INDIAN ORGANIZED RETAIL INDUSTRY

1

1. INTRODUCTION

1.1 World History of Retail
Retail comes from the French word retaillier which refers to "cutting off, clip and divide" in terms of tailoring (1365). It first was recorded as a noun with the meaning of a "sale in small quantities" in 1433 (French). Its literal meaning for retail was to "cut off, shred, paring". When man started to cultivate and harvest the land, he would occasionally find himself with a surplus of goods. Once the needs of his family and local community were met, he would attempt to trade his goods for different goods produced elsewhere. Thus markets were formed. These early efforts to swap goods developed into more formal gatherings. When a producer who had a surplus could not find another producer with suitable products to swap, he may have allowed others to owe him goods. Thus early credit terms would have been developed. This would have led to symbolic representations of such debts in the form of valuable items (such as gemstones or beads), and eventually money.

Early Markets
Over time, producers would have seen value in deliberately over-producing in order to profit from selling these goods. Merchants would also have begun to appear. They would travel from village to village, purchasing these goods and selling them for a profit. Over time, both producers and merchants would regularly take their goods to one selling place in the centre of the community. Thus, regular markets appeared.

The First Shops
Eventually, markets would become permanent fixtures i.e. shops. These shops along with the logistics required to get the goods to them were, the start of the Retail Trade.

2

1.2 How Retail Develops
Peddlers and Producers
The Retail Trade is rooted in two groups, the peddlers and producers. Peddlers tended to be opportunistic in their choice of stock and customer. They would purchase any goods that they thought they could sell for a profit. Producers were interested in selling goods that they had produced.

General Store
This division continues to this day with some shops specializing in specific areas, reflecting their origins as outlets for producers (such as Pacific Concord of Hong Kong), and others providing a broad mix, known as General Store (such as Casey's in the Midwest of the U.S.A.). Although specialist shops are still with us, over time, the general store has increasingly taken on specialist products. Customers have found this to be more convenient than having to visit many shops - thus the term “Convenience Store” has also been applied to these shops. As the popularity of general stores has grown, so has their size. This combined with the advent of SelfService has lead to the Supermarket, or Superstore.

How did retail develop?
When individuals or groups left their community and settled elsewhere, some missed foodstuffs and other goods that were only available in their birthplace. They arranged for some of these goods to be sent to them. Others in their newly adopted community enjoyed these goods and demand grew. Similarly, new settlers discovered goods in their new surroundings that they dispatched back to their birthplace, and once again, demand grew. This soon turned into a regular trade. Although such trading routes expanded mainly through the growth of traveling salesmen and then wholesalers, there were still instances where individuals purchased goods at long distance for their own use. A second reason that distance selling increased was through war. As armies marched through territories, they laid down communication lines stretching from their home base to the front. As well as garnering goods from whichever locality they found themselves in, they would have also taken advantage of the lines of communication to order goods from home.

3

Retail Chains Origins of Retail Chains It is likely that. founded by Clarence Saunders in Tennessee in the U. this removed the mobility that a peddler or traveling merchant may still have enjoyed. therefore. For some shopkeepers. the first documented self-service store. That was the case until transport and communications became faster and more reliable. When this happened towards the end of the 19th century. There was a personal one-to-one relationship between customer and shopkeeper. they would have needed to employ people from outside of their family. Thus the Retail Chain would have started.S. The First Self-Service Store This all changed in 1915 when Albert Gerrard opened the Groceteria in Los Angeles. This would recover business from peddlers. pack them in a bag or other container (often supplied by the customer). From Family Business to Formal Structure Although retail chains would have been mostly run by families. The greater the distance. create new business and the greater volume would allow the shopkeeper to strike a better deal with suppliers. Self Service Background Up until the introduction of self-service stores. the more time and effort would have been needed to effectively manage outpost shops and to service them with goods. customers would simply ask the shopkeeper for their goods. This was soon followed a year later by the Piggly Wiggly® selfservice store. it made sense to obtain extra stock and open up another shop. as some chains grew. tot up the bill and receive payment. This was a limiting factor as there would have been a limit to the amount of trusted non family members available to help run the chain. Another. 4 . There was. as markets became more permanent fixtures they evolved into shops. Although advantageous in many respects. leading to the retail chains that we see today. chains became much bigger and more widespread. The shopkeeper would price them (weighing them if necessary). a natural barrier to expansion. even more definite limiting factor was the distance the furthest shop would have been from the original shop. Many of these businesses became more structured and formalized. most probably operated by another family member.

according to the products being lit. For some well established stores. Such stores may seldom change their décor or only change it in minor ways. or even dull. but there has been a steady rise in the global amount of self-service stores ever since. Lighting Food stores are usually well lit. This dimension is important as it reduces the burden on product versus product and price versus price competition Frequency of Redecoration Stores that sell fashion goods will often change their décor regularly to reflect the changing nature of their products. This distinction allows the store to offer a shopping "experience". This re-enforces an impression of hygiene and honesty. Retailers will typically want their stores to be different from their competitors. Other countries were slow to take up the idea. This new type of shopping was more efficient and many customers preferred it. The shopkeeper would only need to tot up the final bill at the end of the process and transfer the goods from the basket to the customer and receive payment. collecting their shopping in a basket that was supplied. Although personal service stores remain to this day. The lighting in clothes and some specialist goods stores may vary across the store. Design A store that sells high class goods will usually have high class décor. Décor The way a retail outlet looks will usually inform customers and potential customers about the type of store and type of products it sells. By contrast.Efficiency & Growth These entrepreneurs noticed that their staff had to spend a great deal of time taking grocery orders from customers. their décor may be synonymous with their business and their product offer. The groceries were stacked on shelves allowing customers to walk around and browse. this new concept started a rapid growth of self-service stores in the United States. It also allows customers to read labels and signs. to bright and occasionally colored. a store that sells basic goods may have basic décor. A store offering distinct décor can score points over their competitors. some of which may be legally required. Such lighting may range from soft. 5 .

which will change the landscape of the country's cities. The post liberalization era witnessed new wave of entrants in the sector with large conglomerates like Tatas. First the retailing was started as a family business and then it became business of involving other people also. 6 . A new generation of retail outlets is emerging. It was started as a simple barter and take the form of transaction by money eventually. modern logistics. It was only in 1980s when the economy started to be opened. That's what's happening in India today. the Hero Group and Reliance have expressed their intention of joining the Indian retail foray. Raymond and Grasim from the textiles sector were the first ones from the corporate world to step into the retailing by opening their own outlets. to the most part untouched by corporate business principles.3 History of Indian Retail The Indian Retailing sector has been largely unorganized in the post independence period. it is also important to understand what are the different types of retailing to understand the basic format of the retailing and how they work. by establishing a series of elegant watch showrooms across the country. Companies like Bombay Dyeing. Various other behemoths of the Indian corporate sector like the Birlas.1. more people buy more things. Summary This chapter tells that what does retailing means and how did retailing started. They need more shelf space.Now. and the creation of new retail brands. More products become available. When countries grow. Titan's is another successful story of a corporate creating a great retailing concept. Reliance the RPG Group. The result: a retail revolution.The revolution is fuelled by huge sums of money being poured into real estate. Rahejas and the Piramals investing in the sector. the situation began to change.

though some of them focus on their own store label (on the lines of Marks & Spencer‟s and St. and must be obtained from the seller. Some of the well known supermarket chain includes Food Bazaar. a physical location where buyers and sellers converge. Supermarkets A supermarket is a store which is more of a large self-service grocery store selling groceries and dairy products and household goods that are consumed regularly. where goods may be handled and examined prior to purchase.(2)-----Types of Retailing 2. Apna Bazaar. Westside. These stores offer convenience of shopping by making available a large variety of products at one place. The larger chains of department stores (Namely Reliance fresh. They stock multiple brands across product categories.2 Formats of retailing Department stores These large stores retail primarily non-food items such as apparel.1 Three basic parts of retailing There are three major types of retailing. Sometimes this kind of retailing replicates existing retail types such as online shops or virtual marketplaces such as E-Bay. Michael). 7 . footwear. Several local department store chains have opened shop in India in the past five years. telephone or online without having been examined physically but instead in a catalogue. These stores are often part of a chain that owns or controls (sometimes by franchise) other supermarkets located in the same or other towns. Shoppers‟ Stop. Nilgiris. This type of retail is common for small expensive items (e. increasing the opportunities for economies of scale. accessories. Some shops use counter-service. sidewalks or designated streets and may involve the construction of temporary structures (market stalls). Usually this is done on town squares. where goods are out of reach of buyers. has become more common since the Twentieth Century. Self-service. Pantaloons‟. jewelry) and controlled items like medicine and liquor. on television or on a website. 2.  A third form of retail is virtual retail. where products are ordered via mail.g. cosmetics and household products.  The second form is shop or store trading. Trinethra etc. Food World.  The first is the market. and Lifestyle) have presence in the metros and mini metros.

It is a large format store that aims at retail consolidation by being a single point contact between the brand owners and customers. such as Wal-Mart. Crossword etc. leather goods. Door-to-Door Retailing This kind of retailing is as old as retailing itself and is still very common. Retailers that practice distance retailing may also have physical stores. Seamless Mall Seamless mall is a format which is relatively new in India. often household items. lingerie.. although less so in recent times. Star India Bazaar are examples of hypermarket formats. and executed in a manner that a consumer can ideally satisfy all of their routine weekly shopping needs in one trip to the hypermarket. providing a seamless shopping experience. Clothing and accessory stores are often staffed with knowledgeable salespersons who can help in the selection of sizes. Clothing and Accessory Store Clothing and accessory stores sell apparel for all members of the family. internet/email or other digital device such as interactive television and even from a refrigerator. A door-to-door salesperson may be self-employed or employed by a company and will usually specialize in a particular product group. and bookstores are all specialty stores. Examples of specialty stores in India would include Planet Sports. 8 . Spencers. a customer may order products from a remote location. various brands operate their retail areas without any wall between them. telephone. In this format. constructed. and accessories Distance Retailing Rather than visiting a store to make a purchase. aLL. Music world. Specialty stores Specialty stores as the name suggests are stores that specializes in a particular offering. A specialty store carries a deep assortment within a narrow line of goods. Furniture stores. florists. Planet M. as well as luggage. sporting-goods stores. The result is a retail facility which carries an enormous range of products under one roof. This makes it possible for shoppers to compare brands with ease while they shop Central is an example of a seamless mall. Although it is common for them to visit houses. and bridal gowns.Hypermarkets/Discount stores A hypermarket is a store which combines a supermarket and a department store. uniforms. jewellery. This may be done by mail. Vijay Sales. styles. they may also sell to businesses. They are planned. including full lines of fresh groceries and apparel. Big Bazaar.

Van sales are common in rural areas and in less developed economies. These stores typically include an assortment of food items. The other type of van sales is. Van Retailing This is a cross between door-to-door sales and store sales. One is where the van is parked in a common area and is visited by customers. catering to a limited geographical range or may sell specialized products to a wider area.Party and Event Retailing This is usually a form of franchising where the retailer invites people from the locality to a common location. in effect. or open-air markets. ices and snacks are often sold this way. clothing. the same as door-to-door selling. along with an array of household and automotive goods. usually themed around the products on offer. The retailer will typically keep 1 day‟s stock in their van and visit an area where they will service regular customers. but is more typically run by a family. 9 . are common around the world and are particularly popular in temperate or warm climates. Street Market The tradition of selling from market stalls goes back to the early days of retailing where traders could gather in one area to sell their wares. Warehouse Club Warehouse club stores and super centers sell a mix of products (and services) in fixed quantities at low prices. often sold in bulk. the retailer will be a franchisee to a wider organization. The event or the party will be a mix of socializing and retailing. There are two types of van sales. it is very common that cosmetics. Although party and event selling can involve a variety of goods. Single Independent Non-Franchised Store A single independent store may be run an individual. They may occasionally visit an area that they do not usually go to in order to attract new customers. Street markets. and services that may vary over time. small household goods. clothing and sex-aids are sold. They may be general stores. Most commonly.

