You are on page 1of 100

Organized Retail An eye on the Future

AMITY
UNIVERSITY
ORGANIZED RETAIL- AN EYE OPENER
This Dissertation work completed in partial fulfillment of the requirements for the Post Graduation Degree in Marketing and International Business

FACULTY GUIDE: DR. NIDHI BHATIA

PRESENTED BY: GAURAV KHANDELWAL MBA IB (EVE) (2011-13)

Organized Retail An eye on the Future

ACKNOWLEDGEMENT

The journey of thousand miles begins with a single step. This dissertation project is my first step towards practical knowledge. There is always a sense of gratitude, which is expressed to others for the support they render during all phases of life. I really wish to express my gratitude towards all those who have guided and been helpful during my dissertation project.

I would also like to express my sincere gratitude to my dissertation supervisor Dr. NIDHI BHATIA, for her continuous support and guidance for this project without which this research would not have been possible. Her advice and support made all the difference to my work and gave it the form it has

Organized Retail An eye on the Future

TABLE OF CONTENT
S.NO TOPIC 1 CHAPTER 1: - EXECUTIVE SUMMARY CHAPTER 2: - THE RATIONALE BEHIND 2 THE TOPIC 3 CHAPTER 3: - OBJECTIVES 4 CHAPTER 4: - METHODOLOGY 5 CHAPTER 5: - INTRODUCTION CHAPTER 7: - REVIEW OF EXISTING 6 LITERATURE 7 CHAPTER 8: - FINDINGS 8 CHAPTER 8: - RECOMMENDATIONS 9 CHAPTER 9: - CONCLUSION 10 CHAPTER 10: - LIMITATIONS 11 CHAPTER 11: - REFERENCES PAGE NO. 2 6 9 10 12 14 70 88 89 92 94

Organized Retail An eye on the Future

EXECUTIVE SUMMARY
The Economic Impetus Over the last decade, India has registered the fastest growth among major democracies and is now the fourth largest economy in terms of purchasing power parity. Changing Gears Get wise or get out. In today's swiftly changing business environment, there is no option but to be in the know - to be constantly on the move, keeping tabs on the shifting trends in the marketplace and maneuvering your strategy to stay on top. The retail arena today is very different - the opportunities are incredible but exploiting them is extremely tough. Super smart shoppers know all the rules of the game. They can instantly sense a good buy and lap it up or sniff out a bad product and dismiss it. Their expectations are tough to meet but for retailers aiming to make a big sale, there is not much of a choice but to find ways to win customers over and keep them permanently happy. In an environment which is still restrictive in many ways and lacks adequate infrastructure, this becomes a formidable task. So how are Indian retailers coping up and how long will it be before organized retail becomes the primary way of selling? India's attempt to go the international way in retailing has met with some success though not quite as expected. At about 2 per cent of the total retail market, we are still only scraping the surface. Easy to see why. Only a few large industry houses have invested in this sector and even fewer have put in any significant sums of money in a business which is capital intensive in nature. The fragmented make-up of the consuming market, complex geographical and cultural structure made more difficult by poor infrastructural linkages do not allow economies of scale immediately.
4

Organized Retail An eye on the Future

But a tremendous opportunity exists in the Indian market and organized retail will prevail as in other parts of the world. It is only a matter of time before that happens and it is probably closer than we imagine. This is the right time to invest and continue investing in the business. Profits may come in only after five or even seven years, but that's the way this industry operates and unlike some of the other sectors, this is not a business where revenues are imaginary and profits illusory. The market exists, the consumer is out there spending that money somewhere - you just have to get him into your store and how to achieve this task is further analyzed in this dissertation report.

Organized Retail An eye on the Future

THE RATIONALE BEHIND THE TOPIC


The modern consumer is posing a challenging task for Indian retail. More aware, more confident and much more demanding, today's consumer wants the best product at the best price. And that's not all. The manner in which the product is presented to him has to be perfect too. Retailers have, therefore, been busy trying to keep pace with all these requirements at the same time striving to remain profitable. A tough job indeed. Not surprisingly, most of them are paying serious attention to their products and focusing on the various aspects of merchandise and supply chain management to give customers what they desire - good quality at an affordable price. However, there are plenty of areas that will need the express attention of the retailers if they want to derive the most out of their systems and processes. Thus this topic helps to identify the path that retailers should and would take in order to fulfill the demands of the much more aware consumer.

Organized Retail An eye on the Future

OBJECTIVES

PRIMARY OBJECTIVE The primary objective of the dissertation report is to study the new format of Organized Retail Outlets in India and analyze the current and future prospects of growth of this sector.

SECONDARY OBJECTIVE To assess the current scenario of the retailing industry in India (special reference to Apparel sector) with the help of researches conducted by various consultancies. To evaluate the degree of loyalty that the customers demonstrate while shopping from organized retail stores. To identify the factors which influence such behavior (as mentioned above) by the customers. To analyze the impact of various determinants and drivers of growth.

Organized Retail An eye on the Future

METHODOLOGY

Research Design This research is accomplished primarily through quantitative approach as the study would be based on the primary information. The research works in this context are generally quantitative but the qualitative studies like articles, research papers; speeches, interviews and other published information etc. are also considered and taken into account in order to gain a deeper understanding of the prevailing scenario. These methods helped to understand the opinion and views of customers directly and the eminent and learned academicians and leading businessmen. It also provides an idea of future developments in the Organized Retailing sector. This is a flexible approach and this means of data collection is considered more natural.

Data Collection The research study was accomplished through the collection and evaluation of primary data. The Target Market selected was Delhi and Noida with a Sample Size of about 50. The data was then analyzed and evaluated to arrive at the findings. The electronic data and results of surveys conducted by organizations were also important data sources for the report. Web sources such as www.etretailbiz.com, www.ficci.com,

www.indiainbusiness.nic.in, www.indiainfoline.com etc. were consulted in order to fulfill the objectives of the research. These web and published data sources were

Organized Retail An eye on the Future

selected after meticulous consideration of data availability, the urgency of the decision to work within the specified time period. Various sources were exploited to collect information therefore the crosschecking of data was given due attention to verify the authenticity and genuineness of the data used. A number of issues such as eliminating bias, and establishing objectivity and accuracy of information were chiefly considered.

Organized Retail An eye on the Future

INTRODUCTION
From a boring 'oh, no' routine to a fun-filled 'of course, yes!' outing for the entire family, shopping for the typical Indian household has come a long way indeed. Modern retail has most definitely made an impact - sprawling shopping centres, multi-storied malls and huge complexes offer shopping, entertainment and food all under one comfortable roof. Today's consumers are not only more aware of the developments around them but are also more demanding. They want superior quality at an affordable price and they want it instantly. While this represents a tremendous business opportunity, it also poses a challenging task for retailers who have to ensure that they have a large and smoothly working network of people and processes in place to offer consumers what they want. In this chapter, we try and put a figure to the size of organized retail in India and then take a peek into the mind of the Indian consumer to find out where organized retail is headed. The change that organized retail has brought about is evident from how it has transformed the neighborhood grocery or 'kirana' store. Gone are the dust-coated shelves and cluttered displays and in place are neat rows of the latest products, a spruced up appearance and attentive staff. Clearly a result of the perceived threat from organized retail. Of course, these stores cannot match a supermarket but the competition is doing wonders for the customer. This is what organized retail is all about, the actualization of buying power in the hands of the consumer. Organized retail or better retail or modern trade or whatever else you may choose to call it is here to stay. Retailing in India is gradually inching its way toward becoming the next boom industry. However, it is a long way yet - organized retail accounts for barely 2 per cent of the total retail market. The pace of development is, of course, still below the desired level but the phased growth has been strong enough to ensure that retail does not go the way some of the other 'sunrise' industries did following over-investment. FDI restrictions have not stopped investments from flowing into the sector and Indian entrepreneurs are going all out to give consumers a taste of how shopping can be an experience in itself.

10

Organized Retail An eye on the Future

A few years into retailing, some trends are clearly discernible. Unlike what has been feared, the small and medium retailers have not really shut shop despite the progress of large retailers. Single store retailers continue to grow and make money. Even in the food and grocery segment, supermarkets have sprung up quickly and barring the exit of a few shops (which was happening even earlier), one does not hear of a wave of closures. Everyone seems to be innovating to offer a different level of value to the consumer. Thus, your neighborhood grocer takes orders over the phone, delivers at no extra cost and even passes on discounts on some products.

Retailing is the final step in the distribution of merchandise - the last link in the Supply Chain - connection the bulk producers of commodities to the final consumers. Retailing covers diverse products such as foot apparels, consumer goods, financial services and leisure. A retailer, typically, is someone who does not effect any significant change in the product execs breaking the bulk. He/ She is also the final stock point that makes products or services available to the consumer whenever require. Hence, the value proposition a retailer offers to a consumer is easy availabilities of the desired product in the desired sizes at the desired times. In the developed countries, the retail industry has developed into a full-fledged industry where more than three-fourths of the total retail trade is done by the organized sector. Huge retail chains like Wal-Mart, Carr four Group, Sears, K-Mart, McDonalds, etc. have now replaced the individual small stores. Large retail formats; with high quality ambiance and courteous and well-trained sales staff are regular features of these retailers.

