Description
Retail is the sale of goods and services from individuals or businesses to the end-user. Retailers are part of an integrated system called the supply chain. A retailer purchases goods or products in large quantities from manufacturers directly or through a wholesale, and then sells smaller quantities to the consumer for a profit. Retailing can be done in either fixed locations like stores or markets, door-to-door or by delivery. Retailing includes subordinated services, such as delivery.
1
INTRODUCTION
1. RETAIL CONCEPT The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually. The India retail industry is expected to grow from ` 35,000 crore in 2004-05 to ` 109,000 crore by the year 2010. The past century has been witness too many changes occurring in our changes occurring in our everyday world industrial growth has made a significant impact on our lives as consumer. One such industry which has made a phenomenal impact on our daily lives is retail. This Industry touches our lives as end consumer, by providing us with the products or services that we need.
What is retail?
The word retail is, in fact, derived from the French word Retailer, which means to cut off a piece or to break bulk. A retailer may be defined as a dealer or trader who sells good in small quantities or one who repeats or relates.
HISTORY OF GROWTH
2
After 2nd world war retail industry started to grow in U.S.A. Retail is the largest private industry in the world with total sales $6.6 trillion.
The Global Retail Scenario Large format retail businesses dominate the retail landscape in the United States and across Europe, in terms of retail space, categories, range, brands, and volumes. Indian retail industry cannot hope to learn much by merely looking at the Western success stories in retail. Their scales of operations are very huge, the profit margins that they earn are also much higher and they operate in multiple formats like discount stores, warehouses, supermarkets, departmental stores, hyper-markets, convenience stores and specialty stores.. The economy and lifestyle of the West is not in line with that of India and hence the retailing scene in India has not evolved in the same format as the West nor can we learn valuable lessons from their style of operations. In retailing, the conventional wisdom used to be, that, the critical success factor was location. But precise location no longer matters and geo-demographics is increasingly becoming irrelevant. The leading multiple chain retailers, superstores and malls create their own centers of gravity, attracting customers by car, bus, train or even by plane to wherever they are located. The growth of multiple chain retailers has been relentless for many years in the west and this has been accompanied by the development of retail names as brands in their own right. Discount retailer Wal-mart has catapulted to the top of the Fortune 500 rankings in the U.S. with a turnover of $258 billion (2003 revenues – the basis for 2004 rankings), ahead even of oil major Exxon Mobil and the mammoth manufacturing giant General Electric. A ruthless policy, of, ‘Always Low prices. Always.’ Has brought Walmart to the
3
top. On the day after Thanksgiving in November 2002, Wal-Mart sales hit $1.43 billion in one single day. Walmart and Nordstrom in the U.S. and Sainsbury’s and Marks & Spencer in the U.K. have grown by rapid geographic expansion in their own countries. Specialists like Benetton of Italy and IKEA of Sweden and The Body Shop of the UK are international and the fast food chains like McDonald’s and Pizza Hut are everywhere. The same products are increasingly available from the same names on every continent. Retailers worldwide have immensely benefited from the sustained growth of the disposable income of their global consumers. The Indian Retail Scene India is the country having the most unorganized retail market. Traditionally it is a family’s livelihood, with their shop in the front and house at the back, while they run the retail business. More than 99% retailers function in less than 500 square feet of shopping space. Global retail consultants KSA Technopak, have estimated that organized retailing in India is expected to touch Rs 35,000 crore in the year 2005-06. The Indian retail sector is estimated at around Rs 900,000 crore, of which the organized sector accounts for a mere 2 per cent indicating a huge potential market opportunity that is lying in the waiting for the consumer-savvy organized retailer. Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian consumer. Indian retailers need to advantage of this growth and aiming to grow, diversify and introduce new formats have to pay more attention to the brand building process. The emphasis here is on retail as a brand rather
4
than retailers selling brands. The focus should be on branding the retail business itself. In their preparation to face fierce competitive pressure, Indian retailers must come to recognize the value of building their own stores as brands to reinforce their marketing positioning, to communicate quality as well as value for money. Sustainable competitive advantage will be dependent on translating core values combining products, image and reputation into a coherent retail brand strategy. There is no doubt that the Indian retail scene is booming. A number of large corporate houses — Tata’s, Raheja’s, Piramals’s, Goenka’s — have already made their foray into this arena, with beauty and health stores, supermarkets, self-service music stores, new age book stores, every-day-low-price stores, computers and peripherals stores, office equipment stores and home/building construction stores. Every retail category has been attacked, by the organized players today. The Indian retail scene has witnessed too many players in too short a time, crowding several categories without looking at their core competencies, or having a well thought out branding strategy. To illustrate, the Indian lifestyle/fashion retail scene is already exhibiting the following characteristics, which do not augur well for its future: In India retail is the second largest sector after agriculture at provide employment to 8 % of the total work force of the country. In 80’s there was coming up of these retail outlets and super market came but it was not so affected but due to liberalization in 1995, the sectors started its growth and occupy the market share in India.
OVERVIEW OF RETAIL INDUSTRY
5
Background The Indian retail industry is divided into organised and unorganised sectors. Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganized retailing, on the other hand, refers to the traditional formats of lowcost retailing, for example, the local kirana shops, owner manned general stores,
paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. India’s retail sector is wearing new clothes and with a three-year compounded annual growth rate of 46.64 per cent, retail is the fastest growing sector in the Indian economy. Traditional markets are making way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls have begun appearing in metros and second-rung cities alike, introducing the Indian consumer to an unparalleled shopping experience. The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10 per cent by the year 2010 bringing in a huge opportunity for prospective new players. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of India’s GDP.