However.(3)------Current organized retail industry in India 3. Bata and Raymond. “Fashion drives Indian retail”. The total market in 2005 stood at Rs. and in these sectors in particular goes to brands like Titan. The next most organized segment is that of Footwear (13%) followed by Clothing (36%). This is followed by Food and Grocery accounting for 14% of the organized retail value Organized retailing constitutes just 3 percent of the Rs. growing consumer awareness about product quality and services. Composition of Organized Retail A breakup of sales in organized retail shows lifestyle (clothing and textile. higher disposable income of consumers and the desire to try out new products. Most of the organized retailing in India had recently started and was mainly concentrated in metropolitan cities.T. an annual study of retail investment attractiveness among 30 emerging markets.930000 crore Indian retail markets. the retail industry is broadly divided into the organized and unorganized sectors. Against a backdrop of accelerating modern retail globalization. it is rightly observed.retailbiz.1 Introduction of Organized Retail Industry in India Retailing is the second largest industry in the US in terms of number of people employed. many developed and developing economies rely on this sector for growth. the retail industry in India comprised of large. Kearney‟s 2006 Global Retail Development Index (GRDI). The Watches sector is the most organized of all with almost 40 percent of the market being controlled by branded and organized players. according to management consulting firm A. the organized sector accounted for $350 billion (about 3. footwear. India retained its position as the world‟s most attractive market for mass merchant and food retailers seeking overseas growth. the scale of organized activity is not equally spread out across all sectors. besides others. home. medium and small grocery stores and drug stores which could be categorized as unorganized retailing.5 % of the total) of the total revenues. entertainment) as the largest segment accounting for 71% in value terms. accounting for about 9-10% of the country‟s gross domestic product (GDP). Of this total market.1 Traditionally. In India. watches and jewellery and health and beauty. the largest retailer in the world with annual sales of US$ 284 billion is also the largest employer in the US The retailing industry in the US employs more than 22 million Americans and generates more than $3 trillion in sales annually. Much of the credit for having pioneered the organized retail movement in India. The retailing industry seems poised for a significant growth in the coming years owing to the presence of a vast market. WalMart. 1 www.com/retail/facts/html 10 . As all of these three sectors constitute core “fashion”.000 billion. Like the US. 10.

Health and beauty consciousness among Indian consumers. This can be attributed to the highly unorganized nature of the market currently. Clothing is the other segment expected to show high growth potential.Of all the retail sectors. India is the world's biggest market for gold and jewellery though there is hardly any retailer with a national presence in this sector. There exists huge potential in these and all other sectors. service as well as product. Break-up of consumer’s expenditure in organized retail ORGANIZED RETAILING 3% 3% 10% 2% 1% 1% Home Pharma Entertainment Health & Beauty 13% 36% 14% Clothing & Taxtile Jewellery & Watches Food & Grocery Footwear 17% Durables Books Music & Gifts Source: KSA Technopack research on Booming Retail Industry-2007 Rapid growth of organized retailing is expected in the food segment. 11 . Jewellery and Watches (17%) and Health and Beauty (1%). and the growing preference of consumers to shop at modern retail formats.615. especially the urban youth. which thus presents an attractive potential. the last organized one is Food and Grocery (14%).000 crore). is on the rise and consumers will readily accept any quality offering in this context. All three sectors are huge in size: F&G is the largest of all sectors (worth Rs.

 Food and beverages account for 38% of the total retail spending. what is their indirect cost for operating company.  Organized retail sector is estimated to be growing at 15-20%. Indirect cost all companies try to rescue as much as possible. direct and indirect.  Currently. Freight. Packaging & Embellishments and Other Administrative Expenses.  Wholesale and retail trade sector currently contributes to about 13% of GDP an employs about 40 million people. Direct cost is that what you purchase goods from merchandise and indirect cost includes Advertising & Promotion.  Organized retail sector is currently just about 3% of the total relevant PFCE  Overall PFCE is estimated to have grown at 11. fuel & power from the relevant spending estimate. If your indirect cost is minimum then your profit will increases.6% over the last three years.India’s Retail Sector: Basic Facts India‟s relevant private final consumption expenditure (PFCE) is estimated to be about US$221 (28% of GDP) billion as of F2006. Warehousing. Note we are excluding part of PFCE such as rent. Man Power. Indian retail distribution is completely fragmented with about 12 mn players operating from small shops and handcarts. ORGANIZED RETAIL OPPORTUNITY For doing a business of organized retail there are two types of cost. Below list is indirect cost of Ebony Company. Excise and Other Taxes. 12 .

Major Areas of Indian Organized Retailing In Indian Retail Industry there are so many sectors but we have selected major sectors which are as follows  Food & Grocery  Footwear  Apparel  Consumer Durable  Gems & Jewellary  FMCG 13 .4.

to around 9 percent in 2005-2009. While the organized sector accounts for only 2-4 percent of the total retail market at present (although the proportion is growing fast).1 Food & Grocery The greatest organized retail growth opportunities by size of segment are in food and beverage.4. a study by the Federation of Indian Chambers of Commerce and Industry (FICCI) concluded that the food market alone was around US$70 billion in 2004. while still falling marginally as a proportion of household spending. reflecting the large population rather than high spending levels. It is the world‟s biggest producer of livestock.2 percent over the next five years against a total GDP growth rate of around 8 percent. The forecast growth in personal disposable incomes will allow food and beverage spending to rise faster than average GDP growth. The Indian Department of Commerce forecasts that investment in the segment will exceed US$4. from around 6 percent in 2000-2004. India is one of the world‟s largest food producers. The proportion of household spending accounted for by food is falling. producing around one ton of food for every single inhabitant. . India is also one of the world‟s major food and drinks markets. although that is most likely an underestimate. from around 54 percent in 1995 to a forecast 43 percent by 2009: this pattern is in line with the trend in most emerging economies. which forecasts that food and beverage retailing will grow at 9.8 billion in the financial year ending in 2005. The EIU forecasts that spending growth will rise.5 percent of all food retailing takes place in large shops and supermarkets. the biggest producer of milk. Estimates of the size of the market vary as the true size of the informal market is difficult to measure: the EIU estimates that combined food beverages and tobacco spending totaled US$190 billion in 2004 (compared to around US$240 billion in China. and the second largest producer of fruit and vegetables. 14 . which is of similar population size). only around 0. according to the EIU.

at 4. Beef is considered to be a down market product (the slaughter of cows is banned in all but two states for religious reasons).8 kg per head. The EIU forecasts that rising incomes will increase domestic consumption over the next five years quite significantly.” Another consumer products manufacturer adds “Indians respond to product innovation. Fish consumption is also low compared to other emerging economies. The EIU forecasts that annual growth in consumption will be around 4 percent to 2009.The main growth opportunity in the segment is in processed foods: Indians consume less processed and prepared food and drinks than most other nations.8 kg per head.3 percent of GDP). Poultry consumption is growing much faster. representing 4. Dairy consumption has been virtually stagnant over the last five years. Look at the way Café Coffee Day marketed coffee – there‟s nothing new about coffee. The rise in coffee drinking is part of the transition to more branded consumption in India. with the market for chilled and frozen meat very small. 15 . and much of India‟s marine production is exported. And that has really started to happen in the last 10 years. “Indian consumers are used to fresh produce. to 5. evidenced by the rapid expansion of branded food outlet and café chains. and only around 2 percent of India‟s agricultural output is processed (although even at that low level food processing is the country‟s fifth biggest industry. and consumption per head is below the World Health Organization‟s recommended minimum of 283 grams per day. “To get them interested in new packaged products you have to have product innovation and packaging innovation. Most processed food is exported: however. but drinking coffee in a store was new to Indians. rapid growth in the processed food segment of domestic consumer markets is already apparent. Fruit and vegetables are largely consumed fresh.” Meat consumption is growing very slowly (at an average annual rate of less than 2 percent over the last five years).” says a representative from a leading industry body. with only a very small proportion of output processed.

Café Coffee Day and Qwiky‟s. close to 50% of consumer spending is on food and beverage. food.5 percent during 2005-2009. beverages and tobacco together accounted for as much as 71% of retail sales in 2002. The market for wine spirits and liqueurs is larger although growth is low: the segment had sales of around US$48 billion in 2003. Hence. which is much higher than in the developed countries like US and Western Europe. Foreign chains are also beginning to participate in the retail market through franchise agreements. although beer consumption is relatively low (India has less than 0.and is led by the growth of branded coffee café chains such as Barista. Andrha Pradesh and Karnataka account for nearly 50 percent of the total market). for example).5 percent of the per capita consumption of the UK. at around 12 percent a year. India is also an important market for alcoholic drinks. Recent tariff reductions on foreign branded is expected to increase consumption by value. a large chunk of consumer expenditure is on basic necessities. especially food related items. The EIU forecasts annual consumption growth of 9. As shown in the chart below. Soft drink consumption is expected to grow faster. This is because in a developing country like India. Percentage spent on food of the total income The size of the total Food and Grocery market was valued at about Rs 7. and regionally concentrated (Maharashtra. (Source: Retailing in India – Euromonitor 2007 report) 16 . The remaining 29% of retail sales are non-food items.500 billion in 2003 and it commands the largest share of the consumer wallet. mainly due to increasing sales of fruit drinks and bottled waters.

These traditional types of retailers. higher standards of hygiene and the attractive ambience. compared with 6% for total retail sales of food. It clearly brings out the dominance of traditional retailing.Market Share of different formats (Independent grocers have 71. 2 Retailing in India –Euromonitor 2007 report). it is expected that supermarkets will be the fastest growing food retailers. prefer to shop at supermarkets because of convenience. low margins. The chart below gives a breakup of the various food retailing formats prevalent in India. However. Nevertheless. changes are underway and systems are being established for effective Business-to-Business (farmer-processor. proximity to customers. long operating hours and additional services to customers such as home delivery. supermarket sales expanded at a much higher rate than other retailers. 2007 report) This is because a greater number of higher income Indians. supermarkets account for a miniscule proportion of food sales. In comparison. dominate this sector. This is because of the competitive strengths that traditional retailers possess. This helps to contain costs in the delivery mechanism. Retailing in India (source: Euromonitor. Growth in supermarket sales during 1999-2002 was 32% per year. from farm-processor distributor. processor-retailer) solutions thereby leveraging the core competence of each player in the supply chain. with independent grocers constituting 71. This is not surprising considering the enormous size of the market for food. Going forward. Among the segments of organized retail. These include low operating costs and overheads.retailer. range of merchandise. food retail is expected to develop the fastest.5% of the total market share (Source: Retailing in India – Euromonitor 2004 report). who operate small single outlet businesses mainly using family labour. Their sales are expected to grow by about 40% per year during 2003-20082 The food supply chain in India is highly fragmented and is cluttered with several intermediaries.5 % of market share) There are a large variety of retailers operating in the food retailing sector. 17 .

Food Retail The Mobile Chain of Food Retail Farmer APMC Wholesaler Organized Retailer Retailers Hawkers Consumers The above graph shows how organized retailers have changed the supply chain. The mediators have been dropped down by the organized retailers they directly purchased the goods from the Farmers and APMCs and sold to the consumers which reduced the cost of the channel members. 18 .

They also stock regional specialities. idli batter. Mangalorean or Keralite items in areas dominated by people from these regions. but were unsatisfied with the quality and taste. Food Bazaar. is growing at 9% and has set the growth agenda for modern trade formats. smell and feel of commodities like grains or flour they purchase and retailers are trying to build their offerings around this need. Gujarati. Consumers like the touch. Earlier consumers chose fresh and pure products where there was a lot of drudgery involved. will have a mindset advantage over traditional branded guys. which is localising each format to suit the demands and sensitivities of the Indian market. the method of brand creation will have to be different and in tune with the new reality. They shifted to conveniences like packaged atta. paneer. 19 . offering to knead the dough and cut vegetables free of charge. It‟s an area where many Indian and multinational companies have failed miserably. We are looking at taking the negative labor out of such positive Indian pleasures of life. But these are essential investments in the long-term understanding of the Indian psyche and ensuring customer pull. however. retailers have their eye on the unbranded 'centre of the plate' in the Indian homemaker's staple meal. By cutting heavily through intermediaries with a real drastic cut in the supply chain length. and have an edge over manufacturers that focus mainly on packaged conveniences. president. In the new paradigm. say AC Nielsen estimates. for instance. With modern food formats like Food Bazaar and Spencer's offering to take the negative labour out of positive Indian home pleasures by setting up an in-house chakki (flour mill). dals. Adapting to Indian needs is the key.258-crore Indian foods industry. With 60% of the grocery basket still unbranded. retailers are reducing the shelf-life of products to less than a week. Retailers are offering a package of convenience and freshness. Incomes in India are going up and becoming interesting to build aspirational brands now. The retailers come with no baggage to this new opportunity and therefore. which offer on-the-spot home-style gravies. but with a lot of in your eye freshness appeal. The Rs 27. cooked rice and kneaded dough with options like grinding coffee fresh at store. Some of our formats stock vegetarian and non-vegetarian stuff. which forms 44% of entire FMCG sales. But the media is already fragmented and expensive. Retailers are entering the space and offering them the same conveniences. which constitutes as much as 60% of the total purchases and growing sharply. says Damodar Mall. Trumart is looking to tie up with vendors to make fresh batter for the idli or dosa in-house and set up a bakery and offer fresh bread to consumers. the opportunity for brand creation is huge.Retailers look to corner unbranded food space The message is clear. The attempt is to seek a share of the unbranded part of the consumers shopping basket. curd and cut vegetables. and retail is getting consolidated. Food retailers are offering ˜live kitchenâ formats. South Indian.