11

Organized Retail An eye on the Future

REVIEW OF EXISTING LITERATURE


Indian retail is dominated by a large number of small retailers consisting of the local kirana stores, general stores, apparel shops, chemists, footwear shops , and pavement vendors etc. which together make up the so-called unorganized retail segment. But Indian retail scenario is definitely headed for a major transformation in the years to come. The next few years are likely to witness rapid growth in the organized retailing sector with several leading international players establishing their presence in India by adjusting their formats to suit local tastes and buying behavior. Indian retail is divided in to organized and unorganized sector. Portion of organized retail is very less but there is a huge opportunity for this sector to grow. The Indian retail sector is highly fragmented, consisting predominantly of small, independent, and owner managed shop. The domestic organized retail industry is at a nascent stage. India got started with organized chain retailing just a few years ago. There are just very few categories, the most prominent being apparel, where organized retail chains have had a significant presence for more than 3-4 years. Indian retailers have done very well. Particularly after taking into account the various obstacles and hindrances like real estate costs, lack of trained manpower etc. Growth of organized sector of retailing will yield efficiencies in the supply chain, enabling better access to markets, to producers and to customers. The strength of organized retail lies in resource availability. It can translate into efficient supply chain management, leading to faster inventory turnaround, resulting in improved button lines. It is anticipated that the further belongs to organized sector in India. Indias organized sector is all set to explode. While the existing players such as future group, Bharti, Reliance Retail, Essar, Shoppers stop and Aditya Birla group are endeavouring to consolidate their markets, others such as Mohindra & Mohindra, Parsavnath & DLF, Hero Honda & Indiabulls have announced plans to enter the retail sector. Organised sector is going to grow at a much faster rate of 45-50 percent per annum and quadruple its share in total retail to 16% by 2011-12. Government is also apprehensive about the uncertain future of this sector considering the vote bank attached to retail, 12

Organized Retail An eye on the Future

political environment is quite willing to take the risk of 100% FDI in retail. The Major challenge facing the organised sector is competition from unorganised sector Traditional retailing has been established in India for some centuries. It is a low cost structure, mostly owner-operated, negligible real estate & labour costs & little or no taxes to pay. Organized retail covers only 6.5% (19.5 billion ) of the Indian market. But it is expected to increase in next few years. It is growing at 17.39% year on year. Organized retail includes many categories out of which food retail is major category. Retail categories in organized market contributing apparel and clothing (35%), food and grocery (12.5%), foot wear (9.3%), consumer electronics (9.2%) were as other categories such as personal care and fitness, accessories and eye care are yet to touch single digit contribution. Goswami Paromita, (2009) in his study try to understand that is it possible for Indian customer to move from traditional kirana stores to large organized retail stores for groceries requirement. Major findings in study indicate that customers patronage to grocery store is found to be positively related to location, trustworthiness, promotional offers, quality, and travel convenience. Unorganized retailers are lacking in services related to cleanliness, offers, quality and helpful trust worthy sales people. Hino (2010) observed in his study that emergence and expansion of organized retail stores gradually reduce the market share of the traditional formats. Factors that helped organized retailers in attracting consumers over the traditional stores are the consumers economic ability and the format output. The consumer has multiple options to choose- ranging from the shopkeeper to the most sophisticated supermarkets, departmentalstores, plazas and malls which provide the latest and better quality products and it made India the top spot among the favored retail destination as observed by Gupta (2004), Jasola (2007) and India Retail Report (2009). Jayakumar and Samad, 2011 mention in their study that there is no firm data for the total value of Indias annual food & beverage expenditure; however there are various calculations and estimates on the bases of Indian government estimates of average urban and rural household expenditure on food and beverages it is comely believed that less than 1% of food and beverage retail sales take place through the organized retail sector, through this share is estimated to grow rapidly. Prem et. al (2005) made a critical evaluation of 13

Organized Retail An eye on the Future

different models of service quality and identifies issues for future research based on critical analysis of the literature. The article examines 19 different service quality models reported in literature. A critical examination of different models of service quality is to derive link between them and highlight the area for further research. The review of different service quality model discover that the service quality outcome and measurement depends on type of service setting, time, need and situation as well as customers expectations.

WHY RETAILING?
Retailing is the latest buzzword among Indian Businesses. Not everyone sees inside a steel mill or withdraws money from bank, or roams in a farm planted with crops, or flicks a switch to draw electricity, or even turns a tap to receive water supply from water supply agency. On the other hand each and every one of us is impacted by retail business in our daily lives when we buy or barter goods and services for taking care of our basic or discretionary needs. Whether we buy vegetables from sellers basket in front of our house, bangles from a stall at a mela, a designer shirt from a new department store, a fitness machine from a TV shopping channel, or the latest best seller from the internet book retailer, the Retail Business is being impacted. Retailing, considered a sunrise industry today after InfoTech, is the most happening industry with almost all the big players vying for a share of the coveted pie. Buoyed by a strong increase in private consumption, retailing is one industry that is waiting to explode.

THE GLOBAL RETAIL INDUSTRY: AN OVERVIEW 14

Organized Retail An eye on the Future

Importance of Retailing in the Global Economy Retail with total sales of $7 trillion, is the worlds largest private industry (source: KSA Technopak) with over 50 of the Fortune 500 companies being retailers in 2003. The industry accounts for over 8% of the GDP for some Western World countries, and as much as 16% of employment in countries such as the USA. Retail has played a major role world over in increasing productivity across a wide range of consumer goods and services .The impact can be best seen in countries like U.S.A., U.K., Mexico, Thailand and more recently China. Economies of countries like Singapore, Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector. Retail is the second-largest industry in the United States both in number of establishments and number of employees. It is also one of the largest worldwide. The retail industry employs more than 22 million Americans and generates more than $3 trillion in retail sale annually. Retailing is a U.S. $7 trillion sector. Wal-Mart is the worlds largest retailer. Already the worlds largest employer with over 1million associates, WalMart displaced oil giant Exxon Mobil as the worlds largest company when it posted $219 billion in sales for fiscal 2010. Wal-Mart has become the most successful retail brand in the world due its ability to leverage size, market clout, and efficiency to create market dominance. Wal-Mart heads Fortune magazine list of top 500 companies in the world. Forbes Annual List of Billionaires has the largest number (45/497) from the retail business.

GLOBAL RETAIL 15

Organized Retail An eye on the Future

2007 Total Retail (US$ Billion) 115

2010 180

2012 225

Organized Retail (US$ Billion)

1.1

3.3

% Share of Organized Retail

0.7

1.8

3.2

SHARE OF RETAIL IN GDP AND EMPLOYMENT USA Retail sales ($bn) Share in GDP (%) Retail employment (mn) Share in employment (%) Penetration of modern retail (%) 2325 9.4 21 16-17 85 Poland 60 11 2 12 20 China 325 8 40 6 10 India 180 10-11 20 6 2 Brazil 100 6.4 9 14.7 36

Source: CSO (India), China Statistical Yearbook, US Economic Census TOP TEN RETAILERS WORLDWIDE Rank Retailer 16 No of stores Sales in FY-12 US$

Organized Retail An eye on the Future

owned 1 2 3 4 5 6 7 8 9 10 Wall-Mart Stores Inc. (USA) Carrefour Group (France) The Kroger Co. (USA) The Home Depot, Inc. (USA) Royal Ahold (Netherlands) Metro AG (Germany) Kmart Corporation (USA) Sears, Roebuck and Co. (USA) Albertson's, Inc. (USA) Target Corporation (USA) 4178 8130 3445 1134 7150 2169 2105 2231 2512 1307

Millions $180,787 $61,047 $49,000 $45,738 $45,729 $44,189 $37,028 $36,823 $36,726 $36,362

GLOBAL RETAIL BUSINESS CHANGING KEY SUCCESS FACTORS Globally, the key success factors in retail have changed over the years: Key success factors changing with time

Key success factors changing with time

17

Organized Retail An eye on the Future

Knowledge & Information

Merchandise (Product)

Beyond 2010 Geography (Location)

1990-2000

Till 1990

Source: David Oliver, Partner, Kurt Salmon Associates, UK Location Location provided a strong source of competitive advantage in the pre-1980s (before the proliferation of computers into business management, and adequate infrastructure to travel long distances). Merchandise Merchandise planning became a critical success factor in retailing in 1980s as infrastructure bottlenecks were removed the location became less of a constraint. Hence, merchandise became a key success factor in addition to a good location. 18

Organized Retail An eye on the Future

Knowledge and Information Knowledge about customer tastes and preferences and information on inventory management to efficiently run the business has now become one of the most important success factors. Therefore, efficient knowledge and information systems have become necessary for success while location and merchandise continue to be important conditions.

19

Organized Retail An eye on the Future

INDIAN RETAILING SCENARIO Indian retail is dominated by a large number of small retailers consisting of the local kirana stores, general stores, apparel shops, chemists, footwear shops, and pavement vendors etc. which together make up the so-called unorganized retail segment. But Indian retail scenario is definitely headed for a major e years to come. The next few years are likely to witness rapid growth in the organized retailing sector with several leading international players establishing their presence in India by adjusting their formats to suit local tastes and buying behavior. Responsible factor for growth of organized retail sector are higher disposable income, increase in number of working women, growing proportion of youth in overall population, changing life style of customers and changing food habits and many more. Retail is the most growing sector in Indian. Share of retail industry in current GDP stands for 30%. Total retail market in India is of 300 bn $ out of which organized retail contribute 6.5%. Average growth of organized retail in India is 17.39% yearly. Major categories in organized retails are food and grocery (12.5%), Apparel and clothing (35%), Consumer Electronics (9.2) and other categories. (India Retail Report 2011, published by Images Group) Retailing, which is one of the largest sectors in the global economy, is going through a transition phase in India. However the Indian retail sector is still in a nascent stage. Retail sales in India amounted to about Rs.11000 billion in 2012. Across the country; retail sales in real terms are predicted to rise more rapidly than consumer expenditure during 2010-11. The forecast growth in real retail sales during 2007- 2012 is 8.3% per year, compared with 7.1% for consumer expenditure. Modernization of the Indian retail sector will be reflected in rapid growth in sales of supermarkets, departmental stores and hyper marts. Sales from these large-format stores are to expand at growth rates ranging from 24% to 49% per year during 2011-2012, according to a latest report by Euro monitor International, a leading provider of global consumer-market intelligence.

20

Organized Retail An eye on the Future

In a developing country like India, a large chunk of consumer expenditure is on basic necessities, especially food-related items. Hence, it is not surprising that food, beverages and tobacco accounted for as much as 71% of retail sales in 2012. The share of food related items had, however, declined over the review period, down from 73% in 2005. This is not unexpected, because with income growth, Indians, like consumers elsewhere, have started spending more on non-food items compared with food products. Sales through supermarkets and department stores are small compared with overall retail sales. Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about 30% per year during the review period).

(Rs.bn) Food, Grocery and Tobacco Clothing and Textiles Home Dcor and Furnishing Consumer Durables Footwear Jewelry and Watches Beauty Care Books, Music and Gifts Pharmacies Total

Total 6500 600 250 350 85 350 180 75 180 8570

Branded 250 120 10 180 35 50 35 35 170 885

Organized Retail 20 50 5 15 18 25 2 5 3 143

21

Organized Retail An eye on the Future

THE EVOLUTION OF MODERN INDIAN RETAIL INDUSTRY The Indian retail industry is evolving in line with changing customer aspirations across product groups, with modern formats of retailing emerging. This is in line with what has been observed in other developed markets. For Indian retailing, things started to change slowly in the 1980s, when India first 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 2000s saw a fresh wave of entrants in the retailing business. 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 Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books. As of the year ending 2012 the size of the Indian organized retail industry was estimated at around Rs. 13,000 crore. The various segments that make up the organised retail industry along with their size are in table given below. Retail growth is already gathering momentum and the organized retail industry is expected to grow by 30 per cent in the next five years and is expected to touch Rs. 45,000 crore in 2013. Thus, the growth potential for the organized retailer is enormous.