6
India is the 4th largest economy as regards GDP (in PPP terms) and is expected to rank 3rd by 2010 just behind US and China. On one hand where markets in Asian giants like China are getting saturated, the AT Kearney's 2006 Global Retail Development Index Corporate Catalyst India A report on Indian Retail Industry (GRDI), for the second
consecutive year Placed India the top retail investment destination among the 30 emerging markets across the world. Over the past few years, the retail sales in India are hovering around 33-35 per cent of GDP as compared to around 20 per cent in the US. The table gives the picture of India’s retail trade as compared to US and China.
7
The last few years witnessed immense growth by this sector, the key drivers being changing consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the Government increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate building a world class shopping environment for the consumers. In order to keep pace with the increasing demand, there has been a hectic activity in terms of entry of international labels, expansion plans, and focus on technology, operations and processes. This has lead to more complex relationships involving suppliers, third party distributors and retailers, which can be dealt with the help of an efficient supply chain. A proper supply chain will help meet the competition head-on, manage stock availability; supplier relations, new value-added services, cost cutting and most importantly reduce the wastage levels in fresh produce. Large Indian players like Reliance, Ambanis, K Rahejas, Bharti Airtel, ITC and many others are making significant investments in this sector leading to emergence of big retailers who can bargain with suppliers to reap economies of scale. Hence, discounting is becoming an accepted practice. Proper infrastructure is a prerequisite in retailing, which would help to modernize India and facilitate rapid economic growth. This would help in efficient delivery of goods and value-added services to the consumer making a higher contribution to the GDP.
8
International retailers see India as the last retailing frontier left as the China’s retail sector is becoming saturated. However, the Indian Government restrictions on the FDI are creating ripples among the international players like Walmart, Tesco and many other retail giants struggling to enter Indian markets. As of now the Government has allowed only 51 per cent FDI in the sector to ‘one-brand’ shops like Nike, Reebok etc. However, other international players are taking alternative routes to enter the Indian retail market indirectly via strategic licensing agreement, franchisee agreement and cash and carry wholesale trading (since 100 per cent FDI is allowed in wholesale trading).
CURRENT STATUS
India’s retail industry accounts for 10 percent of its GDP and 8 percent of the employment to reach $17 billion by 2010. The Indian retail market is estimated at US$ 350 billion. But organized retail is estimated at only US$ 8 billion. However, the opportunity is huge-by 2010, organised retail is expected to grow at 6 per cent by 2010 and touch a retail business of $ 17 billion as against its current growth level of 3 per cent which at present is estimated to be $ 6 billion, according to the Study undertaken by The Associated Chambers of Commerce and
Industry of India (ASSOCHAM). Indian retailing is clearly at a tipping point. India is currently the ninth largest retail market in the world. And it is names of small towns like Dehradun, Vijayawada, Lucknow and Nasik that will power India up the rankings soon. Organized retail in India has the potential to add over Rs. 2,000 billion (US$45 billion) business by the Year 2010 generating employment for some 2.5 million people in various retail operations and over 10 million additional workforce in retail support activities including contract production & processing, supply chain & logistics, retail real estate
9
development & management etc. It is estimated that it will cross the $650-billion mark by 2011, with an already estimated investment of around $421 billion slated for the next four years.
As noticed in the figure above, the Organized Retail Penetration (ORP) is the highest in footwear with 22 per cent followed by clothing. Though food and grocery account for largest share of retail spend by the consumer at about 76 per cent, only 1 per cent of this market is in the organized sector. However, it has been estimated that this segment would multiply five times taking the share of the organized market to 30 percent in the coming years.
RETAIL FORMATS AVAILABLE IN INDIA
10
FDI POLICY IN THE RETAIL SECTOR
Retailing is the largest private sector industry in the world economy with the global industry size exceeding $6.6 trillion and a latest survey has projected India as the top destination for retail investors. And the further upsurge is anticipated in the retail sector as the Government of opened up 51% FDI in single brand retail outlets. And as the government is in a process to initiate a second phase of reforms, it is cautiously exploring the avenues for multi-brand segment. The Government is seeking for these options keeping in view the existing social framework of India and the will ensure that the entry of global retail giants do not displace the existing employment in the retail business.
11
Industry experts are sensitive to the point that local markets have an edge over the retail investors in India as they have unique advantages such as an understanding of local needs and extended service like home delivery. As the FDI influence on the Indian retail sector sets in, the total size of the retail trade is expected to grow extensively in the coming years and the consumer segments patronizing the big malls will create frenzy for organized retailing predicting a growth of 25-30 per cent per annum over the next decade. Moreover, Indian retail chains would get integrated with global supply chains since FDI will bring in technology, quality standards and marketing thereby, leading to new economic opportunities and creating more employment generation. Industry trends for retail sector indicate that organized retailing has major impact in controlling inflation because large organized retailers are able to buy directly from producers at most competitive prices. World Bank attributes the opening of the retail sector to FDI to be beneficial for India in terms of price and availability of products as it would give a boost to food products, textiles and garments, leather products to benefit from largescale procurement by international chains; in turn, creating jobs opportunities at various levels. As foreign investors exploring their potentials in the retail sector, are keen on developing malls in India, the size of organized retailing is expected to touch $30 billion by 2010 or approximately 10 per cent of the total. This has initiated market-entry announcement from some retailers and has signaled to international retailers about India’s seriousness in promoting the sector. While there are reports of international retailers like Wal-Mart analyzing business opportunities in India; Reliance, the largest Indian conglomerate is investing $3.4 billion to become India’s largest contemporary retailer.