7 million in both the Leather and non-leather segments taken together. For the country as a whole. LEADING PLAYERS (FOOTWEAR) RETAILER Bata Liberty Metro Woodland M& B Footwear Regal Shoes Loft Khadim‟s Sree Leather PRESENT IN NO CITIES All cities 225 31 Across India All major cities 7 2 East & South of India West Bengal. with women‟s shoes constituting 40 percent and kids footwear making up for the remainder.2 percent over 2002-03 registering a cumulative export of US$ 608. state-of-the-art production technology and unfailing delivery schedules. as per government statistics. remains unbranded.1 billion pairs per annum. However. India is the second largest footwear manufacturer in the world.000 crore in value terms and has grown at the rate of 810 percent over the last couple of years. 20 . next only to China. India‟s footwear exports have shown a growth of 35. as is evident from the fact that branded footwear constitutes more than 42 percent of the total market size One-fourths of the total footwear sales (i.1 pairs per person per annum. Orissa. and this makes it the second most organised retail segment in the country.500 crore) happen through organised retail outlets. The market is substantially brand-driven. the Indian leather industry is now focusing on key deliverables of innovative design. The leather segment accounts for 89 percent of footwear exports. this translates to a per capita consumption of 1. the annual domestic consumption of footwear is approximately 1. which is by and large labour intensive and concentrated in the small and cottage industry sectors. Men‟s footwear accounts for almost half of the total market. the market size of the footwear industry in the top 20 cities in the country is estimated to be 10 crore pairs per annum.2 Foot Wear The Indian footwear market is estimated to be over INR 10. as part of its effort to play a lead role in the global trade. INR 2. Bihar In terms of volume. Credit goes to players like Bata and Liberty for having set the ball rolling. Nearly 58 percent of the industry.4.e. With a population base of 1 billion. next only to watches.

in that they care more about the apparel and accessories they choose. 21 . Oakridge. more and more internationally renowned players are expected to enter the Indian market to fill this need-gap. Gaitonde. Guess. given India‟s very young population. during the past couple of years or so. Franco Leone. Unlike in the past. Timberland and Vans. Cleaner. most of the footwear retailers have steered clear of company owned and operated outlets and have instead chosen to concentrate on expansion through either leasing space or through franchising. With the Indian woman becoming more brand-conscious as opposed to the past state of being product-conscious. This is especially surprising as in line with global trends women are the key decision-makers for buying footwear. Fashionable brands like Stryde and Red Tape and MNC brands like Allen Cooper. Workplace actualization has also had a significant role to play in the rise in demand for casual apparel and footwear. the market for children‟s footwear is also attractive for new organized players to enter and earn supernormal profits. This is primarily attributable to enhanced global travel coupled with increased media penetration leading to heightened awareness of international trends and lifestyles among the Indian consumers. Teva. The London-based Carlton group became the first overseas player to enter the Indian women‟s footwear market when it set up its first store at the MGF Metropolitan Mall in Gurgaon recently. So far. younger styles represents the mainstream. due to the lack of quality retail space at economical prices. cleaner. Younger Styles Manufacturers normally update their brands every year to reflect new directions in fashion. Gucci. Their buying habits are becoming more like women‟s. However. Opportunity in Ladies & Kids Segment In recent years the market has seen entry of a host of new domestic and foreign brands like Drish. Lotto. it has become obvious that the current trend toward more casual. are further developing the market by creating new segments. Lee Cooper. this trend is not restricted to women alone as Indian men are also waking up to the need for a wider range of fashion accessories to differentiate them from their co-workers. Sketchers. Levi’s has also announced plans to introduce its range of footwear (including ladies shoes) in the country through a tie-up with the Noida-based M&B Footwear by next year. Teenage. there exists a whale of opportunity in the exclusive ladies and kids footwear segment with no organized retailing chain having a national presence in either of these categories. As footwear retailing in India has remained focused on men‟s shoes.Trend towards Casual. indicating a significant marketing opportunity for organized players. Of the total footwear market. Lotus Bawa. Now. Royal Elastic. ladies shoes account for almost 40 percent though the unorganized segment constitutes 80-90 percent of this market. Further.

Nike. Competition from Non-Specialist Retailers As has been observed in developed markets like UK. Merchandise at Reebok. is the licensee in India for leading sports brands such as Puma. Sports Station and Planet Sports providing the best shopping experience for customers and a platform to showcase the world‟s top sports and active lifestyle brands has transformed the organized retailing scenario in the country.Shirts and add a little bit of sporty images to their lifestyle. Planet Sports. Each of these three brands is today targeting nationwide expansion and the Rs. Dunlop Sports and non-exclusive ones such as Reebok. Playful promotion campaigns. in the near future 'mainstream' footwear retailers in India like Bata. 25 percent to ladies and remaining 5 percent to kids. includes 45 percent apparel. Converse and Wilson. The emphasis though remains on male customers with 70 percent offerings to this category. for example. Caterpillar. Speedo. Nike and Skechers. The company has been experiencing a combined annual growth (CAGR) of about 36 percent. world class merchandising and the internationally styled stores enthused consumers to go for an extra pair of shoes and a couple of extra T. It is the exclusive distributor of brands such as Mizuno.Sportswear: Top 3 International Brands See Good Potential The entry of specialty sportswear retailers such as Royal Sporting House. These non-specialist retailers are likely to grow their market shares by increasing range of products offered and 22 .495 crore active sportswear market is suddenly beginning to look a lot bigger than its actual size. these brands are not just confined to footwear. Reebok and Adidas that gave a new dimension to footwear and fashion retailing in the country. 35 percent apparel and 5 percent fitness & sports equipment. As mentioned above. with 20 outlets in the country. many of which are placed in prime locations within shopping malls. TYR. The year 1996 witnessed the entry of Nike. Woodland etc will face increasing competition from 'non-specialist' retailers like apparel retailers diversifying into footwear and discount hypermarkets and retailers such as Big Bazaar and Vishal Mega Mart. Royal Sporting House has over 40 stores in India. Adidas. Nike stocks 60 percent footwear. among others SPORTSWEAR ( shoes) RETAILER Reebok India Ltd Nike Adidas Action Planet Sports Royal Sporting House PRESENT IN NO CITIES 52 25 Across all over India Across all over India 8 cities All major cities The sportswear market is the only sector in India that has the presence of all three top International brands. Liberty.

This shows the company is gradually reducing its involvement in day-to-day management of stores by taking on more franchisees.582 crore in 2003 to Rs. Introduction of an exclusive range of merchandise that compliments the core product could possibly work wonders Innovative locations & distribution strategies In USA.611. retailers are hunting for alternative and even innovative locations to reach out to their target segment. but also the consumer as it gives them access to a wider range of products and brands. This sports and relaxed footwear brand today has sales figures that closely match that of market leader Bata. the need to search for such innovative locations would evolve. The change is certainly paying off. These tie-ups enable international players to ride on the existing distribution network of local players and go a long way in creating visibility for the foreign brand. Traditional players like Bata and Liberty have established a stranglehold in the industry primarily due to their massive distribution capabilities both through exclusive showrooms as well as multi-brand outlets. Action too is one example of a brand gaining significant market share without much emphasis on its exclusive retail network. Sales increased from over Rs.4 crore in 2004 and the company is hopeful of achieving Rs. in the Indian context. for footwear retailing to truly thrive. In an 'overmilled environment. Adidas and Reebok have shown the way to differentiate. 23 . store environments and product differentiation in order Nike. Moreover. Further. train stations etc. However. Lastly. others need to find better ways.673 crore in 2005. Reebok India tied up with Bata in 2001 for sale of its Reebok and Rockport footwear in Bata outlets. resorts. Cross-promotions gain an even greater significance in the Indian context with the absence of legislation favoring foreign direct investment in the retail sector.shopping space allocated to footwear. Offering a wide range of products along with experiential retailing are key factors to achieve success in the footwear retailing market in India. establishing a wide distribution network across the country is also vital. airports. Thus. government initiatives are required to rationalize the current tax structure that favours the unorganized segment. this trend is not foreseen in the near future though once footwear retailer‟s exhaust the option of expanding presence through shopping malls. Mainstream retailers would have to respond to this threat by continuing to invest in their brands. This is in line with international trends and is already prevalent to a certain extent in India. coming together of competitors within the segment through cross-promotions and tie-ups benefits not only the players involved by enhanced reach. But Bata has thus far remained exclusive to footwear with just 5 percent income from other items. For example. shoe retailers are opening up shop in health clubs. shoe retailers are getting creative as far as location selection is concerned.

Recognizing the export potential of the garment sector. The garment sector alone employs over 3. low wage industry with some differences across its market segments. especially due to the demand from UK and US retailers. the government of India has launched „Apparel Park for Exports‟ scheme to impart focused thrust for setting up of apparel manufacturing units of international standards at potential growth centers. The Apparel Parks for Exports Scheme has come into operation since March 2002.000 crore. the current size of the domestic consumption of textile and clothing is about Rs 88.000 crore. The Indian Apparel Market The apparel sector is structurally a labour intensive. This market is likely to grow to as much as Rs 180. the market size increases to almost Rs 100.fiber agreement (MFA) which governed global trade in textiles and clothing since 1974. was dismantled in December 2004] in terms of higher textiles exports. The Indian textile industry has increasingly benefited since the post-quota regime [the multi. The competitive advantage of firms in this market segment is related to the ability to produce designs that captures tastes and preferences. the industry is characterized by modern technology.4. 14 per cent of the Industrial output. As per Technopak's estimates. The performance of the apparel industry has been largely dependent on the growth of the textile industry. 24 .5 million people and is the one of the few sectors where employment has been growing over the past few years. with the domestic market as the main growth driver.3 Apparel India‟s textiles and clothing together account for 4 per cent of GDP. relatively well-paid workers and designers and a high degree of flexibility. including home textiles. demographic and lifestyle shifts. 30 per cent of India‟s exports and 35 per cent of foreign exchange earnings (Centre for Education and Communication). and increased spending of the middle and lower income strata of the population. and even better – influence such tastes and preferences in addition to cost effectiveness. In the high-quality fashion market. The growth has been on account of various factors like population growth.000 crore in the next five years.

The women‟s wear segment appears to show most potential at 13%. in 2004 and is dominated by unorganized players having a share of about 80 . Uniforms account for the remaining 8%. This market universe comprises of all forms of clothing including school uniforms. published March 2005). India’s Apparel Market Size 2003 and 2004 As can be seen from the table above. The men‟s segment dominates with 42% market share while the women and children‟s wear have 34% and 16% market share respectively.000 Crores (source: Images/KSA Technopak 2004 Fashion Textiles Yearbook. and is still largely traditional wear with made-up garments produced by local tailors from cloth bought by the consumer. The Indian apparel market was valued at over INR 780.The total clothing market in India is estimated at around Rs 78. 25 . the overall Indian apparel market is growing at a rate of about 13% per annum in value terms driven by two main factors: population expansion and increasing purchasing power.85%. The growth rate in the apparel segment averages about 12% across the categories.000 million.

Growth of Indian Apparel Market Indian Menswear Market FY05 Volume (Mn Units) Shirts Trousers Suits. jackets.shawls/wrapons Lungis. Dhotis & other forms of men's apparel Total 313 185 12 14 80 77 380 13 Value (RsBn) 95 67 23 6 17 12 18 3 FY06 Volume (Mn Units) 323 192 13 14 83 79 396 13 Value (RsBn) 108 75 25 7 19 13 19 3 223 1297 21 261 229 1342 23 292 The core segment of the apparel market comprising of menswear. blazers Casual Jackets T-Shirts Nightwear Undergarments Woollens . womenswear and childrenswear can be classified into the following two categories: 26 .

