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accompanied by proliferation of brands. Liberalisation has also facilitated the entry of Legal Envir~nmentand
Security Issues
foreign companies in India and driven Indian companies to invest abroad. We have seen
a wave of acquisitions and mergers. We also find that foreign and Indian companies
have built up strong brands across industries. Premium foreign brands like Baskin Robbins
and Gucci have established in India. Foreign retail chains like McDonald, Pizza Hut etc
have entered by franchising route. Single brand outlets have been allowed to open shop
in India. Reebok, Nike, Marks & Spencer have also established operations as they are
I single bfand outlets. Franchising has emerged as a popular mode of retailing.
Government also allows Foreign Direct Investment (FDI) in backend operations and
whole selling. Metro which is cash & carry retailer has established operations in India. A
Cash & Carry retailer is like a whole seller and d l s only to I q i % t e ~ eretailers
d against
cash payment. Bharti has tied up with Wd-Mart which will support the back end operations
of Bharti retail. This means that Wal-Mart will invest in building the supply chain which
will bring the produce from farm or factory to the store.
Such investments by global retailers will help Indian retail chains integrate with global
supply chains and lead to greater efficiency. FDI in backend operations will also facilitate
developmentof technology, quality standards and marketing. FDI would benefitconsumers
in India who will have access to a wide range of products at reasonable price. Growth of
organized retailing will help control inflation because large organized retailers buy directly
from producers at most competitive pr~ces. d

Government of India has opened up the real estate sector allowing 100% FDI in
construction projects. The foreign trade policy 2005-06 has extended the benefit of the
export promotion capital goods (EPCG) to the real estate sector. This, in turn, is expected
I
to boost organized retail since retailers require land in prime locations.

7.3 EXISTING-LEGALISSUES
Let us have a brief out look at the existing legal legislations in differeat areas that influence
the retail industry and some of the concerns in each area.
Real Estate
There is lack of legislation for creating uniform stamp duties on transfer of property.
The replacement of urban land ceiling act and rent control acts has resulted in heavy
distortions in 'property prices thereby threatening to slow down the availability of quality
space in major cities.
The spectre of property disputes arising on account of shdlow pro-tenancy laws, land
use conversion, skewed urban planning projec6 and zoning laws can have dampening
effects on the growth of this dormant industry.
Work Force
The existing labour laws govming the working hours are not amenable to the needs of
the retail industry which require long working hours. To operate for long hours there is
need for multiple shifts where in temporary staffcan not be hired under current laws.
Lack of Industry Status
The lack of industry status coupled with FDI not being permitted has restricted the
availability of finance to scale up operations and in adoption of best practices.
Complex Taxatton Systan:
The prevalence of different sales tax rates across states, multi point octroi and sales tax 77

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Overview of has resulted in cost escalation and complexity in distribution.
Retailing
Multiple Legislations:
The multiple licenses/clearances required for setting up retail operations has limited the
operational flexibility of existing retailers.

7.4 RETAIL INDUSTRY -LEGAL ACTS

We are all aware of the fact that a host of legislations govern the retail industry. Let us
briefly understand the provision of legislation and the way they impact the retail industry.
1) The Shops and Establishment Act: This act is in essence a state legislation
seeking to regulate working conditions of workers in the largely unorganized sector.
This includes all types of shops and establishments which do not fall under the
purview of the Factories Act regulation. I

It deals with the rules and regulations regarding working hours, recess, overtime,
T
holidays, termination of services, working environment of the shop, other rights and
obligation of the employer and employee so on.
Further it provides for provisions where in compulsory registration of the shop I
establishment within 30 days of operational commencement and intimation of closure
within 15 days of closure is mandatory.

2) Sales Tax Act: According to this act a dealer who is engaged in activity of
manufacturing, importing, buying and selling of goods needs to register under the
Sales Tax Act, 1959. I

Following are the requirements for registration:

Showing the books of account and statement of saleslpurchases.
Proof of partnership deed/Memorandum & Articles of Association.
r Rent receipts of place of business and residence.
Proof of identity (ration carddriving licence etc.
Photos duly attested, certificate /license under the Municipal Act, Factories
Act, Shops and Establishment Act etc. are applicable.
Copy of assessment order under income tax, if any,
Court fee stamp on CST registration application and any other details to prove
the genuineness of the applicant.
The turnover above which the sales tax has to be paid, depends on whether one is
a manufacturer, importer or dealer of any other product.
This is in the range of Rs.10,000 - Rs.2,50,000 depending on the type of applicant.