12
There are also reports of investments for ‘Hyper city Retail’ by K.Raheja Group to establish 55 hypermarkets by 2015. All these factors will contribute in taking Indian retail business to unexpected growth based on the consumer preference for shopping in congenial environs and also availability of quality real estate. BUSINESS MODELS FOR ENTRY IN INDIAN MARKETS Due to the FDI restrictions the international players are looking for alternative avenues to enter the Indian markets. However FDI restrictions in retailing have not deterred prominent international players from setting up shops in India. In recent developments, the Australian retail giant Woolworth Ltd made in innovative entry in India’s retail space, with India’s Tata group. The Tata group has floated Infiniti Retail Ltd, in venture with which will sell consumer goods and electronics across the country. Infiniti Retail will be a 100 per cent subsidiary of Tata Sons and will receive an initial equity infusion of Rs 4 billion. This Tata retail venture joined hands with Australian retail giant Woolworths Ltd, which currently operates more than 2,000 stores in 12 different formats. While Infiniti will own and run retail operations in India, Woolworths, which has attained notable success in selling electronics and consumer goods through its Dick Smith Electronics chain, will provide technical support and strategic sourcing facilities from its global network. At present entry into India’s retail sector can be done through three different routes. The chart below shows the current formats permitted by the Government of India for the international players. CURRENT ENTRY OPTIONS FOR FOREIGN PLAYERS:
13
FRANCHISE AGREEMENTS • Most widely used entry route by multinational retailers • Fast food retailer Domino’s entered India through master franchise root while Pizza Hut entered through regional franchisee CASH AND CARRY WHOLESALE TRADING • 100% FDI is allowed in wholesale trading which involves wholesale trading building of a large distribution infrastructure to assist local manufacturers. • The wholesaler deals only with smaller retailers and not Consumers • Metro AG of Germany was the first significant global player to enter India through this route STRATEGIC LICENSING AGREEMENT • Foreign company enters into a licensing agreement with a agreements Domestic retailer • Mango, the Spanisn apparel brand has entered India through this route with an agreement with Piramyd, Mumbai • SPAR entered into a similar agreement with Radhakrishna Foodland Pvt. Ltd WEAKNESS OF PLAYERS
Retail not being recognized as an industry in India: The lack of recognition as an industry hampers the availability of finance to the existing
14
and new players. This affects growth and expansion plans. The high cost of real estate:Real estate price in some cities in India are amongst the highest in the world. The lease or rent of the property is one of the major areas of expenditure, high lease rentals eat into the profitability of a project. lack of adequate infrastructure
oor roads the lack of a cold chain infrastructure ,etc hamper the development of food and fresh grocery retail in India. The exiting supermarkets and food retailers have to invest a substantial amount of money and time in building a cold chain network. Multiple and complex taxation system:The sales tax rates very from state to state. while organised players have to face a multiple point control and tax system, there is considerable expensive to transfer good from one store to another. Foreign direct investment:The fact that the Foreign Direct investment(FDI)is not permitted in pure retailing is seen as one of the prime reasons for the slow growth of retail in India. A global retailer can enter India only by way of a franchise with an Indian partner or through technological alliances.
Purchasing power of money:-As the Indian population mostly consists of middle class families and low wages worker they don’t want to go in the super market or retail market.
MAJOR PLAYER:-
15
One of the largest private sector pure retail chain, in the country is “margin free” a Kerala-based groceries and discount store which has a staggering 214 outlets within the state. Major Players a few retailers have ventured into this area, and the main ones among them are foodworld which is a part of the RPG group and Subhiksha , which is Chennai- based . According to ORG marg estimates, Subhiksha sells 10.1 % of the top100 brands sold in food/grocery and 7.8 % of the OTC brands in Chennai. Subhiksha has yet to expand its operations to the country. This sector also features the largest discount retail chain dealing in groceries, which operates only in one state – kerala. This retail chain is margin free, which operates only in Kerala . Apart from Bata and Kodak it is the largest player in the Indian retail sector today. The fast food and restaurant business has seen a lot of action over the past few years. A large number of international fast food retailers have started operations in India . Prominent among them are McDonald’s Domino’s Pizza Hut and Subway. A few in India retailers like Barista and Café Coffee day are also making their mark in these fields.
THE UNSUNG HEROES OF INDIAN RETAIL
Only of the largest private sector pure retail chains (in terms of the number of outlets) in the country is “Margin Free,” a Kerala –based groceries and discount store which has a staggering 214 outlets within the state. Says T.K. Salem, founder of the store.”Every month we are opening up to 12stores and the number till today, has actually gone up to 239 and our overall turnover is Rs 600 crore.”
