Introduction to Retailing Module: Branding and Retailing in changing Economic Environment

• Introduction to retailing and retail management function and overview of Indian retail

Industry
• Overview of Retailing in India and Globally

Marketing Marketing is one of the many business functions it identifies the unfulfilled wants, needs and desires of the people and organizations. It establishes a vital link between the public and institutions of all kinds such as political, social and industrial etc. American Marketing Association defines marketing as the “performance of business activities that direct the flow of goods and services from producer to consumer or user” Business activities that enable the producer to get in touch with the users, covers a host of things. The products have to be developed, transported, stored and distributed to the traders or retailers before the user/consumer is contacted. Human needs and wants give rise to the concept of goods and services as products. Hence, marketing activities will have to include the collection of information about the consumers’ wants, desires, incomes and sources of influences over consumer’s mind. Features of Marketing
a) b) c)

Marketing is an exchange process Covers a variety of functions to be carried out in an integrated manner and is Directed to satisfy the needs/desires/wants of the consumers.

What is retailing?

Retailing is derived from the French word retailier, which means “to cut a piece off”, thus, retailing can be defined as a set of business activities that adds value to the products and services sold to the final consumers for their personal family or household use.

Retailing involves Prepared by Prof. Mohd Nazeer Ahmed WLC College India, Hyderabad.
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Retailers comprise the following • • • • • • • • • • Street vendors Local Kirana stores Super markets Food joints Saloons Airlines Automobile showrooms Video kiosks Direct marketers Vending machine operators etc. wholesalers and other suppliers with consumers. Retailers’ role in distribution channel A retailer is the last entity in the distribution channel. wholesalers and retailers. . Retailers include all businesses and individuals who actively participate in the transfer of ownership of goods and services to their end users. leaving the task of selling the products to an outside party i. A retailer usually plays the role of an intermediary. which links the producers. An organization qualifies to be retailer only when it derives a major chunk of its revenues from its transactions with end users. Companies generally prefer to specialize in manufacturing of products.e.• • • Understanding the needs of consumers Developing good assortment of merchandise ( goods/products) Displaying the merchandise in an effective manner so that consumers find it easy and attractive to buy A retailer in any business establishment directs its marketing efforts towards the end users for the purpose of selling goods and services.

These services include providing free home delivery. consumers would have to personally visit the manufacturers to procure the goods and services required by them. accepting payments on installment basis. Page 3 . Benefits to economy Prepared by Prof. This reduces the cost of storage and enables the consumer to invest his money profitably. They perform various business activities that increase the value of the goods and services they sell to the end consumer. As a buying agent a retailer performs various activities to satisfy the end consumers. Retailers use advertising and in-store sales persons to provide product information. Mohd Nazeer Ahmed WLC College India.quantity discounts from manufacturers and lower freight rates for large shipment of goods. By buying in bulk. Providing assortment: Retailers evaluate the products of various manufacturers and offer the best collection of products from which the customer can select the product of his/her choice. arranging loans etc. If there were no retailers in the distribution system. retailer also provides a variety of value added services. Providing information: Retailers play major role in providing product related information to their consumers. Retailers select the product assortment depending on the tastes and needs of their target customers. the retailers gain two benefits. retailers play major role in smoothing out the variation between the production and sales of the manufacturer’s products. Retailers make it possible for consumers to make instant purchases. The activities include Breaking Bulk: Retailers buy goods in bulk from manufacturers and divide them into smaller sellable unit according to consumption patterns of the end consumers. which helps the consumer to simplify his purchasing process. Benefits to Manufacturers and wholesalers Manufacturers and wholesalers consider retailing as a channel for delivering their products/services to the end customer. Hyderabad. which make it easier for customers to buy and use products. which suit their consumption patterns. Holding Inventory: Retailers carry inventory and make the products available to consumers at a convenient place and time. The variety in assortment offered makes the buying process easier. Providing services: A part from selling goods. which could be reinvested in production. By selling products and services retailers provide the manufacturer with greater revenues. Thus. accepting credit cards.Introduction to Retailing Benefits of Retailing Retailers act as buying agents for consumers. Availability of products in smaller units enables customers to buy products in quantities.

