LARGE FORMAT

RETAILING
According to Philip Kotler
“ Retailing includes all the activities involved in selling goods or services to the
final consumers for personal, non – business use. A retailer or retail store is any
business enterprise whose sale volume comes primarily from retailing”.

Retailers are the final business in a distribution channel that links

manufacturers to consumers.
THE EVOLUTION OF RETAIL IN INDIA

TRADITIONAL FORMATS ESTABLISHED FORMATS

WEEKLY MARKETS  Kirana shops
 Haats  Convenience / departmental stores
 Mandis  Company / multi brand showrooms
 Village fairs  PDS / fair price shops
 Co-operative stores
 Pan / Beedi shops

EMERGING FORMATS
 Exclusive retail outlets
 Hypermarkets
 Malls / specialty malls
 Multiplexes
 Rural oriented formats
 Fast food outlets etc.
 Retail the largest private industry globally, is still in its nascent stages in India

#1
Global Retail
industry is of size
USD 8 Trillion Fortune #1
“Wal-Mart” is
a Retailer
50

Over 50 of the
Fortune 500 25
companies are
retailers 25 of the Asian
Top 200
companies, are
retailers

Source: CII Mckinsey, HSBC

 Retailing: An overview

OVERVIEW

 RETAILING
 World’s largest private industry

 US$ 6.6 trillion sales annually

 INDIAN RETAILING
 Largest employer after agriculture - 8%* of population

 Highest outlet density in world.

 Around 12 mn outlets

 Still evolving as an industry

 McKinsey report 'The rise of Indian Consumer Market', estimates that the

Indian consumer market is likely to grow four times by 2025.

 Classifying Indian retail

MODERN FORMAT RETAILERS

• Supermarkets (Foodworld)
• Hypermarkets (Big Bazaar)
• Department Stores (S Stop)
• Specialty Chains (Ikea)
• Company Owned Company Operated
TRADITIONAL FORMAT RETAILERS

 Kiranas: Traditional Mom and Pop Stores

 Kiosks
 Street Markets
 Exclusive /Multiple Brand Outlets
 THE CHANGING INDIAN CONSUMER
GREATER PER CAPITA INCOME

 Increase in disposable income of middle class households

 20.9%* growth in real disposable income in 05-08.

THE URBAN CONSUMER

 Getting exposed to international lifestyles

 Inclined to acquiring asset
 More discerning and demanding than ever
 No longer need-based shopping
 Shopping is a family experience
 ISSUES
AND
CHALLENGES
 STIFF COMPETITION FROM
UNORGANIZED SECTOR
One of the most challenging competition the organized retail is facing the threats
from the unorganized retail sector which competes on the basis of a number of
factors that give it a leg up on organized retail. For unorganized retail in India the
market mantra is “convenience”:

1) HOME-DELIVERY

Corner-stores and street vendors do their best to cater to the local population in the
area in which they operate. They provide home-delivery services, for any and all
order sizes, at no extra charge.
2) CREDIT

Unorganized retailers enjoy a loyal and limited clientele. The personal nature of
transactions coupled with small transaction sizes allows unorganized retailers to sell
goods on credit often settling bills with clients at the end of the month.

3) PROXIMITY

The proximity of unorganized retailers caters to the just-in-time mentality of Indian

consumers who prefer to buy goods when needed for immediate use rather than
making bulk purchases in advance.
 Unorganized retail with their small inventory, high purchase costs and relatively
small size have been able to save on a number of other fixed and variable input
costs to offer goods at competitive prices:
REAL ESTATE
Unorganized retailers usually operate from their residences that double-up as
counter stores or like street-vendors carry their merchandise with them. As a result,
they incur little to no real-estate costs.
LABOUR COST
The lack of regulation in the sector as well as high unemployment levels in India allow
unorganized retailers to hire labor at very low rates.
UTILITIES
Corner stores operating out of homes usually pay residential rates for utilities like
electricity and water.
TAX
Unorganized retailers rarely pay taxes due to the absence of regulation and
supervision in this sector. This also allows them to reduce price.
 THE LOGISTICS TASK

Retailing and logistics are concerned with product availability. Many have described
this as ‘getting the right products to the right place at the right time’. Unfortunately
however that description does not do justice to the amount of effort that has to go
into a logistics supply system and the multitude of ways that supply systems can go
wrong.
 COMPONENTS OF LOGISTICS
MANAGEMENT IN RETAIL SEGMENT
1. Storage Facilities.
2. Inventory
3. Transportation
4. Unitization and packaging.
5. Communications.
 THE MANAGEMENT TASK IN LOGISTICS
• Increased control over secondary
distribution
• Restructured logistical systems
• Adoption of ‘Quick Response’ (QR)
• Rationalization of primary
distribution (factory to warehouse)
• Increased return flow of packaged
material and handling equipment for
recycling/reuse
• Introduction of Supply Chain
Management (SCM) and Efficient
Consumer Response (ECR)
 BASIC & SECONDARY INFRASTRUCTURE

• Lack of adequate and reliable power and water sources –scarcity add up to the
cost
•Inadequate public transport –
Highly fragmented trucking industry, and lack of nation wide service providers
Long queues at check posts- bad for perishable goods
Rail infrastructure
•No reliable national cold chain system - wastages USD 13 billion food products
alone.