RTW apparel is the norm.8% every year and is witnessing a higher growth compared to unbranded RTW segment. This growth is driven by the growth in disposable income and the expansion of organized retail infrastructure. Proportion of branded vs. Readymade Segment Category Men Women Kids Total Readymade (%) Tailor made (%) 37 21 12 27 63 79 88 73 (Source: Images Yearbook Volume I No. II) The RTW market is a growing one in India and this growth has accelerated over the past ten years in line with the economic development and changes in lifestyle of the population. The ready-to-wear (RTW) segment. The RTS segment in these countries is meant for designing couture wear for the more elite classes. branded RTW apparel in India has been growing exponentially at about 21. This is reflected in the growing number of fashion labels being associated with Indian products. The ready-to-stitch (RTS) segment. where the consumer purchases the fabric from a retail outlet and then uses the services of local tailors to convert them to ready garments and 2. Within this overall RTW segment. where the consumer purchases a ready-made apparel garment.1. In most other mature and developed countries. unbranded RTW apparel in India 27 . Even in China the RTW market has become the norm and very little local tailoring services exist.

d) The value added tax is being implemented by various states. b) GoI has permitted foreign equity participation upto 100% in the sector through automatic route.Proportion of branded in different categories The above graph shows the proportion of the branded and non branded ready to wear apparel in the Men. 28 . In all the categories share of unbranded categories is higher than the branded one. Some of the measures taken by GOI are as given below: a) The productions of ready made garment is no longer reserved for small-scale industry. The branded apparel is highest in the Men‟s segment. which will simplify the tax structure and reduce the tax burden on branded garment manufacturer. c) The excise duty on RTW garments has been abolished. Women and children categories. Government Regulations Over the years. the Government of India has taken many initiatives for the growth of the sector. At the same time the kids have the 90% of unbranded apparel.

India’s Branded Fashion Industry 29 .

19 bn.1 16.9 8.1 13.13 2250 5300 6050 3200 1.5 7. Jeans Particulars Super Premium Premium Middle Economy Low 2002 2003 2004 Volume Value Volume Value Volume Value (Mn (Rs in (Mn (Rs in (Mn (Rs in Units) Bn) Units) Bn) Units) Bn) 0.92 15100 39.8 1800 4600 5500 3150 1.6 16. The premium segments are growing faster than the economy and lower end segments confirming the movement towards aspirational products and the growth of the premium segment. dt.Denim/Jeans Denim/Jeans is a segment valued at Rs.02 50 0.05 15.4 43. II. 2005) 30 .06 2800 6100 6650 3300 19050 Total 36.06 200 1.84 16900 Source: Images Yearbook Volume I No. especially in the mid-price and economy segment as there are very few players.8 15.2 6.03 100 0.13 16.31st December. There is a huge potential for manufacturers in this segment.

31 .

and then the sub department and lastly they go for the Stock Keeping Units (SKUs) 32 . First they are emphasis on main Department. Top Wear & Bottom Wear Class Ex. Shirts/T-shirts Styles Ex. Button-Down & Half Sleeves Options Style X Colour SKUs Styles X Colours X Sizes Here in the above chart we can see that the hierarchy of the product in the shop. Lee Sub Department Ex.Stack on the right rack The Product Hierarchy Department Ex.

sales by Godrej have dipped by 8 per cent during the period under review.02 lakh units. According to ORGGFK estimates. conventional CTV volumes have fallen by 17 per cent to 6. sales have jumped by 54 per cent to 6. The sales of window ACs have grown by 32 per cent and split AC have grown by 97 per cent.4 lakh units. 33 .9 million units for the first half of 2006. Similarly. washing machines sales at 7. respectively. while those flat TVs have grown by 53 per cent to 1. As per the Index of industrial production (IIP). In case of the air-conditioners segment. The consumer durable majors. In the refrigerators market. The consumer durable companies expect that sales would grow by 40 per cent in the forthcoming festival season.26 lakh units and by 8 per cent to 2. and Samsung have shown double-digit growth in the direct-cool refrigerator market.7 per cent in April-July 2006 as against a rate of 13 per cent registered during the corresponding period last year. the semi-automatic category with a higher base and fully-automatic categories have grown by 4 per cent to 5. In 2005. the frost-free category has grown by 8.At the disaggregated level. the overall industry sales have grown by 8-10 per cent to 71 lakh units for the first half of 2006. Market sources indicate that most CTV majors have phased out conventional TVs and have instead been focusing more on flat TVs. an increase of 9 per cent.02 lakh units have increased by 54 per cent. 21 lakh units of refrigerators have been sold.4 Consumer Durables On the back of robust semi. While companies like LG. particularly manufacturers of televisions. Whirlpool. the sales and profits of 22 durable companies had peaked their quarter-on-quarter (Q2 over Q1) growth by 43 per cent and 38 per cent. respectively.urban and rural demand. the consumer durables industry has recorded upbeat growth trends in 2006 (India Brand Equity Foundation). In case of washing machines. While sales of colour televisions (CTVs) have grown by 9 per cent to 37 lakh units.29 lakh units.3 per cent while direct cooling segment has grown by 9 per cent. The forthcoming festival season is expected to give a further fillip to the industry. air-conditioners and washing machines hope that the coming festive season would be a rewarding one in terms of greater sales and profits.6 lakh units have been up by 4 per cent and air conditioners sales at 6.4. the consumer durables industry has maintained its growth momentum at 15.

Unorganized family-oriented retailers dominate this sector. and is the world leader in the processing of rough diamonds: 11 out of 12 stones set in jewelry worldwide are processed in India. as are all Indian markets. Indian households have traditionally relied on a family jeweler to provide quality assurance. but also a major exporter of gems and jewelry (Indian exports are currently worth around US$15. say jewelry companies. The segment is dominated by very small family-owned retailers. India is not only the largest importer and consumer of gold. as consumers move away from traditional family retailers. but expect this part of the segment to grow rapidly as Indian buyers become more mobile.1 India now accounts for 55 percent of global net exports of cut and polished diamonds in value terms.7 billion annually). of which diamond jewelry makes up about 20 percent. Gold jewelry is estimated to account for around 80 percent of the Indian market. Branding is a key issue for organized retail. 34 .4. and also representing a growing global retailing operation as Indian retail chains begin to expand into high-value markets in the Middle East. More families are forming. Europe and the U. the market is evolving. and double-income households are growing. Organized jewelry retailers are increasingly offering brand solutions to the demand for quality and value.5 Gems & Jewellary India has a special claim to prominence in the gemstones and jewelry markets: it is the world‟s leading producer of finished jewelry and polished precious stones. However. and many buyers prefer to rely on known local jewelers than to buy in formal shops.S. Regional festivals and customs drive demand: most purchases take place at festival periods and to celebrate family rituals such as marriages and births. Gemstones and jewelry represents the most significant specialist segment of Indian retailing. Companies say that brand development will be the key to growth for organized retailers. According to India‟s Gems and Jewelry Export Promotion Council. Gold dominates the jewelry market. the total jewelry market in India is around US$13 billion. accounting for a high proportion of total retail spend. and the total size of the market is difficult to measure. although platinum and diamond products have been gaining market share at the very top end of the market. Consumer brand awareness is low. more independent and younger.

On the whole. This is definitely the silver lining that all the exporters are looking forward to – and if possible. it is likely that fewer and fewer diamonds will be exported. The Gems and Jewelry Council is expecting exports to increase to US $17 billion by the year 2007. where the revenue earning potential is much greater. the future for jewelry export looks bright. 35 . as Indian companies now prefer converting them into jewelry.In the future. they are hoping to overachieve this target.

apart from packaged food. the packaged food category has recorded a robust 25 per cent growth in 2005 over the previous year (AC Nielsen. which also comprises household and personal care products. Rural markets account for around 56 percent of total FMCG demand.6 per cent to Rs 1. Just by increasing the geographical reach. the segment saw revival in 2004. Retailers introduced price cuts. It is estimated that the total size of the FMCG sector will rise from around US$ 12.6 Fast moving consumer goods (FMCG) Some companies prefer to categorize food and beverages retailing as part of the fast-moving consumer goods (FMCG) segment. driven in part by a surge in retail innovation. “There is no reason why as many as 300 million new consumers cannot be brought into the „consumer basket‟. household care.40 billion in 2010. and lower income and lower middleincome consumers accounting for over 60 % of sales.made meals to ready-to-eat foods of Indian households due to longer working hours and increase in the number of working women and nuclear families. and launched new packaging sizes together with discounts and promotional offers. “Road infrastructure is improving and communications infrastructure is improving. although in interview many companies concede that Indian‟s bureaucratic handling of business issues is improving quite fast. As with many other retail segments. as in other sectors of the economy. By a large margin companies identify poor infrastructure as the key constraint in the FMCG segment. The profits of these companies have increased by 16. South Asia Customized Research).415 crore. currently. male grooming. although some companies believe that much more can be done by the organized sector to tap rural demand. chocolates and confectionery. companies say the main driving forces in the FMCG segment are raising disposable income together with changing lifestyle patterns in India. a rise of 16 per cent. Overall this segment accounts for around 80 percent of consumer spending in India. there will be enormous growth in the FCMG sector.51 billion in 2005 to US$ 20. female hygiene.231 crore.The buoyant performance of FMCG sector has also been reflected in the aggregate results for April-June 2006-07 of 12 FMCG companies with sales of Rs 9. 36 . According to a report by HSBC. The FMCG segment is also the area of retailing where companies are most likely to cite FDI controls on retailing investment as a constraint to growth. Lowpriced products constitute the majority of sales volume. This is mainly due to the changing preferences from home.” says a vice president of a leading FMCG company.4.5 percent.” After four years of growth of between 1 and 1. the fastest growing segments in the sector are hair care. Bureaucratic control and the lack of a „single window‟ administrative procedure to approve new business investments are also considered constraints. confectionery and tobacco. In the fast growing categories within the FMCG sector.

5. PEST ANALYSIS:
Political Analysis:
FDI in retail: Even 50 years after the independents policy makers continue to be intolerant. Fears of foreign imperialism have not yet drawn away and continuing to be a barrier for the entry of foreign enterprises. Since 1991 a number of breakthrough were made in liberalizing the policies for foreign investments every policy decision has been influenced by foreign imperialism. India has opened almost the entire manufacturing sector to FDI including the most sensitive defense equipments. Furthermore the recently constituted export committee on FDI has recommended further opening up of such areas as real estate to FDI. But ironically a less sensitive and significant contributor to economic growth retail trade has been excluded from the liberalization‟s list. The panels appeal is that foreign funds may affect the small firm‟s existence endangering employment opportunities. It looks as if there is a disconnect between policy makers perceptions and global FDI trends as also the structural changes in the economy. Accounting for over 8 percent of the GDP in the West, retail business is the largest private industry ahead even of finance and engineering. Over 50 of the fortune 500 and about 25 of the Asian Top 200 companies are retailers. Thailand and Indonesia, which were affected by currency instability, pepped up the deregulatory measures to attract more FDI in retail business. Japan under a prolonged recession and extended downfall in domestic investments abolished its Large scale Retail Store Law to Attract FDI. In contrast the organized retail business in India is very small. This is despite the fact that India is number emerging market for retail business. Retail business contributes around 10-11 percent of GDP. It amounts to about $350 billion market and Six times biggest than Thailand and Four –Five times bigger than that in South Korea and Taiwan. India also has the largest number of retailers, about 12 million though they mostly small. The significance of the retail business has increased with the fast growth in the service sector. There has been a dramatic change in the economy‟s structure post liberalization.

37

It is ironic that while FDI has become an important instrument to revive sluggish economies India opens up sectors with little potential for such flows. It must realize that FDI is a very competitive market. Much of the rapid growth in organized retail business in the developing countries is due to the entry of global retailers. In Thailand, seven of the world‟s top 10 retailers have made significant investments Carr four, Casino, Marko, Royal Ahold, Jusco have set up shop in Thailand. In China, three of the top 10-globle retailers have made investments. Such as Carr four, Wal Mart, 7-Eleven and in Brazil three top global retailers share about 30 percent of the retail market. Competition is growing in the retail business and super stores are being set up, in the rural areas, customers are entirely at the mercy of retailers. Things had begun to look up since the late 1990s, with a boom in the consumer durable industry, and improved services. With rising income and changes in life style, demand for better products became insistent. Big industrial houses, such as Tatas, RPG group, Piramal group, Reliance group (Mukesh Ambani), Aditya Birala group, Mr. Sunil Mittal (Bharti) realizing the potential of the retail business, are now rushing for a place in this segment. Over the last five years, these groups have set up a number of chain stores. For instance, Westside by Tatas, Foodworld by RPG, Shoppers Stop (Rahejas), Future group and among the entire players Reliance is leader in organized retail. Organized retailing is also emerging as an important gateway for the sale of food products. In Chennai, about 17 percent of food sales flow through supermarkets. In the metros, most women have shifted to supermarkets from street corner grocers. India offers vast potential in retail business and this potential must be fully realized by exploited by making the country an attractive destination for FDI.