22

Organized Retail An eye on the Future

Segment Textiles and clothings Jewellery Consumer Durables Footwear Food and personal care Non-Store retail Luggage, watches and tyre Books and music

Market Size (Rs. Crore) 4050 2,000-2,500 1500 1,300-7,500 1000 900 500 390

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. Organized retailing still contributes to only about 4% of the total retailing in the country but the high acceleration in sales through modern retail formats is expected to continue during the next few years, with the rapid growth in numbers of such outlets due to consumer demand and business potential. Most of the organized retailing in the country has just started recently, and has been concentrated mainly in the metro cities. Retailing in India has a huge scope because of the vast market and the growing consciousness of the consumer about product quality and services.

A study conducted expects the organized retail industry to continue to grow rapidly, especially through increased levels of penetration in larger towns and metros and also as it 23

Organized Retail An eye on the Future

begins to spread to smaller cities and B class towns. Fuelling this growth is the growth in development of the retail-specific properties and malls. Close to 25mn sq. ft. of retail space is being developed and will be available for occupation over the next 36-48 months. Organized retail is expected to capture 15%-20% market share by 2012. According to management consultant A T Kearney's 2010 Global Retail Development Index, India is currently the second most attractive destination for global retailers. THE DIFFERENT PHASES IN GROWTH OF ORGANIZED RETAIL The Indian retail industry is evolving in line with changing customer aspirations across product groups, with modern formats of retailing emerging. This is in line with what has been observed in other developed markets. Organized retailing in most economies has typically passed through four distinct phases in its evolution cycle. In the first phase, new entrants create awareness of modern formats and raise consumer expectations. In the second phase, consumers demand modern formats as the market develops and is also forced to expand quickly for the fear of increased competition thereby leading to strong growth. As the market matures, intense competition forces retailers to invest in back-end operating efficiency with the advent of the stage where the retail market saturation begins to take place. In the final phase, retailers explore new markets as well as inorganic opportunities as growth tapers off (consolidation and diversification). India is currently in the second phase of this evolution, with Indian customers becoming more demanding with their rising standard of living and changing lifestyles. Change in customers focus from just buying to shopping (buying, entertainment and experience) has led to a pick up in momentum in organized formats of retailing.

24

Organized Retail An eye on the Future

As the sector enters the third phase of evolution, supply chain management will attain top priority. Fierce competition will force retailers to quickly respond to changes in the market bringing forth the importance of supply chain management in managing stock availability, supplier relationships, new value added services and cost cutting. Traditional retailers are expected to enhance their investments in supply chain, whilst new entrants are likely to look at supply chain first before rolling out their national reach.

25

Organized Retail An eye on the Future

DRIVERS FOR RETAIL TRANSFORMATION IN INDIA Quality real estate Availability of quality retail space has been one of the main constraints for development of organized formats in India. In the past, negative yield on leased property, lack of bank funding due to unorganized property market resulted in a dearth of quality retail space in the country. The spread between yield on property and its financing cost has turned positive with the fall in interest rates. Attractive yields on investments have resulted in sharp increase in property development. From 600 operational malls in 2010, the country is expecting to have over 1500 malls by 2012 with a cumulative estimated space of 100 mn sq. ft. (source: Images Retail) and over 1800 malls by 2013 giving a cumulative estimated retail space of as much as 150 Million sq. ft. (source: KSA Technopak). While there may be temporary mismatches, we believe that the supply would be comfortably absorbed by the requirements of organized retail players. KSA Technopak estimates that the increase in availability of quality, modern retail space is likely to lead to a reduction in overall occupancy costs for retailers over the next 3-5 years and will also facilitate their rapid expansion. The malls are also likely to see consumer traffic moving to them from existing high streets and thereby assist in more customers for the stores operating in these alls. Most malls are coming up in a few cities in the country reflecting the purchasing power that exists in these cities. Pro-active steps taken by the government permitting use of land for commercial development in various cities including Mumbai and Delhi has also contributed to increased availability of retail space in the country. Availability of retail space is expected to increase further whenever property funds and investment trusts are permitted, which will help to create a secondary market for real estate in the country.

26

Organized Retail An eye on the Future

Availability of brands and merchandise Consumerism and brand proliferation has been another enabler for organized retailing in India. Most of the worlds leading brands are now present in India. Brands like LOreal, Espirit, Louis Vuitton, Marks & Spencer, Tommy Hilfiger, Louis Phillipe, Levis, Pepe, Lee, Arrow, Dockers, Red Tape, Clarence, Hugo Boss, Tiffany, Bulgari, Ecco, Chambor, Revlon, Philips, Corel, Magpie, Nike, Reebok, Parker, Ray Ban, Lego, Mattel are now present in India. Media Proliferation Another factor that accelerated the concept of organized retail is media proliferation. The resultant exposure to advertisements and brand promotions across product categories has led to a growing consumer spending across a wide range of product categories. Possible facilitators for further development of organized retail A number of factors that drive transformation in retail such as income growth, changing demographic profile and socio-economic environment , availability of quality retail space at affordable costs are already falling in place in India. However, organized retail has to overcome significant challenges in terms of regulations and infrastructural barriers in order to realize its full potential. Although some of these bottlenecks are mere irritants, others significantly impact the economics and viability of the business.

27

Organized Retail An eye on the Future

Implementation of VAT In India there exist differential sales tax rates across states. Besides, there is multiple-point octroi/entry tax collection. All these add to cost and complexity of distribution as this necessitates multiple warehouses and does not allow for centralization of certain procurements given the incidence of local levies. Implementation of VAT will streamline the complexities in the tax structure besides narrowing the cost disadvantage between organized and unorganized retailers. Enhanced funding options The retail sector has received limited funding from banks and financial institutions. The capital requirements for a retailer are in the real estate (which banks have historically restricted lending to) and for working capital requirements. While some of the leading retailers are still able to get bank funding, the smaller ones are constrained for growth funding. Similarly, equity options are also restricted with Foreign Direct Investment not being permitted in the retail trading sector. Structure of Indian Retail Indian retail is highly fragmented: In sharp contrast to the retail sector in developed economies, retailing in India though large in terms of size is highly fragmented and unorganized. With close to 14 million outlets operate in the country and only 4% of them being larger than 500 sq ft (46 m2) in size. India has about 11 shop outlets for every 1000 people. India has one of the highest retail densities in the world. Retailers include street vendors, local supermarkets, department stores, restaurants, hotels, and even two wheeler and car showrooms.

28

Organized Retail An eye on the Future

Fragmented nature of Indian Retail


100 90 80 70 60 50 40 30 20 10 0
an d si a hi na si a zi l d a SA ai la n Po la n iw Br a ne di al ay Ta C is t Pa k In U an

Percent

Th

Organized

In

do

Unorganized

Source: CII McKinsey Report titled Retailing in India, the Emerging Revolution

Based on ownership and management style, the industry can be classified into two categories unorganized and organized. Counter stores, kiosks, street markets and vendors, where the ownership and management rest with one person are classified as traditional or unorganized retail outlets. These formats typically require employees with low skills and account for 66% of the sectors output (Source: CII McKinsey report). These are highly competitive outlets, with minimal rental costs (unregistered kiosks or traditional property), cheap labor (or family members working) and negligible overheads and taxes. However, unorganized retailers suffer due to their inability to offer a wide range of products, poor shopping experience, and their inability to offer overall more value to their consumers due to lack of sourcing capabilities. The modern consumer is seeking increasingly more value, offered by way of wider assortment, improved availability, pleasant shopping environment, reliability of quality, financing options, trial rooms for clothing products, return and exchange policies besides competitive prices. 29

Organized Retail An eye on the Future

This has created the rapidly growing opportunity for organized, modern retail formats to emerge in recent years and grow at a fast pace. Inefficiency in the existing supply chains present further opportunity for organized players to draw on this large market even as lack of consumer culture and low purchasing power have, in the past, restricted the development of modern formats. Migration from unorganized to organized retail has been visible with economic development, in most economies.

WHAT IS ORGANIZED RETAILING? Organized Retailing presupposes a retailers ability to manage or more importantly influence a set of supply chain variables in a commercially viable and sustainable way. Efficient management of the supply chain to ensure the profitability of the entire chain, large outlets with modern ambiance and facilities, a wide product profile, self service facilities etc are generally the features of a modern retail store. Organized retailing aims at providing an ideal shopping experience for the consumer based on the advantages of largescale purchases, consumer preference analysis, excellent ambience and choice of merchandise. However, there are no single formats, designs, facilities or product portfolios that can be identified as the success formula and as a general rule differentiation between chains is necessary to increase viability. Organized retailing is bound to grow tremendously provided the right marketing strategies are adopted. Retail businesses have broken rank and seem poised to surge ahead with renewed vigor, optimism, confidence and capability.

30

Organized Retail An eye on the Future

There is a close relation between the growth of brands and the growth of the organized retailing. Companies selling branded products prefer to have big and organized retail outlets such as supermarkets where they can be differentiated from unbranded products.

RETAILING FORMATS IN INDIA Some of the prevalent relating formats in India include: Malls 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. Branded Stores Exclusive showrooms run by premium brands have been the catalysts in pushing up the Indian retail scenario. This concept is now being used to introduce organized retailing to the second rung towns. Madura Garments has started setting up exclusive outlets in cities like Trichy and Thanjavur. Departmental Stores 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!.

31

Organized Retail An eye on the Future

Speciality Stores 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 focusing on specific market segments and have established themselves strongly in their sectors. Absence of discounting as a dominant format of retailing in India is a glaring peculiarity. The reasons are two-fold. Unlike most Western countries, Indian retailers have much less bargaining power. They thrive as small store and don't have the clout to negotiate terms with the manufacturers. The other reason is that the retailers themselves have no economies of scale to offer discounts on their own. However, the scenario is now changing. Increased investments and the entry of big business houses in retailing is leading to the emergence of bigger retailers, who can both bargain with the suppliers, as well as, reap economies of scale. Hence, discounting is becoming an accepted practice. Each of the retail stars has identified and settled into a feasible and sustainable business model of its own. Shoppers' Stop - department store format Westside - emulated the Marks & Spencer model of 100 per cent private label, very good value for money merchandise for the entire family Giant and Big Bazaar - hypermarket/cash & carry store Food World and Nilgiris supermarket format Pantaloons and The Home Store - speciality retailing

32

Organized Retail An eye on the Future

Tanishq has very successfully pioneered a very high quality organized retail business in fine jewellery Since the report is with reference to organized retailing in apparels, some of the examples of such stores are: Shoppers Stop Westside LifeStyle Globus Pantaloon. Ebony Pyramid

33

Organized Retail An eye on the Future

GROWTH IN ORGANISED RETAIL Share of organized retail in the total retail sector in India was less than 4% in FY 2012, and is expected to increase in line with the experiences of other developing nations such as China and Poland. Years taken for supermarkets to grow from <5% to current share
China Poland

Country Thailand

Current share of supermarkets 40

Brazil
Brazil

36 (2011)

Poland

Thailand 0 5 10 15 20

20

China

19

Source: CII McKinsey Report titled Retailing in India, the Emerging Revolution Trends in Retailing Retailing in India is at a nascent stage of is evolution, but within a small period of time certain trends are clearly emerging which are in line with the global experiences. Organized retailing is witnessing a wave of players entering the industry. These players are experimenting with various retail formats. Yet, Indian retailing has still not been able to come up with many successful formats that can be scaled up and applied across India. Some of the notable exceptions have been garment retailers like Madura Garments & Raymonds who was scaled their exclusive showroom format across the country.