Bombay Dyeing. Before 1990.000 crore in 1999 and analysis feel that this will increase at the rate of 20% every year and touch Rs. very few retailers operate in more than one city.6 trillion. The value of the total retail trade in India was at Rs.00. Evolution of Retailing In the early eighties ‘retailing’ in India was synonymous with peddlers. S Kumar’s. 8. Retailing plays a crucial role in the management of the world economy and retailers constitute a tenth of the Fortune 500 companies {what is Fortune 500? . Nirula’s (Delhi) and Viveks and Nilgiris in the south.The retailing business is the largest private industry in the world with a turnover of US $ 6. 4. who were being greatly influenced by western lifestyles. This was further augmented by the changing profile of the Indian consumers. These retailers operate in highly unstructured and fragmented market. organized retailing in India was led by few manufacturers owned retail outlets.S.For 45 years. This paved the way for the entry of few multi-national players like Nanz into the Indian market. Sometimes people will refer to the top 100 companies on the list as the "Fortune 100.} In India retailing accounts for over 10% of the country’s GDP and around 8% of the employment.-based corporations with the largest revenue in the past year. vegetable vendors. the magazine lists the U. subsidiaries of foreign companies are also excluded. Fortune calculates revenue using publicly available data. Moreover. therefore private companies (those whose stock is not traded on a public market) is excluded. Raymond’s. the entry of multinational brands also generated considerable enthusiasm and interest among domestic retailers. The result is their annual Fortune 500 list. U. But the Indian retail scenario started changing in the nineties." Essentially. This encouraged setting up of the retail chains by domestic retailers like cotton world (Mumbai). mainly form the textile industry. . Fortune Magazine has been ranking the largest companies in the United States. for example. neighborhood Kirana stores (small grocery stores) or sole clothing and consumer durable stores in a nearby town.000 crore by the year 2005. Liberalization of Indian economy led to the dilution of stringent restrictions. and Grasim.S.00. only next to the agriculture industry.

Thus. The gradual increase in Gross Domestic Product (GDP) and the purchasing power of Indian provided excellent opportunities for organized retailing. The share of urban population in class I cities (with population 1. cosmetics and other personal care products. Today every product is branded. 00. almost every international brand is available to the Indian consumers. Hyderabad. Thumps up (now owned by Coke). Prepared by Prof. The rising concentration of urban population with higher purchasing power has attracted big players to venture into organized retailing in these cities. Even products like salt. The economic well being of the Indian middle class and their growing aspirations for materials comforts has also been responsible for consumerism. Consumerism The increasing influence of the western media has led to a considerable change in the life style of the Indian consumers. the demand of maore and more brands into the markets increased the demand for shelf space and hence the demand for more retail outlets. Time constraints and traffic congestion in the cities has led to the increased popularity of one stop shopping among urban customers. Brand Profusion Consumerism and increased brand consciousness of Indian consumers has led to increased number of brands. audio systems. India was ranked a the fourth largest economy in the world in terms of Purchasing Power Parity (PPP) Urbanization The twentieth century witnessed a rapid growth of urban population in India.5 times from 1901 to 19991. Page 5 . Today the Indian consumer is more inclined towards buying goods like cars. McDowell’s whisky. While the total population of India grew 3.Introduction to Retailing Factors behind the change of Indian Retailing Industry Economic growth India is one of the largest economies in the world. its urban population increased nine fold from 25 million to 217 million in the same period.000 and above) in the total urban population has increased from 26 % to 65% during this period.4% of the GDP. Asian paints. private consumption in India accounts for 61. Kingfisher beer etc. India also has its share of strong domestic brands like Titan watches. According to a International Monetary Fund Report (1998). Mohd Nazeer Ahmed WLC College India. washing machine. Although there are no international retail stores in India. designer dresses. oil and flour etc were sold as commodities a decade ago are now branded.