16
TAPPING INTO INDIAN CUSTOMER MARKET:
ADVANTAGES: • Indian incomes will triple over the next two decades, significantly reducing poverty • India will emerge as the world’s fifth largest consumer economy • A large urban middle class will develop, but rural areas will benefit too • Patterns of consumption will shift rapidly towards discretionary spending. • Income and consumption growth will create opportunities and challenges for business and government
STATITICS ON PRESENT INDIAN CONSUMERS:
17
18
19
OPPORTUNITIES AND CHALLENGES IN RETAIL SECTOR:
OPPURTUNITIES: INVESTMENT OPPORTUNITIES IN THE RETAIL SECTOR AT Kearney’s study on global retailing trends found that India is the least competitive as well as least saturated of all major global markets. This implies that there are significantly low entry barriers for players trying to setup base in India, in terms of the competitive landscape. The report further stated that global retailers such as Walmart, Carrefour, Tesco and Casino would take advantage of the more favorable FDI rules that are likely in India and enter the country through partnerships with local retailers. Other retailers such as Marks & Spencer and the Benetton Group, who operate through a franchisee model, would most likely switch to a hybrid ownership structure. A good talent pool, unlimited opportunities, huge markets and availability of quality raw materials at cheaper costs is expected to make India overtake the world's best retail economies by 2042, according to industry players. The retail industry in India, according to experts, will be a major employment generator in the future. Currently, the market share of organized modern retail is just over 4 per cent of the total retail industry, thereby leaving a huge untapped opportunity.
19
20
THE POTENTIAL OF THE INDIAN RETAIL SECTOR
The high growth projected in domestic retail demand will be fuelled by: The migration of population to higher income segments with increasing per capita incomes .An increase in urbanization, Changing consumer attitudes especially the increasing use of credit cards. The growth of the population in the 20 to 49 years age band. Opportunities for investment in supply chain infrastructure: Cold chain and logistics India also has significant potential to emerge as a sourcing base for a wide variety of goods for international retail companies. Many international retailers including Wal-Mart, GAP, JC Penney etc. are already procuring from India. The sector is expected to see an investment of over $30 billion within the next 4-5 years, catapulting modern retail in the country to $175-200 billion by 2016, according to Technopak estimates.
20
21
CHALLENGES IN RETAILING
The industry is facing a severe shortage of talented professionals, especially at the middle-management level. Most Indian retail players are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. Long intermediation chains would increase the costs by 15 per cent. Lack of adequate infrastructure with respect to roads, electricity, cold chains and ports has further led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices. The available talent pool does not back retail sector as the sector has only recently emerged from its nascent phase. Further, retailing is yet to become a preferred career option for most of India’s educated class that has chosen sectors like IT, BPO and financial services. Even though the Government is attempting to implement a uniform value-added tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network. Stringent labor laws govern the number of hours worked and minimum wages to be paid leading to limited flexibility of operations and employment of part-time employees. Further, multiple clearances are required by the same company for opening new outlets adding to the costs incurred and time taken to expand presence in the country.
21
22
The retail sector does not have ‘industry’ status yet making it difficult for retailers to raise finance from banks to fund their expansion plans. Government restrictions on the FDI are leading to an absence of foreign players resulting into limited exposure to best practices. Non-availability of Government land and zonal restrictions has made it difficult to find a good real estate in terms of location and size. Also lack of clear ownership titles and high stamp duty has resulted in disorganized nature of transactions.
22
23
OPPORTUNITIES AND CHALLENGES FOR BUSINESSES
OPPORTUNITIES • Along with China the fastest growing of world’s large consumer markets over next two decades • Major discontinuity, winners have yet to be determined – $1.1 trillion of new market growth not yet owned by anyone • Most accessible market – upper income urbanities – will grow twelve times • Almost half of middle class will be ‘new consumers’ at any point in time loyalties up for grabs
CHALLENGES • Indian companies –Retaining existing customers and market shares – Adapting rapid pace of change – Innovating to capture new growth opportunities – Educating new consumers
• Multinationals –Meeting middle class aspirations at Indian price – Adapting products and services to meet Indian needs and task points – Building brands –Overcoming infrastructure, regulatory, and distribution hurdles
23
24
OPPORTUNITIES AND CHALLENGES FOR GOVERNMENT
OPPORTUNITIES • A chance to make further significant inroads in poverty reduction • Domestic demand growth will spur further domestic production and Employment – particularly in higher value-added industries • An opportunity to attract FDC to serve Indian consumers • The potential to improve the material well-being of hundreds of millions of people
CHALLENGES • Long-term growth must be maintained • Infrastructure issues need to be addressed • Regulatory constraints on business need further reform to enable Businesses to meet growing demand and improve productivity • Financial system needs reform to efficiently allocate investment, rebalance savings away from households and provide consumer credit • Significant investments in human capital required (education, health care) in fiscally constrained environment.
24
25
CHARACTERISTICS OF RETAILING 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. In is the only point in the value chain to provide a platform for promotions. Sales at the retail level are generally in smaller unit sizes. Location is a critical factor in retail business. In most retail businesses 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.
• Direct Interaction with Customers Retail businesses have a direct interaction with end-users of goods or services in the value chain. They act as intermediaries between end-users and suppliers such as wholesalers or manufacturers. Therefore, they are in a position to effectively communicate the response and changing preferences of the consumers to the suppliers or sales persons of the company. This helps the manufacturers and markets to redefine their product and change the components of its marketing strategy accordingly. Manufacturers require a strong retail network both for reach of the product and to obtain a powerful platform for promotions and point-of-purchase advertising. Realizing the importance of retailing in the entire value chain, many manufacturers have entered
25
26
into retail business by setting up exclusive stores for their brands. This has not only provided direct contact with customers, but has also acted as advertisement for the companies and has provided the manufacturers with bargaining power with respect to other retailers who stocked their product. Retailing provides extensive sales people support for products which are information intensive, such as in the case or consumer durables.