3) The Consumer Protection Act, 1986: This act was legislated to provide protection
to consumer's interests through consumer councils for settlement of disputes and
other relevant issues.
It bestows the following rights on the consumer as per Consumer Protection Act:
r The right to be protected against marketing of goods and services hazardous
to life and property.
Right of information on quality, quantity, potency, price to protect the consumer
78 against unfair trade practices.

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I
The right to have access to variety of goods and services at competitive prices. Legal Environment and
Security Issues
The right to be heard and seek redressal of his grievances at appropriate
forums against exploitation by manufacturers and retailers.
4) The Prevention of Food Adulteration Act, 1954: This act aims at making
provision for the prevention of adulteration of food.
Adulteration of food takes place according to this act in following situations:
If the article contains any substances that are injurious to health.
8 If the article has been kept. prepared, packed under unsanitary conditions
whereby it is so processed as to affect its nature, substances or quality.
If it so coloured, flavored, coated, powdered so as to conceal any damage to
article.
If false claims are made for it upon label.
If it is being represented as being for special dietary uses without label, bearing
the dietary information.
The packing material can result in contamination of packed contents
5) The Standard of Weights and Measures Act, 1976: This Act was enacted to
establish standards of weights and measures, regulating inter-state trade or
commerce in weights and measures.
Thus, when commodities are sold or distributed in packaged form, in the course of
inter.state trade or commerce, it i s essential that every package must have:
Plain and conspicuous declaration thereon showing the identity of the commodity
in package.
Quantity in terns of standard units of weights and measures.
Names of the manufacturer, packer or distributor and helpline numbers to be
mentioned.
The retailer should have the following mentioned on the packaged commodity.

I
MRP Rs. ..............,,.inclusive of all taxes.
Where the revised prices are lower than the price marked on the package, the
commodity shall be sold at that revised price irrespective of the month of
package.
The manufacturer or packer shall not alter price on a wrapper once printed
and used for packing.
Further, for packed commodities imported into India the following is mandatory:
Name and address of the importer.
Description and weight/measurement of the product.
The country of origin.
8 DateIMonth of manufacture,
8 Address of the local distributor.
6) The Sale of Goods Act, 1930: This Act governs the contract relating to sale of I
goods. It is subjected to the general principles of the law relating to contracts. 79 1
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 A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a determined price.
Thus a 'sale' must be distinguished from an 'agreement to sell' since the legal
implications of the two terms are vastly different.
The contract is valid only when the conditions specified therein by seller have been
met. The conditions and warranties offered by the seller to the buyer may be
expressed or implied by law or custom by the following:
Condition as to title
Condition as to description
Condition as to quality of fitness
Condition as to merchantability
Condition as to wholesorlleness
Condition implied by custom or trade usage
Condition in sale by sample
r Conditions in sale by sample as well as by description
Wawan.ties: According to Oxford dictionary, a Warranty means undertaking as to the
ownership or quality of a thing, .............. ............. etc., often accepting responsibility or
liability over a specified period. In the retailing context the seller has to compensate or
replace tbe materials which do not satisfy defined conditions or does not perform the
functions for which product is made. Acondition becomes a warranty under the following
cases:
The warranty is given by the manufacturer to the customer to create product confidence
in their minds, so thag while buying, the customer is mentally comfortable.
7) The Essential Commodities Act, 1953 This is an act to provide the consumer
protection from disruptions in production, supply, distribution, trade and commerce
in certain essential commodities.
List of essential commodities is as follows:
Cattle fodder, oil cakes and other concentrates
Coal including coke and other derivatives
Cotton and woolen textiles
Food stuff including edible oilseeds and oils.
Iron and steel, paper products, petroleum products &c.
In addition, this act provides powers and imposes duties upon central goyernmentf
state government to ensurethe availability of the above listed commodities

8) The Factories Aet: This act requires that any retail establishment having more
than 40 employees (perrnanentLternpomy)needs to get registered under the Factories
Act and not under Shops and Establishment act.

9) Prr,PessfonafTax Act: This Act requires that any retail establishment having more
thm 40 empfDyeesobtain a license from the local municipality or corporation office.
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10) Service Tax Act: This Act requires that any retailer providing transportation services Legal E ~ v ~ ~ ~ r ~and
ment
needs to obtain a license from local excise de~artment. Security Issues

area labour officer.

