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CHAPTER-III

CONCEPT FRAME WORK-RETAIL BUSINESS


In the present chapter, an attempt has been made to the theoretical, concept and
methodology to work out Indian retail sector
For this purpose, the chapter has been divided into six different sections.
1.
2.
3.
4.
5.
6.

Unorganized sector
Concept view business
Overview of retail business
Challenges of unorganized retail business
Growth of retail business
Impact of organized and FDI in retail business in India

3.1 UNORGANISED SECTOR:


Introduction
The unorganized sector covers most of the rural labour and an important part of urban
labour it includes activities carried out by small and family enterprises, partly or wholly with
family labour. In this sector wage-paid labour is largely non-unionized due to casual and
seasonal nature of employment and spread location of enterprises. This sector is marked by
low incomes, unstable and irregular employment, and lack of protection either from
legislation or trade unions. The unorganized sector uses mainly labour intensive and
indigenous technology. The workers in unorganized sector are so scattered that the
implementation of the Legislation is very inadequate and ineffective. There are hardly any
unions in this sector to act as watch-dogs. But the contributions made by the unorganized
sector to the national income, is very substantial as compared to that of the organized sector.

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It adds more than 60% to the national income while the contribution of the organized sector
is almost half of that depending on the industry. 1
Meanings:
The unorganized sector consists of all unincorporated private enterprises owned
by individuals or households engaged in the sale and production of goods and services
operated on a proprietary or partnership basis and with less than ten total workers.
Unorganized workers consist of those working in the unorganized enterprises or
households, excluding regular workers with social security benefits, and the workers in
the formal sector without any employment and social security benefits provided by the
employers2
The term Unorganized Sector is used to denote the collective of economic units
engaged in the production of goods and services with the primary objective of generating
employment and income for the persons engaged in the activity.
Categories of workers:
The unorganized Labour can be categorized broadly under the following
categories: 1. Occupation: Small and marginal farmers, landless agricultural laborers, share croppers,
fishermen, those engaged in animal husbandry, in beedi rolling, labeling and packing,
building and construction, collection of raw hides and skins, handlooms weaving in rural

G. Parthasarathy, (1996), Unorganized Sector and Structural Adjustment, Economic and Political

Weekly, Vol. XXXI. No.28, July, 13.


2

Mathur, D.C., (1987) Labour Welfare, Social Security and Industrial Relation in contract Labour in

India. Mittal Publications, Delhi

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areas, brick kilns and stone quarries, saw mills, oil mills etc. are called occupational
laborers.
2. Nature of Employment: The unorganized labourers are attached to agricultural
labourers, bonded labourers migrant workers, contract and casual labourers etc.
3. Specially distressed categories: Some of the unorganized labourers are toddy tappers,
scavengers, carriers of head loads, drivers of animal driven vehicles, loaders, unloaders,
etc
4. Service categories: Some of the unorganized labourers are Midwives, domestic workers,
barbers, vegetable and fruit vendors, newspaper vendors etc.3
3.2 CONCEPT OF BUSINESS:
Introduction
As business and society have become more difficult over the years, at present, the
business world is very competitive and the cost of businesses is going up. Because of high
competition and rising cost of business transactions, the margin available to the owners of
business becomes very thin. Therefore, the businessmen have to improve the financial
performance of the business by monitoring and measuring the results of business regularly.
4

A business is an organization designed to provide goods, services, or both to consumers.

Businesses are pre dominant in capitalist economies, in which most of them are privately owned
3

Meenakshi Gupta, (2007) Labour Welfare and Social Security in Unorganised Sector, Meenakshi

Gupta, xxviii, pages 174 2007, Vedams books publications


4

Sasidhran Pillai C.R, Theory and Practices in Business Organization, Indian Journal of Commerce,

December 2007

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and formed to earn profit to increase the wealth of their owners. Businesses may also form notfor-profit or be state-owned. A business owned by multiple individuals may be referred to as a
company, although that term also has a more precise meaning.
Business organization refers to all necessary arrangements required to conduct a business.
It refers to all those steps that need to be undertaken for establishing relationship between men,
material, and machinery to carry on business efficiently for earning profits. This may be called
the process of organizing. The arrangement which follows this process of organizing is called a
business undertaking or organization. A business undertaking can be better understood by
analyzing its characteristics.
Characteristics of Business:
1. Distinct Ownership: The term ownership refers to the right of an individual or a group
of individuals to acquire legal title to assets or properties for the purpose of running the
business. A business firm may be owned by one individual or a group of individuals
jointly.
2. Lawful Business: Every business enterprise must undertake such business which is
lawful, that is, the business must not involve activities which are illegal.
3. Separate Status and Management: Every business undertaking is an independent
entity. It has its own assets and liabilities. It has its own way of functioning. The profits
earned or losses incurred by one firm cannot be accounted for by any other firm.
4. Dealing in goods and services: Every business undertaking is engaged in the production
and or distribution of goods or services in exchange of money.

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5. Continuity of business operations: All business enterprise engages in operation on a


continuous basis. Any unit having just one single operation or transaction is not a
business unit.
6. Risk involvement: Business undertakings are always exposed to risk and uncertainty.
Business is influenced by future conditions which are unpredictable and uncertain. This
makes business decisions risky, thereby increasing the chances of loss arising out of
business.
Business Individual Trader:
When the ownership and management of business are in control of one individual, it
is known as sole proprietorship or sole trader ship. It is seen everywhere, in every country,
every state, every locality. The shops or stores which you see in your locality - the grocery
store, the vegetable store, the sweets shop, the chemist shop, the stationery store, the
telephone booths etc. come under sole proprietorship. It is not that a sole tradership business
must be a small one. The volume of activities of such a business unit may be quite large.
However, since it is owned and managed by one single individual, often the size of business
remains small.
Characteristics:
1. Ownership: The business enterprise is owned by one single individual that is the
individual has got legal title to the assets and properties of the business. The entire profit
arising out of business goes to the sole proprietor. Similarly, he also bears the entire risk
or loss of the firm.

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2. Management: The owner of the enterprise is generally the manager of the business. He
has got absolute right to plan for the business and execute them without any interference
from anywhere. He is the sole decision maker.
3. Source of Capital: The entire capital of the business is provided by the owner. In
addition to his own capital he may raise more funds from outside through borrowings
from close relatives or friends, and through loans from banks or other financial
institutions.
4. Legal Status: The proprietor and the business enterprise are one and the same in the eyes
of law. There is no difference between the business assets and the private assets of the
sole proprietor. The business ceases to exist in the absence of the owner.
5. Liability: The liability of the sole proprietor is unlimited. This means that, in case the
sole proprietor fails to pay for the business obligations and debts arising out of business
activities, his personal property can be used to meet those liabilities.
6. Stability: The stability and continuity of the firm depend upon the capacity, competence
and the life span of the proprietor.
7. Legal Formalities: In the setting up, functioning and dissolution of a sole proprietorship
business no legal formalities are necessary. However, a few legal restrictions may be
there in setting up a particular type of business. For example, to open a restaurant, the
sole proprietor needs a license from the local municipality; to open a chemist shop, the
individual must have a license from the government.