Lower Average Amount of Sales Transaction
The average amount of sales transaction at retail point is much less in comparison to the other partners in the value chain. Many consumers buy products in small quantities for household consumption. Due to lower disposable incomes, some consumer segments in India even buy grocery items on a daily basis rather than a weekly or a monthly basis. Inventory management becomes a challenge for retailers as a result of the many minor transactions with a large number of customers. Hence, retailers must take care of determining average levels of stock, order levels and the retailer has to keep a tight control on costs associated with each transaction in the selling process. Credit verification, employment of personnel, value-added activities like bagging, gift-wrapping and promotional incentives all add up to the costs. One way to resolve this is for the retail outlets to be able to attract the maximum possible number of shoppers.
26
27
Point-of-purchase Display and Promotions A significant relevant chunk of retail sales comes from unplanned or impulse purchases. Studies have shown that shoppers often do not carry a fixed shopping list and pick up merchandise based on impulsive or situational appeal. Many do not look at ads before shopping. Since a lot of retail products are low involvement in nature, impulse purchases of the shopper is a vital area that every retailer must tap into. Therefore, display, point-of-purchase merchandise, store layou8t and catalogues become important. Impulse goods like chocolates, snack foods and magazines can sell much more quickly if they are placed in a high visibility and high traffic location.
Larger Number of Retail Business Units
Location of retail store plays an important role compared to other business units. Manufacturers decide the location on the basis of availability of factors of productions and market. Similarly, retailers consider factors like potential demand, supply of merchandise and store image-related factors in locating the retail outlet. The number of operation units in retail is the highest compared to other constituents of the value chain, primarily to meet the needs for geographic reach and customer accessibility.
FUNCTIONS OF RETAILING
27
28
Retailers play a significant role as a conduit between manufacturers, wholesalers, suppliers and consumers. 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 an assortment of goods from different sources, buying them in sufficiently large quantities and selling them to consumers in small units. The above process is referred to as the sorting process. Through this process, retailers undertake activities and perform functions that add to the value of the products and services sold to the consumer. Supermarkets in the US offer, on and average, 15,000 different items from 500 companies. Customers are able to choose from a wide range of designs, sizes and brands from just one location. If each manufacturer had a separate store for its own products, customers would have to visit several stores to complete their shopping. While all retailers offer an assortment, they specialize in types of assortment offered and the market to which the offering is made. Westside provides clothing and accessories, while a chain like Nilgiris specializes in food and bakery items. Shoppers’ Stop targets the elite urban class, while Pantaloons is targeted at the middle class. BREAKING BULK
28
29
Breaking bulk is another function performed by retailing. 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 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
29
30
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 number of functions performed by a particular retailer has a direct relation to the percentage and volume of sales needed to cover both their costs and profits. As a result of these functions, retailers are required to perform the following activities:
ACTIVITIES PERFORMED BY RETAILERS Retailers undertake various business activities and perform functions that add value to the offerings they make to their target segments. Retailers provide convenient location, stock and appropriate mix of merchandise in suitable packages in accordance with the needs of customers. The four major activities carried out by retailers are:
1) Arrange for assortment of offerings 2) Breaking quantity 3) Holding stock
30
31
4) Extending services
ARRANGING ASSORTMENT
An assortment is a retailer’s selection of merchandise. It includes both the depth and breadth of products carried. Retailers have to select the combination of assortments from various categories. The assortments must include substitutable items of multiple brands and price points. They should be distinguished on account of physical dimensions and attributes e.g., colour or flavour. The small retailer takes assortment decision on the basis of his experience; on the other hand retailers from organized retailing depend on a detailed study of past trends and future projections. Retailers need to consider certain factors while devising assortment plans for their stores: profitability associated with particular merchandise mix, store image, layout and the level of compatibility between the existing merchandise. For example, FoodWorld, a leading food supermarket positioned as a one-stop shopping centre, deals in multiple product categories along with all possible variants of brands, stock keeping units, and physical attributes in order to meet the expectations of their consumers and survive in the business. Whereas, Subhiksha, a grocery chain in south India has impressive assortments of only the fast moving brands rather than all available variants in the market. Their assortment plan is governed by location, size and store image of their stores.
BREAKING BULK
31
32
Breaking bulk means physical repackaging of the products by retailers in small unit sizes according to customer’s convenience and stocking requirements. Normally, retailers receive large quantities of sacks and cases of merchandise from suppliers to reduce their transportation costs. In order to meet their customers’ requirements retailers have to break or arrange the bulk into convenient units. This entire function of the retailers adds value to the offerings not only for the end customers but also for the suppliers in the value chain. Even in the earlier days of generic and commodity-based trading most of the retailers used to perform this important function in the value chain. This function receives negligible attention from the retailers now due the introduction of new product categories, such as FMCG and ready-to-wear apparel.
HOLDING STOCK To ensure the regular availability of the offerings retailers maintain appropriate levels of inventory. Consumers normally depend on the retailers directly to replenish their stocks at home. Therefore, retailers, on periodic basis, maintain the required levels of stock to meet the regular or seasonal fluctuations in the demand. Retailers need to maintain equilibrium between the range or variety carried and the sales which it gives rise to. Retailers have to face the negative consequences of holding unwanted levels of stock—for instance, too little stock will hamper the sales volume, whereas, too much stock will increase the retailer’s cost of operation. Generally, in small towns of India most retailers have arrangements with the nearby warehouses to stock the goods. Some are so small that they have to stock only on the shop floor. Retailers in the organized sector, to a certain extent, are using effective software packages for maintaining adequate levels of inventory. At the same time, retailers avail of just-in-time deliveries with the
32
33
help of efficient consumer response systems, which reduces the burden of maintaining high levels of stocks.