12) Provident Fund Act: This Act is applicable to any retail entity employing 10 or
more employees where the retailer is bound to maintain a separate provident account
(with equal contribution from employer and employee) with the cc~~tral provident
fund departmentlorganization.
13) Employee State Insurance Act: This Act states that any orgit111~;ition having
more than I0 employees and earning less than Rs. 10,000 per month needs to have
license from the local ESIC office.
14) The h@oyees-Provident funds and Miscellaneous Provision . k t : This Act
states that any organization having more than 20 employees needs to maintain a
provident fmd with regional provident fund office.
Some of the other aspects that the retailer needs to take care pertain to obtaining
licenses from the local Fire Department and having (an income tax (PAN) account)
sales tax registration number.
Further the following aspects need to be taken into account by a retailer:
Whether the architecturaldesign of the store meets the government guidelines.

whether the terms are stated in favour of the land lord.

If the property is being bought then the retailer needs to check for the following.
Check if the premises is a freehold and not a lease hold one in which case the
retailer may have to leave the premises after a couple of years even though it
may be outright purchase deal.
Cross check the authenticity of the previous owner; no liens must be there on
the premises under question.
Ensure all the prev.ious dues relating to electricity and water have been paid;
the premkes have official municipal sanction.
If the property is being leased then the retailer needs to check for the following:
Other than checking out the authentically of the owner, ensure that sufficient
e l d c i t v load isavailable to owrate the ixernises;check out the outstanding
dues of the ow-ner.
Ensure that here are no restrictions an the movement of customers and
employees at any time of the day.
Furthera rebailer mais b verify whether the m a i w c e charses =defined
r and adequate security is provided by the landlord.
If the retailer is buying a franchise or offering his own franchise the following
aspects should be clearly specified in agreements between the two parties:
The obligations of both the parties with respect to each other.
The period of agreement and the fees to be paid along with the tenure of
Davrnent.

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Overview of

7.5 IMPLICATION OF VAT

Value Added Tax briefly called VAT came into force in June-2005. It is a multi stage tax
levied at each stage of the value addition chain, with a provision to allow input tax credit
(ITC) on tax paid on an early stage, which can be appropriated against the VAT liability
on subsequent sale. VAT is intended to tax every stage of sale where some value is
added to raw materials, but taxpayers will receive credit for tax already paid on preceding
stages. Thus, VAT will take care of problem of double taxations prevalent in earlier tax
laws. VAT in India differs from other countries; it replaces the existing state sales tax
system. One of the main reasons underlying the shift to VAT is to do away with the
distortions in our existing tax structure that carve up the country into large number of
small markets rather than one big common market.
Under the VAT regime, due to multi point levy on the price including value additions at
each and every resale, the margins of either the reseller or manufacturer would be
reduced unless the ultimate price is increased.
The VAT system ensures lesser paper work for the retail community. There will be no
local statutory forms under VAT.
Thus VAT is expected to simplify a variety of imports-sales tax, wc-rkcontract tax, entry
tax, purchase tax, lease tax, entry tax, turnover tax and additional excise duty-the final
incidence of tax on most commodities would not be substantialij different when the
effect of all these taxes are discounted.
Thus you would agree that implication of VAT will do away with the price cushioning
that is implicit in the current minimum retail system as the incidence of taxes paid in the
entire chain would be clearly documented.

7.6 SECURITY ASPECTS IN RETAILING

Issues pertaining to security assume paramount importance in retailing like most other
sectors. The growth of various retailing formats stocking a range of categories across
smaller sized high value items has meant security has become a major concern for
retailers. This has been further compounded by the multiplicity of new stores operated
by retailers resulting in large data generation which needs to be secured by a Sound
Informational Technology (IT) back-end infrastructure. The aspect of shrinkage is of
major concern to retailers especially for high-priced /small sized products or SKUs.Retai1
shrinkage across categories should be less than 1% of annual sales. Further for apparel/
life style categories it should be less than 3 % of their annual sales.
Security in retailing can be broadly classified into the following three categories:
External Security
Internal Security
Data Security

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7.6.1 External Security Security Issues

As you would concur that with the emergence of malls, huge shopping centers with
multiplexes, food courts, shopping outlets, and other services location, security has become
a major issue. Many convenience stores work 24 hours through the week and target
women customers. This makes security arrangements even more important. This calls
for designing of physical counters /layout in such a manner that it safeguards assets.
Security systems should keep track of the parking areas, open spaces, administration
and staff of the mall.
Parking lots especially those underground must have closed circuit television. Electronic
security tags/ID should be used for vehicle owner authentication. It should be mandatory
to have closed circuit televisions even in the perimeter outside of the shopping area to
keep track of any untoward activities that may occur. Random or compulsory physical
frisking of shoppers may also be done.