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Advantages of Sole Trader:


1. Better Control: The owner has full control over his business. He plans, organizes, coordinates the various activities. Since he has all authority, there is always effective
control.
2. Prompt Decision Making : As the sole trader takes all the decisions himself the decision
making becomes quick, which enables the owner to take care of available opportunities
immediately and provide immediate solutions to problems.
3. Flexibility in Operations: One man ownership and control makes it possible for change
in operations to be brought about as and when necessary.
4. Retention of Business Secrets: Another important advantage of a sole proprietorship
business is that the owner is in a position to maintain absolute secrecy regarding his
business activities.
5. Direct Motivation: The owner is directly motivated to put his best efforts as he alone is
the beneficiary of the profits earned.
6. Personal Attention to Consumer Needs: In a sole tradership business, one generally
finds the proprietor taking personal care of consumer needs as he normally functions
within a small geographical area.
7. Creation of Employment: A sole tradership business facilitates self employment and
also employment for many others. It promotes entrepreneurial skill among the
individuals.
8. Social Benefits: A sole proprietor is the master of his own business. He has absolute
freedom in taking decisions, using his skill and capability. This gives him high selfesteem and dignity in the society and gradually he acquires several social virtues like

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self- reliance, self-determination, independent thought and action, initiative, hard work
etc,. Thus, he sets an example for others to follow.
9. Equitable Distribution of Wealth: A sole proprietorship business is generally a small
scale business. Hence there is opportunity for many individuals to own and manage small
business units. This enables widespread dispersion of economic wealth and diffuses
concentration of business in the hands of a few.
Disadvantages of Sole Trader:
1. Unlimited Liability: In sole proprietorship, the liability of business is recovered from the
personal assets of the owner. It restricts the sole trader to take more risk and increases the
volume of his business.
2. Limited Financial Resources: The ability to raise and borrow money by one individual
is always limited. The inadequacy of finance is a major handicap for the growth of sole
proprietorship.
3. Limited Capacity of Individual: An individual has limited knowledge and skill. Thus
his capacities to undertake responsibilities, his capacity to manage, to take decisions and
to bear the risks of business are also limited.
4. Uncertainty of duration: The existence of a sole tradership business is linked with the
life of the proprietor. Illness, death or insolvency of the owner brings an end to the
business. The continuity of business operation is, therefore, uncertain.

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3.3 RETAIL BUSINESS OVERVIEW:


Introduction:
In India, the most of the retail sector is unorganized. In India, the retail business
contributes around 11 percent of GDP. Of this, the organized retail sector accounts only for
about 3 percent share, and the remaining share is contributed by the unorganized sector. The
main challenge facing the organized sector is the competition from unorganized sector.
Unorganized retailing has been there in India for centuries, theses are named as mom-pop
stores. The main advantage in unorganized retailing is consumer familiarity that runs from
generation to generation. It is a low cost structure; they are mostly operated by owners, have
very low real estate and labor costs and have low taxes to pay.
Evolution of retail business:
The origins of retailing in India can be traced back to the emergence of Kirana
stores and mom-and-pop stores. These stores used to cater to the local people. Eventually
the government supported the rural retail and many indigenous franchise stores came up
with the help of Khadi & Village Industries Commission. The economy began to open up
in the 1980s resulting in the change of retailing. The first few companies to come up with
retail chains were in textile sector, for example, Bombay Dyeing, S Kumar's, Raymonds,
etc. Later Titan launched retail showrooms in the organized retail sector. With the passage
of time new entrants moved on from manufacturing to pure retailing. Retail outlets such
as Foodworld in FMCG, Planet M and Musicworld in Music, Crossword in books entered
the market before 1995. Shopping malls emerged in the urban areas giving a world-class
experience to the customers. Eventually hypermarkets and supermarkets emerged. The
evolution of the sector includes the continuous improvement in the supply chain
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management, distribution channels, technology, back-end operations, etc. this would


finally lead to more of consolidation, mergers and acquisitions and huge investments.
Retailing in India can be traced to the following:The era of rural retail industry could be categorized into weekly markets and
village fairs. Weekly markets catered to the daily necessities of villages. Village fairs
provided goods from food, clothing to small consumer durables.
1. The traditional era saw the emergence of the neighborhoods kirana stores to cater to
convenience of the Indian consumers. The era of government support saw indigenous
franchise model of stores, chains run by khadi LH industries commission.
2. The Modern Era: Retailing is going through a transition phase in India. The corner
grocery stores giving way to international formats of retailing. The traditional food and
grocery segment has seen the emergence of supermarkets and grocery chains convenience
stores and fast food chains.
1. The Traditionally Era:
The evaluation of traditional retail business is small retailing, including street
vending, has been one of the easy-entry economic activities for the working poor, often
as a means of their survival this has flourished for a long time in India. In particular,
street vending, including for poor women, has been a major source of a large number of
urban working poor who do not have a fixed premise to sell their products, most of
whose products are also targeted to poorer consumers. There are a number of initiatives
taken by both the government and non-governmental organizations (NGOs) to support
street vendors in India, such as development of street vendors organizations, advocating
supportive policies and concrete measures to facilitate their activities. India has a rich
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traditional history of retail trade. Many of the retail formats have been in existence since
ancient times and at the same time they have a presence across the country.

Some of the traditional retail formats are:


Mandis: Mandis are agricultural markets set up by State Governments to procure
agricultural produce directly from farmers. Located in high production centers of
different crops, these markets can be categorized as grain markets, cotton mandis, soya

mandis, vegetable mandis etc.


Haats: A haat is a periodic market which exists typically at the village level. A haat can
be said to be public gathering of buyers and sellers of commodities, fruits, vegetables,
household goods, clothes, and accessories. Unlike mandis, haats are accessible to small
farmers. Local bodies usually control auctions of space and issue licenses and permits to

vendors to use these haats


Melas: Another prominent feature of the Indian rural life is a mela. Melas can be
classified primarily according to their nature, into commodity fairs and religious fairs.

2. The Modern Era:


The evaluation of modern trend of retail business economy has been undergoing a
fast change, involving market liberalization, including in the retail sector. Large
multinational retailers, such as Wal-Mart, are now coming into the Indian market through
joint ventures with local wholesalers. While it is yet to be seen as to how successful such
international retailing chain stores will be, far-reaching impacts on both small retailers and
consumers in the Indian market will be beyond our imagination. It is also feared that small
retailers will be crowded out in the wake of expansion of larger foreign and domestic
retailers in the market. The latter can sell better quality products at cheaper price, and on a
much wider scale.

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Phases in the Evolution of Retail Sector

Weekly Markets, Village and Rural Melas

Source of entertainment and commercial exchange

Convenience stores, Mom-and-pop / Kirana shops


Neighborhood stores/convenience
Traditional and pervasive reach

PDS outlets, Khadi stores, Cooperatives


Government supported
Availability/low costs/distribution

Exclusive brand outlets, hypermarkets and supermarkets, department stores and shopping malls
Shopping experience/ efficiency Modern formats/ international
Meaning of Retail
The word Retail is derived from the French Word Retaillier meaning to cut a
piece off or to break bulk. In simple terms this means a firsthand transaction with the
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customer. Retailing thus might be understood as the final step in the distribution of
merchandise, for consumption by the end consumers. It thus consisted of all activities
involved in the marketing of goods and services directly to the consumers for their
personal, family or household use. Retailing involves a direct interface with the customer
and the coordination of business activities from end to end- right from the concept or
design stage of a product or offering, to its delivery and post-delivery service to the
customer. Retail was the final stage of any economic activity. By virtue of this fact, retail
occupied an important place in the world of economy.5
A retailer may be defined as a dealer or trader who sells goods in small quantities or
one who repeats or relates. Retailing can be considered as the last stage in the movement of
goods and or services to the consumer. Put simply, any firm that sells products to the final
consumer is performing the function of retailing. Thus, it consists of all activities involved in
the marketing of goods and services directly to the consumers, for their personal, family or
household use.
Definitions of retail:
The High Court of Delhi In 2004 defined the term retail as a sale for final consumption
in contrast to a sale for further sale or processing a sale to the ultimate consumer. Thus,
retailing can be said to be the interface between the producer and the individual consumer
buying for personal consumption. This excludes direct interface between the manufacturer
and institutional buyers such as the government and other bulk customers. Retailing is the
last link that connects the individual consumer with the manufacturing and distribution

David Gilbert Retail Marketing Management2nd edition, Pearson Education

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chain. A retailer is involved in the act of selling goods to the individual consumer at a margin
of profit.
Philip Kotler Retail includes all the activities involved in selling goods or services to
the final consumers for personal, non-business use. A retailer or retail store was any business
enterprise whose sales volume comes primarily from retailing.
The North American Industry Classification system (NAICS) specifies that the retail
trade sector comprises establishments primarily engaged in retailing merchandise, generally
without transformation, and rendering services incidental to the sale of merchandise.
Retailing is a distribution channel function, where one organization buys products
from supplying firms or manufactures products themselves, and then sells these directly to
consumers.
Retailing is defined as all the activities involved in selling goods or services
directly to final consumers for personal, non business use. Retailing consists of the final
activity and steps needed to place merchandise made elsewhere into the hands of the
consumer or to provide services to the consumer. 6
Retailing consists of the sale of goods or merchandise, from a fixed location such as
a department store or kiosk, in small or individual lots for direct consumption by the
purchaser.
Retailing may include subordinated services, such as delivery. Purchasers may be
individuals or businesses. In commerce, a retailer buys goods or products in large quantities

Chetan Bajaj, Rajnish Tuli, Nidhi V Srivastava, Retail Management, Oxford University Press, 2005.