availability of ample retail space also has led to the proliferation of retail stores in India. 3. 2. they mature as high-cost. A part form the decrease in real estate costs. Entry Phases Trading-up Phase Vulnerability Phase . Various studies have been carried out to understand the changes taking place in the retail industry. which evolves from time to time to cope with competition. changing consumer demand and other environmental factors. Later. and low-price store formats. In the last few years. P. according to this theory the three phases are 1. Theories of Institutional change Retailing is a dynamic marketing activity. Eventually. Mc Nair’s ‘Wheel of Retailing’ is one of the well accepted theories regarding institutional changes in retailing This theory states that in a retail institution changes takes place in a cyclical manner. The cycle is: the new retailer often enters the market with a low-status. real estate prices have hit the lowest and encouraged many entrepreneurs to set up retail stores in different parts of the country. Some of the most accepted and well known theories of retail institution change are • • • • Wheel of retailing Dialectic process Retail accordion Natural selection Wheel of retailing Malcolm. they move to up market locations and stock premiums products to differentiate themselves from imitators. high-price. and vulnerable to new retailers who comeup with some other novel retailing format/concept. low-profit margin.Availability of real estate The cost of real estate forms a major part of the fixed investment for a retailer.

For example a retail institution may start as a small independent store. Natural Selection This Theory is based on Darwin’s Theory of evolution. In terms of retail institutions the dialectic model implies that retailers mutually adapt in the face of competition form “opposites”. thereby negating some of the innovator’s attraction. Mohd Nazeer Ahmed WLC College India. a retail institution will survive in a competitive market only if it is willing to change its product line. price location and promotional strategies according to changes taking place in the retail environment. Prepared by Prof.Introduction to Retailing In India. an established institution will adopt strategies and tactics in the direction of that advantage. According to this theory. while the retail prices and margins remain the same. legal. Thus. These changes can be social. Retail Accordion According to this theory. Firms can choose any strategy between the two extremes. Hyderabad. Maronick and Bruce J. faced severe competition from supermarkets and hypermarkets like Big Bazaar and Giant. it may grow into a department store or even a supermarket. economic. the merchandise mix strategies of retailers change. These strategies range from those that offer multiple merchandise categories with a shallow assortment of goods and service to others that offer limited merchandise with a deep assortment of goods and services. two institutional forms with different advantages modify their formats till they develop a format that combines the advantages of both formats. Kirana stores were replaced by chain stores like Apna Bazaar. a firm or retail institution should be flexible enough to adapt to the changing environment and should adapt its behavior (to changes in the environment) to survive in the market. Thomas J. Walker in the “The Dialectic Evolution of Retailing” explain the dynamic of the dialectic process as follows. when challenged by a competitor with a differential advantage. Retail institutions can choose from a number of different strategies. They can offer either a wide variety or limited variety of goods with deep or shallow assortment. For example. political. Dialectic Process According to this theory. or technological in nature. the wheel of retailing can be seen with changes taking place in retail formats. and Food world ( new entrant) which in turn. but as sales increase. according to the natural selection theory. Thus. Page 7 .