34

Organized Retail An eye on the Future

Dynamics of organized retail Organized retail derives its advantages in generating operational efficiencies while simultaneously catering to rising consumer aspirations. Size drives economies on procurement, and lowers logistics and marketing costs while delivering better value to customers in terms of lower price, better quality, greater selection, improved service and instore ambience.

The Virtuous Cycle


Rationalization Of Intermediaries

Reduces

Better Bargaining

Cost

Time to Market

Increases High Volumes Product Range Value for Money

Increased Conversion

Increased market share Of Customer Basket

Retail Economies of Space

35

Organized Retail An eye on the Future

Experimentation with formats by the organized apparel retail stores Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out; the old ones tweaked around or just discarded. Some of these are listed in table below. Retailer Shoppers' Stop Ebony Piramyd Pantaloon Globus Current Format Department Store Department Store Department Store Own brand store Department Store New Formats. Experimenting With Quasi-mall Quasi-mall, smaller outlets, adding food retail Quasi-mall, food retail Hypermarket Small fashion stores

Retailers are also trying out smaller versions of their stores in an attempt to reach a maximum number of consumers. Store design Irrespective of the format, the biggest challenge for organized retailing is to create an environment that pulls in people and makes them spend more time shopping and also increases the amount of impulse shopping. Research across the world shows that the chances of senses dictating sales are as much as 10-15% for certain categories. This reason is good enough for organized retailers to bring in professional designers while developing a new property. And, that is why retail chains like Piramyd and Globus and laying major emphasis & investing heavily in store design. Unorganized retailing is getting organized 36

Organized Retail An eye on the Future

To meet the challenges of organized retailing that is luring customers away from the unorganized sector, the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying In a novel move, six Delhi based restaurants have come together and formed a consortium: NFC, to promote New Friends Colony, a posh locality in the Capital, as a branded place in town. The aim is to increase footballs in the area, which is fast losing its sheen to its closest and upcoming destinations such as large cineplexes, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR'. The Golden Suite put up in faridabad is also an example of unorganized retailing getting organized. They have brought the jewelers which had their shops in small markets together to give customers an all in one experience in shopping for jewellery.

37

Organized Retail An eye on the Future

THE INDIAN APPAREL MARKET The branded Indian apparel market was estimated at Rs 200 bn in FY2010-11 and had grown at over 20% per annum. (Source: Images KSA Study) with the mens category accounting for about 60% of the market.

SHARE OF ORGANIZED APPAREL STORES IN INDIA

GROWTH OF BRANDED SEGMENT IN APPAREL MARKET

2010-2011 Men Women Kids Total Source: Images KSA Study 3067 1700 390 5157

2011-2012 5345 3114 545 9004

38

Organized Retail An eye on the Future

Apparel dominates department stores sales in India Apparel accounted for a significant part of the sales of department stores. However, non apparel lifestyle products such as cosmetics & perfumes, writing instruments, sunglasses, watches, fine jewelry, mobile phones, digital cameras and leather accessories have seen a higher growth in recent years. Spending on the non-apparel category has a direct correlation with increase in disposable income within the consuming and rich classes. Household Income A key determinant of branded apparel The household income is a key determinant of the spend on branded ready to wear (RTW) apparel sales. About 72% of the branded RTW apparel is purchased by households with an annual income of over Rs 225,000. WHAT PULLS THE GROWTH OF ORGANIZED RETAIL STORES? Population evolution Indias population estimated at 1,505 million (2012) is expected to grow by 1.7% this year. Growing urbanization is a key trend in the country, with rural population growth averaging to 7.9% and urban growth at 30.7% for the period 2001 to 2012. Over 70% of the urban population is estimated to reside in Class I cities (population of over one million). Changing Demographic Profiles One of the important demographic trends in recent times is the changing age profile. India is increasingly being acknowledged as a young nation, with about 35% of its population less than 14 years of age. The median age of Indias population is 24 years as against 36 years for USA and 30 years for China (source: KSA Technopak). Youth are generally early

39

Organized Retail An eye on the Future

adopters of most modern products and concepts. A younger population tends to have higher aspirations, and will spend more as it enters the earning phase. The low median age of the population means a higher current consumption spend vs. savings as the younger population has both, the ability and willingness to spend. Higher consumption is the direct booster of retail industry.

Median Age in Years


50 40 30 20 10 0 India USA China 2000 2025 Russia UK

Source: Marketing Whitebook 2010-2011, brought out by Businessworld

Income / Buying Power The per capita income has been witnessing steady growth in the last few years and as seen from the chart, has almost doubled in this period. This trend is likely to continue in the near future as the economy continues to grow. A larger number of households are getting added to the consuming class with growth in income levels. As seen from the mapping of Indias income classes, the consuming class and climbers class segments offer tremendous opportunity to the retailers. The number of households in these categories combined is expected to grow by 38.8% over the period 2009-2010 i.e. the number of households with income of over Rs. 70000 per annum is expected to grow from 55 million in 2010-2011 to

Yrs.

40

Organized Retail An eye on the Future

75 million in 2011-2012 (source: The Marketing Whitebook 2010-11, brought out by Businessworld). This large base of 200 million households consisting of the consuming class and the climbers with growing disposable income is expected to drive demand for organized retail. Of this, 56% (44.8 million) is expected to be concentrated in Urban India (source: The Marketing Whitebook 2010-2011, brought out by Businessworld). The lower income categories are projected to decline by 10.7%, while the very rich category is projected to double. Retailers will have to focus on the consumption patterns of the middle class to map their future strategies, as this upward push will lead to greatly increased purchasing power. Urban Consumer Spending

Consumer spending is estimated to have grown at an average rate of 11.5% p.a. over the past decade. The average Indian spent INR 21,509 in 2010-2011. A review of urban consumer spending in 2010 and 2011 reflects that the expenditure on lifestyle items such 41

Organized Retail An eye on the Future

as vacation, eating out, etc. has increased while that on savings and investments is on a decline. Groceries were the single largest expense, accounting for nearly 42% of total expenditure. Eating out followed this, which accounted for 12%.

Private Final consumption in India


Recreation, Educational and Cultural 4% Transport and Communication 13% Others 9% Food, Beverages and Tobacco 48%

Medical care and Health Services 8% Furniture, Appliances and Services Clothing and Footwear 3% Gross rent, Fuel and 4% Power 11%

Source: The Marketing Whitebook 2010-2011, brought out by Businessworld

Urban India-Distribution of households by income


40 35 30 25 20 15 10 5 0 The very rich (above Rs. 215000) The consuming class (Rs. 45000215000) The climbers (Rs. 22000-45000) 2001-02 The aspirants (Rs. 16000-22000) The destitutes (Rs. Less than 16000) Million households

1995-96

2006-07

Source: The Marketing Whitebook 2010-2011, brought out by Businessworld

42

Organized Retail An eye on the Future

Lifestyles / Shopping habits Global travel and media have exposed Indians to the western lifestyle. Discretionary spending increased by 25% in 2010-2011. Consumers are more milling to go to malls and big organized retail stores to spend their disposable incomes on their needs and wants. Opening up of the economy has led to an increase in the product choice available and modern retailers are experimenting with ways to deliver an international shopping experience to the consumer. Nuclear family structure, a growing number of educated and employed women (which translates into increasing diaposable incomes), media proliferation and consumerism have all led to the growth of retail sector. Middle Class consumption now visible India has seen a significant change in the consumption of durables in the recent years. The changing income demographics, age profile and macro environment are visible in the growth in the consumption capacity. Brand / Price sensitivity Urban consumers today are relatively less price sensitive than a few years earlier. Some of the key factors behind this change are growing number of double-income households, a decrease in the average size of the family and higher media exposure. With the rise in disposable income level, the consumer is willing to spend more on personal needs and indulgences, leading to a propensity to consume rather than save. Dual income families Advent of dual income families also helped in the growth of retail sector. A dual family can spend more but has very little time available for shopping. Thus, convenience and speed of service became crucial parameters.

43

Organized Retail An eye on the Future

Covering distances has become easier With increased automobile penetration and an overall improvement in the transportation infrastructure, covering distances has become easier than before. Now a customer can travel miles to reach a particular shop, if he/she sees value in shopping from there. From the supply side also, a number of developments fueled the growth of the retail industry. Retailers understood the needs of the customers and realized efficiencies through investments in Technology Infrastructure and Employees. The outcomes were improved supply chains, increased service levels and satisfied customers. Technology in retail Over the years as the consumer demand increased and the retailers geared up to meet this increase, technology evolved rapidly to support this growth. The hardware and software tools that have now become almost essential for retailing can be into 3 broad categories.

Customer interfacing systems

Bar coding and scanners

Point of sale systems use scanners and bar coding to identify an item, use pre-stored data to calculate the cost and generate the total bill for a client. Tunnel Scanning is a new concept where the consumer pushes the full shopping cart through an electronic gate to the point of sale. In a matter of seconds, the items in the cart are hit with laser beams and scanned. All that the consumer has to do is to pay for the goods.

44

Organized Retail An eye on the Future

Payment

Payment through credit cards has become quite widespread and this enables a fast and easy payment process. Electronic cheque conversion, a recent development in this area, processes a cheque electronically by transmitting transaction information to the retailer and consumer's bank. Rather than manually process a cheque, the retailer voids it and hands it back to the consumer along with a receipt, having digitally captured and stored and image of the cheque, which makes the process very fast. Internet

Internet is also rapidly evolving as a customer interface, removing the need of a consumer physically visiting the store. Operation support systems ERP System

Various ERP vendors have developed retail-specific systems which help in integrating all the functions from warehousing to distribution, front and back office store systems and merchandising. An integrated supply chain helps the retailer in maintaining his stocks, getting his supplies on time, preventing stock-outs and thus reducing his costs, while servicing the customer better. CRM Systems

The rise of loyalty programs, mail order and the Internet has provided retailers with real access to consumer data. Data warehousing & mining technologies offers retailers the tools they need to make sense of their consumer data and apply it to business. This, along with the various available CRM (Customer Relationship Management) Systems, allows the retailers to study the purchase behavior of consumers in detail and grow the value of individual consumers to their businesses.