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from manufacturers or importers, either directly or through a wholesaler, and then sells
smaller quantities to the end-user. Retail establishments are often called shops or stores.
Retail comes from the French word retailers, 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".
According to David Gilbert Any business that directs its marketing effort towards
satisfying the final consumer based upon the organization of selling goods and services as a
means of distribution
According to Chetan Bajaj Retailing is defined as a conclusive set of activities or steps
used to sell a product or a service to consumers for their personal or family use. It is
responsible for matching individual demands of the consumers with supplies of all the
manufacturers.
Concept view of Retailer:
7

Generally goods and services pass through several hands before they come to the

hands of the consumer for use. But in some cases producers sell goods and services
directly to the consumers without involving any middlemen in between them, which can
be called as direct channel. So there are two types of channels, one direct channel and the
other, indirect channel.

Hugar.S.S, Shirslashetti.A.S,Accounting practices in Business:A Study of wholesaler and

retailers in Bijapur District, The Accounting World VII.XII (2007): 1-15

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There are many indirect channels like:


Producer,
Wholesaler,
Retailer,
Consumer,
Wholesalers and retailers are important middlemen who generally facilitate flow of goods
from the producers to the consumers.

Meaning of Retailer:
Retailers are the traders who buy goods from wholesalers or sometimes directly
from producers and sell them to the consumers. They usually operate through a retail
shop and sell goods in small quantities. They keep a variety of items of daily use.
Characteristics of Retailers:

The following are the characteristics of retailers:


1. Retailers have a direct contact with consumers. They know the requirements of the
consumers and keep goods accordingly in their shops.
2. Retailers sell goods not for resale, but for ultimate use by consumers. For example, you
buy fruits, clothes, pen, pencil etc. for your use, not for sale.
3. Retailers buy and sell goods in small quantities. So customers can fulfill their
requirement without storing much for the future.
4. Retailers require less capital to start and run the business as compared to wholesalers.

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5. Retailers generally deal with different varieties of products and they give a wide choice to
the consumers to buy the goods.
Functions of Retailers:
Retailer performs various functions while selling their products and services to
their customers and it is these functions that allow the products to ultimately be sold
successfully. In this context, they perform various functions like sorting, breaking bulk,
holding stock, as a channel of communication, storage, advertising and certain additional
services.

Sorting: Manufacturers usually make one or a variety of products and would like to sell
their entire inventory to a few buyers to reduce costs. Final consumers, in contrast, prefer
a large variety of goods and services to choose from and usually buy them in small
quantities. Retailers are able to balance the demands of both sides, by collection of an
assortment of goods from different sources, buying them in sufficiently large quantities

and selling them to consumers in small units.


Breaking Bulk: Breaking bulk is another function performed by retailer. The word
retailing is derived from the French word retailer, meaning to cut a piece off. To reduce
transportation costs, manufacturers and wholesalers typically ship large cartons of the
product, which are then tailored by the retailers into smaller quantities to meet individual
consumption needs.

Holding Stock: Retailers also offer the service of holding stock for the manufacturers.
Retailers maintain an inventory that allows for instant availability of the product to the
consumers. It helps to keep prices stable and enables the manufacturer to regulate

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production. Consumers can keep a small stock of products at home as they know that this
can be replenished by the retailer and can save on inventory carrying costs.

Additional Services: Retailers ease the change in ownership of merchandise by


providing services that make it convenient to buy and use products. Providing product
guarantees, after-sales service and dealing with consumer complaints are some of the
services that add value to the actual product at the retailers end. Retailers also offer
credit and hire-purchase facilities to the customers to enable them to buy a product now
and pay for it later. Retailers fill orders, promptly process, deliver and install products.
Salespeople are also employed by retailers to answer queries and provide additional
information about the displayed products. The display itself allows the consumer to see
and test products before actual purchase. Retail essentially completes transactions with
customers

Channel of Communication: Retailers also act as the channel of communication and


information between the wholesalers or suppliers and the consumers. From
advertisements, salespeople and display, shoppers learn about the characteristics and
features of a product or services offered. Manufacturers, in their turn, learn of sales
forecasts, delivery delays, and customer complaints. The manufacturer can then modify

defective or unsatisfactory merchandise and services.


Transport and Advertising Functions: Small manufacturers can use retailers to provide
assistance with transport, storage, advertising and pre-payment of merchandise. This also
works the other way round in case the number of retailers is small. The numbers of
functions performed by a particular retailer have a direct relation to the percentage and
volume of sales needed to cover both their costs and profits.

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Buying and assembling of goods: Retailers buy and assemble varieties of goods from
different wholesalers and manufacturers. They keep goods of those brands and variety
which are liked by the customers and the quantity in which these are in demand.

Storage of goods: To ensure ready supply of goods to the customer retailers keep their
goods in stores. Goods can be taken out of these stores and sold to the customers as and
when required. This saves consumers from botheration of buying goods in bulk and
storing them.

Credit facility: Although retailers mostly sell goods for cash, they also supply goods on
credit to their regular customers. Credit facility is also provided to those customers who
buy goods in large quantity.

Personal services: Retailers provide personal services to the customers by providing


expert advice regarding quality, features and usefulness of the items. They give
suggestions considering the likes and dislikes of the customers. They also provide free
home delivery service to customers. Thus, they create place utility by making the goods
available when they are demanded.

Risk bearing: The retailer has to bear many risks, such as risk of:
o Fire or theft of goods
o Deterioration in the quality of goods as long as they are not sold out

Display of goods: Retailers display different types of goods in a very systematic and
attractive manner. It helps to attract the attention of the customers and also facilitates
quick delivery of goods.

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Supply of information: Retailers provide all information about the behavior, tastes,
fashions and demands of the customers to the producers through wholesalers. They
become a very useful source of information for marketing research.

Behaviour of Retailer:
Retailing can be distinguished in various ways from other businesses such as
manufacturing. Retailing differs from manufacturing in the following ways:
There is direct end user interaction in retailing.

It is the only point in the value chain to provide a platform for promotions.

Sales at retail level are generally in smaller unit sizes.

Location is a critical factor in retail business.

In most retail business, services are as important as core products.

There are a larger number of retail units compared to other members of the value chain.
This occurs primarily to meet the requirements of geographical coverage and population
density.

Retailers have a direct contact with consumers. They know the requirements of the
consumers and keep goods accordingly in their shops.

Retailers sell goods not for resale, but for ultimate use by consumers. For example, you
buy fruits, clothes, pen, pencil etc. for your use, not for sale.

Retailers buy and sell goods in small quantities. So customers can fulfill their
requirement without storing much for the future.

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Retailers require less capital to start and run the business as compared to wholesalers.

Retailers generally deal with different varieties of products and they give a wide choice to
the consumers to buy the goods.

Classification of Retail Business:


The retail trade classification is further divided in the following two ways. 8
1. Organized Retail: Organized Retail refers to trading activities undertaken by licensed
retailers i.e. those who are registered for sales tax, income tax etc. These included the
corporate backed hypermarkets, retail chains & also privately owned large retail business.
Organized retail units operate on bigger premises, some of which are air conditioned and
have generators. They keep wide range of quality products with brand image.
2. Unorganized Retail: In the unorganized Sector, the retail shops are mostly owneroperated. They have a low cost, structure, with small premises, low labour cost. 96
percent Indian retail market is under unorganized sector.
3.4 UNORGANISED RETAIL BUSINESS IN INDIA:
Introduction
India is the country having the most unorganized retail market. Traditionally the
retail business is run by Mom & Pop having Shop in the front & house at the back. More
than 99% retailers function in less than 500Sq.Ft of area. All the merchandise was
purchased as per the test & vim and fancies of the proprietor also the pricing was done on
ad hock basis or by seeing at the face of customer. Generally the accounts of trading &
8

Dr. R. Ganapathi, T.V. Seetha Lakshmi (2007) Retailing Cashing in on the Boom

October 2007, Vol28, No.1, New Delhi Edition.


