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GLOBALIZATION:

REVOLUTIONIZING RETAIL INDUSTRY IN


INDIA

An Article

In partial fulfillment of the


requirements of the course of

Written Analysis and Communication-I

Submitted to

Prof. Rohini Patel

By
Anupama Jangid
` Dhiraj Kumar Choudhary
Section B

on
20th of Jan 2007
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Abstract

The president of MTL had diversified it with the objective of future growth
potential and making it less vulnerable to any economic fluctuation. The earlier
president was handling all the businesses himself and so a second line of
leadership had not been groomed. The untimely death of the president led to a
situation of leadership vacuum throughout the businesses. The situation is further
complicated by the fact that most of the acquired businesses are actually not
doing much ‘business’ in terms of sales and profits. So it is advisable to divest
some of the businesses and to integrate and establish the proper top management
within the organization.

No of Words = 109

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Table of Contents:

Abstract....................................................................................................................2
No of Words = 109..............................................................................................2
Table of Contents:...................................................................................................3

GLOBALIZATION:
REVOLUTIONIZING RETAIL INDUSTRY IN
INDIA

Introduction:-

Retailing is defined as an activity that ensures that customers


derive maximum value from the buying process. It involves activities and steps
needed to place the merchandise made elsewhere into the hands of customers or
to provide services to the customers.1 It organises the availability on large scale
and supply them to consumers on a relatively small scale. In the process it
provides the accessibility of location, convenience of timing, convenience of size,
information and lifestyle support. Retailing has always been an integral part of
economic development.

Retail Scenario in India:-

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

The Indian retail industry is currently estimated to be a US$


200 billion industry and organised retailing comprises of 3 percent (US$6.4
Billion) of the retail industry. (Exhibit:-1) With a growth exceeding 20 percent
per annum over the last 5 years, organised retailing is projected to reach US$ 23
Billion by 2010.2 India is the last large Asian economy to liberalize its retail
sector. Organised retailing in India has a huge scope because of the vast market
and the growing consciousness of the consumer about product quality and
services. The greatest advantage is that it is the least saturated among all the
global markets which implies lower barriers for global players. Whether the
changes taking place in the Indian retail landscape represent evolution or
revolution is a matter for conjecture. However, nobody can doubt that a dramatic
transformation is under way. In its nature, the Indian retail market is in sharp
contrast to the global situation. Most of these outlets are basic mom-and-pop
stores with very basic offerings, fixed prices, and no ambience.

Retail sales in India amounted to about Rs.7400 billion in


2002, expanded at an average annual rate of 7% during 1999-2002.4 (Exhibit-
2)4 .The proportion of retail sales to GDP increased from 42.8% in 1996 to 45%
in 2000. The total number of retail outlets is increasing by 7% per year. 5 A recent
estimate suggests there are more than 13 million operational retail outlets in
India. Ninety six percent of these outlets are small with average area of less than
500 square feet.6 India's per capita retailing space is the lowest in the world. 7
Sales from large-format stores are to expand at growth rates ranging from 24% to
49% per year during 2003-2008.8 As the corporates – the Piramals, the Tatas, the
Rahejas, ITC, S.Kumar’s, RPG Enterprises, and mega retailers- Crosswords,
Shopper’s Stop, and Pantaloons race to revolutionize the retailing sector, retail as
an industry in India is coming alive.(Exihibit:-3)4

Exihibit:-2

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Trend of Retail Sales and Growth


30000 20

18
25000
16

14
20000
12

15000 10

8
10000
6

4
5000
2

0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Retail Sales Rs.'000 Billion % Grow th

The factors responsible for the development of retail industry in India


in context with Globalization:-

• Liberalization of the Indian economy which has led to the opening up of


the market for consumer goods has helped the MNC brands like Kellogs,
Unilever, Nestle, etc. to make significant inroads into the vast consumer
market by offering a wide range of choices to the Indian consumers.
• The National Council of Applied Economic Research classified
approximately 50% of the Indian population as low income in 1994-95;
this is expected to decline to 17.8% by 2007. Traders have benefited from
an economy which gave rise to a growing number of middle-class with
higher levels of disposable income and accelerating convergence of
consumer tastes.9
• Reach of satellite T.V. channels is helping in creating awareness about
global products for local markets. About 47% of India’s population is
under the age of 20; and this will increase to 55% by 2015.10 This young
population, which is technology-savvy, watch more than 50 TV satellite
channels, and display the highest propensity to spend, will immensely
contribute to the growth of the retail sector in the country.