THE FOLLOWING WOULD BE THE BENEFITS OF FDI IN RETAILING:
     An important growth sector of the economy. Attract significant inflows of capital. Generate employment. Increase efficiency and competitiveness to the benefit of the consumer. Bring best management practices and access to world- class technologies.

Basis of debate:
There is always a debate about permitting FDI in a particular sector. Just like any other sectors, permitting FDI in retailing has its own implication. However, the positive aspects speak more

38

than the negative connotations. As direst fallout of FDI in retailing, domestically big players will be exposed to certain benefits like:  Easy access to funds since organized retailing is a big pocket business.  Cost of setting up hypermarket in India is approximately Rs. 10 cr.  Organized retailing in India is still in its infancy with FDI domestic players having availability of foreign expertise.  Foreign players will invest heavily on improving supply chain management, which in turn will bring in operational efficiency as in China. However over time, it is inevitable that organized retailing will take a higher share of the market compared to small, single outlet operators. Recent analysis by KSA Technopak, based on experience in other emerging markets, suggests that it would take up to 10 years for organized retailing to reach a 20% share of sales. Small shops in India have the advantage of convenient locations, relationships with customers and often offer value-added services (credit, home delivery), which organized retailers, cannot match. The urban geography of India and current transport systems make it harder for consumers to travel to destination shops than in other countries. In rural areas, equally, the impact of organized retailers will be minimal for many years to come. So, while organized retail should expand rapidly, and take relative share from traditional retailers, there should be more than enough market for all. This has been the experience elsewhere in Asia. In Thailand, in 1995-2001, the number of supermarkets grew by 178% to 170 outlets, yet the number of small, local convenience stores grew by 409% to 5750 outlets. Other initiatives: Apart from opening the sector to foreign investment the government can also explore different possibilities that can enable the growth of the sector. Government can take following steps to develop retailing in India. Grant industry status to retail: This will result in the other benefits besides changing mindset within government.  Fiscal incentives  Organized financing  Labor law amendments  Driving quality manpower in retailing.

Solve real estate problems: Shortage and high cost of appropriate real estate is one of the major hurdles for growth in retailing. This is largely the result of planning controls, tenancy legislation, and high property taxation. Government can ease such laws and make available property at reasonable process to retailers.

39

The purchasing power has also increased considerably. This is a positive sign of India moving onwards a developed economy. KSA Technopak put the number of licenses required by a retailer at 41. which has increased to Rs. Among with rise in per capita income of Indian consumers the standard of living is also increasing. Economic Analysis: Per Capita Income The per capita income of India in the year 2004-05 was $400 approximately. 2009. This helps consumers to buy the required products when ever they wants even if they don‟t have money ready in hand as a result of this people of this people do not hesitate to spend small and big amounts on various products right from music system to a house. Reduction in duties: The Government of India has reduced customs and Import duties on many products. It is the mentally of Indians that they spend majority of their income in the food and hence the food retail sector has seen at tremendous growth lover a period of time. In family where both husband and wife are earning will bring income as compare to single working family. The introduction of single window clearance for all licenses for stores at the local government level can do away with this difficulty. which will make life convenient and easy. This has resulted in fast buying decisions. 04 in the year 2008-2009 on 09 Feb.Ease regulatory control and licenses: Multiple and complex regulatory controls and licenses are major hurdles for growth in retailing. Supporting Facilities Nowadays banks are providing loan at very low interest rates and in some cases the interest rates is nil. Dual working Families It has been witnessed that the no of. 38. This would result in more spending on various goods and services. leading to more spending to more spending on various products. This will be beneficial for retailers dealing in foreign goods as well to the multinational companies who are producing full or a part of the product in foreign countries and exporting it to India. 40 . Families where both husband and wife are working is constantly increasing.

Proper usage of product has also been understood and applied. V Mart. All of the above changes in cultural preferences have given a huge opportunity for the retail sector to grow. People now free adopting western culture. Changing Culture and Preferences The culture and the habits of the people are changing now a day. people have started buying branded goods. Bulk buying and storming of goods is becoming common now days. convince i. There has been a deep impact of western culture in India. Previously it was a psychological barrier in the minds of consumers that the more big. eating out in hotels and restaurants.Social Analysis: Buying Habits The buying habit have changed are still changing. nightlife. People have become aware about the availability of products. i. spending more on products which makes life easy-microwave.e. decorated and very well lighted a store is the more costly it is but this barrier has been broken by outlets like Big Bazaar. is now braking up and people are readily accepting things. Customers have now been able bifurcate different products suitable for its users i. buying goods in bulk and then storing it. The customers have now become able to judge as to what price should be paid for a particular product. Word-of-mouth has increased the people influence & people more want the branded goods. which is based on.e. for a product like toothpaste customers are buying different toothpaste for kids and different toothpaste for the elderly ones. which had many barriers. Physic of Indian Consumer The physic of Indian consumer. whether a product is worth paying for the price asked. In the past customers where more brand loyal towards products and the conditioning was such that they would not even think about to change the brand of the product being used by them but now things have changed. involvement on selection of goods keeping in mind the quality. Even people from lower middle class have started visiting and buying from such outlets. Metro etc. people consider shopping as an experience.e. benefit and convince. 41 . customer do not hesitate to spend more for qualitative goods. People are readily accepting new things and have not restricted to use the same products. washing machine. fast-food.

So we can say that role of age is very important for consumption of organized retail product. Consumers are more and more buying products. has increased to considerable extent. Young population with high disposable income India has the lowest median age of 24 years. among the other highly population countries. In case of kinds they demanded school bag. Different age of people have different kind of product needs. Purchase of goods by young and middle age customers are mostly different. This segment has grown 3. Home deliveries. Customer Centric Focus Retailers have started being customer centric and are focusing more and more on consumer needs and convince. which is the basic proposition of modern retailing formats. buying on installments. Young customers buy apparel accessories and footwear whereas middle age customers buy food and grocery products. Thus India has the largest „young‟ population in terms of sheer size and this young segment is the major driver of consumption as they have the ability (disposable income) and willingness (consumer confidence) to spend.Standard Of Living There has been a massive increase in the per capita income of the people of India. This has resulted in an overall raise in the standard of living of Indians.13% per annum. stationary and chocolate. Marital Status: 42 . This has ultimately resulted to an increase in the standard of living of Indians. For instance. Gender: Some products and services are quite naturally associated more or less with male or female. women have traditionally habits of more shopping in comparison of the male. The brand-conscious young population forms the largest segment of demand for the majority of retailers. easy loans. Most of such upwardly mobile consumers have little personal time and they seek greater variety and availability of items under a single roof and give highest preference to convenience. which make life convenient and easy. spending on food and clothing etc.22% per annum over the past decade. culture and preferences of consumers are constantly being monitored to keep up with customers‟ expectations. The sale of consumer durables. Efforts are continuously being made to provide more and more facilities to consumers to make shopping a convenient and a good experience changing trends.000 million strong population. shopping thought credit cards. for its over 1. compared to the overall population growth of 2. Right now organized retail has mostly of young customers (between 18-25 ages) and middle age customers (between 26-45 ages). Are fall efforts made in this direction? Age: Product needs and interests often vary with consumer‟s age.

Working married women buy more number of products for their family. Because good shopping experience. Income have directly related with purchasing power. more income of consumers means more business of organized retail. they want to buy all products from one place. So. Where as single person buy a limited product. In today scenario. Because most of time they are busy in their job. numbers of working couple are increases. and save less. and more variety available at organized retail outlets. So.Single customers and married customers have different need of product. Today consumer mind set is totally changed. marital status is important for organized retail. In organized retail. Occupation: 43 . Education: Educated people of big cities like to go for shopping in organized retail. they spend more. married women buy a product for entire family so they buy number of products. Changing age demographics in India Income: Now a day‟s income of Indian people is increases. More income means more purchasing power. So they consume more. So.

various vendors. Technological Analysis: Modern technology is one of the most powerful assets for a business. finances. this is what successful retail is all aboutskillful managing several contact points both at the front and the back end without integrated systems the retailer may be unable to get timely information. So. Retail needs IT for all core processes planning.Professional and white collar level jobbers are mainly go to shopping at the end of the weeks and they buy in the bulk. occupation factor affect the organized retail. importantly. Retailers are also looking beyond basic expenses to higher levels of it functionalities. This chapter presents the findings of the „State of Retail Technology in India‟ Behind every successful retail store there is a reliable and efficient information technology system. Modern technology has the ability to improve and make more efficient each function of the retail businesses. served warehouses. Which good are moving and which are not Are the vendors supplying goods on time? Which goods are available at the warehouse and what needs to be ordered? What should be ordered in the next season? Whish customer is buying which products The financial performance of the company Managing the employees of the organization How provide fast and efficient customer service. Indian retailers have been spending more and more in setting up IT systems and. a chain of stores. Actually they go for shopping as well as for the entertainment. After all. The chief software requirements of a retail enterprise are: Merchandise planning and management software: 44 .. smoother and fast resulting in a super efficient enterprise offering the best range of merchandise and superior service to its customers. plan to hike up their investments in this area in the future. Moreover so for a retailer dealing with multiple products. hundreds of employees and thousands of customers with sophisticated systems. ordering.  Each of these challenges can be met by employing suitable software and creating bridges between them to integrate the entire organization. human resources and so on.  IT links the various areas of the retail businesses into an integrated structure and helps the flow of information across he organization. The reason behind it is the complexity of issues involved. a retailer can make each of its processes simpler. sales. which is the key to future purchases for the store.

Significantly. 45 . CRM software: This manages the loyal customers. Outsourcing: Like international retailers who resort to third party vendors for most of their maintenance and enhancement work. availability of standard applications is cited as one of the main reasons for outsourcing. This software generates auto replenishment notes. the planning or business intelligence software mines the data generated by the ERP and helps in the future planning process. This program also includes the point of sales software. which acts as the data generating tools for the effective functioning of the software. Companies are looking at outsourcing since it helps free up critical resources for core functions. Typically. This software needs to be linked to the ERP for best results. tracks their purchase patterns. maintains the loyalty programme schemes of the company and provides an important input to the merchandise planning process. Lack of internal expertise is another reason. Vendor management software: It deals with the entire process of vendor selection evaluation and transactions. Logistics and warehousing software: It links the transporters and warehouses to the ERP.This is typically an ERP and business intelligence package that generates data on what is moving at that store level. These points to the popularity of best –of-breed package applications among Indian retailers. helps in storage of goods at the warehouse and also offers the best logistics solution for goods transportation. RMC‟s study seems to indicate that Indian retailers also have tried bulk of their IT activities. analyses the data and helps in the planning process.

needs to implement different programs and then link them so that these can communicate with each other. Interestingly. therefore.Financial software: This is the heart of any retail organization and all software needs to communicate with this programme. JD Armstrong. development. Intensia. Also. Indian retailers are looking at investments in retail IT more as a means to stay competitive rather than justification of spends in terms of return on investments (ROI). There are several players in the retail software space. which usually are more expensive. Several organized retailers use their own software rather than depend on external solutions. 46 . since most of the players are very small. Some are ERP providers while the others also offer business intelligence solutions. HRD software: This helps in the management of employees. SAS. It generates the financial statements of the company and keeps a tab on expenses. Retail Pro. Unlike more mature markets in the west. Polaris. These include SAP. appraisal and salaries. Some may have only one of the several modules required by the retailer. Reasons for spending: The study under threats an interesting detail regarding the Indian retailer‟s approach towards retail IT spends. more and more organizations are going in for software developed in house. The retailer. Oracle and many others. For most of the existing retailers. they are unable to manage with rudimentary inventory control and management systems. IT is a powerful tool for tackling competition. takes into account their training.