Dr. P. Purushottham Rao, Aratijaydhav (2008) Retailing in India- issues and
prospects" Business vision Vol3 &4, Special Issue Oct 07-March2008, No.4&1.

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home are not maintained separately. Profits were accumulated in slow moving & nonmoving stocks which were to become redundant or consumed in-house. Thus profits were
vanished without their knowledge. The Manufactures were to distribute goods through C
& F agents to Distributors & Wholesalers. Retailers happen to source the merchandise
from Wholesalers & reach to end-users. The merchandise price used to get inflated to a
great extent till it reaches from Manufacturer to End-user. Selling prices were largely not
controlled by Manufacturers. Branding was not an issue for majority of customers.
significance of unorganized retail :
9
Indian retail sector is pre-dominantly controlled by traditional and unorganized
formats of retailing. These formats have emerged and developed with the growth of
population in the country in rural and semi urban areas. The traditional "kirana "or
"Baniya ki Dukan" still enjoy the leadership and commanding position in retail trade. In
smaller towns and urban areas we may see the power of small family run independent
'mom and pop' store offering a wide range of merchandise mix. These store formats are
traditional and do not enjoy professionalism. A large number of these stores are family
business involving more than one generation. These retailers have developed a rapport
and goodwill among customers and popularly known as" Dukan Wala bhaiya "
Unorganized retail business one of the easiest ways to generate self-employment,
as it requires limited investment in land, capital and labour. It is generally family run
business with lack of standardization and the retailers who are running this store are
lacking education, experience and exposure. In smaller towns and urban areas, there are
many families who are traditionally using these unorganized retail business shops and
9

IBEF, Advantage India, Retail, September 2007

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mom and pop stores offering a wide range of merchandise mix. Generally, these
unorganized retail business shops are the family business of these small retailers which
they are running for more than one generation.
The reasons might be

In smaller towns and urban areas, there are many families who are traditionally using
these kirana shops and 'mom and pop' stores offering a wide range of merchandise mix.
Generally these kirana shops are the family business of these small retailers which they

are running for more than one generation.


These kiran shops are having their own efficient management system and with this they
are efficiently fulfilling the needs of the customer. This is one of the good reasons why

the customer doesn't want to change their old loyal kirana shop.
A large number of working class in India is working as daily wage basis, at the end of the
day when they get their wage, they come to this small retail shop to purchase wheat flour,
rice etc for their supper. For them this the only place to have those food items because

purchase quantity is so small that no big retail store would entertain this.
Similarly there is another consumer class who are the seasonal worker. During their
unemployment period they use to purchase from this kirana store in credit and when they
get their salary they clear their dues. Now this type of credit facility is not available in
corporate retail store, so this kirana stores are the only place for them to fulfill their

needs.
It is the convenience store for the customer. In every corner the street an unorganized
retail shop can be found that is hardly a walking distance from the customer's house.
Many times customers prefer to shop from the nearby kirana shop rather than to drive a
long distance organized retail stores.

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These unorganized stores are having n number of options to cut their costs. They incur
little to no real-estate costs because they generally operate from their residences.

The Unorganized Retail Formats:


Unorganized retail formats refer to those formats that have long been part of the
retail landscape of India. They include formats like kirana and independent stores that are
typical of the unorganized retail sector across product categories and also the most
administratively organized form of Indian retailing cooperatives and government
controlled retail institutions In terms of professional management and efficiency of
combination with value chain, the traditional retail formats are better classified under the
unorganized retail sector.

Grocery Stores: Grocery stores sell are variety of food and non-food products,
such as meat, produce, cereal, dairy products, health and beauty aids and cleaning
products. Depending on their location and the area's population, the size of a
grocery store can vary from a small family market to a large supermarket.

Food retailers: There are large number and variety of retailers in the foodretailing sector. Traditional types of retailers, who operate small single-outlet
businesses mainly using family labour, dominate this sector .In comparison, super
markets account for a small proportion of food sales in India. However the
growth rate of super market sales has being significant in recent years because
greater numbers of higher income Indians prefer to shop at super markets due to

higher standards of hygiene and attractive ambience.


Health & beauty products: With growth in income levels, Indians have started
spending more on health and beauty products .Here also small, single-outlet
retailers dominate the market .However in recent years, a few retail chains

55

specializing in these products have come into the market. Although these retail
chains account for only a small share of the total market , their business is
expected to grow significantly in the future due to the growing quality
consciousness of buyers for these products . Pharmacy retailing in India is largely
dominated by traditional/local chemists. Over the years, this category has
attracted a number of pharmaceutical companies venturing into retailing. These
new entrants are offering attractive discounts along with value added services

(e.g. diagnostics and lab facilities, home delivery)


Clothing & footwear: Numerous clothing and footwear shops in shopping
centers and markets operate all over India. Traditional outlets stock a limited
range of cheap and popular items; in contrast, modern clothing and footwear
stores have modern products and attractive displays to lure customers. However,
with rapid urbanization, and changing patterns of consumer tastes and

preferences, it is unlikely that the traditional outlets will survive the test of time.
Home furniture & household goods: Small retailers again dominate this sector.
Despite the large size of this market, very few large and modern retailers have
established specialized stores for these products. However there is considerable

potential for the entry or expansion of specialized retail chains in the country.
Durable goods: The Indian durable goods sector has seen the entry of a large
number of foreign companies during the post liberalization period. A greater
variety of consumer electronic items and household appliances became available
to the Indian customer. Intense competition among companies to sell their brands

provided a strong impetus to the growth for retailers doing business in this sector.
Leisure & personal goods: Increasing household incomes due to better
economic opportunities have encouraged consumer expenditure on leisure and

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personal goods in the country. There are specialized retailers for each category of
products (books, music products, etc.) in this sector. Another prominent feature of
this sector is popularity of franchising agreements between established

manufacturers and retailers


Electronics: Historically, this market was largely dominated by branded stores
which primarily sold high ticket value items (television, refrigerators etc.) which
over the years has broadened to include lower ticket value products (hand
blenders, water purifiers etc.) There also exists a parallel second hand market for
these goods (exchange offer items), thus creating a need for retailer to reverse
logistics. Easy availability of consumer finance, high technology acceptance,
newer product categories and technologies, and desire to emulate the developed
world has led to an increase in the overall spending within this category (Deloitte,
2010)

Challenges of unorganized retail business


Unorganized retail businesses to describe the different challenges in India the
retail outlets concerned are small but their Challenges seem to be many. In general, it is
observed that every outlet is hit by some problem or the other depending on its size and
structure. The following major Challenges are identified are as follows:
1. Challenges of Marketing
2. Challenges with Government
3. Challenges with Labour
4. Challenges with Competitor
5. Challenges of social and Economical policy
6. Challenges of finance
1. Challenges of Marketing:
The challenges of marketing

one of the main factors consumer because

consumers today see an exciting explosion of choices, new categories, and new shopping

57

options and have increasing disposable income to fulfill their aspirations they are seeking
more information to make these choices. Consumers are increasingly seeking
convenience in shopping. Today consumer changes so many factors there
Factors of changes:

Sales Promotion Schemes: Retailing is an activity which is highly affected by


the value for money aspect. If the customer feels is going to get best deal out of
every single rupee is spending on purchase. Modern retailers use various sales
promotion schemes that not only help them boost their sales but also give their
customers a feel that they will get best value for their money. This variable is an
important one as it helps creating a positive perception about organized retailing
and may motivate them to prefer the modern retail formats over traditional ones.