Big in size and turnover. So any product produced anywhere in the country can be easily accessed by the buyers from any location thus.RETAIL INDUSTRY IN INDIA: Retail is India largest industry. small entrepreneurs. Indian retailing industry is characterized by certain attributes. Secondly. which in turn. in general. The whole concept of shopping has altered in terms of format and consumer buying behavior. the heavy initial investments required make break even hard to achieve and many players have not tasted success to date. in most of the cases. ushering in a revolution in shopping. The manufacturers cannot directly reach all retailers in a particular geographical area. along with increasing working-women population and emerging opportunities in the services sector are going to be the key growth drivers of the organized retail sector. nuclear families in urban areas. This weakness has been exploited by the manufacturers and the stronger partners of the marketing channel. It has emerged as one of the most dynamic and fast paced industries with several players entering the market. The network of retailers reaches every nook and corner of the country. Retail in India is at the crossroads. in India the retailing industry is an unorganized lot consisting of. And the virtual omnipresence of the Indian retailer can be attributed to these small entrepreneurs only. A large young working population with median age of 24 years. The retailers. make . However. The Indian retailing sector is at an inflexion point where the growth of organized retail and growth in the consumption by Indians is going to adopt a higher growth trajectory. The second attribute gives rise to the following characteristics Power of the retailers. the future is promising. the spatial convenience of Indian retailers is vary high. abide by the terms and conditions set by the manufacturers. Modern retail has entered India as seen in sprawling shopping centers. The Indian population is witnessing a significant change in its demographics. Therefore. That said. the market is growing. government policies are becoming more favorable and emerging technologies are facilitating operations. multi-storeyed malls and huge complexes offer shopping.. the manufacturers cannot maintain the desired relationship with the retailers. as such is very less. accounting for over 10 percent of the country’s GDP and around 8 percent of employment. entertainment and food all under one roof. Retailing in India is gradually inching its way to becoming the next boom industry. and in many cases it is negligible.

like consumers elsewhere. However. especially food related items. these characteristics are peculiar to the small retail outlets and may not be present at every kind of retail level. In a developing country like India. beverages and tobacco accounted for as much as 71% of retail sales in 2002. The share of food related items fell over the review period. Retail Shopkeepers: India has sometimes been called a nation of shopkeepers. Hyderabad. This is to be expected as. However. it is not surprising that food. spent more on non-food items compared with food products. About 78% of these are small family businesses utilizing only household labor. the member operating between the manufacturers and retailers become more powerful as they can block the channel of communication between the two. With the upturn in economic growth during 2003. their sales grew much more rapidly (about 30% per year). Even among retail enterprises that employ hired workers. The financial strength of the Indian retailers.Introduction to Retailing management of the channel complicated. expanded at an average annual rate of 7% during 1999-2002. with income growth. Sales through supermarkets and department stores are small compared with overall retail sales. their Prepared by Prof. down from 73% in 1999. Retail sales: Retail sales which amounted to about Rs7.400 billion in 2002. the bulk of them use less than three workers. retail sales are also expected to expand at a higher pace of nearly 10%. So the dependence of retailers on other channel members increases to a high extent. a large chunk of consumer expenditure is on basic necessities. Hence. is very low and hence the investment capabilities. Thus the participation of retailers in the flows of marketing mix becomes lower than desired. As a result. This makes the retailers more dependent on the other channel members. India's retail sector appears underdeveloped not only by the standards of industrialized countries but also in comparison with several other emerging markets in Asia and elsewhere. which totaled over 12 million in 2003. This also makes the possibility of a direct feedback loop from the retailers almost remote. in general. Therefore. This epithet has its roots in the huge number of retail enterprises in India. Page 9 . Indians. The remaining 29% of retail sales are non-food items. Mohd Nazeer Ahmed WLC College India.