The comparison will give idea about where the Indian industry as compare to the World organized retail industry. The technological expertise is also required to access this technology. Wage rates are very low for the labors which make the production cost lower than the production cost in the other country. SWOT Analysis S-W Analysis The S-W analysis refers to Strengths and Weaknesses of the industry. Developed Economy: Due to highly developed economy.6. Untrained Workforce: The most important asset of the organization is the workforce of the company. Poor infrastructure linkage: 47 . Foreign players can‟t afford the product at such lower cost. Trained workforce is a precious asset of the company. Where the Indian organized retail is at the introduction stage and it is difficult to access the new technology. Indian retail have still biggest chance to capitalize the market because increase in people spending. They are giving the training to their workforce. which will directly affect to their profitability. As the Indian retail industry is at the growth stage so the trained workforce will be required for this industry. Technology: Though India has low technology than Europe still it is sufficient to make organize sector booming. Here we have compare the Indian organization Industry with International Organized retailing Industry. International industry has the train workforce. High availability of space: There is huge space available for setting the retailing sector in any place of India. WEAKNESSES Access to the New Technology: International organized retail is already grown and they are using the latest technology for their operations. The S-W of the Indian Organized Retail Industry is discussed as below: STRENGTH Low Labor Cost: The labor cost in India is one of the lowest in the world.

increased purchasing power of the average Indian consumer. The retail sector in India is worth USD 394 billion and is growing at the rate of 30% annually. 48 . As a result. Some of the key enabling factors are higher affluence levels. Lee. OPPORTUNITIES & THREATS Huge potential to grow: Retail is the booming sector of India in the present times. Opportunity of business in Small Towns A peculiar aspect of organized retail outlet retails can be seen is they are found in big citied in a particular locality only their lies a huge opportunity for such organized retailer to establish their business in small developing town where there is a dominants of only unorganized retail shop in organized outlets just because they have no options as there is no existence of such organized retail outlets in small towns and cities. Nike. changing demographic and aspiration factors of the Indian population and real estate developments across the country. has presently emerged as one of the most dynamic and fast paced industries with several players entering the market. Retail. and Parker are now available in India. Drivers of Growth in Organized Retailing The country is experiencing certain socio-economic changes which would fuel the growth in organized retail. Hugo Boss. Good infrastructure is required for any of successful industry.The infrastructure in India is poor as compare to foreign industry. one of India‟s largest industries. Pepe. Accounting for over 10 per cent of the country‟s GDP and around 8 per cent of the employment in the country. Ray Ban. India is among 10 largest retail markets in the world. Foreign players are using the very infrastructure in terms of technology and other facilities. Reebok. Most of the leading world brands like Levis. This can be attributed to the impact of globalization which has removed trade barriers and promoted consumerism. Exposure to international lifestyles The Indian consumers are getting increasingly exposed to international lifestyles. Arrow. there is greater acceptance and demand for renowned brands.

the consumer awareness has increased on the quality and the price of the products/services expected owing to the increasing literacy in the country and the exposure to developed nations via satellite television or by way of overseas work experience. 49 . The consumer also seeks to purchase from a place where his/her feedback is more valued. This awareness has made the consumer seek more reliable sources for purchases and hence the logical shift to purchases from the organized retail chains that have a corporate background and where the accountability is more pronounced.Changing consumer requirements and lifestyles Over the years. Consumers are more vocal about the quality of the products/services that they expect from the market.

helping him get and select his products goes a long way in procuring a customer. slush interiors. This is the major challenge for the organized sector where they should aim to attract these customers to attract these customers to their outlets. they show preference for freebies. discounts etc. identifying his needs. should be introduced so that the customers keeps visiting and shopping on a regular basis. retaining him and converting him into a loyal and lifetime customer. customers are found to be price conscious and look for value for money and weigh decision before committing to purchase. this is one effective way through which a retailer can attract customers. 50 . festive offers. Price and efficient management of the supply chain: Though.7. Product and product offering: Customers look for a wide assortment of products-branded as well as non-branded. Therefore the need is to build a retail talent. but is not willing to pay even a bit more. Whether it is the metros or the non-metros. Quality and other attributes of the product play a major role here. Hence the products should be in accordance with the customer‟s perceived quality. It is essential to manage the customer better and to keep him around for a longer period of time. The potentiality is that his basket size could increase and also ensure a next visit. Further. 9 P’s of Organized Retail Industry: Place: Location is a crucial factor for success of retailing.The location selected should have enough space easily available so that if in future if the retailer plans to expand his outlet he can do so without any hassle. Facilities of parking should be appropriate so that customers can park their vehicles and load the shopped items conveniently into vehicles . drive towards spend is on rise. Personalization: Service is a differentiator in the retail industry. Therefore to generate interest and keep interest alive apart from the product. Adequate investment has to be made by the retailers in educating and training for development of managerial and skilled retail staff who would win over customers simply by their conduct. Knowing customer individually by name and profession. consumers do look forward for value for money. This is because customers for the sake of convenience often resort to purchasing from convenience shops in their locality. etc. In the current scenario Indian customer‟s desire for an ideal location. various kinds of loyalty programs.

which outsmarts other established retailers simply on the basis of price. It is utmost important for a retailer to reduce its costs as much as possible because at the end it is the final consumer to whom the costs are transferred. friendly approach of the staff. Hence for organized retail outlets this becomes a challenge as well as opportunity to attract and retain customers. Hence to cope up with the differentiation strategy in context with ambience some of the factors play an important role. Illumination and lightning. successful retailers have customer-centric approach in designing and creating internal as well as external ambience. reduces instantly.There has been a very prominent incident of an international retailer. The important idea is to make shopping a social experience. They explore the opinions to prolong the stay of shoppers in their store or mall. Perceived quality: Customers now a day have become more quality conscious and over a passage of time have learnt to differentiate between various qualities of a product. It has become a general perception among the consumers that the goods sold in organized retail outlets are always qualitative and such outlets are bound to deliver qualitative goods along with a qualitative service. In the long run only the player. 51 . who has the ability to provide qualitative goods and service consistently. The moment a retail outlet fails to deliver qualitative product or services. which beat Kmart simply by varying their price as much as 25 percent. convenient parking facilities. „selling ambience‟ has become a key strategic element for effective differentiation. managing inventory levels and reducing other administrative costs helps to reduce the selling price of the product. the chances of it doing a good business. wins. food courts and ATM‟s are also a part of external ambience. store space for convenience. attractive colors of the walls and furniture. Even the external ambience plays an important role which includes window displays. The bigger the name and the outlet is the more qualitative it is – this as become a generally acceptable statement now a day. Physical evidence: In the age of product parity. They are good interiors where customers can get to see better display of products. which is the major attractor for a customer. Consumers do not hesitate to pay more in return of goods with excellent quality. This is the case of Wal-Mart. gaming zones. Hence through effective supply chain management.

In Private Label Company save advertising cost and good packaging cost so they able to sell lower price compare to branded product. After all it is the employees with whom the customers are going to react. No matter how large a store is. People: “Employees represent the organization to the customers”. offer the own private labels. however. run by Tata Group of Companies. how branded goods it sell. how big its name is. Food World. Some of the issues concerned with process management are process planning and control. they are all readying with the private labels to jostle with the giant brands on sale. operations control. quality control.Process management: The importance of process management is that it assures product and service availability and consistent quality. they are filling their shelves with in-store or private labels. They are private labels that are on sale at the country‟s major retail chains. inventory planning and control. good manners. One of the first to embrace private labels was Westside. unless it employees are not properly trained its success would always be a questions mark. operations planning. John Miller. From Shopper‟s Stop and pantaloon to RPG enterprises‟ Giant. forecasting and long term planning. Right knowledge about the products. 52 . Because of Private Label company profit margin increases if percentage sale of Private Label is more in total sale. All these issues are involved in organized retailing as the qualitative to be dealt in generally large while on the other hand customer‟s expectations regarding product and service quality is also high. The country‟s fast-emerging retails chains have a cast cornucopia of established brands to choose from. Without sound process management. Hence it becomes extremely important to design and work with a sound process management. scheduling. But in case of good stores they offer good Private Label product with value for money. Private Label: The big supermarkets in the country. Based on these qualities of employees an outlet would be able to bring in customers. Ventiuno and tough sounding Stone River Classic. balancing product and service demand with product and service supply is extremely difficult. Private Label is cheaper for customers compare to branded product but quality is question mark. facilities design. helping nature and smiling faces is what the customers expect in a retailing business. Ajay Piramal‟s Pyramid and Delhi based Ebony Retail. Increasingly. There‟s Vittorio Frattini. The names sound like they‟ve been taken from a WWF programme sheet. Kashish.

4. 3. The market attempts of companies in other industries to win customers over to their own substitute products. Porter‟s five forces model. As professor Michael Porter of Harvard Business School has convincingly demonstrated. is a powerful tool for systematically diagnosing the principal competitive pressures in a market and assessing how strong and important each one is. Michael Porters 5 force analysis Even though competitive pressures in various industries are never precisely the same. 5. The competitive pressures stemming from supplier-seller collaboration and bargaining. The potential entry of new competitors. the state of competition in an industry is a composite of five competitive forces. The competitive pressures stemming from seller-buyer collaboration and bargaining. as depicted in the figure. 2.8. The rivalry among the competing sellers in the industry. 53 . 1. the competitive process works similarly enough to use a common analytical framework in gauging the nature and intensity of competitive forces. Not only is it the most widely used technique of competition analysis. but it is also relatively easy to understand and apply.

30 3 2 4 2 4 1.THE RIVALRY AMONG COMPETING SELLERS: Particulars No.25 0. Price/ Cost competition: competitive pressures build quickly any time one or more rival decide to cut prices and dump excess supplies on the market. Organized retail industry is growing rapidly.15 0. In the fast growing market. Its major effect on the existing competitor‟s position. They are nearly equal size and capability.10 0. In the organized retail industry the number of the competitors is less in terms of market size. a company may find itself stretched just to keep abreast of incoming orders.20 0.15 1.25 0. firms compete aggressively-some times to the extent that price are pushed below.60 3. The level of cost and industry wide losses is incurred.10 0. In some industries. The present growth of organized retail industry is approximate 25% . Number of Competitors: The greater the number of competitors.40 For the most industries the major determinant of the overall competition state of the competition and the general level of profitability its competition among the firms within the industries. Industry Growth: Rapidly expanding buyer demand produces enough new business for all industry members to grow. In the organized retail industry rival come under significant pressure to cut price or otherwise try to bust. 54 .00 Very low Low Moderate High 4 Very high Total 1.00 0.30 0. the higher the profitability that one or more companies will be basely engaged in a strategic offensive interdeal to enhance their marketing standing there by heating up competition and putting new pressures on rival to respond with offensive or defensive moves their own. Of Competitors Better Service capabilities Price/Cost competition Industry growth Level advertisement Switching Cost Total Source: KSA Technopak Weight 0. they usually compete on a fairly even footing.00 0. Sales in this industry beginning the fixed cost are very high and differentiation is very less.30% and its increase in the same way up to 2010. let alone devote resources to stealing customers away from rivals.

Competition would be very less between a lifestyle stores like Pantaloon and Westside. the less prone they are to brand switching. Schemes would be offered to retain old customers as well as to attract new ones. E. The rivalry among the competing sellers would be different for different types of retailers of the organized sectors. E. The same is in the case of super markets and hypermarkets where they goods dealt in are almost the same company. But the higher the costs buyers‟ incur top switches brands. Level of Advertisement: In existing industry is more depends on advertisement activities to increase sales and market share or its depends on the value of products. The rivalry would be less among the firms dealing in completely different line of products even though being a lifestyle store. the rivalry among BIG BAZAAR & STAR BAZAAR would be high as they are dealing in the same types of hypermarket. Hence intense rivalry would lead to benefits the customers in both qualitative and quantitative aspects of products and services. Better Service& Capabilities: For any industry there capability and service in existing industry is major factors that analysis is important. 55 . In the organized retail industry there are less differentiation in the product so the buyer are switch more over to another brand. the easier it is for seller to steal customers away from rivals. lifestyle stores like PANTALOONS & WESTSIDE. The rivalry among hypermarkets is more in case of outlets dealing in the same line of products.Switching cost: The less expensive it is for buyers to switch their purchases from one seller to another.g. Here the rivalry is the highest as product differentiation is not easy. In the organized retail industry product differentiation is less. In the organized retail industry their are more affect the level of advertisement because the product feature differentiation is less and cut cost competitor existing so firms are heavily increase their advertisement to attract buyers.g. schemes & offers etc. Here also the firms try to attract the loyal customers of its competitors and at the same time try its best to retain its customers by providing them with various privileges. For lifestyle stores like PANTALOON and WESTSIDE the rivalry is high but not to extremes. so it is important to provide better services and have capability in the firm that buyers are satisfies. Here each outlet would try to attract customers by some other techniques related to product differentiation or some other tactics like introduction of schemes and offers. Rivalry in the organized will intensify in the future as new entrants are entering in the Indian markets and there is not much product differentiation viable.