45

Organized Retail An eye on the Future

Advanced Planning and Scheduling Systems

APS systems can provide improved control across the supply chain, all the way from raw material suppliers right through to the retail shelf. These APS packages complement existing (but often limited) ERP packages. They enable consolidation of activities such as long term budgeting, monthly forecasting, weekly factory scheduling and daily distribution scheduling into one overall planning process using a single set of data.

Strategic decision support systems Store Site Location

Demographics and buying patterns of residents of an area can be used to compare various possible sites for opening new stores. Today, software packages are helping retailers not only in their locational decisions but in decisions regarding store sizing and floor-spaces as well. Visual Merchandising

The decision on how to place & stack items in a store is no more taken on the gut feel of the store manager. A larger number of visual merchandising tools are available to him to evaluate the impact of his stacking options.

46

Organized Retail An eye on the Future

ORGANIZED RETAILING AND EMPLOYMENT Presently, the Indian retail business employs nearly about 40 million Indians (3.3% of Indian population), which is around 10 per cent of total employment. Although the country has around 12 million retail outlets, which is the largest in the world, the share of organized retailing is merely 4 per cent. A comparative study conducted by KSA-Technopak on employment in the organized and the unorganized sectors revealed that although there could be reduction in direct employment with the growth of organized formats, the quality of employment and productivity of workers would improve significantly. Moreover, due to its correlation with other industrial and service sectors, organized retailing would generate a great deal of indirect employment -security, electrical and mechanical maintenance, property management services, parking, sorting, packaging, etc. If both direct and indirect employment is taken together, organized retailing will create more and betterpaid, better-quality jobs. Compensation to employees in organized retailing will also be much higher than in unorganized retailing. Organized retailing in India has the potential of creating over 2 million new (direct) jobs within the next six years, assuming an 8 to 10 per cent share of organized retailing in the total retail business. For the retail sector to achieve its potential both as a major contributor to national GDP and as an employment generator, it is important that the spread of organized retailing be given major thrust through appropriate legal, regulatory and financial reforms.

47

Organized Retail An eye on the Future

ORGANIZED RETAILING AND FOREIGN DIRECT INVESTMENT The Indian economy is highly regulated and the most significant regulation is the restriction of foreign ownership. A strong FDI presence in retail sector is expected to not only boost the retail scenario, but also act as a driving force in attracting FDI in upstream activities as well. This will be more prominent in food processing and packaging industries because many large retail chains also promote their own brands by way of backward integration/contract manufacturing. The status of organized retailing in some South East Asian countries that allowed FDI in retailing has been given in Table below: Country Malaysia Thailand Phillipines Indonesia South Korea China India Organised Retailing 50% 50% 35% 25% 15% 10% 4% Traditional Retailing 50% 50% 65% 75% 85% 90% 96%

In view of the demands made by industry and the need to boost the retail trade, the Government is actively considering removing the restrictions. A recent note circulated by the Ministry of Commerce has proposed permission for FDI up to 100 per cent in retail trade subject to Government approval on a case-to-case basis. However, this permission, if it is given, will be with lots of strings attached. Besides following rules on minimum capitalization, the foreign entrants will be expected to neutralize the outflow of foreign exchange (repatriation of dividends) by way of export earnings on a year-to-year basis. The biggest opposition to allowing 100% FDI is the feared exit of the small retailers.

48

Organized Retail An eye on the Future

Currently, moves are on to counter these apprehensions and the players are keenly awaiting the final decision from the Government. And now the Goverment proposed 51% FDI limit in multi-brand retailers, nearly half of any profits will remain in India. Any profits will be subject to taxes, and such taxes will reduce Indian government budget deficit. Many years ago, China adopted the retail reform policy India has announced; China allowed FDI in its retail sector. It has taken FDIfinanced retailers in China between 5 to 10 years to post profits, in large part because of huge investments they had to make initially. Like China, it is unlikely foreign retailers will earn any profits in India for the first 5 to 10 years. Ultimately, retail companies must earn profits with hard work and by creating value. Changing tax structure: Retailer margins to come under VAT net in the tax regime contemplated from April 1 2007, VAT will be imposed at every stage between the manufacturer and the final consumer. Thus, margin payable to the distributor and the retailer will also be taxed. As retailers and wholesalers would be taxed under VAT, their margins will decline. Companies, in turn, will come under pressure to increase trade and distributors margins to the extent of the tax being paid by them, thus pushing up the cost of the product. The MRP could therefore increase in order to neutralize the impact of VAT on margins. Goods with a long distribution chain between the manufacturer and final consumer, such as FMCG items and consumer durable, would be the worst affected.

49

Organized Retail An eye on the Future

STATE OF THE SECTOR DESPITE GROWTH 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 96%. 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 which proves to be a blow to the path of organized sector. 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 sophisticated in terms of the goods sold. Mela merchandise would include more complex manufactured products such as televisions. Even in urban areas, organized in India is restricted to the top few cities of the country as shown in Table given below: Cities Top 6 2012 Distribution of organized retailing 88% 12% Next 4 Top 6 Next 4

2013 (Expected) 66% 20%

50

Organized Retail An eye on the Future

CHALLENGES FACED BY IN TERMS OF LOYALTY Challenges of Loyalty The real challenge is to build an manage the customer loyalty and relationships in a way that will modify consumer behaviors over time towards strengthening the bond between customers and the retailer brand. The Customer Relationship Pyramid below exhibits six types of relationships, each representing a potential motivator for the customers to relate with the brand. The order is important as each subsequent factor represents a deeper level of relationship and is attainable when each of the previous needs has been sufficiently met. Utility The customer seeks an interaction whereby he simply obtains a product. For the marketer, this implies a relationship that fosters efficiency in transactions. Characterized by straightforward product selling. Convenience The customer seeks an interaction whereby he can obtain the product as easily as possible. For the marketer, this implies a relatioinship that fosters convenience in transacting. Characterized by reliable and constituent service. Feeling at ease The customer seeks an interaction that makes him feel welcome. For the marketer, this implies a relationship that fosters feeling at ease. Characterized by an agreeable purchase ambience.

51

Organized Retail An eye on the Future

Personal Recognition The customer seeks an interaction that where he is recognized as a special customer. For the marketer, this implies a relationship that fosters personal recognition. Characterized by speial treatment of royal clients. Self-expression The customer seeks an interaction where he is honored for who he is. For the marketer, this implies a relationship that fosters self-expression. Characterized by respect and confidence. Co-creation The customer seeks to interact as a partner. For the marketer, this implies a relationship that fosters co-creation. Characterized by fertile collaboration. Based on these, we find that some of the loyalty-based challenges faced by todays marketers are: How should loyalty be created and sustained? How should loyalty programs be floated so that they enhance company profits unlike several other programs that do not get much value for the brand?

52

Organized Retail An eye on the Future

Co-creation

Self Expression

Personal Recognition

Feeling at

Ease Convenience
The predictors of loyalty Before an organized retailer begins to grow and develop a loyal customer base, he must first understand what store services and features drive loyalty among his most faithful shoppers. Understand first what are the strongest predictors of loyalty that a retailer should include as part of his mix of offerings. The American Express Retail Index identified three general categories of loyalty predictors: 53

Organized Retail An eye on the Future

Price of entry predictors Truly important predictors Hidden predictors Of these the last two represent the strongest of loyalty drivers.

Examples of truly important loyalty predictors include: Store carries high-quality, brand-specific merchandise. Store has helpful/courteous sales staff store can offer good price/value Items are easy to find Retailers can consider hidden predictors to be those bells and whistles that the customer holds high regard and appreciation for, and which help differentiate a particular store from the competition. These are often the strongest drivers of loyalty though customers do not openly seek them. Some examples of hidden predictors are: Store is a novel/fun place to shop at. Store will take special orders, or has hard-to-find items. Stores stocks the latest products/styles/fashion Having a fun environment, though not truly important in terms of what consumers expect overall, will help increase loyal customer base that would come and shop only at the preferred organized store.

54

Organized Retail An eye on the Future

In fact, the American Express Retail Index found that consumers consistently associate loyalty with the idea of having fun while shopping, with a significant percentage saying that it is very important or extremely important that their shopping experience is fun. Based on the American Express consumer survey, here are some idea retailers may want to consider introducing to help make shopping a more wholesome experience: Product demonstration Kids play area Complimentary coffee service Courtesy phone/ lounge In-store caf or dining area Valet parking Free alteration on apparel purchase In addition to creating a fun shopping environment, retailers can create loyalty in a number of other ways that enhance the store customer relationship. These would include: Stock the designers and brands that the customers like most and/ or expect. Train the employees to be more customer focused. Make staff more available to the customers Educate your staff so they are more knowledgeable about the products and services you offer. Adapt return policies so they are less cumbersome and more customer focused Introduce frequency programs Host in-store fashion shows and/or other events customers can participate in Consider introducing an internet site Link in-store merchandize with catalogue offerings (if u have mail order division) 55

Organized Retail An eye on the Future

Offer gift certificates or prepaid gift cards Whom to target? Companies ought to define each customer as a uniquely identifiable identity that has purchase specific products or services though it is a daunting task. To win customer loyalty, it is necessary to first understand what shoppers are looking for, what motivates them to make purchases, and what drives them to shop at your store. The next step is to better understand the types of shoppers who frequent your store, and what they represent in terms of your overall sales volume, so that you can target your most profitable customers more efficiently. Profile of shoppers for apparel specialty stores (by the American Express Retail Index) is: Only 56 per cent of specialty-store shoppers said they have been loyal to one particular store for five years or more, which means nearly half of the shoppers in this category remains unclaimed. Customers who shop at such apparel specialty stores can be classified into these attitudinal groups. The most profitable customer segment for organized apparel specialty store retailer comprises the savvy shopper, representing 29 per cent of the aggregate numbers and accounting for 42 per cent of all sales volume. They are defined as: Concerned with quality first Prefer to shop at better stores Willing to pay for quality Believe brand names are better

56

Organized Retail An eye on the Future

Those who love to shop represent 35 per cent of all organized apparel specialty-store shoppers and account for 33 per cent of all sales volume. They are defined as: Like to browse/shop for the fun of it Come home from the store with unplanned items Keep up with fashion trends

The convenience shopper represents 36 per cent of all organized apparel specialty store shoppers and account for 25 per cent of all sales volume. They are defined as: Shop only if they really need something Are in and out of the store quickly Do not really enjoy shopping