Family Entertainment Shopping: Entertainment is sought by everyone in life


and in present retail scenario it has become an important factor to attract shoppers
to the retail outlets or shopping malls. Retailing has been changed altogether
these days, shoppers look for entertainment along with their shopping. They want
their kids to play and enjoy while parents shop. Customers today look whole
family entertainment while shopping. Shopping malls today have become a place
of enjoyment, fun and frolic for the entire family. This can attract customers and
affect their perception and thus, preference positively towards the modern
formats of retail.

Status Symbol: India has almost 96% of unorganized retail that means only 4%
of retail is organized. People still are very selective when it comes to shopping.

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Shopping from organized retailing was considered to be status symbol in India in


the initial phase of modern retail and in this era also this factor may be affecting
the perception of the customer. Keeping this in mind the scholar has considered
this factor in the study. This factor may also be affecting the preference level of
the shoppers for organized retailing.

Attractive visual display: Display plays an important role in creating perception


of the shoppers as visual impact is more powerful than the verbal. Eye-catching
Visual merchandising or display of goods acts as a silent sales person. People
these days are attracted by the visual aspects of retail. Best or the latest items on
display helps shoppers to make a perception about the retail outlet which may
turn into his preference for the retailer.

Good parking facilities: With the increasing number of four wheelers, parking
has become a big problem for the shoppers as they go out for shopping. Parking
may also act as an important factor in deciding for a purchase or a retailer.
Retailers who offer ample parking space for the shoppers may be at an advantage
as compared to the retailers where parking is a problem. Thus, shoppers who
perceive that organized retailing offers good parking facility may prefer the
newer form of retailing for their shopping needs.

Wide variety Product: this is another important factor as customer always


prefers variety for the shopping. The modern retailers have this advantage over
the traditional ones that they have better assortment and variety of the products at

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their outlet. This factor helps them create a perception in shoppers mind that they
will get the best of all if they visit a modern retail outlet. Thus, this can be a
factor which may influence the shoppers very much and force them to shop from
an organized retail outlet rather than a traditional one.

2. Challenges with Government:


The Indian government has not focused on retail as an industry. Until now, there
are no specific rules and regulations that are to be followed by retail companies.
However, there are certain laws that the retailers need to follow, which are general in
nature and which pertain to the establishment of stores and the conduct of activities.
These laws are as follows:

Shop and Establishment Act , 1948

Standards of Weights and Measures Act, 1976

Provisions of the Contract Labour (Regulations and Abolition) Act, 1970

The Income Tax Act, 1961

Customs Act, 1962

The Companies Act, 1956

The challenges of retail trade government influences very essential because the
rules and regulations to favourable for organized and multilevel organization of the
government. A retailer has to obtain a number of permissions from the government to
start his business. Retailers expect some incentives from the government to run their

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business successfully. Policies of government sometimes cause unexpected struggles in


the retail business. In spite of the cooperation extended by the government to retailers;
they face many Challenges from various departments like weights & measurements,
Local tax, Municipal tax, quality control. Officers of these departments harass retailers
for pretty irregularities. This leads to wastage of business hours. Small retailers, if they
run their business in accordance to the policies of the government, can avail themselves
various facilities provided under different schemes. Government provides information
about the latest trends in international retail business. In view of its global prominence,
interference of government is inevitable in retail sector.
3. Challenges with labour:
The challenges of many retail outlets are facing administrative challenges. In the
present day competitive world, to satisfy the consumers, retail shop has to be organized with
certain standards. The utmost important thing in field of organizing is the work culture of the
employees. Most of the employees are not working with dedication the main reason for this
is lack of good working conditions in the shops. Employees are frequently changing from
shop to shop. Lack of good working conditions make employees change from retail shops to
other fields. Employees demand hike in their wages, more holidays, reduced working hours
etc.
Challenges with Competitor:
International organization and organized retail store service available in India and
they differ, price, quality, size, variety, freshness, smell, status, symbol, brand value etc.,
In the present situation it can be clearly said that all middle class people as well as lower
income people are using organized retail store. By considering this situation

61

management and other organized retail store have come up with different marketing
strategy i.e., freshness, door delivery, membership card etc., but customers prefer to
purchase their variety of goods due to various reasons. It is obvious that the quality, price,
advertisement, brand value, freshness, convenience etc. Before choosing shops around for
that is best suitable. In the modern world advertisements is a must to all types of product
to get popularity, among the people while giving advertisement one should keep it in
mind not to give wrong information about the products.
Organized Retail Format:
Departmental Stores: It the very old format of large type of stores. This format
emerged in the early nineteenth century as a way of offering a collection of
personal and home furnishings goods under one roof to the increasingly
discriminating and affluent Victorian middle-class customers. They are still a
powerful presence in todays retailing landscape, providing the focus for shopping

centers around the world. It is also a multi level store.


Variety Stores: In this type of store large varieties of goods in one roof. In terms
of describing large stores, the boundaries of definition are becoming increasingly
blurred. Some variety stores like the larger Marks and Spencer stores are
becoming very much like department stores, as increased space allows the width
and depth of the product range to be expanded. In contrast, some department
stores traded down as a survival strategy in the late 1980s and early 1990s,

leading to the evolution of the discount department store.


Supermarkets and hypermarkets: Supermarkets, a store concept have been a
highly successful retail format. The real advantage that the supermarket offered
the customer was self-service, and therefore a much faster method of shopping.
Instead of requesting products over a counter, the supermarket allowed the

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customer to get involved with the product prior to purchase. The ability to peruse
the product offering, try new products and impulse purchase, appealed to the
increasingly affluent postwar customer. In addition, the space and labour-saving
factors allowed retailers to offer a wider choice of product at lower prices. The
supermarket was therefore quickly adopted as the principal methods for acquiring
every day goods. Supermarkets now dominate the retail industry. They have
grown into superstores, offering more and more products, adapting changes to
provide the most convenient method of shopping for the majority of household

goods for the majority of households.


Discount Stores: Discount stores can be extremely minimal in terms of store
environment and service, but a synthesis of the discounter and the specialist chain
store has emerged in the form of the value retailer, who combines carefully
planned product ranges, good service and store layout with an everyday low

pricing policy.
Convenience Stores: The convenience store concept has been the savior of many
small retail businesses who have seen their trade taken away by large grocery
orientated multi-outlet retailers. By adapting to provide an emergency, impulse
purchase and top-up service, many small retailers have found a living with a

product range that is reoriented towards convenience.


4. Challenges of Finance:
Retail sector, shortage of finance or capital is considered to be the most

important factor responsible for a host of Challenges faced by them.


Sources of Finance: unorganized retail traders generally depend on two kinds of
capital, (1) Equity or own capital and (2) borrowed capital consisting of (i) long
term capital for its investment in equipment and other capital assets and (ii) short
term capital to meet current needs of the Business. Own capital is usually

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provided by the Retailers themselves. It is sometimes supplemented by the


resources raised from friends and relatives either as partners. Small retailers
generally do not encourage capital from outside agencies as it involves sharing of
management and control. Much of this initial capital is required for the purchase
of fixed assets like land, building, Furniture, other Technical equipments and the
balance for working capital. Owned capital may not be sufficient to meet the long
term needs. In such a case, besides the own capital, long term capital is needed for
expansion and renovation of enterprises and modernization of shops. Short term
credit is needed for working capital, to buy trade goods, to pay wages, to

maintenance expenditure etc.


Various Schemes of Banks: Indian government has introduced various schemes
to extend financial assistance rural retailers availed themselves loans under the
schemes. Loans availed under various schemes is discussed here under in
comparison with number of outlets. It is clear that commercial banks are one of
the sources of funds to urban and rural outlets. Banks also granted loans to retail

outlets under various governmental schemes.