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

• Shift in consumer demand to foreign brands like McDonalds, Sony,


Panasonic, etc.
• Shift in consumer buying behavior and expectations.
• Very few significant competitors due to which new entrants can get the
early mover advantages.
• Operational competitive advantage through strong processes and
infrastructure.
• Potential for high market capitalization.
Exihibit:-423

What factors make India conducive to cost-effective marketing


100
90
80
70
60
50
40
30
20
10
0
Size of the

Developed

Awareness

consumers

Potential in

Premium
segments
conscious
of brands
market

market
media

Quality

Profit
best

Different Forms of Retailing:-11

← Hypermarkets (>5000 sq. ft.)


← Large supermarkets (3,500 - 5,000 sq. ft)
← Mini supermarkets (1,000 - 2,000 sq. ft)
← Convenience store (7,50 - 1,000 sq. ft)
← Discount/shopping list grocery (<750 sq. ft.)

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Component of Indian Retail Sector:-12 (Exhibit:-5)

A) FOOD RETAILERS

Food retail contributes 62.7% in the total retail sales. It has increased
substantially by 85% to Rs. 7,039 billion in current terms during last 5 years.13
Food sales accounted for about 63% of supermarket sales and 60% of
convenience stores. Traditional types of retailers, who operate small single-outlet
businesses mainly using family labor, dominate this sector. In comparison, super
markets account for a small proportion of food sales in India. However, now a
day’s super markets are becoming more attractive due to higher standards of
hygiene and attractive ambience.

B) CLOTHING & FOOTWEAR

Global-brands such as Marks & Spencer, Lacoste, and Benetton have established
their retail presence in the country through the franchising route. In fact, a large
number of Indian brands have also adopted the franchising route for expansion
due to the relatively lower level of investments involved.

C) DURABLE GOODS

The Indian durable goods sector has seen the entry of a large number of foreign
companies (LG, Hyundai, Samsung etc.) during the post liberalization period.
Intense competition among companies to sell their brands provided a strong
impetus to growth for retailers doing business in this sector.

D) CATERING

Home-grown as well as international restaurant chains present in both high street


locations and malls represent the organized Food and Beverage sector. Most of
the multinational foodservice chains like McDonald's and Pizza-Hut have adopted
the franchising route to set-up their Indian operations and expand their market
presence. Coffee retailing has emerged as a successful example in this segment

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

with two national brands Cafe Coffee Day & Barista already established. The
sector is expected to grow at about 12-15 percent in the near future.14

E) BOOK RETAILING

Global stores like Crossword, Oxford, Landmark etc. have been instrumental in
revolutionizing the book retailing in the country. These stores have positioned
themselves as “Experience or Destination Centers” by providing music,
stationery, toys and gifts along with books. Book Stores have mushroomed across
several cities and shown a healthy growth rate ranging between 20-70 percent
annually.15

F) MUSIC RETAILING

The Indian music industry is the fifth largest consumer of music units in the
world (181.1 million units). In spite of the decline in the domestic music industry,
Music World and Planet M have posted impressive growth in their topline (18
percent and 46 percent respectively).This growth is mainly attributed to the retail
expansion.16

G) JEWELLERY RETAILING

Branded jewellery in India is a recent phenomenon with Titan Industries Ltd


being the pioneer with its 'Tanishq' brand launched in 1996. The instant success
of Tanishq led many other players like Gili, Oyzterbay, Carbon, Nakshatra,
Enchante, Intergold, etc to step up their efforts in this vastly untapped market.
Currently the branded jewellery market in India stands at INR 1150 crore, and it
is growing at the rate of 40 percent per annum. With organized jewellery retailing
comprising just 2 percent of the Indian Jewellery market, organised retail chains
have still to face a lot of challenge from traditional rivals.17

Malls in India:-

Over the last 2-3 years, the Indian consumer market has seen a
significant growth in the number of modern-day shopping centers, popularly

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

known as ‘malls’. There is an increased demand for quality retail space from a
varied segment of large-format retailers and brands, which include food and
apparel chains, consumer durables and multiplex operators. This has attracted
Global real-estate giants like DLF to establish malls and retail stores. As a result,
from just 3 malls in 2000, India is all set to have over 300 malls by 2007. 18
(Exihibit:-6)

By 2007, total mall space in cities of Mumbai, Bangalore,


Hyderabad, Chennai, Kolkata, and National Capital Region is expected to
increase to over 26.1 million sq. ft.19 Smaller cities like Pune, Ahmedabad,
Ludhiana, Jaipur, Chandigarh, etc. are also expected to see a formidable growth
of malls in the near future.(Exhibit:-7)

Challenges:-

Despite the presence of the basic ingredients required for


growth of retail industry in India, it still faces substantial hurdles that would
retard and inhibit its growth in the future. One of the key impediments is the lack
of FDI status. This has largely limited the growth of retailing and has also
constrained access to world-class retail practices. Multiplicity and complexity of
taxes, lack of proper infrastructure and relatively high cost of real estate are the
other impediments to the growth of retailing.