57

Organized Retail An eye on the Future

Customer Groups-Organized Apparel Specialty Stores


Savvy Loves to shop Convenience 0 29 35 36 20 40
% share in sales

42 33 25 60 80

% of total customers

58

Organized Retail An eye on the Future

59

Organized Retail An eye on the Future

60

Organized Retail An eye on the Future

Some of the Loyalty programs of the Organized Apparel Retail Chains Westside Club West Loyalty Program Provides 2 types of memberships: 1.) The Club West Gold has an eligibility criterion of a purchase value of Rs. 5000. member earns 1 point for every Rs. 40 spent. 2.) The Club West Classic awarded on purchase of Rs. 2000 worth of merchandize from Westside. Member ears 1 point on every Rs. 50 spent. The Club West program is acknowledged as one of the most robust loyalty programs in the Organized Retail Sector wherein the member is accorded special privileges and is given a hoard of benefits like: - Executive Shopping Hours and advance notice of all sales and information of special events at the store. - Dedicated counter for member assistance and queries. - Free Home Delivery for alterations on purchases over Rs. 2500. For Gold Card members only. - Invites for special events. - Alliances with leading organizations, which enable a member to enjoy special offers, discounts and gifts from time to time. - Complimentary coffee/tea etc. for Gold Card members once at Caf West. Shoppers Stop The First Citizen Loyalty Program Proposition:

61

Organized Retail An eye on the Future

The First Citizen program is one of the largest retail loyalty programs in the country, having more those 310,000 Active First Citizens, and with 12,000 to 14,000 members added every month for the last two months. - It has unique benefits like Exclusive Shopping Festivals every year. - Free parking where applicable - Points equivalent to Re both for earned and redeemed. - Exclusive preview to sale. - Exclusive cash counters - Exclusive lounge in selected stores. General shopping pattern of club members: - Golden Glow First Citizens shop 6 times a year. - Silver Edge First Citizens shop 5 times a year. - Classic Moments First Class Citizens shop 3 times a year. Profile: Age 25 to 45 years - Overall average spend /first citizen Rs. 8700 (depending on the tier, the highest beig the Golden Glow First Citizen.) - Average revenue contribution to overall sales / promotion is 55 to 65 per cent. - Have a high propensity to spend.

Ebony Retail Holdings Ltd. *Elite Silver Card Membership

62

Organized Retail An eye on the Future

- A customer becomes eligible when he/she has purchased merchandize worth Rs. 2000 or above from any Ebony store or on payment of Rs. 100 as enrolment fees. - Members earn 3 bonus points for every Rs. 200 spent during normal and promotional days even during the sale. 1 bonus point will be equal to Re. 1 at the time of redemption. *Elite Gold Card Membership - A customer becomes eligible when he/she purchased merchandize worth Rs. 20,001 or above from any Ebony store within his/her Silver Card Membership tenure (1 year). - Members earn 3 bonus points for every Rs 100 spent during normal and promotional days even during the sale. 1 bonus point will be equal to Re.1 at the time of redemption.

Piramyd Retail and Merchandizing Ltd. Piramyd Power Club (PPC) loyalty program - It is a three-tier program that allows members to enhance their privileges and add a host of new benefits as the members get upgraded. - The USP of PPC is that it is the only loyalty program that offers, along with very powerful points program, a straight off on each purchase without any hidden catch. Some of the privileges that the members enjoy: - Power Rewards straight discounts of up to 8%. - Power points. - Power cheques- free gift cheques. - Monthly sweepstakes. - Special offers.

63

Organized Retail An eye on the Future

- Free home delivery. - Home shopping. - Special invites.

ADDING UP The growth in Loyalty Club Membership Enrolment at some of the leading organized apparel specialty retail stores in India shows how receptive customers have been to this retail format. Between 2010-11 and 2011-12, enrolment of loyalty club members at Ebony retail chain increased 205% while the increase recorded at Shoppers Stop was about 70% and that at Piramyd was 37%. Heres a look at how some premier organized apparel retail outlets in India that are delivering at the loyalty front and reaping the real benefits of cultivating loyalty.

Loyalty statistics from leading retailers (2011-2012)


Total no. of members NA NA 310,000 220,000 64 New Members enrolled 21,557 19,253 100,000 NA Avg. bill size per visit 4,674 2,195 2,640 NA % contribution to total sales 8.04 49 49 40

PLAYERS Ebony Piramyd Shoppers Stop Lifestyle

Organized Retail An eye on the Future

Sohum Shoppe Fashion World

20,000 32,000

NA 8,000

NA NA

NA 3

WHAT DO THESE ORGANIZED APPAREL SPECIALTY STORES DO? Focus on name brands/quality, value, and helpful/courteous staff. Fun is the key, as are special orders and the latest fashions. Buyers are most likely to come from the avoidance shopper and love to shop attitudinal segments. To make the shopping experience more pleasant for avoidance shoppers, give them more reason to shop by introducing services and programs that address their time and budget pressures. For love to shop shoppers, exploit the fun side of shopping for this chiefly female, fashion-oriented segment, and improve your special-order service and stock of hard-to-find items.

65

Organized Retail An eye on the Future

66

Organized Retail An eye on the Future

CHALLENGES FACED BY THE ORGANIZED RETAIL CHAINS Retail still does not enjoy the Industry status Not many players in the organized retail sector Paucity of expert management and trained staff The non availability of trained manpower, especially at the management level, poses a key risk for the retail sector. With growing opportunities in the emerging service sectors, the ability of the retail business to hire and retain quality people is under pressure. Further, as organized retail grows rapidly, there will be pressure on existing players as new entrants look for trained manpower at various levels. Opening up of FDI in retail could see the entry of international retail majors and put further pressure on the manpower of existing retailers. Few takers for jobs in retailing Resistance from the unorganized sector High capital requirement Differences between urban-rural consumers Real estate and infrastructure Fragmented market Policy neglect by the government High cost of real estate in India Complex regulatory regime Inefficiencies in supply chain

67

Organized Retail An eye on the Future

Supply Chain Management (SCM) efficiencies are essential to retailers to maintain and improve margins. SCM includes vendor management and logistics management. Vendor selection is an important outcome of the sourcing process and a key to most efficient sourcing. Logistics management aims to get the goods from the vendor to the store in the shortest possible time thereby avoiding unnecessary stocking of goods. In India, both vendor management and logistics management are still underdeveloped. However, with growing size of operations, supply chain efficiencies will become a key differentiator of profitability in retail. Similarly, supply chain tools and techniques are still developing in India with the increase in organized retailing and entry of international brands. Bar coding is now being implemented, driven by the retailers for whom it is an essential ingredient for supply chain management. Ready to go sectors are those where the supply chain is reasonably sophisticated and there is little change required in consumer shopping behaviour. These include dry grocery, electronics and mens apparel. Shape and adapt sectors are those where atle ast one of the two parameters (level of supply chain sophistication and the degree to which change is required in consumer behaviour) is required to be and can be restructured. These include womens apparel, fresh grocery and fast food. Lack of availability and the high cost of funds Ban on Foreign Direct Investment (FDI) in retailing

68

Organized Retail An eye on the Future

OPPORTUNITIES Introduction of private labels Mergers and acquisitions New specialty retail formats EMERGING TRENDS Development of discount formats Convenience stores Region specific formats Malls potential DETERMINANTS OF FUTURE OF ORGANIZED RETAIL STORES Improvement of the Indian economy Consumerism Urbanization Profusion of brands Assortment of Brands Ambiance Service

69

Organized Retail An eye on the Future

QUESTIONNAIRE AND ITS ANALYSIS

Q:

Do you wear branded apparels?

A:

Yes No

88% 12%

C:

The trend in Delhi and NCR, as seen by the responses, shows a clear indication of

the opportunities in the organized retail formats.

S:

Retailers should try and adopt organized retail formats to gain through this trend and

provide customer with new experiences.

70

Organized Retail An eye on the Future

Public preference on wearing branded apparels


12%

88% Yes Q: Where do you prefer to shop for them? No

A:

Nearby market Main market of the city Organized apparel store in a shopping mall Online

10% 30% 55% 5%

C:

Had this question been posed to customers some 5 years back the response would

have been different. This shows a clear shift in preference towards various places. S: Customers today are more willing to go to places where all needs are met at a single

destination. Thus the retailers must set their stores in accordance with the new retail formats.

71

Organized Retail An eye on the Future

Q:

What is your frequency of visit to such stores?

A:

Once a month Twice a month Once a week Twice a week

10% 20% 55% 15%

C:

Customers are willing to go to organized apparel stores today and shop for their own

and family clothes approx once every week. This is a positive response for the retailers to venture into organized retailing formats. S: This question holds up the response of customers in the previous question. More

people shop from organized apparel stores and visit every once a week provides enough indication to retailers to open their stores with new formats.

72

Organized Retail An eye on the Future

Frequency of visit to organized apparel stores


15% 10% 20% 55%

Once a month

Twice a month

Once a week

Twice a week

Q: A:

What is the amount of expenditure on a shopping trip? 500 1000 1000 - 5000 5000 - 10000 >10000 (All in Rupees) 45.37% 31.58% 21.05% 0%

C:

The amount of expenditure by the customers on a single shopping trip to such

organized apparel store is in the range of 500 1000 which is quite high when combined with the data of the previous question that the customers visit every once a week. 73

Organized Retail An eye on the Future

S:

All the questions till now have highlighted the fact that the trend is changing and the

customer is willing to shop for apparels from organized retail store such rather than going to a shop in a nearby market or in the main market place of the city primarily because he is catered to with variety and brand name.

Expenditure on a shopping trip

22% 46% 32%

500 - 1000

1000 - 5000

5000 - 10000

Q:

What does an organized retail store mean to you?

A:

Place full of activity Clean and tidy environment Place to witness many brands Just another time pass

35% 15% 35% 15%

C:

People have an equal perception about the organized retail store i.e. it is a place full

of activity for them and a place to witness many brands.

74

Organized Retail An eye on the Future

S:

Thus new retail format is a place where customer feels where he can witness and

choose from many brands and where he can enjoy himself shopping. This response from the customers also highlights the changing thinking of the customers and their needs and wants. More and more retailers should adopt the new retail formats.

What do organized retail stores mean to the customer?


15% 35%

35% 15% Place full of activity Place to witness many brands Clean and tidy environment Just another time pass

75

Organized Retail An eye on the Future

Q:

What do you as a customer expect from such retail stores to make it your shopping

destination? A: Friendly staff Distance from house Popularity of the store Parking facility Events organized by the stores Dont care at all C: 25% 15% 15% 10% 25% 10%

The customers give equal weightage to the friendly staff of the store and to the

events organized by the stores. These two reasons are what make the customer choose the store from where to buy apparels. S: Thus more and more stores should emphasize on the Relationship Marketing. The

stores should implement various CRM models for customer retention in such stores. It is the

76

Organized Retail An eye on the Future

key to success for the organized apparel stores.