Challenges in Obtaining Finance: Many of retailers are unwilling to approach
financial agencies in spite of their financial needs and majority of retailers
mentioned the following reasons for their uncertainty Various Challenges are
encountered by rural and urban traders in dealing with the financial agencies in
raising funds and repaying the loans to them. The important among them are
security, delay in sanction, insufficient financing, high rates of interest and

cumbersome procedures.
Loan taken by Commercial Banks: Generally banks do not sanction and release
loan amount to retailers as soon as they apply for a loan. Banks have to verify the

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application and forward it to their higher authorities for approval. It retailers apply
for a loan under some government scheme, Government officials concerned have
to inspect their application obviously it takes some time for sanctioning the loan
from the date of application. Besides this delay, banks take some more time for
releasing the sanctioned loan amount to maintain their liquidity position. Timely
financial assistance is essential to any Retail outlet. When commercial banks take
long periods of time in sanctioning the financial assistance from the date of
application to the date of sanction and disbursement, the Traders suffer a lot. It is
observed that banks delayed their assistance in many cases.

3.5 IMPACT OF ORGANISED AND FOREIGN DIRECT INVESTMENT


Introduction
FDI Foreign direct investment (FDI) or foreign investment refers to the net
inflows of investment to acquire a lasting management interest in an enterprise operating
in an economy other than that of the investor. Foreign direct investment is the sum of
equity capital, reinvestment of earnings and other long or short term capital as shown in
the balance of payments. It usually involves participation in management, joint venture,
transfer of technology and expertise. There are two types of FDI: (a) Inward foreign
direct investment and (b) Outward foreign direct investment. Foreign direct investment
excludes investment through purchase of shares. Foreign direct investment can be used as
one measure of growing economic globalization.

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Single brand: Single brand implies that foreign companies would be allowed to sell
goods sold internationally under a single brand, viz., Reebok, Nokia and Adidas. FDI in
Single brand retail implies that a retail store with foreign investment can only sell one
brand. For example, if Adidas were to obtain permission to retail its flagship brand in
India, those retail outlets could only sell products under the Adidas brand and not the
Reebok brand, for which separate permission is required. If granted permission, Adidas
could sell products under the Reebok brand in separate outlets.

Multi brand: FDI in Multi Brand retail implies that a retail store with a foreign
investment can sell multiple brands under one roof. Opening up FDI in multi-brand retail
will mean that global retailers including Wal-Mart, Carrefour and Tesco can open stores
offering a range of household items and grocery directly to consumers in the same way as
the ubiquitous kirana store.

Politician view about FDI in retail business in India:


Dr.Manmohan Singh, Prime Minister in India: We should not permit FDI in
retail trade. India does not require this kind of reforms which would, rather than

creating employment, destroy employment.


Sushama Swaraj, BJP, opposite leader in lokshaba: The decision of the
Government to permit FDI in multi - brand retail trade is a deliberate duplicity of
the assurance given by the Government on the floor of the Parliament on 7th Dec

2011.
Nitish Kumar, CM, in Bihar: The retail business is doing well, the shopkeepers
are earning money and people are buying their daily needs from them If FDI
comes in, the farmers will not be benefitted at all.The foreign investors promise
in the beginning that profits will reach farmers. But ultimately, the farmers get
nothing.
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Prakash Singh Badal, CM, in Punjab: If FDI comes, biggies would eat into the

share of small fries, which would be against the idea of social welfare.
Oommen Chandy, CM, Kerala: The Centre's decision to allow 51 per cent
foreign investment in multi-brand retail business will not be implemented in the

state.
Navin Patnaik, CM, in Odisha: FDI in retail is neither going to bring down the

prices nor improve the investment climate.


J.Jayalalithaa, CM,in Tamilnadu: The UPA government has been making blunder
after blunder by adopting many anti-people policies and this latest decision will
only add up to one more such serious blunder committed by the Central
government which seems to be totally unmindful of the interests of the common

people.
Overview of FDI in Indian retail sector:
Retail sector one of the pillars of its economy and accounts for 14 to 15% of its
GDP. The Indian retail market is estimated to be US$ 450 billion and one of the top five
retail markets in the world by economic value. India is one of the fastest growing retail
markets in the world, with 1.2 billion people. Indias retailing industry is essentially
owner manned small shops. In 2012, larger format convenience stores and supermarkets
accounted for about 4% of the industry, and these were present only in large urban
centers. India's retail and logistics industry employs about 40 million Indians (3.3% of
Indian population). Until 2011, Indian central government denied foreign direct
investment (FDI) in multiband retail, threatening foreign groups from any ownership in
supermarkets, convenience stores or any retail outlets. Even single-brand retail was
limited to 51% ownership and a practical process. In November 2011, India's central
government announced retail reforms for both multi-brand stores and single-brand stores.
These market reforms paved the way for retail innovation and competition with multi-

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brand retailers such as Wal-Mart, Carrefour and Tesco, as well single brand majors such
as IKEA, Nike, and Apple.
History has witnessed that the concern of allowing unrestrained FDI flows in the
retail sector has never been free from controversies and simultaneously has been an issue
for unsuccessful deliberation ever since the advent of FDI in India. Where on one hand
there has been a strong outcry for the unrestricted flow of FDI in the retail trading by an
overwhelming number of both domestic as well as foreign corporate retail giants; to the
contrary, the critics of unrestrained FDI have always fiercely retorted by highlighting the
adverse impact, the FDI in the retail trading will have on the unorganized retail trade,
which is the source of employment to an enormous amount of the population of India.
The antagonists of FDI in retail sector oppose the same on various grounds, like, that the
entry of large global retailers such as Wal-Mart would kill local shops and millions of
jobs, since the unorganized retail sector employs an enormous percentage of Indian
population after the agriculture sector; secondly that the global retailers would conspire
and exercise monopolistic power to raise prices and monopolistic power to reduce the
prices received by the supply.

Advantages of FDI
FDI plays an extraordinary and growing role in global business. It can provide a
firm in the home country with new markets and marketing channels, cheaper production
facilities, access to new technology, products, skills and financing. For a host country

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FDI is said to be an important factor for spurring the development of a nation in the
following ways.

Economic development: Foreign Direct Investment helps in the economic development


of the particular country where the investment is being made. It has also been observed

that FDIs helped several countries when they have faced economic hardships.
Transfer of technologies: FDI also permits the transfer of technologies. This is done
basically in the way of provision of capital inputs. It also assists in the promotion of the

competition within the local input market of a country.


Human capital resources: The countries that get FDIs from another country can also
develop the human capital resources by getting their employees to receive training on the
operations of a particular business. The profits that are generated by the FDIs that are
made in that country can be used for the purpose of making contributions to the revenues

of corporate taxes of the recipient country.


Job opportunity: Foreign direct investment helps in the creation of new jobs in a
particular country. It also helps in increasing the salaries of the workers. This enables
them to get access to a better lifestyle and more facilities in life. It has normally been
observed that foreign direct investment allows for the development of the manufacturing

sector of the recipient country.


Income generation: FDI assists in increasing the income that is generated through
revenues realized through taxation. It also plays a crucial role in the context of rise in the
productivity of the host countries. In case of these countries, their companies get an

opportunity to explore newer markets and thereby generate more income and profits.
Export: It also opens up the export window that allows these countries the opportunity to
cash in on their superior technological resources. It has also been observed that as a result
of receiving FDIs from other countries, the recipient countries can keep their rates of

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interest at a lower level. It becomes easier for the business entities to borrow finance at

lesser rates of interest.


Linkages and spillover to domestic firms: Various foreign firms are now occupying a
position in the Indian market through Joint Ventures and collaboration concerns. The
maximum amount of the profits gained by the foreign firms through these joint ventures
is spent on the Indian market, which in turn benefits the domestic firms.

Proper tax system: Tax revenue will increase like VAT and service tax. The organized
sales with computerized billing system will also yield more revenue through commodity
taxes like VAT and service tax to the government. Thus tax buoyancy of the economy
would increase.

Distribution system: The report shows that 30-35% of Indias total production of fruits
and vegetables is wasted every year due to inadequate cold storage and transport
facilities. Almost half of this wastage can be prevented if fruit and vegetable retailers
have access to specialized cold storage facilities and refrigerated trucks. The organized
retail will bring in efficient practices that will help farmers in the procurement process,
reduce wastage with finally efficient storage and will finally cut the losses. The giant
retailers will help India to have strong storage system with highly developed
transportation. Giant retailers with decades of experience on how to manage mountains of
inventories supply them to key distribution centers and do it all faster, better, cheaper.
The arrival of foreign retailers will definitely bring in synergies in distribution
management practices.

