Retail Industry and the Retail operations can be classified into four groups/quadrants. Page 9 of 14
i) ii) iii) iv)
High Margin and High Turnover eg. a convenience food store Low Margin and High Turnover eg. a discount store Low Margin Low Turnover i.e .a dying business High Margin Low Turnover eg. an up market specialty store.
Retail business needs to formulate the suitable strategy after considering its strengths and weaknesses. Hence SWOT analysis will be an effective tool in determining the correct strategy for the particular category of retail business. Some of the strengths and weaknesses of the Retail industry are outlined below. Strengths : These are the areas on which success stories have been built and therefore retailers need to capitalize on that. i) Supremacy of Discount store ii) Advancement in the area of Information Technology iii) New sales channels like E-commerce and direct marketing. iv) Availability of consumer credit. Explosion of financial institutions Weakness: i) Slow performance of Chain Stores ii) Advent of Category Killers. Opportunities : i) ii) iii) Brick and click : A combination of traditional store retailing along with non store retailing like Internet and E commerce. Premium Priced Store : Premium priced stores are targeting the high income group customers and earning healthy profits . Tiffany and Co is an example of such premium priced store. Entertainment in Retail : Entertainment Industry and Retail Industry are working hand in hand to attract larger section of consumers. Sony Copr has opened some huge entertainment complexes in USA and so many retail outlets are also housed in the same building and they are complementing each other and both are doing quite well.
Threats: i) ii) Demise of Independent small stores Demographic Changes
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7 IT in Retail
Information Technology has become a key business driver in today’s world. Retailers are also trying to reap in the benefits of the technology. Thus technology has become a critical and competitive tool for surviving in the business. Retailers are using software systems to manage and plan their inventory , to reduce the procurement costs , electronic ordering , electronic fund transfer , e mail communication and for many other things. IT is poised to take a much bigger role in Retail Industry however the high implementation cost of IT projects has restricted many Retailers to go for proper IT solution. IT growth areas in Retail are mentioned below. Supply Chain Management: Supply chain is one of the focus areas for the Retailers and immense opportunity of business process improvement and scope of technological empowerment is there in this area. In today’s tough economic climate customers have become price sensitive and there is a price draught in the market . Retailers are struggling to control the cost and in this environment effective Supply Chain Management can act as a big contributor. It helps them to integrate with their suppliers and through collaborative planning retailers can reduce the cost. SCM solutions will enable Retailers to track their inventory movement from supplier’s premises to the point of sale. It gives a better visibility in the area of demand planning, forecasting and inventory management. Worlds largest Retailer Wal –Mart has adopted a state of the art SCM system which not only tracks the inventory but also it increases the efficiency of the process. Wal –Mart has also introduced the Radio Frequency Identification (RFID) of merchandise. CRM CRM continues to be a growth area for IT in Retail sector. Advancement in this field helps to maintain sophisticated customer database and systems that can maximize multi channel returns. This helps the retailers to understand the customers demand pattern and enables them to offer a tailor made shopping experience. Internet Internet has unfolded lot of opportunities to the Retailers. Retailers can do business over internet. It can also be used as a communication medium. Successful Retail community uses internet technology for reliable communication between Retailers , customers and suppliers. Business Intelligence Business Intelligence is an effective analytical tool which helps the Retailers to understand the eco system of retail business . It helps the business community to take mission critical business decisions which will help them to navigate in the right
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direction. In today’s world Retailers equipped with such data mining or data warehousing tool can have the micro level understanding of customer demand.