25 0.20 0. buyers are strongly attached to established brands. To overcome switching-cost barriers. Stringent government mend dated safety regulation and environmental pollution standards are entry barrier because they raise entry cost for the organized retail government allows up to 51% FDI investment in single brand. host governments commonly limit foreign entry and must approve all foreign investment applications. new entrants may have to offer buyers a discounted price or an extra margin of quality or service.75 0.THE POTENTIAL ENTRY OF NEW COMPETITORS: Particulars Government Policy Capital Requirement Customer loyalty Expected Attractive Profit Access to Distribution Channel Switching Cost Total Source: KSA Technopak Weight 0. if it is costly or inconvenient for a customer to switch to a new brand. a new entrant must persuade buyers that its brand is worth the switching costs. All this can mean lower expected profit margins for new entrants. Brand preferences and customer loyalty: In some industries.85 Government Policy:Government policies can limit or even bar entry by requiring licenses and permits. High brand loyalty means that a potential entrant must commit to spending enough money on advertising and sales promotion to overcome customer loyalties and build its own clientele.60 2. In addition.60 0. 56 .10 0.00 Very low Low Moderate 3 High Very high Total 0. Establishing brand recognition and building customer loyalty can be a slow and costly process.15 0.25 0.15 1.10 0.50 0.20 2 2 4 2 4 0. In international markets. which increases the risk to start-up companies dependent on sizable early profits to support their new investments.

potential entrants may have to buy their ways into markups and profit margins or by giving them being advertising and promotional allowances. stand even if they are incurring losses. Expected Attractive Profit: The competitive pressure from the new entries is high when the expected profit of the industry is very high. 57 . Entry is tough when existing producers have strong. To overcome the barrier of gaining adequate access to consumer. it‟s much easier for new players to convenience buyer. Another factor that holds back the potential entrance of new competitors is that the economies of scale can be achieved at a very long stage in because of huge capital requirement and the working capital requirement is also high. and having sufficient cash reserves to cover start-up losses. well-functioning distributor dealer networks and a newcomer must struggle to squeeze its way into existing distribution channels. When switching cost is low. Access to distribution channels:A network of retail dealers may have to be set up from scratch. The potential entry of new competitors is moderate. As a consequence. On the other hand the entrants would be those who have adequate capital requirements. the competitive pressure is low. a potential entrant‟s own profits may be squeezed unless and until its product gains enough consumer acceptance that distributors and retailers want to carry it. Switching cost: The strength of competition from the potential entry of new players is significantly influenced by how difficult or costly it is for the industry‟s customer to switch to a new player. Retailers have to be convinced to give a new brand ample display may have to be set up from scratch. It is because the main reason of cost of capital requirement to set up an organized outlet is high and so it is not anyone‟s cup of tea to incur huge capital investments. securing the working capital to finance inventories and customer r credit. Retailers have to be convinced to give a new brand ample display space and an adequate trial period. which will make them. If the profit will be very low expected by considering the present growth and profit margins of the existing players then the entry of new players are very less. Buyer incur high cost in switching to new player. Switching cost include the time and inconvenience that may be involved in new player.Capital requirements:The larger the total dollar investment needed to enter the market successfully. the more limited the pool of potential entrants the most typical capital requirements for new entrants are those associated with investing in the necessarily being able to finance the introductory advertising and sales promotion campaigns to build brand awareness and establish a clientele.

For many franchisee outlets and stores location plays a very important part. Strong the competitive pressure are from the sellers of substitutes products depends on four factors which are discussed below: Availability of Close Substitutes: the availability of substitutes inevitably invites customers to compare performance. Many companies have policies that they allot locations for the store and no other stores would be given in that area to any other franchisee. hindrances or interventions. features.30 0.60 Source: KSA Technopak Companies in one industry come under competitive pressure from the action of the companies in a closely adjoining industry whenever buyer view the products of the to industries as good substitutes. 58 .20 1. ease of use. and other attributes. A specific location is always selected as per the target segment where a retailer can attract maximum no of customers and can gain location advantage. In such cases the no of new entrants in the business would be very less.00 0. There are some businesses in which there is some amount of government restrictions.25 0. Competition from well performing substitute products pushes industry participants to incorporate new performance features and heighten efforts to convenience customer there products has attributes that are superior to those of substitute.10 0. COMPETITIVE PRESSURES FROM SUBSTITUTE PRODUCTS: Particulars Availability of Close Substitute Substitutes Price Value Profitability of the substitute Switching Cost Total Weight 0.00 Very low Low 2 Moderate High Very high Total 0.45 0.90 4 3 2 1.40 2.

In almost every sector under retail head whether it is food. customizations etc is offered only by the unorganized retail sector. and there plan for expanding production capacity. When substitute products are cheaper then an industry product. Substitute price value: The presence of attractively priced substitutes creates competitive pressure by placing ceiling on the prices industry members can charge without giving customer and incentive to switch to substitute and risking sales erosion. Profitability of the Substitute: The competitive strength of the substitute products are the rate at which there sales and profits are growing the market inroads they are making. low priced goods or convenience. clothing. time and cost in testing the quality and reliability of the substitute. for FMCG goods the products offered are generally the same so it differs on the choice of customer whether he or she wants a shopping experience or a fast service. industry member come under heavy competitive pressure to reduce there prices and find ways to absorb the price cut with cost reduction. Shoppers feel it convenient and time saving to shop in an unorganized retail outlet where the major emphasis is on service. Moreover issues like bargaining. when buyer incur high cost in switching to substitute. The key here for the success in the unorganized retail sector is convenience and presence. it‟s much easier for seller of substitute to convenience buyer to change to there products. The competitive pressure from substitute products is high as there is existence of huge unorganized market. The threat of substitutes is different for different products like for clothes it depends on a customers budget. etc. the competitive pressures is low. choice of food or saving time and money. asking for schemes or offers. The total share of organized market in India is only 3 percent. which supports to conclude that the products of unorganized market have a great dominance.Switching cost: The strength of competition from substitute is significantly influenced by how difficult or costly it is for the industry‟s customer to switch to a substitute. When switching cost are low. psychological cost. 59 . switching cost include the time and inconvenience that may be involved like. and grocery there is much dominance of unorganized players.

In the market of output firms sale there goods and services to customers who may be distributors.25 4 1.00 Supplier threat of 0. Particulars Weight Very Low Moderate High Very Total low high No. If the industry member integrate 60 . Of Suppliers 0.00 3. If the number of supplier is more then the bargaining power of supplier is less. Which make supplier bargaining power is strong.15 4 0. how this value is shared between them in terms of profitability depends on their relative economic power. consumers.20 4 0. Industry threat of Backward Integration: The make or buy issue generally boils down to whether suppliers who specialized in the production in particular part or component and make them in volume for many different customers have the expertise and scale economics to supply‟s as good or better component at a lower cost them industry member achieve via self manufacture.COMPETITIVE PRESSURES STEMMING FROM SUPPLIER BARGAINING POWER AND SUPPLIER-SELLER COLLABORATION: Source: KSA Technopak The firm in an industry operates in two types of markets: in the markets for inputs and markets for outputs.60 to supplier Switching Cost 0.80 Backward integration Industry‟s importance 0.30 Forward Integration Industry threat Of 0.00 Total 1. Switching Cost: Switching cost is high when the supplier‟s product is different from the other suppliers or it is more valuable to buyer. or other manufacturers .70 Number of Suppliers: The number of the supplier and the goods supplied by them are affecting the industries attractiveness. Suppliers threaten of Forward Integration: Some suppliers threaten to integrate forward in to the business of industry members and perhaps become a powerful rival.25 4 1. If the supplier of goods and services are more value and suppliers are less then supplier side bargaining is stronger.15 2 0.

imported goods. In such an outlet where the numbers of customers visiting are in thousands the company would have to suffer a major setback in terms of sales. The bargaining power of supplier would be high only when the products have a high demand and low supplies. Due to buying on huge volumes a company is bound to offer various facilities that an organized retailer asks for. While doing this an organized retailer would be able to dictate terms with the supplier on part of prices. The bargaining power of supplier is low in case of organized retail sector. schemes etc.backward in to the business of suppliers and to self manufacture their own requirements. but practically such a situation is very rare to find. at that situation bargaining power of supplier is low. returns & exchanges.g. Industry’s Importance to Supplier: If the suppliers is monopoly or expertise to product development or important to buyer then its threats for industry. 61 . This is because in case of retail outlets lie BIG BAZAAR. buying. PANTALOONS. Consider that BIG BAZAAR stops selling a particular brand of commodity. Here the seller is dominated by supplier in terms of prices and bulk buying etc. WESTSIDE as compared to an unorganized outlet purchase goods on a large bulk. E.

50 The industries in which the no of buyers are high the bargaining power will be higher. The players can demand the goods at lower price from the suppliers.20 0. Switching cost:Buyers who can readily switch brands or source from several sellers have more negotiating leverage than buyers who have high switching costs.50 2 5 2 1.15 1. which show the bargaining power of some or many buyers for the price concessions and other favorable terms and conditions of sale. The lower the bargaining power of the buyers the better (more attractive) the industry is for this force.30 3.30 0.50 0. In this industry the supplier‟s threat of forward integration is low which makes the buyers bargaining power low.00 Very low Low Moderate High 4 Very high Total 1.COMPETITIVE PRESSURES STEMMING FROM BUYER POWER AND SELLER-BUYER COLLABORATION: BARGAING This is one of the competitive forces of the five forces model. 62 . Of Buyers Supplier threat of Forward Integration Buyer‟s threaten Of Backward integration Switching Cost Total Source: KSA Technopak Number of buyers:- Weight 0. When the products of rival sellers are virtually identical it is relatively easy for buyers to switch from seller to seller at little or no cost and anxious sellers may be willing to make concessions to win or retain a buyer‟s business. In retail industry has a good no of players so the barging power of the buyer is good.25 0. Supplier’s threat of forward integration:This criteria a gives the ability of the suppliers of the forward integration and the supplier can increase the supply chain towards the end user.30 0. This criterion makes the industry more attractive for the players. Particulars No.

Hence the prices.74 0.20 0. There fore at most of the retail an outlet does not provide the facility of bargaining or discounts unless mentioned by the company which is the supplier. provided are the same for all its customers. They feel that the priced charged by the retailers is in accordance with the products attributes and the services rendered.Buyer‘s threat of backward integration:Buyer‟s threat of backward integration means the buyer will produce the thing.70 3.21 63 .50 16. The main reasons for this are as follows.70 3. Organized retailing is based on policies and a on a systematic based methods.20 0.20 0.20 1. if the buyer‟s backward integration threat is higher than the competitive pressure will be higher.85 2.05 Total 0. Customers readily accept that the prices paid by them for the goods are the best buy prices and they are happy with the price paid for the goods Forces Rivalry among the competing sellers Potential entry of new competitors Substitutes products Bargaining power of suppliers Bargaining power of buyers Total Weight 0.20 0.68 0. the quality. In outlets like BIG BAZAAR and STAR BAZAAR the items are already sold at huge discounted prices and hence the customer feels no need to bargain for more.00 Attractiveness points 3.40 2. They are aware of the prevailing market prices and the discounts offered by such stores.57 0.60 3.52 0. It is a mentality of customers that they do not bargain at organized retail outlets this is because they feel ashamed to do so or they do not consider it appropriate to bargain at such outlets. In retail industry the threat if buyer‟s backward integration is low so the competitive pressure will be low which makes the industry attractive? The bargaining power of buyers in for organized retailing is low. service etc.

but is none is able to obtain significant advantage. 64 . Volume businesses are those where the sources of advantage are few. 2. Once a business is embroiled in a stalemate industry. Grant “Contemporary Strategy Analysis” The Boston Consulting Group’s Strategic Environments Matrix reverses this direction: it is the nature of competitive advantage in an industry that determines strategies that are viable. the potential for competitive advantage depends on whether there are opportunities for cost advantage. Among commodities. BCG’s Strategic Matrix According to Robert M. or brand leadership. The size of potential competitive advantage. survival and profitability require operational efficiency. Stalemate businesses are those where the sources of advantage are few and the size of potential advantage is small. Many Sources Of Advantage Few FRAGMENTED (Jewelry) SPECIALIZATION (Books & Furniture) STALEMATE VOLUME (Convenience Store) (Supermarket) Small Big Size of Advantage Two variables are used: Sources of advantage: this depends on the complexity of the industry in terms of the sources of competitive advantage. Complex product offer more scope for differentiation than do commodities. but the size of advantage (typically resulting from scale economies) is considerable.9. or controlling the industry standard. The result is highly competitive industry where firms compete with similar strategies. The two variables define four industry types: 1. How big is the advantage available to the industry leader? This may derive from economies of scale. which in turn determine the structure of the industry. low administrative overheads and a cost conscious corporate culture.

and few economies of scope (hence. responding quickly to change. They typically supply differentiated product where brand loyalty is low. scale economies. but the size of advantage is small. An alternative strategy is to attempt to transform the business in to a specialization or volume business. Specialization businesses require strategic differentiation-each firm focuses on a particular approach to product design. Success factors may include low costs through operational efficiency. Franchising is one of the ways of matching the advantages of size with those of flexibility and decentralization. or brand 65 . Successful companies tend to be entrepreneurial. technology well diffused and scale economies are small. first mover advantages. brand loyalty. 4. Fragmented businesses are those where the sources of competitive advantage are many. Specialization business feature varied customer needs. Specialization businesses are those where the sources of advantage are many and the size of the potential advantage is substantial. and establishing novel forms of differentiation. focusing on an attractive market segment.3. innovation. there are no major advantage to firms with a broad market or product scope).