EXTENDING SERVICES Retailing provides multiple services to immediate customers and other members of the value chain. The set of services extended by particular retailers may be part of their core product offerings or it may be ‘add on’ to their product or service. Retailers offer credit, home delivery, after-sales services and information regarding new products to their customers, thereby making the shopping experience convenient and enjoyable. At the same time, they provide stocking place, reach to the ultimate customers, and information about the concerned target segment to the suppliers. For example, Time Zone, the first organized retail chain of wristwatches in India, started by leading watch manufacturers Titan, set up in all its stores, service centres with proper equipment and trained manpower. This has not only diluted the relevance of service providers in the unorganized sector but has also enhanced the confidence of the customers in the retai9l services provided by the particular retail chain, as after-sales service is considered to be an integral ingredient of the watch purchase. CATEGORIZING RETAILERS Categorizing retailers helps in understanding the competition and the frequent changes that occur in retailing. There is no universally accepted method of classifying a retail outlet, although many categorization schemes have been proposed. Some of these include classifying on the basis of Number of outlets Location - Margin Vs Turnover - Size.
33
34
The number of outlets operated by a retailer can have a significant impact on the competitiveness of a retail firm. Generally, a greater number of outlets add strength to the firm because it is able to spread fixed costs, such as advertising and managers’ salaries, over a greater number of stores in addition to acquiring economies of purchase. While any retailer operating more than one store can be technically classified as a chain owner, for practical purposes a chain store refers to a retail firm which has more than 11 units. In the United States, for example, chain stores account for nearly 95% of general merchandise stores. Small chains can use economies of scale while tailoring merchandise to local needs. Big chains operating on a national scale can save costs by a centralized system of buying and accounting. A chain store could have either a standard stock list ensuring that the same merchandise is stocked in every retail outlet or an optional stock list giving the outlets the advantage of changing the merchandise according to customer needs in the area. Because of their size, chain stores are often channel captains of the marketing channel—captains can influence other channel partners, such as wholesalers, to carry out activities they might not otherwise engage in, such as extended payment terms and special package sizes.
Big stores focus on large markets where their customers live and work. They use technology to learn more about their customers and target them with point-of-sale machines interactive kiosks, and sophisticated forecasting and inventory systems. They tend to stock a narrow range of inventory that sells well and maintain an extensive inventory of the fast selling products. Branding is important to them. Pricing is often a key area of focus for these retailers. Big stores have many strengths, including regional or national reputation, huge buying power, vast inventory and hassle-free return and exchange policies. Their prime locations, the consistency in
34
35
their products and services, the fact that they are open when people can and want to shop and the clear consistent image and identity they develop and maintain challenge the abilities and resources of many small retailers. Perhaps their biggest advantage is their knowledge in every aspect of their business, from inventory selection to store layout. However, large retailers are not perfect. They have competitive weaknesses that small retailers can exploit. Most offer the same standardized assortments of products nationally. Local managers have little say in inventory selection. Often, sales staff has minimal product knowledge. Staff turnover is extremely high. Most large retailers have little connection with the community they serve. They usually do not offer special services. Larger companies are often slow to recognize and react to changes in their local markets. Independent retailers can co-exist and flourish in the shadow of the big chains by developing a niche within the diverse market. The niche should be developed on the basis of new or unusual product offerings, superior service and overall quality. While value is important, price may be less important. Efficient operations, including precise buying practices, are a must. Customer contact within the niche market must be characterized by ‘high-touch’ service. The key factor is innovation: stores that do not change will perish. The road to success for the independent retailer lies in doing all the things those big chain stores cannot or will not do. The successful independent retailers embrace the following principles: • • • • • Be prepared for change. Move to a narrower niche market and stop competing directly with the big retailers. Learn more about customers and include best customers in a database. Invest appropriately in advertising and promotion. Charge regular prices and avoid discounting (ensure requisite mark-up).
35
36
• • • • • •
Buy with precision and search out specialty suppliers. Maintain essential inventory. Focus on profit instead of volume (be ready to lose an occasional sale). Provide extraordinary service. Employ the best possible staff. Understand the significance of the Internet.
Gross margin and inventory turnover is another means of classifying retailers. Gross margin is net sales minus the cost of goods sold and gross margin percentage is the return on sales. A 30% margin implies that a retailer generates Rs 30 for every Rs 100 sales that can be used to pay operating expenses. Inventory turnover refers to the number of times per year, on average, a retailer sells his inventory. On the basis of this, retailers are classified as low margin low turnover—those that cannot survive the competition—and low margin high turnover, exemplified by Amazon.com. Jewellery stores and appliance stores are examples of high margin low turnover stores and only a few retailers achieve high margin high turnover. These retailers are in the best position to combat competition because their high turnover allows them to withstand price wars. The drawback of the classification by this method is that service retailers who have no inventory turnover cannot be encompassed. One of the old means of classification of retailers is by location, generally within a metropolitan area. Retailers are no longer satisfied with traditional locations within a city’s business district but are on the constant lookout for alternate locations to reach customers. Besides renovating old stores, retailers are testing unorthodox locations to expand their clientele.
36
37
With the advent of the Internet, this area of retailing is likely to undergo tremendous changes in the coming years. Size is often used as a yardstick to classify retailers because costs often differ on the basis of size, with big retailers having lower operational costs per dollar than smaller players. However, in this sphere too, the Internet may make size an obsolete method of comparison.