8 IT players in Retail field
Retalix : Retalix is one of the leading software providers in the Retail sector. It’s North American headquarters is located in Dallas ,Texas. Retalix software is designed to be modular, scalable to large transaction volumes ,capable of handling rapid scanning with high reliability. The product is compatible with multiple store format and hardware systems. Retalix is fulfilling the role of a true strategic technology partner, helping their clients to adapt to rapidly changing market requirements by using the multi format Retail solution . With the help of constant industry interaction they fine tune their solution portfolio continuously. The breadth of functionality and versatility of Retalix solutions has enabled Retalix to achieve a sizeable market penetration. With installations in more than 25,000 stores and quick service restaurants across 44 countries Reatalix has emerged as a significant player in this market. Oracle : After a fierce battle with SAP ,Oracle has recently completed its acquisition of Retek, one of the leading software product vendors in Retail sector. With the help of this acquisition Oracle has gained a competitive edge in the market place. Oracle’s Retail solution a combination of technology and comprehensive business application helps the retailers to do their forecasting and demand planning in a more accurate manner. It streamlines the supply chain operation and helps the business to reduce the supply chain costs and to accelerate the inventory turn over process. It has the capability of handling different kinds of pricing and promotions. Effective supplier collaboration is also possible through Oracle’s solution. SAP : SAP worlds most successful ERP vendor is also a front runner in the Retail Industry segment. SAP’s Retail solution is an Industry specific solution that is tailored to the specific standards, process and challenges of Retail industry. It delivers rich functionality productivity building tools through out the organization and they help the business to adopt the best business practices that SAP has developed in over 30 years of working with industry leaders worldwide. SAP’s solution is modular in nature and it gives the flexibility to the business to select the building blocks and it ensures faster implementation. SAP offers easy integration and virtually unlimited scalability. SAP has more than 2700 customers in the Retail industry worldwide. SAP has recently completed the acquisition of Triversity. According to the market analysts SAP will be able to extend its market leadership with the help of this acquisition.
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For nearly two decades, Triversity has been a leader in the worldwide retail marketplace with solutions deployed in 32 countries. Triversity delivers flexible, comprehensive, retail market-leading solutions that include traditional and enterprise point-of-sale, store inventory management, POS loss prevention, customer loyalty, stored value, store backoffice and in-store and multi-channel customer service. These solutions are highly complementary to SAP’s existing retail solution offering, and SAP and Triversity already have a strong list of joint customers including The Body Shop, Casa Ley, Indigo Books, Wawa and Trader Joe’s.
9 Retail scenario in India
Overview : Economic liberalization has brought about distinct changes in the life of urban people in India. A higher income group middle class is emerging in the Indian society. Demographic changes have also made palpable changes in social culture and lifestyle . In this environment Indian Retail Industry is witnessing rapid growth . AT Kearney has ranked India as fifth in terms of Retail attractiveness. The industry has got tremendous potential but it also requires sufficient capital flow. Current Foreign Direct Investment policy of Indian Government does not allow any foreign direct investment in this sector however different global retail players are seriously eying this market. Industry Characteristics : Indian Retail Industry is the largest employer after Agriculture (around 8% of the population) and it has the highest outlet density in the world however this industry is still in a very nascent stage. The whole market is mostly unorganized and it is dominated by fragmented Kirana stores. A poor, supply chain and backward integration has weakened the whole process. Organized corporate retailers contribute only a negligible percentage of the overall retail business. Organized and trained Retail workforce is not available in India and the overall skill level is low mainly because of the low maturity level of the Industry. Business Opportunities However India can unveil significant business opportunity to the Retailers. Indian retail sector is estimated to have a total market size of $ 180 Billion. A McKinsey report on India says organized retailing would increase the efficiency and productivity of entire gamut of economic activities, and would help in achieving higher GDP growth.
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The factors responsible for the development of the Retail sector in India can be broadly summarized as follows: 1. Rising incomes and improvements in infrastructure are enlarging consumer markets and accelerating the convergence of consumer tastes. Looking at income classification, the National Council of Applied Economic Research (NCAER) classified approximately 50% of the Indian population as low income in 1994-95; this is expected to decline to 17.8% by 2006-07. 2. 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. 3. Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.
Major Retail Players in India: Retailer Pantaloon RPG Shopper Stop Life style Westside Ebony Piramyd Current Turn Over in Rs. Crore 700 550 400 230 120 85 72
1. INDIAN FOOD RETAIL SECTOR IN THE GLOBAL SCENARIO by Vijay 2. 3. 4. 5. 6.
Anand & Vikram Nambiar Retail Scenario in India By CII Indian Retail Industry by Rocsearch Mc.Kinsey Quarterly Marketing Management by Philip Kotler. IBM Global Campus.
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