Partnership opportunity: Indian retailers have reason to be happy with foreign direct
investment in the retail sector because it is a partnership opportunity that involves a lot of
learning that could take them to higher profitability. The central government is planning

70

to have 51% foreign investment; this means the foreign retailers need partners for the rest
investment to gain market.
Problems of allowing FDI
Adverse impact on the employment:
In the absence of any substantial improvement in the employment generating capacity
of the manufacturing industries in our country, entry of foreign capital in the retail sector is
likely to play havoc with the livelihood of millions. Let alone the average Indian retailer in
the unorganized sector, no Indian retailer in the organized sector will be able to meet the
onslaught from a firm such as Wal-Mart when it comes in full swing. With its incredibly
deep pockets Wal-Mart will be able to sustain losses for many years till its immediate
competition is wiped out. This is a normal predatory strategy used by large players to drive
out small and dispersed competition. This entails job losses by the millions. A back-of-theenvelope calculation can substantiate the point. If we take the case of India, it has 35 towns
each with a population over 1 million. If Wal-Mart were to open an average Wal-Mart store
in each of these cities and they reached the average Wal-Mart performance per store-we are
looking at a turnover of over Rs 80330mn with only 10195 employees. Extrapolating this
with average trend in India, it would mean displacing about 432000 persons and if we
suppose that the large FDI driven retailers take up 20% of the retail trade in India, it would
mean a turnover of Rs 800 billion and displacement of eight million persons employed in the
unorganized retail sector.

Threat on Indian retail players


Entry of global players would increase internal rivalry among the players than

promoting business of overall industry. Their economies of scale will allow them to reduce
their margin to provide value for money products in the beginning to grab the market share

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which is not possible for domestic players to reduce in comparison to global players because
of huge investment. Majority of the Indian players have not attained even breakeven point as
organized retail is still at the nascent stage in India.

Predatory practices of the multinational retail chains


FDI in retail is often supported on the basis of the need to develop modern supply
chains in India, in terms of the development of storage and warehousing, transportation,
logistic and support services, especially in order to meet the requirements of agriculture
and food processing industries. While the infrastructure and technology needs are
undeniable, the belief that the entry of multinational food retailers is the only way to
build such infrastructure is unfounded. Moreover, the pitfalls of relying upon an agrarian
development strategy driven by food retail chains and giant agribusinesses have already
become clear through the experience of several developing countries like Malaysia,
Thailand and Vietnam. Farmers experience many problems in supplying their produce to
the food retailers and many get eliminated under the preferred supplier system. Farmers
also face problems related to depressed prices due to cutthroat competition among the
food retailers, delayed payments and lack of credit and insurance The emergence of such
problems in India, especially in the context of the deep crisis that has engulfed the
agrarian economy is totally avoidable. It is often argued that the Indian farmers and
manufacturers are going to enjoy access to international markets by supplying
commodities to these multinational retailers. However, the experience of the producers,
especially those producing primary commodities in the developing world, is not
encouraging in this regard. According to a source, while a cocoa farmer in Ghana gets
only about 3.9% of the price of a typical milk chocolate bar, the retail margin would be

72

around 34.1%. Similarly, 54% of the final price of a pair of jeans goes to the retailers
while the manufacturing worker gets around 12%. The International market access
available to the global retailers do not benefit the producers from the developing
countries since they are unable to secure a fair price for their produce in the face of
enormous monophony power wielded by these multinational giants.

Monopoly in the customer market and creation of cartels by the global players
Foreign players may create monopoly by providing products at discounted rates in the

beginning to grab the market share by displacing domestic giants and after getting good
market or monopoly in the market may create a cartel of global giants to exploit the
customers by inducing price hike and customers would not get any option than to purchase at
the available prices.

Distortion of urban development and culture


The promotion of large retail stores with huge retail space also fosters a different
kind of urban development than what we have followed in India till date. Large shopping
malls with all known retail chains with their showrooms as a part of urban development
is familiar in the US where the consumers live in suburbs, drives long distances for
his/her shopping and lives in a community that hardly knows each other. The problem
with this model is that it neglects the simple Indian reality where most households do not
have cars and need local markets. The myth of a huge and fast growing affluent middle
class is counter to the reality that this section is still too small to support the remodeling
of the urban landscape as is being planned with malls, large retail chains and branded
products.

Determinants of FDI Inflows:

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The volume and the quality of FDI in a country depend on the following factors:
Natural Resources: Availability of natural resources in the host country is a major
determinant of FDI. Most foreign investors seek an adequate, reliable and economical
source of minerals and other materials. FDI tends to flow in countries which are rich in
resources but lack capital, technical skills and infrastructure required for the exploitation
of natural resources.
National Markets: The market size of a host country in absolute terms as well as in
relation to the size and income of its population and market growth is another major
determinant. Large markets can accommodate more firms and can help firms to achieve
economies of large scale operations.
Availability of Cheap Labour: The availability of low cost and skilled labour has been a
major cause of FDI in countries like China and India. Low cost labour together with
availability of cheap raw materials enables foreign investors to minimize costs of
production and thereby increase profits.
Socio-Economic Conditions: The size of the population of the host country, its
infrastructural facilities and income level of the country also influence direct foreign
investment.
Political Situation: Political stability, legal framework, judicial system, relations with
other countries and other political factors prevailing in the country also influence
movements of FDI from one country to another.
Rate of interest: Differences in the rate of interest prevailing in different countries
stimulate foreign investment. Capital tends to move from a country with a low rate of
interest to a country where it is higher. FDI is also inspired by foreign exchange rates.
Foreign capital is attracted to countries where the return on investment is higher.
Government Policies: Policy towards foreign investment, foreign collaborations, foreign
exchange control, remittances, and incentives both monetary and fiscal offered to

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foreign investors exercise a significant influence on FDI in a country. For example,


Export Processing Zones (EPZs) have been developed in India to attract more FDI
inflows and to boost exports.
3.6 GROWTH OF INDIAN RETAIL BUSINESS:
Introduction
Retailing in Indias other main cities, such as Bangalore, Kolkata, Hyderabad,
Pune and Chennai is growing rapidly, but such is the pace of change, that many smaller
third tier cities are now firmly on the radar screen of the retail sector and mall developers.
With around 50 cities of over one million populations, many of which are still largely
untapped, there are clearly substantial opportunities for the retail sector in these cities.
Domestic retailers and shopping mall developers are moving aggressively into Indias
smaller cities in order to gain first mover advantage, to capture growing consumer
markets and to respond to the strong demand for branded goods. There is clearly a
significant requirement from the retail sector to know where Indias next growth
opportunities are likely to be concentrated.
Retailing is emerging as one of Indias most dynamic and fast paced sectors. The
drivers of its upward growth trajectory such as favourable demographics, rapid
urbanization, Indias booming economy and growing middle classes, explain why the
Indian retail market is seen by both domestic and international retailers, as well as the
property industry, as one of the globes greatest untapped market (IBEF , 2009)1. India's
nominal GDP was US$1.17Trillion in 2008. Average annual GDP growth of 6.5% is
predicted by BMI to 2013 (India Retail Report Q4 2010)2. With the population forecast
to increase from an estimated 1.19 Billion in 2008 to 1.27 Billion by 2013, GDP per
capita is expected to expand by nearly 59% by the end of the forecast period, to reach a