Exhibit:-84

Importance of Key Concerns for Consumer Companies


90
80
70
60
50
40
30
20
10
0
Retail Space

FDI controls

Unorganised

urban retail

Partnership
competition

Storage of
Cost Of

space
sector

laws

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Exhibit:-94

Consumer Companies cite Key distribution Concerns


70

60

50

40

30

20

10

0
geographical

Infrastructure

Distribution

Fragmented

distribution

distribution
networks
constraints

national
Lack of

Lack of
market
costs

hubs
Large
area

Discussion Regarding FDI:-


Much has changed since the government of Rajeev Gandhi
began the long, slow and painful process of opening up the economy. India’s
consumer markets started to look a little more like world markets, as global
brands became increasingly recognized and the share of organized retail in the
market began to grow. The Indian Retail Council was formed in 2000, under the
auspices of the Confederation of Indian Industry.20 This Council is expected to
enable the industry to lobby for unified tax laws, rational octroi, labor laws and
tenant laws.

Given the attractiveness of the Indian retail sector, foreign


retailers like Wal-Mart, Carrefour SA, and Tesco Plc. were keen to enter this
growing market, despite the Indian retail sector being closed to foreign direct
21
investment. However, global companies with manufacturing bases in India, are
allowed to retail their products manufactured in India. Foreign retailers can only
enter the retailing environment through franchising agreements. In February
2006, the Indian Government had announced its decision to allow FDI of up to
51% in single brand retailing. However, 100% FDI is permitted in wholesale
trading.

There are apprehensions in certain quarters that FDI


in retailing would lead to unfair competition and ultimately result in large scale

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

exit of domestic retailers, especially small family managed outlets. FDI would
only encourage imports without the benefit of local manufacturing, or the
backward linkages to the agricultural sector. There is also the fear that global
retail chains would use India as a dumping ground for sub-standard or outdated
products. (Exhibit:-10)

The brighter side of the story is that FDI


would result in market growth and expansion. Investments would be made in the
supply chain which would improve product basket from India for exports. A
strong retailing sector boosts tourism as clear from the examples of cities like
Singapore and Dubai. It also leads to inflow of modern retail technology from
other countries. Increased consumer demand implies employment generation
across the value chain. The major requirement of organised retail would be
people with average skill sets like high school graduates. Currently this is the
major unemployed demographic group which would be absorbed significantly if
FDI is allowed in India.

Recommendation:-
The retailers in India have to learn both the art and science of retailing by closely
following how retailers in other parts of the world are organizing, managing, and
coping up with new challenges in an ever-changing marketplace. According to
the 'Global Retail Development Index 2006, India has retained its topmost
position in the annual study of retail investment attractiveness among 30
emerging markets.22 To exploit this potential India should allow FDI in phased
manner. Currently it can be allowed to the extent of 26 percent. Subsequently the
small industry will learn the efficiency improving mechanism and technology to
avoid the global players to dominate the market. In the next phase the FDI limit
can be increased to 49% so that with controlling power in the hand of Indian
industry it can improve itself to compete with the global player. In the final phase
it can be increased to 100%. As the sector is highly profitable and has huge
potential so no incentives like tax breaks, import duty exemption and subsidies
are required. A comprehensive, rational retail support policy can go a long way in
making the sector act as an engine of growth for the state economy. Also if India

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

continues to get strongly integrated with the world economy riding the waves of
globalization, the retail sector is bound to take big leaps in the years to come.

.
Exhibits:-

Exhibit:-124

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

13
Exhibit:-323

Selected Indian Retailers

Investment made so far and


Company Expected
Retail expansion plans Increase in
and its No. of Product turnover
space Format retail presence
retail outlets basket 2001-2002
(Sq. ft.) space/cities/stores/investment
presence (Rs. Cr.)
/turnover etc.

Bata App. Shoes and


1500 + Brand chain 800 NA
Nationwide 10,00,000 Accessories

Photography
Kodak Processing
890+ 5,00,000 Imaging chain 700 Plans 200 stores every year
Nationwide and
Peripherals

Margin Discount super


214 2,50,000 Groceries 550 NA
Free Kerala markets

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Total turnover Rs. 600 cr.


Liberty Shoes and 500 Planning 10 company owned
360 2,00,000 Brand chain
Nationwide Accessories (domestic) ‘Revolution Stores’ with an
investment of Rs. 25 cr.