Expectations of customer from the organized apparel stores


10% 25% 15% 10% 25% 15%

Friendly staf f Popularity if the store Events organized by the stores

Distance from house Parking facility Don't care at all

77

Organized Retail An eye on the Future

Q: A:

What is the after feel of a purchase experience in an organized retail store? Respected as a customer Able to make right choice Saving shopping time You have been cheated 10% 50% 35% 5%

C:

Most of the customers feel that they have made the right choice in purchasing

clothes in such apparel stores with a reasonable amount saying that they have saved a lot of time by shopping at the store. S: This indicates that the customers shopping at such organized apparel stores are

happy because they made right choices after witnessing and trying various brands in the store. Thus todays customer wants value for money that is provided to him in these organized apparel stores.

After feel of the purchase from the organized store


5% 35% 10%

50% Respected as a customer Saving shopping time Able to make right choice You have been cheated

78

Organized Retail An eye on the Future

Q:

Which of these factors contribute the most, apart from the product quality, when you

make decision to buy apparels from such stores? A: Good looking staff Signboards in and around the store Air conditioning Pleasant ambience C: 20% 25% 30% 25%

The customers gave a mixed response for the above question. This means that the

whole environment of the store should be a mix of all the above attributes. S: Thus these retail stores should have a mix of all the above factors to make the

shopping experience for the customer good.

Factors affecting the decision to buy apparels from such stores


25% 20%

25% 30% Good looking staff Air conditioning Signboards in and around stores Pleasant ambiance

79

Organized Retail An eye on the Future

Q: A:

Having visited such retail stores, what is your perception about various brands? Knew them before hand but could not recollect them Never knew them or bothered to remember them Now know them better Now remember them and can advise friends regarding them 12% 10% 30% 48%

C:

Thus we can see by the response of the customers that now with the witnessing of

various brands in such stores they can not only buy for themselves but can also advise their friends about which brand to buy. S: Thus Visibility being the key aspect, the stores should try and display more and

more brands so that they are clearly visible.

Customer's Perception about various brands


12% 10% 48%

30% Knew them before hand but could not recollect them Never knew them or bothered to remember them Now know them better Now remember them and can advise friends regarding them

80

Organized Retail An eye on the Future

Q:

Which is the portion of the store you prefer visiting the most, when visiting with

family? A: Mens wear Womens wear Kids wear All of them C: 10% 20% 8% 62%

The customers today want all the sections in one retail store so that they can surf

through all the sections and shop. S: Thus organized retail format is recommended.

Portion of the store which customer's prefer visiting the most


10% 20%

62%

8%
Women's wear Kid's wear All of them

Men's wear

VISION 2013 81

Organized Retail An eye on the Future

The past 2-3 years have seen a number of developments in the retailing business in India. The entry of corporate houses like Bharti, Sahara, Aditya Birla Group, Reliance, Mahindra, RPG, Tatas and Piramals has increased the capital availability in the market. Bigger players like Shoppers Stop are in a position to take advantage of their sizes in dealing with the manufacturers. Despite a slowdown in the economy, customer queues at the stores are not decreasing. Retail sector is bound to grow in the coming years. But how much and in what direction are the questions that need to be evaluated. Various agencies have made different estimates of the size of organized market in 2013. The one thing in common amongst these estimates is that the Indian organized retailing industry will be very big in 2013. The status of the industry will depend a lot on external factors like Government regulations and real estate prices, besides activities of the retailers and demands of the customers. Based on our analysis of present trends, and development of retailing elsewhere, we present our perspectives and snapshots of organized retailing, as it would exist in 2013. Investment will increase Retail sector will see huge investments in the next 4-5 years. Newer chains will come in and the present players will increase their penetration. By 2013, the established players would have reached saturation levels in metropolitans and will shift the focus of their investments to other Class 1 cities. By 2013, there will be little difference between the metros and the next 20 cities (the present million plus cities). However, the investments would largely be private investments, or at best secondary markets. This will happen because expansion will happen through investments by business houses that will not sell their stakes. If any purely Retailing Company exists, it will be an exception. However, if the ban on foreign players holding a controlling stake is lifted, the 82

Organized Retail An eye on the Future

sector could see drastic movements. The entry of foreign players will undoubtedly result in buying and sealing and some businesses might withdraw their money in anticipation.

The world's largest retailer by sales, Wal-Mart Stores Inc and Sunil Mittal's Bharti Enterprises have entered into a joint venture agreement and they are planning to open 10 to 15 cash-and-carry facilities over seven years. The first of the stores, which will sell groceries, consumer appliances and fruits and vegetables to retailers and small businesses, is slated to open in north India by the end of 2008.

Carrefour, the worlds second largest retailer by sales, is planning to set up two business entities in the country one for its cash-and-carry business and the other a master franchisee which will lend its banner, technical services and know how to an Indian company for direct-to-consumer retail.

The worlds fifth largest retailer by sales, Costco Wholesale Corp (Costco) known for its warehouse club model is also interested in coming to India and waiting for the right opportunity.

Tesco Plc., plans to set up shop in India with a wholesale cash-and-carry business and will help Indian conglomerate Tata group to grow its hypermarket business. The entry of foreign players, if allowed, will not only affect ownership, but also change the basics of business. Huge investments in stores and their supply chains can transform the entire scenario. But the lifting of ban is a policy issue that cannot be predicted, and can only be decided by the government. Until 2011, Indian central government denied foreign direct investment (FDI) in multibrand retail, forbidding foreign groups from any ownership in supermarkets, convenience 83

Organized Retail An eye on the Future

stores or any retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic process. In November 2011, India's central government announced retail reforms for both multibrand stores and single-brand stores. These market reforms paved the way for retail innovation and competition with multi-brand retailers such as Walmart, Carrefour and Tesco, as well single brand majors such as IKEA, Nike, and Apple. The announcement sparked intense activism, both in opposition and in support of the reforms. In December 2011, under pressure from the opposition, Indian government placed the retail reforms on hold till it reaches a consensus. In January 2012, India approved reforms for single-brand stores welcoming anyone in the world to innovate in Indian retail market with 100% ownership, but imposed the requirement that the single brand retailer source 30 percent of its goods from India. Indian government continues the hold on retail reforms for multi-brand stores. In June 2012, IKEA announced it has applied for permission to invest $1.9 billion in India and set up 25 retail stores. Fitch believes that the 30 percent requirement is likely to significantly delay if not prevent most single brand majors from Europe, USA and Japan from opening stores and creating associated jobs in India. On 14 September 2012, the government of India announced the opening of FDI in multibrand retail, subject to approvals by individual states. This decision has been welcomed by economists and the markets, however has caused protests and an upheaval in India's central government's political coalition structure. On 20 September 2012, the Government of India formally notified the FDI reforms for single and multi brand retail, thereby making it effective under Indian law. On 7 December 2012, the Federal Government of India allowed 51% FDI in multi-brand retail in India. The Feds managed to get the approval of multi-brand retail in the parliament despite heavy uproar from the opposition. Some states will allow foreign supermarkets like Walmart, Tesco and Carrefour to open while other states will not. Demographics

84

Organized Retail An eye on the Future

In the next 10 years, India population is expected to grow by about 14 per cent. But this increase will not be even. Important trends that will affect retailers are listed below. The number of children (0-15 years) will remain stable at 30 million: This will mean a lesser growth for toys, games and some apparel segments. But given the current nascent stage of the growth, these sectors will still offer high growth rates. The number of people in 40-60 years of age will go up by 30%: Sales of cosmetics, skin care, hair dyes, and other youth inducing products will rise. More consumer resources would be spent on retirement planning and saving for retirement. Home improvement and financial services firms would benefit from this trend.

The number of households will increase by 25%: This would lead to a higher growth in the household-decor items vis--vis personal items as apparel and fashion accessories. Regional differences will stay Although a few players will be able to form pan-Indian retail supply chains; the retail market is unlikely to be a single entity. For example, food retailing in Chennai, Kolkata and Chandigarh is vastly different in terms f shopping habits and consumer tastes. Many such differences will remain. Though a few national retail chains will develop, they would have to coexist with strong regional players, who would excel in their understanding of the customers and strong brand names. The national players would primarily be is sectors like Apparel, Fashion, Food and Music. Importance of local supplies for grocery sector would ensure the regional chains would reign supreme in these sectors. The key to success for national players will to maintain the efficiencies that come from their large-scale operations while retaining the ability and the flexibility to satisfy different needs of different consumers. However, organized retailing, in some cases, will change and harmonize consumer habits, 85

Organized Retail An eye on the Future

purchasing patterns and consumer behavior. McDonalds and Barista have already been successful in doing this. Dual focus on costs and time With more dual income families consumer ability to spend will increase, but the time available for shopping will go down. Customers will become more demanding in terms of rapid and friendly service. Retailers would develop shopping as an entertaining experience, but the more successful ones will be the ones who provide faster service. On the other hand, increasing competition would push the prices down. Efficiencies in supply chain and economies of scale would allow retailers to reduce their prices without compromising either on the shopping experience or on their own profitability.

24 hours retailing Time stressed consumers will also ask for round the clock retailing. As these consumers will be ready to pay a premium for service at odd hours, the timings of shopping will have to adapt to needs of these consumers. A number of 24 hours retail stores would emerge to cater to this need. The assumption here is that the current administrative restrictions on running shops at nights will be lifted. It is expected that in the face of increasing demand from both the consumers and the industry fore, regulations regarding retailing will be eased.

Small retailer will coexist

86

Organized Retail An eye on the Future

Within a decade, large organized retailers would be controlling a substantial portion of the retail trade. Yet, it is not to say that small, independent and unorganized retailers will disappear in large numbers. They will survive on their core strengths of personal relations with customers and closeness to residences. The experiences of South East Asian countries has been that even after 10 to 15 years of allowing FDI in retailing, unorganized retailers still control a sizeable chunk of the retailing market. The Indian experience in retailing is expected to be no different. However, to compete with the big retailers on price, small retailers will form cooperatives for purchasing, just as the once in France, Spain and Italy have already done. This trend has also started in Delhi, and is only expected to increase. Supply chain dynamics The balance of power between retailers and manufacturers will shift towards the retailers. The bigger retailers would be able to seek the lowest prices, require their suppliers to assume greater business risks, and collaborate with suppliers to achieve overall cost reduction in their operations. Scale economics would help in operating optimized supply chains and logistics network with investments in information technology enabling process efficiencies and effectiveness. Increased volumes would enable investments in specialized equipment for transportation of goods. Retailers with large chains would negotiate and get central procurement but local dispatches from their suppliers.

Internet Internet retailing will thrive in the coming decade. It may not be apparent now because 87

Organized Retail An eye on the Future

internet access is far behind the US and west, and high usage charges represent a serious impediment to frequent consumer usage. The Government has already shown intent to deregulate the telecommunications sector. Deregulation would increase Internet usage in the country and also the trading on the net. However, it is expected that the bricks and mortar stores converting to clicks and mortar model would dominate the Internet sector. ? This is because of their already existing brand names and economies of operations that they would be able to reap.