7.6.2 Internal Security

The internal security refers to in store security basically for preventing instances of
shop-lifting; pilferage resulting in commercial losses to the retailer. Internal security
mechanism has the twin advantage of controlling consumer-driven and store staff driven
thefts. In order to impose effective security measures, Store design play a vital role.
Store Design: The following rules may be followed while planning store design to over
come the shoplifting:
Small and theft-prone items should never be kept near entrances.
Customer should be allowed to carry only 2 or 3 items to trial rooms whose entrances
should be visible to as many employees as possible.
The layout of the store should be so designed that the staff gets a full view of an
aisle or section of the store from a single point.
At the end of the day all the employees should be checked at the exit by the security.
A small enclosure near the entrance is a must for checking of all employees.
The security room or surveillance room must be located close to the entrance to
take immediate action in case of any problem.
The check out counters may be placed in such a location so as to enable the cashiers
to act as a second line of security for each of the long aisles in front of them.
Employee Screening and Training: A compulsory pre-employment screening is
necessary. This should include reference checks for prospective employee. Further good
training and greater sense of ownership with transparent rewards and appraisal system
can go a long way in minimizing employee related theft.
Some of the technology applications used for maintaining internal security are as follows:
(i) Bar- coding
(ii) Electronic article surveillance
(iii) Electronic shelf labels
(iv) Closed Circuit Televisions (CCTVs)

(i) Bar coding: Bar-coding is the technology by which a specific numerical code
number is automatically transferred to black and white bar codes whose width and
size identify each item c0de.A bar-coding is used to scan these bar codes whereby
the computer automatically reads the item codes. This technology is used in almost

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Overview of every aspectpf inventory management in retailing operations right fromthe stage of
Retailing
receiving to the stage of selling thereby facilitating tremendous ease of operations
apart from increasing the overall efficiency of the retailer.
Bar-coding has yet to be adopted by majority of manufacturers in India, but retailers
are now building up pressure on Manufacturers to introduce bar coding on their
packing for facilitating inventory management and tracking old stocks.

(ii) Electronic Article Surveillance: This technology helps retailers marketing small
sized but expensive merchandise like jewellery, shoes, watches, etc. Basically it a
electronic tag which must be removed or de-activated at the check-out counter
before the item leaves the store front. The sensors device beep at the exit counter
when any one takes the product out of the store with the tag on it. These electronic
tags can be removed only by removal equipment and not by the hand or with ordinary
tools.
(iii) Electronic Shelf Labels: This technology is still in its infancy involves labeling of
display shelfs with electronic indicators connected to the computer network for
displaying price changes across products.
(iv) Closed Circuit Tekwisians: This form of retail security is the most commonly
used in the world. It is a network of cameras installed at key locations within the
stores connected to a central TV. These cameras are fixed or can be rotated.
Further these cameras should be covered with an inverted transparent dome.
?

Thefts and shrinkages cannot be monitored and controlled through mere technology
interventions. It needs to be complemented with non-tangibles like staff training,
transparent appraisals, and greater role of staff. It is observed that changing working
hours of staff also contributes to reduction in thefts.
Data Security
Data security refer to IT security requirements of the retail operations. This includes
meeting store-level and head office-level security problems. The following are the broad
requirements.
(i) Access level by user
(ii) Recover management
(iii) Payment gate-ways
(iv) Security audit of IT systems
(i) Access Lever by User: There should be access level defined as per internal user
level of authentication and authorization.
(ii) Recovery Management: It should be part of the IT policy with technical and
process documentation, so that there is no redundancy and loss of date at anytime,
the day's transactions back-up and other data relate to inventorylmerchandiseshould
be downloaded by the head office.
(iii) Payment Gate-ways: The use of payment gate-ways with ckgital signatpres and
encription standards certified with an authorised agency will take care of on-line
payments with respect to suppliers, on-line shoppers etc.
(iv) Security Audit of IT Systems: This should be a half-yearly or yearly audit of
software, hardware networking and cornmuniciations done by any of the skilled
and certified IT vendors.
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