37
38
RETAIL ORGANIZATION
The term retail organization refers to the basic format or structure of a retail business designed to cater to the needs of the end customer. Recently, some scholars have started referring to India as a nation of shopkeepers. This epithet has its roots in the huge number of retail enterprises in India, which were over 12 million in 2003. About 78% of these are small family businesses utilizing only household labour. Retail firms may ;be independently owned, parts of a retail chain, operated as a franchisee, leased departments, owned by manufacturers or wholesalers, consumers owned or cooperative society. A retail unit could be owned by: • • • • • • • Manufacturer (e.g., company owned retail outlets) Wholesaler (e.g., Vastra outlet in Rajouri in New Delhi) Independent retailer (Chanakya Sweet Shop near Hazratganj in Lucknow) Consumer (consumer owned grocery stores in man y residential societies) Co-operative society (e.g., Mother Dairy milk booths in Delhi) Government (e.g., Cottage Emporia) Ownership shared among franchiser and franchisee (e.g., Archies Gallery) Although most Indian retailers fall in the category of small-scale units, there are also some very big retailers. Organized retail stores are generally characterized by large, professionally managed store formats providing goods and services that appeal to customers, in an ambience that is conducive for shopping and provides a memorable experience to customers.
38
39
From positioning and operating perspectives, each ownership format serves a marketplace niche and presents certain advantages and disadvantages. Retail executives must not lose sight of this in playing up their strengths and working around their weaknesses.
CLASSIFICATION OF RETAIL UNITS Conceptual classification of a business unit provides the marketers with strategic guidelines, useful in the design of retailing strategy. Besides, retail businesses are extremely diverse and there are quite a few types of retail units. Therefore, retail units are classified on multiple of ownership, geographical locations, kind of customer interaction level of services provided etc.
Retailers Classified on the Basis of Ownership One of the first decisions that the retailer has to make as a business owner is how the company should be structured. This decision is likely to have long-term implications, so it is important to consult with an accountant and attorney to help one select preferred ownership structure. There are four basic legal forms of ownership for retailers:
1) Sole
proprietorship: - The vast majority of small businesses start out as sole
proprietorships. These firms are owned by one person, usually the individual who has the day-to-day responsibility for running the business.
2) Partnership:
- A partnership is a common format in India for carrying out business
activities (particularly trading) on a small or medium scale. In a partnership, two or more people share ownership of a single business.
39
40
3) Joint venture: - A joint venture is not well defined in the law. Unless incorporated or
established as a firm as evidenced by a deed, joint ventures may be taxed like association of persons, sometimes at maximum marginal rates. It acts like a general partnership, but is clearly for a limited period of time or a single project.
4) Limited
liability Company (public and private):- The Limited Liability Company
(LLC) is a relatively new type of hybrid business structure that is now permissible in most states. The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. Classification of Retailers on the basis of Operational Structure Retail businesses are classified on the basis of their operational and organizational structure. Operational structure defines the key strategic decision of retail entity, whether to hire employees and manage the distributed sales function internally or to reach customers though franchised outlets owned and operated by local entrepreneurs.
Retail firms can be classified into five heads on the basis of their respective operational structures:
1) Independent retail unit: - The total number of retailers in India is estimated to be over 5
million in 2003. About 78% of these are small family businesses utilizing only household labour. An independent retailer owns one retail unit.
40
41
2) Retail Chain: -
A chain retailer operates multiple outlets (store units) under common
ownership; it usually engages in some level of centralized (or coordinated) purchasing and decision making.
3) Franchising:
- Franchising involves a contractual arrangement between a franchiser
(which may be a manufacturer, a wholesaler, or a service sponsor) and a retail franchisee, which allows the franchisee to conduct a given form of business under and establishments name and according to a given pattern of business.
4) Leased Department or Shop-in-shop:- It refers to department in a retail store that are
rented to an outside party. Usually this is done in case of department and specialty stores and also at times, in discount stores.
5) Co-operative Outlets: - Co-operative outlets are generally owned and managed by cooperative societies. In this context the detailed example of Kendriya Bhandar in India. Classification of Retailers on the basis or Retail Location Retailers have also been also been classified according to their store location. Retailers can locate their stores in an isolated place and attract the customers to the store on their own strength—such as a small grocery store or paan shop in a colony, which attracts the customers staying close by.
Classification of retailers on the basis of location is discussed below: 1) Retailers in a free-standing location: - Retailers located at a site which is not connected to other retailers depend entirely on their sore’s drawing power and on the various promotional tools to attract customers. This type of location has several advantages
41
42
including no competition, low rent, better visibility from the road, easy parking and lower property costs. For example the Haldiram’s outlet on the Delhi-Jaipur highway and the McDonald’s outlet on Delhi-Ludhiana highway. 2) Retailers in a Business-associated Location:- In this case, a retailer locates his store in a place where a group o retail outlets, offering a variety of merchandise, work together to attract customers to their retail area, and also compete against each other for the same customers. 3) Retailers in Specialized Markets: - Besides the above location-based classification, we also have in India-retailers who prefer specialized markets, particularly traditional independent retailers or chain stores. In India, most of the cities have specialized markets famous for a particular product category. For example, in Chennai, Godown Street is famous for clothes, Bunder treet for stationery products, Usman street for jewellery, T Nagar for ready-made garments, Govindappan naicleen street for grocery, Poo Kadia for food and vegetables. 4) Airport Retailing: - For quite some time, duty-free shops and newsstands dominated the small amount of commercial space provided at airports. Lately, serious efforts are being made to design new airport facilities in order to incorporate substantial amounts of retail space.