RPG Retail
Food
Investment so far Rs. 132 cr. Rs.
World,
Super Food, Music, 60 cr. Investment every year to
Music
market/specialt Health and add 30 outlets of Music World,
World, 110 4,93,000 460
y stores, Hyper Beauty, more Health and Glow outlets 25
Health &
market Groceries, etc food world stores and 4 grand
Glow,
hypermarkets
Super Store
& Grant

Watches, 446 Total company turnover of


Titan Ind. 314 2,30,000 Brand Chain clocks and (Independent Rs.709 cr. More than 375 stores
Jewellery stores) by March 2002.

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Planning 100 exclusive stores


Fabrics,
Raymond Speciality for its apparels brands, Park
263 4,00,000 Apparels, 400
Nationwide stores Avenue & Parx. More stores in
accessories
Dubai, Bangkok and Sharjah.

Clothing 18 Shopper’s Stop with a


Dept.
Shopper’s Accessories, targeted turnover of Rs. 500 cr
39338 4,09,000 Stores/Book 285
Stop Ltd. Home fashion, by 2004. And 6 more Crossword
stores
Books stores.

Groceries,
Nilgiris (12 dairy products
26 89,000 Super market 230 Investment so far Rs. 35 cr
Cities) and
confectioneries
Subhiksha Food,
Discount
112 1,25,000 provisions and 200 NA
supermarket
Tamil Nadu pharma

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Pantaloon
Retail,
Pantaloon
Dept. Clothing,
stores,
13+34+3 3,38,000 stores/hyper utilities and 175 Investment so far Rs. 100 cr
franchisees
market groceries
, Big
Bazaar in 9
cities

Vivek Consumer
group, electronics and
36 2,00,000 Super markets 173 Investment up to Rs. 35 cr
Tamilnadu, home
Karnataka appliances

Brand Pharma Health


Apollo 90 NA 120 250 outlets in next 3 yrs.
Chain care/Pharma

17
Exhibit:-513

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Exihibit:-621

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Operational Malls/Shopping Centres as on 31 August


2005
Built-up Area in No of
sq.ft Malls
Delhi - NCR 6,533,374 29
Mumbai, Navi Mumbai
& Thane 6,575,000 27

Kolkotta 741,660 3
Chennai 1,350,000 2
Bangalore 1,260,000 5
Pune 1,230,000 5
Hyderabad 695,000 5
Others 3,179,830 20
Total All India 21,564,864 96

Exhibit-724

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Exhibit:-10

Sr.
No. Factors Description Implications
Barriers to FDI not permitted in Absence of global players
FDI pure retailing Limited exposure to best
1
Franchisee practices
arrangement allowed
Lack of Government does Restricted availability of
2 Industry not recognize the finance Restricts growth
Status industry and scaling up
Structural Lack of urbanization Lack of awareness of
Impediments Poor transportation Indian consumers
infrastructure Restricted retail growth
Consumer habit of Growth of small, one-store
3
buying fresh foods formats, with unmatchable
Administered cost structure Wastage of
pricing almost 20%-25% of farm
produce
4 High Cost of Pro-tenant rent laws Difficult to find good real
Real Estate Non-availability of estate in terms of location
government land, and size High land cost
zoning restrictions owing to constrained
Lack of clear supply Disorganized nature

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

ownership titles, of transactions


high stamp duty
(10%)

Supply Chain Several segments Limited product range


Bottlenecks like food and apparel Makes scaling up difficult
reserved for SSIs High cost and complexity
Distribution, of sourcing & planning
logistics constraints Lack of value addition and
– restrictions of increase in costs by almost
5
purchase and 15%
movement of food
grains, absence of
cold chain
infrastructure Long
intermediation chain
Complex Differential sales tax Added cost and complexity
Taxation rates across states of distribution Cost
6 System Multi-point octroi advantage for smaller
Sales tax avoidance stores through tax evasion
by smaller stores
Multiple Stringent labor laws Limits flexibility in
Legislations governing hours of operations Irritant value in
work, minimum establishing chain
7 wage payments operations; adds to overall
Multiple costs
licenses/clearances
required
Customer Local consumption Leads to product
Preferences habits Need for proliferation Need to stock
variety Cultural larger number of SKUs at
8 issues store level Increases
complexity in sourcing &
planning Increases the cost
of store management
Availability Highly educated Lack of trained personnel
of Talent class does not Higher trial and error in
consider retailing a managing retail operations
9
profession of choice Increase in personnel costs
Lack of proper
training
Manufacturers No increase in Manufacturers refuse to
Backlash margins dis-intermediate and pass
10
on intermediary margins to
retailers

References:-

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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

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Western, 4th Edition, p. 7.
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http://www.ciionline.org/industryMonitor/index.html
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http://www.in.kpmg.com/industries/industries_cm.asp#cm3
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October-December 2000, pp 51-59
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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

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