This high acceleration in sales through modern retail formats is expected to continue during the next few years with the rapid growth in numbers of such outlets in response to consumer demand and business potential. Organized retailing has finally emerged from the shadows of unorganized retailing and is contributing significantly to the growth of Indian retail sector. Retailing is a `technology-intensive' industry.sales almost tripled during this time. reduce inventory holding and thereby. Growth of Retailing in India: Indian retailing industry has seen phenomenal growth in the last five years (2001-2006). Technology Impact: The other important aspect of retailing relates to technology. They introduced two innovative logistics techniques . the government has barred FDI in retailing since 1997. it will be technology that will help the organized retailer score over the unorganized players. Given the political clout of the small trading community.200 point-of-sales counters of JC Penney to its corporate headquarters. It is widely felt that the key differentiator between the successful and not so successful retailers is primarily in the area of technology. save cost. at present. lead to the closure of many small trading businesses and result in considerable unemployment. Successful retailers today work closely with their vendors to predict consumer demand. Wal-Mart pioneered the concept of building a competitive advantage through distribution and information systems in the retailing industry. shorten lead times.cross-docking and electronic data interchange. stores or vendor are carried out online. Besides . because of their enormous numbers. classification. Government Policy: There has been vigorous opposition to foreign direct investment (FDI) in retailing from small traders who fear that foreign retailing companies would take away their business. giving both cost and service advantages. Today. online systems link point-of-sales terminals to the main office where detailed analyses on sales by item. Simultaneously. Hence. foreign retailers can only enter the retailing sector through franchising agreements. It is quoted that everyday at least 500 gigabytes of data are transmitted via satellite from the 1.

Most organized players have managed to put the front ends in place. Page 11 . the focus of the retailing sector is to develop the link with the consumer. This will see a further segregation of the international retailing brands and the domestic retailers. change in the equilibrium with manufacturers and a thorough understanding of the consumer behavior. With the help of `database retailing'. clothing and apparel stores. `Data Warehousing' is an established concept in the advanced nations. shopping experience. It is one of the few sectors which still have restrictions on FDI. The lifestyle retailers through their `affinity clubs' and `reward clubs' are establishing their processes. that the retailing industry in India is still a `protected industry'. information on softer issues such as such as demographics and psychographics is captured. the ground is all set for the organized retailers. The traditional retailers will always continue to exist but organized retailers are working towards revamping their business to obtain strategic advantages at various levels . however. Indian top retailers are largely lifestyle. With differentiating strategies . 2. The relatively complicated information systems and underlying technologies are in the process of being established. knowing what was purchased and by whom.value for money. quality. as discussed before. but these are relatively easy to copy.Introduction to Retailing vendors. It would be important to note. Major Retailers in India 1. Prepared by Prof. is at a nascent stage in our country. it will not be long before the retailing sector is also thrown open to international competition. variety. That will be when the real action will begin. thereby injecting much greater dynamism into the market.market. Given the current trend in liberalization. Hyderabad. This is followed by grocery stores Following the past trends and business models in the west retail giants such as pantaloon. Most grocery retailers such as Food World have started tracking consumer purchases through CRM. Mohd Nazeer Ahmed WLC College India. knowledge and customer. discounts and advanced systems and technology in the back-end. shoppers stop and lifestyle are likely to target metros and small cities almost doubling their current number of stores. Retailing. information on existing and potential customers is tracked besides. cost.

RETAILING SCENARIO. And the retail sector forms a very strong component of the service sector. Globally. along with the Confederation of the Indian Industry the global retail business is a worth a staggering US$ 6. The service sector accounts for a large share of GDP in most developed economies. retail will generate employment. more than 22 million Americans are employed in the retailing industry in over 2 million retail stores. has a turnover of US$ 260 billion. the world second largest retailer. as long as people need to buy. According to the U. and is one of the largest employers. With total sales of US$ 6.6 trillion.Department of Labor. retailing is a customer-centric with a emphasis on innovation in products. As many as 10% of the worlds billionaires are retailers. The industry accounts for over 8% of GDP in western countries. ahead of finance and engineering.6 trillion. most of it is accounted for by the organized retail sector. In short. processes and services. Wal-Mart. Some of the world largest companies are in this sector: over 50 Fortune.GLOBAL VIEW: Retailing in more developed countries is a big business and better organized than what in India.S. In the developed world. 500 companies and around 25 of the Asian Top 200 firms and retailers. According to a report published by McKinsey & Co. . retailing is the world largest private industry. almost one-third of India’s GDP.

Introduction to Retailing Prepared by Prof. Hyderabad. Mohd Nazeer Ahmed WLC College India. Page 13 .

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