•Inadequate telecommunication and internet facilities- restricts use of internet as a

informative and selling medium in non urban areas
 MANPOWER
•Lack of trained personals at all levels –
Academic institutions for courses on retailing (retail management, retail
merchandizing retail marketing retail sales)
Lack of entry level entry programs esp. in semi urban areas

•Stringent employment and industry laws –

retailers face constraints on number of working hours, seven day operations , working
time for women etc

•Fragmented industry approach to human resources –

there is no particular means to attract the best talents through academic courses

•The employee turnover is very high & productivity is low.

 REAL ESTATE ISSUES

•High real estate costs –

Lack of transparency and corrupt practices increase land cost,
Indian stamp duty rates from 5 to 14 % are one of the highest in the world (1 to
4% in UK)

•Archaic and user unfriendly land laws

Obscure zoning laws create confusion over the use of land for commercial
purpose eg.(recent celing drive in Delhi)

•Lack of proper city planning models –

• like in Delhi where only 16% of commercial space, leads to high speculative prices
Parking and traffic remains major issue for large retail formats.
 ACCESS TO FINANCE
 Retained earnings is the most
common source of finance
High costs for the organized
sector. Capital costs are more in
retail business due to major
renovations needed every 5-7
years.
The bulk of investment in
working capital is financed by the
retained earnings of the stores
(78 percent) . About 14 percent of
the stores in the full sample are
credit constrained.
 CORRUPTION

Large stores suffer more from

corruption.
17.4 percent of all stores
surveyed either made a bribe
payment to government officials or
were asked for one (henceforth,
incidence of bribe).
Relative to small stores, the
incidence of bribe is higher for
large stores but this is entirely so
because large stores are more
frequently inspected.
 REGULATORY DISADVANTAGES

•The presence of pro tenancy laws make it difficult to remove tenant(s). The problem is
multiplied by tedious & long drawn procedures to clear ownership titles.
•The Urban Land Ceiling Act and Rent Control Acts were repealed just a few years back,
leading to exceptionally high prices particularly of retail property in central business
districts.
•Land use conversion is time consuming & complex in case of new shopping centers coming
up on out of town agricultural land.
•Huge costs are involved in terms of time and money in legal processes for property
disputes.
•The existing labor laws are difficult for shops to have flexible timings
•Non-residents are not allowed to own property except if they are of Indian origin . Foreign-
owned Indian companies can own property for business purposes.
•High custom duties levied on imported goods.
 OPPOSITION TO FOREIGN DIRECT INVESTMENT

Current Indian FDI Regime

 FDI not permitted in retail trade sector, except in:

 Private labels

 Hi-Tech items / items requiring specialized after sales service

 Medical and diagnostic items

 Items sourced from the Indian small sector (manufactured with

technology provided by the foreign collaborator)

No FDI restrictions in the retail sector pre-1997

 Entities established prior to 1997 allowed to continue with their existing

foreign equity components.

 INTERNATIONAL RETAILERS IN INDIA: STRATEGIES
 Distribution
 International company sets up local distribution office

 Supply products to Indian retailers to sell

 Also set up franchised outlets for brand

 Swarovski, Hugo Boss

 Wholesale trading
 Cash and Carry operations

 100% FDI permitted

 Metro Cash n Carry

 Franchise
 International company gives name and technology to

local partner. Gets royalty in return

 In case master franchise is appointed for region or

country, he has right to appoint local franchisees

 Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer,

Mango
 CONCLUSION

• Foreign markets represent better growth opportunities (because of population and

other trends)
• Domestic markets may be saturated or stagnant
• A retailer may be able to offer goods , services, or technology not yet available in
foreign markets
• Competition may be less in foreign markets
• Foreign markets may be used to supplement , not replace , domestic sales
• There may be tax or investment advantages in foreign markets
• Due to government and economic shifts , many countries are more open to the entry
of foreign firms
• Communications are easier . The world wide web enables retailers to reach customers
well outside their domestic markets.
 Sunil Bharti Mittal, chairman and group CEO of Bharti Enterprises
said ,

"This venture promises to bring great value to millions of farmers,

artisans, small manufacturers and retailers across India,"

"We are pleased to be a partner in developing this sector which is set

to become a significant engine of India's economic growth."