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projected US$1,563. The Indian retail market is witnessing a migration from traditional
retailing to modern/ organized retailing formats, with an explosive proliferation of malls
and branded outlets. Modern retailing outlets in India are increasingly becoming global in
standards and are witnessing intense competition. The growth in the overall retail market
will be driven, in large part, by the explosion in the organized retail market. By this, we
mean the familiar Western concept of chain outlets, department stores, supermarkets, etc.,
and this segment accounted for US$12.1bn of sales in 2006, or 4.6% of the total retail
segment (Investment Commission of India (ICI) data, 2008). Indian retail industry is
poised to grow at a rate of 19 per cent over the next five years (Crisil, 2009). The
Organised retail market in India is projected to grow to US$ 23 billion in 200910. The
Organised retail segment is expected to grow from 5 per cent to about 7 to 8 per cent by
201213. With a share of over 95 per cent of total retail revenues, traditional retailing
continues to be the backbone of the Indian retail industry. Over 12 million small and
medium retail outlets exist in India, the highest in any country. Traditional retail is highly
pronounced in small towns and cities, with a primary presence of neighbourhood 'kirana'
stores, push-cart vendors, 'melas' and 'mandis'. Organised retailing is growing at an
aggressive pace in urban India, fuelled by burgeoning economic activity. An increasing
number of domestic and international players are setting up base in the country and
expanding their business to tap this growing segment. The food and beverages segment
accounts for the largest share, at more than 70 per cent of the total retail pie. Traditional
retail dominates food, grocery and the allied products sector, with grocery and staples
largely sourced from kirana' stores and push cart vendors. Food and grocery segment
comprises 62 per cent of the $ 270 billion Indian retail market (India Retail Report,

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2007). Only 0.8 per cent of this segment is in the organized sector and witnessed a yearon-year growth of 30.8 per cent in 2005-06 as against 2.2 per cent growth of the total
food and grocery retail market (Dr. Paromita Goswami, Dr. Mridula S. Mishra, 2008)3.
The apparel and consumer durable verticals are the fastest-growing verticals. Mobile
phones, supported by the growing telecom penetration in small towns and villages, are a
major retail item with the addition of 10 million to 12 million mobile phone users every
month. The home dcor sector is witnessing rapid growth with the reducing average age
of Indians buying homes. Beauty care, home dcor, books, music and gift segments are
gaining attraction, predominantly in the urban areas and emerging cities.Organized retail
in India is largely restricted to urban regions with consumer exposure to modern retailing
formats such as malls and standalone stores, etc., for specific product categories. The
clothing and textiles/apparel segment dominated the organised retail sector with revenues
worth US$ 6 billion in 200708, contributing more than 27 per cent to the organised
retail pie. Figure 2.3 shows the comparative penetration of the organized retail in various
countries. While the penetration is maximum (85%) in USA, it is hardly about 4% in
India. Penetration of organised retail in India is projected to increase to 7 per cent by
201213.
Retail Trade in various countries
Country

Percentage

India

China

17

Poland

20

Indonesia

30

Russia

33

Brazil

35

77

Thailand

40

Malaysia

55

USA

85

Indias leading important retail chains


The big players in Indian retail landscape now are the Future Group, Shoppers
Stop, Westside, Subiksha and RPG Spencer. The newcomers who are knocking at the
gates are Reliance Retail, Bharti Walmart and Aditya Birla Trinethra. Here, we intend to
do a brief profiling of the major retail chains in order to understand the retail business in
a better manner.

Bharti Wal-Mart Bharti Retail (Pvt.) Ltd. Unveiled the roadmap for its retail venture on
19th February, 2007 envisaging an investment of $2.5 billion with expectation of revenue
of $4.5 billion from this business by 2015. The first retail outlet is expected to open
somewhere in the month of August .Bhartis plan is to invest $2.5 billion by 2015 and
open stores across all major cities. This investment would be only for setting up front-end
stores. The modalities for its back-end linkage, including its joint venture with the world's
largest retailer Wal-Mart, are in the process Retailing consists of all activities involved in
selling goods and services to consumers for their personal, family or household use. It
covers sales of goods ranging from automobiles to apparel and food products and
services ranging from hair cutting to air travel and computer education. Sales of goods to
intermediaries who resell to retailers or sales to manufacturers are not considered a retail
activity.

Aditya Birla The Aditya Birla Group is India's first truly multinational corporation.
Global in vision, rooted in values, the Group is driven by a performance ethic pegged on
value creation for its multiple stakeholders. A US$ 24 billion conglomerate, with a

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market capitalization of US$ 23 billion and in the League of Fortune 500, it is anchored
by an extraordinary force of 100,000 employees belonging to over 25 different
nationalities. Over 50 per cent of its revenues flow from its operations across the world.
Our mission is to change the way people shop. We will give them more. says Mr. Kumar
Mangalam Birla, Chairman, Aditya Birla Group. The MORE promises a world-class
pleasurable shopping experience to Indian consumers in their very own neighborhood.

Reliance Retail: On June 26, 2006, Mukesh Ambani, Chairman and Managing Director,
Reliance Industries Limited, announced an Rs 25,000-crore investment in the retail
sector. Reliance Retail started its retail operation with Reliance Fresh, a grocery store
that sells vegetables, fruits, personal care items and other food products. Soon, these
retail outlets will also be selling apparel and footwear, lifestyle and home improvement
products, electronic goods and farm implements and inputs. They will also offer products
and services in energy, travel, health and entertainment. In addition to this, partnerships
would be developed to bring the best of global luxury brands to India as well. Reliance
Retail plans to extend its footprint to cover 1,500 Indian cities and towns with outlets of a
varied format, a mix of neighborhood convenience stores, supermarkets, specialty stores
and hypermarkets. Reliance also plans to open restaurant outlets, financial services marts
and tourism counters within its stores. Mukesh Ambanis ultimate ambition seems to be
to create the Indian equivalent of Wal-Mart by scaling up the business to unprecedented
heights to reach every nook and corner of the country. With its retailing venture, Reliance
expected a revenue target of US $20 billion through its retail operations by 2010. Over a
span of five years, RRL expects a 20% return-on-investment. The first store christened

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Reliance Fresh opened in November 2006 at Hyderabad. Within a few months they
have now opened stores in Mumbai, Pune and Ahmedabad and plansof being worked out

RPG Spencer :RPGs Spencer presently has 125 stores across 25 cities covering a retail
trading area of half a million square feet and with a clientele of 3 million customers a
month. Spencer's has a national footprint with seven hypermarkets, three supermarkets
and 70 daily use outlets, called Dailies. All the newly opened Spencer's stores stock every
conceivable product that is required by a household on a daily basis. At Spencer's Daily
shoppers can get fresh fruits, vegetables, fast-moving consumer goods, household items,
groceries, with regular offers and discounts. Spencer's outlets are divided in to three retail
formats. These are, Spencer's Hyper, the over 25,000-sq ft hypermarkets stocking over
25,000 items. The 8,000sq ft to 15,000-sq ft mini hyper stores, branded as Spencer's
Super and the daily purchase 4,000-sq ft to 7,000-sq ft Spencer's Daily for groceries,
fresh food, chilled and frozen products, bakery and weekly top up shopping.

Subiksha: The Chennai based Subiksha grocery chain runs around 200 outlets all over
the country and its current turnover stands at Rs 224 crores. Their target customer is the
middle income value conscious buyers. The main aim of Subiksha is to offer a functional
and transactional shopping experience. This retail chain has no qualms and spends almost
no money on creating a pleasant shopping experience, and all stores are non-air
conditioned. There is no false roofing or sparkling vitrified tiles on the floor. A few years
ago, Subiksha did not even offer shoppers self service. The customer had to place an
order at a computerized teller and the goods were billed and delivered after cash is
collected. Customers had to bring their own carry bags or pay to buy them from the store.
Subiksha even attempted to charge the customers for home delivery.

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Piramyd: Piramyd Retail is part of the Piramal Group, which has presence in diverse
sectors spanning Pharmaceuticals, Textiles, Real Estate, Engineering, Family
Entertainment and Retail with manufacturing operations in 19 locations across five states
and employing over 18,000 people. The promoters launched the apparel business in 1999
under Piramyd Retail and Merchandising Pvt. Ltd. (PRMPL) while its food; home &
personal care businesses (FHPC) were housed under Crossroads Shoppertainment Pvt.
Ltd. (CSPL). As the apparel and food businesses individually reached a critical mass the
management merged the two companies into Piramyd Retail Ltd. due to distant synergies
in two businesses in March 2005. Pyramid also has a smaller format of stores called
TruMart that caters to Food and Personal Care products.

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