Prerequisites for Success What Do Customers Want? How does the firm survive the competition?  Low prices  Convenient location  Wide range of products adapted to local preferences  Fresh/Quality Produce. large aggregate purchases to maximize buying power. pleasant ambience  Markets localized  Intensity of Price competition depends on number and proximity of competitors  Bargaining power a critical determinant of cost of bought-in goods Key Success Factors  Low cost operation requires operational efficiency. Good Service. low wage costs  Differentiation requires large stores {to allow wide product range}. Key Success Factors of Retail Industry Here we develop more comprehensive analysis of competitive advantage. easy parking 66 . Our goal is to identify those factors within the firm‟s market environment that determine its ability to survive and prosper-its Key Success Factors. ease of parking. scale efficient stores.10. convenient location.

and differentiation requires large stores(To allow wide product range). In answer the question of what do customers want? We need to identify who its customers are. it must supply what customer‟s wants to buy. wide range of product adapted to local preferences. To survive and prosper in an industry. intensity of price competition depends on number and proximity of competitors. easy parking. what are their needs. pleasant ambience? In answer the question of How does the firm survive competition? In this intensely competitive market. low wage costs. and fresh quality produce. a firm meets two criteria: first.The approach to identify key success factors is straightforward and common sense. it must survive competition. survival requires-strong financial position and market localized. 67 . good service. ease of parking. A basic framework for identifying key success factors in retail industry is low-cost operation requires operational efficiency. If the consumers‟ choice of supermarkets is based primarily on which charges the lowest prices. large aggregate purchases to maximize buying power. and how they choose between competing offerings. and bargaining power a critical determinant of cost of bought-in goods. convenient location. scale efficient stores. second. convenient location.

11. India‟s GDP growth of the past few years estimated at around 8% per annum. Disposable incomes remain concentrated in urban areas. The organized retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles. only 4% of the retail sector is above 500 esq.6 billion which is expected to grow at a compounded 30 per cent over the next five years. The share of modern retail is likely to grow from its current 3 per cent to 15-20 percent over the next decade. Key Facts The retail sector in India is witnessing a huge revamping exercise as traditional markets make way for new formats such as departmental stores. hypermarkets. and affluent classes and the growing number of double-income households. The annual growth of department stores has been estimated at 24 per cent. No wonder a heavyweight like the Reliance group is planning to do a Wal-Mart in India.” 68 . Hidden consumption power in the low-income rural areas offers opportunities for organized retailers. However. said “FDI in retail trade can not only organize a significant part of the largely unorganized domestic retailing. organized retailing makes for over 70 per cent of the total business. Western-style malls have begun appearing in metros and second-rung cities alike introducing the Indian consumer to a shopping experience like never before. analysts feel. the report reveals that the sheer size and potential of the rural segment has been underestimated. which is faster than overall retail. supermarkets and specialty stores. The list was developed as a response to requests from retail chains facing saturated demand in most western markets. Currently according to estimates. The key facts regarding Indian Economy and Indian retail Industry are as follows: India vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets. thereby creating greater outlets for outsourcing and marketing Indian products. strong income growth and favorable demographic patterns. It has been ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney. and just 2% is in the organized sector. but also invite established global retail brands into the Indian market. India is being seen as a potential goldmine. Even in neighboring China the figure is a healthy 20 per cent. The Economic Survey 2004-05. and supermarkets have taken an increased share of general food and grocery trade over the last two decades. revenues from the sector are expected to triple from the current US$ 7. AT Kearney has estimated India‟s total retail market at US$ 202. With the organized retail segment growing at the rate of 25-30 per cent per annum. Rated the fifth most attractive emerging retail market.7 billion to US$ 24 billion by 2010. Where as in developed countries.

directly and indirectly. states that the development of organized retail will generate an additional eight million jobs. A study by CII and PricewaterhouseCoopers (PwC). titled The Rising Elephant : Benefits ssof Modern Trade to Indian Economy.000 jobs a year in the coming five years. Ukraine. According to ASSOCHAM.AT Kearney study placed India as the number one destination for FDI in retail ahead of Russia. which topped the survey in 2003. the retail sector will create 50. 69 . China and Slovenia were the other countries in the top 5. .

All facts and figures are totally dependent on the surveys made by KSA Technopak. But From this we have chosen the Diamonds. Major Findings and Contribution Indian Organized Retail Industry is like Mine. ¥ In Economic retail factor analysis we find that Indian Retail Industry grow 2530% annually. which means our findings are From the Environmental Analysis we find that ¥ The government frames the policy of foreign direct investment up to 51% in single brand retailing. maximize buying power. ¥ In Demographic factor analysis we find that India has highest young generation population in the world.12. On the lack of availability of data we.50 o From the industry attractiveness key success factor analysis we have find the retail industry‟s key success factor are low cost operation. o In Stalemate type of industry consists of convince store. based on the data and information available of some companies and cities. AT Kearney and KPMG.85 ¥ Substitute product availability force is moderate to low 2.60 ¥ Supplier bargaining power is moderate to high which is 3. o From the BCG Strategic Environment Matrix analysis we find that in volume type industry consist of super market. o In Fragmented type of industry consists of jewellary and apparel retail o In specialization types consist of book and furniture retail o From the porter 5 forces analysis it indicate that industry attractiveness is high which is find from ¥ Rivalry among existing competition is moderate to high which is 3. low wages o In differentiation requires large stores(which is allow wide product range) and Convenient location ease parking Limitation The following are the Research limitations: The research was limited with time and resources A generalized assumption about the entire organized sector has been made. scale efficiency stores. on the base of suggestions by academicians and professionals have made some assumptions.70 ¥ Buyers bargaining power is moderate to high which is 3. 70 . ¥ Indian Retail Industry Contributes 10% of the GDP ¥ Per Capita Income has increase so it affects people‟ purchasing power.40 ¥ Potential entry of new entrants is below the moderate it is 2. o Retailers are promoting private labels for getting higher profit margins.

000 crore ($24 billion) by 2010.Due to limitations of time and source we have restricted the research. the growth has come largely from new outlets as the like-to-like (LTL) growth rate stands at 25%.  With Reliance Fresh having started its operations and Bharti and Aditya Birla group soon to join the fray. it is not necessary to expand the hypermarket super mall to mini-metros and tier-II cities in the immediate future.000 crore in 2004-05 to Rs109. The food and grocery were the fastestgrowing segments in the country. On the other hand. with the top five retail majors notching up a combined net sales growth rate in excess of 50% for the second successive year.  The slow down in sales' volume after five years would result mainly from saturation of demand in major metros.  Though food and grocery stores account for the largest share of retail spent by the consumer at about 76 per cent.  The value retailing segment now accounts for around 72% of the company‟s turnover. Hence.  Metros and mini-metros offer maximum scope for growth with six times more in sales volume. taking the organized shares of the market to 30 per cent.100 crore per year was required in the country. apparel.  FDI in retail was necessary to sustain the investment-linked growth but felt that the approval of FDI from the authorities would come by the end of 2006 as in the meantime this would allow domestic players to improve their position in terms of business expansion and financial growth. However. as compared to tier-II cities. However CRISIL has cautioned that organized retail sector will slow down to single digit growth after five or six years unless the industry brings in an innovative ''India specific'' approach through expansion of the network. with revenues expected to grow by five times over the next five years. the lifestyle segment reported an LTL store growth 71 . ------Future of Indian Organized Retailing  The organized retail industry in India is expected to grow 25-30 per cent annually and would triple in size from Rs35. the retail mania is clearly continuing unabated.  Organized retail to grow to such proportions an investment of approximately Rs3. A GDP growth of around 8% and a spate of festivals during the quarter have helped the case for the retail sector. and nearly 99 per cent of this market is in the unorganized sector. covering only. grocery etc. currently witnessing an annual growth rate of 25-30 per cent due to surplus income of the young generation. the organized sector and there by including only the leading segments like food. But according to this may change in the next few years as it is estimated that food and grocery revenue in the organized retailing market would multiply five times.  The organized retail sector has maintained its unrelenting growth pace.

however.7%. a drop of 70 basis points from last year. on the back of 144% rise in staff costs. 1500 supermarkets and over 10.000 new outlets under construction. 305 large department stores.  The fast-paced expansion. a vast improvement over a growth rate of 17% reported for the quarter ended. The overall operating margin fell to 6. However.  The company took up its LTL growth rate to 25% from 17% last year. the lifestyle segment saw a drop of one percentage point from 14. 72 . Shoppers‟ Stop clocked the lowest net sales growth rate (34%) among the retail majors. seems to have taken a toll on the operating and profit margins for the company. with a volume growth of 14%. A loyal customer base accounting for 62% of revenues and a private label mix of 22% also has helped improve its profitability.rate of 33%.9%. the company backed it up by an impressive 81% growth in net profits owing to a huge improvement in its operational efficiency. particularly for the lifestyle segment. While the PBIT margin remained constant for the value retailing segment. It notched a double-digit growth in operational parameters like sales per sq ft and average transaction size. India tohave over 375 shopping centers/ Malls covering over 90 million square feet by 2007 end.7% to 13.  From 95 currently operational shopping centers with approximately 22-million square feet space.  50 hypermarkets.

tie ups and using advanced technologies to reduce the costs and at the same time to deliver the best products and services to the customers. New avenues have been developing in he organized retail sector by way of introduction of new business methods. Brazil and Greece. The contribution of organized retailing in the share of retail sales in India is currently very small. improvements in civic situation. The Indian organized retail industry is a very attractive industry with absence of larger players. Most of the organized retailers are adopting the trail and error method and learning form mistakes to develop an ultimate strategy that could make a fortune for them. attitudes and behavior. The organized retail is only 3 % of the total retail industry. Based on an analysis of retail developments in countries such as Thailand. Conclusion The Indian retail sector is largely traditional. it is possible to conclude that modernization of retailing in India would be influenced by some important factors.13. increased investment in retailing and rise in the power of organized retail. The development of modern retail will have several implications for managerial practice in manufacturing firms. Organized retailers are adopting the methods used in foreign countries to effectively collect and use this database in order to provide maximum customer satisfaction. but stores in modern format are emerging. changes in consumer needs. 73 . logistics policy and price structure to cope with pressures from powerful retailers. Firms will need to proactively review their sales structures. changes in government policies. and some experience in India. competitiveness of the industry has been increased. Even new methods of finding new or latent opportunities are always under process. These factors include economic development. on time. With the entry of world class players. brand activities. which is growing at rate of 25-30% annually. Analysis shows the attractiveness of the industries is high.

com www.com/retailhistory www.retailbiz.com/retail 74 .14.com www.rpg.about.piramyd. BIBIOLOGRAPHY News Papers  Business Standards  Economic Times  Times of India  Financial Times  Indian Express Magazines  Business World  India Today  Business Today  Business Week  Forbes  Time  Center for Monitoring Indian Economy  Sales & Marketing  ICFAI Journal Marketing and Management Websites www.com/retail www.futurebiz.

retailyatra.htm Research Article AT Kearney‟s Research on Emerging of Organized Indian Retail Industry KPMG Research on Retail Opportunities KSA Technopack research on Booming Retail Industry 75 .com/india-retailindustry/ http://www.indiainfoline.nic.mapsofindia.in/industry-infrastructure/servicesectors/retailing.com/retail/news/ www.html http://cii.rediff.www.appliance magazine.org/industry/retail.com/retailnews/html www.ibef.php?menu_id=245 http://www.economywatch.com www.com/news/retail www.indiainbusiness.aspx http://www.com http://business.fnbnews.com/business-and-economy/indian-retailindustry.in/menu_content.

76 .