88

Organized Retail An eye on the Future

FUTURE OF ORGANIZED RETAIL IN INDIA


According to management consultant A T Kearney's 2011 Global Retail Development Index, India is currently the second most attractive destination for global retailers. KSA Technopak estimates organized retail in India to reach 20% to 25% of the total retail market by 2013 with sales of Rs 500 bn, aided by improved retail real estate infrastructure and easier access to capital. The opening of retail industry to free market competition, some claim will enable rapid growth in retail sector of Indian economy. Others believe the growth of Indian retail industry will take time, with organized retail possibly needing a decade to grow to a 25% share. A 25% market share, given the expected growth of Indian retail industry through 2021, is estimated to be over $250 billion a year: a revenue equal to the 2009 revenue share from Japan for the world's 250 largest retailers. Growth in the years to come

$. bn Estimated size of retail in India Share of organized retail in India (%) Source: KSA Technopak, Images Retail

2012 470 4%

2013 600 10% 12%

89

Organized Retail An eye on the Future

RECOMMENDATIONS

1) Adoption of more than one format A movement towards Class-I cities necessitates modification of operating formats to suit different needs. Retailers should adopt more than one format to cater to the customer effectively and efficiently. 2) Faster service With more dual income families consumer ability to spend will increase, but the time available for shopping will go down. Customers will become more demanding in terms of rapid and friendly service. Retailers would develop shopping as an entertaining experience, but the more successful ones will be the ones who provide faster service. 3) 24 hours retailing Time stressed consumers will also ask for round the clock retailing. As these consumers will be ready to pay a premium for service at odd hours, the timings of shopping will have to adapt to needs of these consumers. Thus the retailers should concentrate more on the customer so as to effectively fulfill his needs. 4) Regional differences will stay Although a few players will be able to form pan-Indian retail supply chains; the retail market is unlikely to be a single entity. For example, food retailing in Chennai, Kolkata and Chandigarh is vastly different in terms of shopping habits and consumer tastes. Many such differences will remain. Thus the retail formats and size along with the stock should be maintained in accordance with the region specific demands.

90

Organized Retail An eye on the Future

5) Up gradation of technology The technology should be constantly upgraded to facilitate better and faster services, since the disposable time with the customers for shopping is decreasing with time.

91

Organized Retail An eye on the Future

CONCLUSION
Organized retail is sure to fulfill its potential in the Indian sub continent and to provide more and more opportunities to the Indian investors. The unfulfilled demand of the Indian consumers for quality products at the right price and environment with the perfect service and ambiance will fuel the growth of the Indian retail industry. In contrast to the situation a few years ago, competitive advantages in the retailing sector today, once achieved, are only of short duration unless they are accompanied by superb management quality or based on a unique position. The efforts required to maintain such advantages are incomparably greater. Against this backdrop, cooperation will have a decisive effect on the future of retail sector. The necessity of achieving market power, as well as the drive for size, profitability, and efficiency, will continue to produce profound changes in the retail sector in the future. This means, for the majority of companies acting in the market, the companies which do not master a particular market or category/niche will have no chance of survival. It also means that non-organized retail businesses in particular will have to struggle more than ever in future to justify their ongoing existence. Overall, the opportunities are shrinking for traditionally structured retailers to maintain themselves against vertical players and companies external to the sector. The manner in which Indias retail industry is shaping up, the foreseeable future indicates that large retailers would most certainly cut into a sizable share of the branded market, which was hitherto largely controlled by small players. The trend of large national chain stores replacing small independent retailers is continuing unabated. Rapidly growing catalogue and internet usage confront small retailers with new challenges and dramatic changes that force them to adapt rapidly or perish. As a result, small retailers will fell the pinch of high markups and may shift to lower price point merchandise. Thus, they would be required to sell larger volumes I order to compensate the high price point drop. The independent stores that survive and prosper will be those who: 92

Organized Retail An eye on the Future

1. Recognize and act on their competitive strengths and weaknesses 2. Understand who their customers are and what they want. 3. Identify and fill a viable niche in the marketplace. Small retailers will also have to match the ambience provided by their large competitors. They may opt for different business models like speciality stores, fixed price shops, or discount stores. A few may consider switching to large format stores and enhance their capabilities in terms of range, merchandize and price points. Some retailers might be even forced to move to different categories or even change their line of business. In a similar manner, large stores might turn to operating out of small format outlets with speciality offerings, catalogue showrooms, transit stores, and satellite warehouses for parent showrooms. The tendency towards integration into a common value chain will increase significantly in future and will become an essential component of strategies between companies. Lone fighters do not stand much of a chance, unless they have a dominant position in the market on account of their innovative leadership or strong brand image. In the Indian market in particular, concepts focused on emphasizing value-for-money considerations will accelerate the polarization of the market across all sectors and will outperform their respective market segments.

93

Organized Retail An eye on the Future

LIMITATIONS
The research work is subject to several problems that would affect the proceedings of the study and also upon the appropriateness of the findings and the conclusions drawn. The difficulties are mentioned as follows:

1. Geographical Limitation The survey conducted on customers to understand preference for their shopping destination and the reasons for such preferences, taking a case of apparels, was confined to regions like Noida and Ghaziabad thus the inferences made do not represent the viewpoint of all the customers. 2. Small sample size The sample size was only 50, it was not a census survey thus inferences made cannot be fully relied on as it might not represent the thinking of all the customers in general. 3. Sampling method As sampling method was random it might have included the customers from same background. Thus the inference from the analysis might represent only a particular segment of customers. 4. Objective Fulfillment These surveys were conducted by organizations to meet their objective so would not appropriately fulfill my objective.

94

Organized Retail An eye on the Future

5. Time span The time span for the completion and submission of the final report may limit the considerations taken into account so it may thus affect the conclusions drawn. 6. Secondary information The secondary information may be incomplete, inaccessible or not presented in useful form.

95

Organized Retail An eye on the Future

REFERENCES
Books and Journals Images Retail Retail Buzz V.K.Dubey - Retail Management Retail Marketing Malcolm Sullivan and Dennis Adcock Retailing Patrick M. Dunne, Robert F. Lusch and Divid A. Griffith Retail Management Gibson G. Vedamani Mulky and Nargundhkar. Modernization in Indian Retailing: Managerial and Policy Perspectives.April June 2003 A T Kearneys 2004 Global Retail Development Index Statistical Outline of India Economic Times Websites

http://www.ficci.com/ http://www.indiainbusiness.nic.in/ http://www.indiainfoline.com http://www.ciionline.org/ http://www.etretailbiz.com/


http://www.imagesretail.com/

96

Organized Retail An eye on the Future

QUESTIONNAIRE
1. Do you wear branded apparels? a. Yes b. No 2. Where do you prefer to shop for them? a. Nearby market b. Main market of the city c. Organized apparel store in a Shopping mall 3. What is your frequency of visit to such stores? a. b. c. d. 4. Once a month Twice a month Once a week Twice a week

What is the amount of expenditure on a shopping experience? a. b. c. d. 500 1000 1000 5000 5000 10000 >10000

5.

What does an Organized Retail Store means to you? a. b. c. d. Place full of activity Clean and tidy environment Place to witness many brands Just another time pass

97

Organized Retail An eye on the Future

6. What do you as a customer expect from such retail stores to make it your shopping destination? a. b. c. d. e. f. Friendly staff Distance from house Popularity of the store Parking facility Events organized by the stores Dont care at all

7.

What is the after feel of a purchase experience in an organized retail store? a. b. c. d. Respected as a customer Able to make right choice Saving shopping time You have been cheated

8. Which of these factors contribute the most, apart from the product quality, when you make decision to buy apparels from such stores? a. b. c. d. 9. Good looking sales staff Sign boards in and around store Air conditioning Pleasant ambience

Having visited such retail stores, what is your perception about various brands? a. b. c. d. Knew them before hand but could not recollect them Never knew them or bothered to remember them Now know them better Now remember them and can advise friends regarding them

10. Which is the portion of the store you prefer visiting the most , when visiting with family? a. Mens wear b. Womens wear c. Kids wear 98

Organized Retail An eye on the Future

Compiled by Gaurav Khandelwal

Even though India has well over 5 million retail outlets of all sizes and styles (or non-styles), the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity. It was only in the year 2010 that the global management consultancy AT Kearney put a figure to it: Rs. 400,000 crore (1 crore = 10 million) which will increase to Rs. 800,000 crore by the year 2013 an annual increase of 20 per cent. Retailing in India is thoroughly unorganized. There is no supply chain management perspective. According to a survey b y AT Kearney, an overwhelming proportion of the Rs. 400,000 crore retail market is UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized. As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet in area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world (source: KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt Salmon Associates). Just over 8 per cent of India's population is engaged in retailing (compared to 20 per cent in the United States). There is no data on this sector's contribution to the GDP. From a size of only Rs.20,000 crore, the ORGANISED retail industry will grow to Rs. 160,000 crore by 2005. The TOTAL retail market, however, as indicated above will grow 20 per cent annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by 2005 (source: survey by AT Kearney) Given the size, and the geographical, cultural and socio-economic diversity of India, there is no role model for Indian suppliers and retailers to adapt or expand in the Indian context. The first challenge facing the organized retail industry in India is: competition from the unorganized sector. Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labor costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector.

99

Organized Retail An eye on the Future

In contrast, players in the organized sector have big expenses to meet, and yet have to keep prices low enough to be able to compete with the traditional sector. High costs for the organized sector arises from: higher labor costs, social security to employees, high quality real estate, much bigger premises, comfort facilities such as air-conditioning, back-up power supply, taxes etc. Organized retailing also has to cope with the middle class psychology that the bigger and brighter a sales outlet is, the more expensive it will be. The above should not be seen as a gloomy foreboding from global retail operators. International retail majors such as Benetton, Dairy Farm and Levis have already entered the market. Lifestyles in India are changing and the concept of "value for money" is picking up. India's first true shopping mall complete with food courts, recreation facilities and large car parking space was inaugurated as lately as in 1999 in Mumbai. (this mall is called "Crossroads"). Local companies and local-foreign joint ventures are expected to more advantageously positioned than the purely foreign ones in the fledgling organized India's retailing industry. These drawbacks present opportunity to international and/or professionally managed Indian corporations to pioneer a modern retailing industry in India and benefit from it. The prospects are very encouraging. The first steps towards sophisticated retailing are being taken, and "Crossroads" is the best example of this awakening. More such malls have been planned in the other big cities of India. An FDI Confidence Index survey done by AT Kearney, retail industry is one of the most attractive sectors for FDI (foreign direct investment) in India and foreign retail chains would make an impact circa 2003.

100