42
43
The key features of airport retailing are:
• Large groups of prospective shoppers • Captive audience • Strong sales per square foot of retail space • Strong sales of gift and travel items • Difficulty in replenishment • Longer operating hours • Duty-free shopping possible.
TRENDS IN RETAIL FORMATS
Retail industry is continuously going through changes on account of liberalization, globalization and consumer preferences. While multinational retail chains are looking for new markets, manufacturers are identifying, redefining, or evolving new retail formats. The existing retail houses are also gearing up to face the emerging competition from the organized sector and the changing outlook of the consumers. For example, consumer spending is shifting from goods to services. Accordingly the retailers too are fast adjusting to the changing consumer preferences.
Consumers are not only looking for the core products or functional benefits from the retailers but also the non-functional benefits, which need to be compatible with their lifestyles. For example, most of the traditional eating joints in India such as Haldiram, Bikaner and Sagar
43
44
Ratna have revised their product offerings and atmospherics on the lines of the multinational chains to compete with them and to serve changed expectations of the consumers. Mom-and-pop Stores and Traditional Kirana Stores
The retail sector is changing as new store categories have started dominating the marketplace. Mass merchandisers (Wal-Mart, Big Bazaar), discount clubs (Subhiksha), so-called category killers (Home Depot, Vishal chain), and speciality retailers (Time Zone, Tanishq) have all developed a successful retail models. At the same time, the small mom-and-pop stores and the traditional department stores, are finding the competition intense. In 2002, while Wal-Mart and Target saw revenues grow (by 12% and 10%, respectively), department stores such as Saks and Federated experienced declining revenues (down 3% and 1% respectively). But even in the mass-merchandising segment, the competition is fierce, as is evidenced by Kmart’s bankruptcy announcement in 2002. Small independent stores, across product categories, is a very common retail formats they are also undertaking large scale renovations to appeal and attract their target consumer segments.
E-commerce The amount of retail business being conducted on the Internet is growing every year. Indeed, Forrester Research Agency projects e-commerce revenue to rise to $123 billion in 2004, an increase of some 28% over the previous year and for e-tailing to comprise a bigger slice of the overall retail pie (5.6%, up from 4.5% in 2003). Many major retail organizations and manufacturers have online retail stores. Companies like Amazon.com and First and second.com, which helped pioneer the retail e-commerce concept, are now being followed by bricks-and44
45
mortar and catalogue retailers like J. Crew, which are expanding retail e-commerce into new markets. Department Stores A few years ago, names like Sears, J.C. Penney, Macy’s, and Montgomery Ward dominated malls and downtowns all over America. Over the last decade or so, however, these department stores have suffered badly. In part, this is a result of changing shopping patterns and increased competition from discount stores. It has also come from financial burdens incurred by companies that acquired competing companies and grew too fast. It is unlikely that these players will disappear from the market. However, they should be ready to expect more bumps as the strong get stronger and the weak get absorbed. Discount Stores These are giants such as Wal-Mart (the largest retailer in the world, with more than a million; employees), Target and Kmart, as well as membership warehouses, such as Costco. These, along with the category killers, have changed the landscape of both the retail industry and America. Where once mom-and-pop and department stores dominated retail, now the discount retailers and category killers are at the top of the heap. And where once shopping malls, anchored by at least one major department store; used to be the dominant retail presence lining the nation’s roads, now it is the behemoth Wal-Marts and Home Depots.
Category Killers These are the giant retailers that dominate one area of merchandise (e.g., Office Depot, Tower Records and The Sports Authority). They are able to buy bathroom tiles, file cabinets, electronic goods or pet food in such huge volumes that they can then sell them at prices even
45
46
fairly large competitors cannot match. The future of this category is better than that of many of the more general discounters, but the same employment caveats apply. For most job seekers, these companies offer earn-and-learn experiences with vendors and distributors before they move onward and upward.
Specialty Stores These include Crate & Barrel, the Body Shop, and Victoria’s Secret. These stores concentrate on one type of merchandise and offer it in a manner that makes it special. Some are very high-end (Louis Vuitton) while others cater to the price-conscious masses (Old Navy). Many are so successful that department stores have started to emulate their buying, marketing, and merchandise display strategies. Industry experts predict growth in this segment, particularly in home furnishings and home improvement, and it seems to attract many of the best and brightest in retail. Promotion and responsibility come quickly to those willing to work hard, and in many of these stores the hand of bureaucracy is not heavy.
E-tailers While most retailers have online storefronts, strictly online purveyors with no brick sandmortar counterparts are hoping to snare a percentage of the retail profit. Major players, such as Amazon.com, have generated enough business to cause top brick-and mortar competitors to come up with their own Internet sites. Traditional retailers like Wal-Mart and Starbucks, hugely successful in their own right, have also set up online stores so as not to miss out on the revenue opportunities that the Interned offers.
46
47
VARIETY OF MERCHANDISE MIX The retail merchandising has come a long way in India since the days when general stores (kirana) that stocked everything from groceries to stationery and small shops that sold limited varieties of products (such as clothes, furniture, medicines) reigned supreme.
There are many different retail stores in India—convenience stores, supermarkets, hypermarkets, department stores, brand stores and discount stores characterized by the variety of merchandise mix offered by a respective retail format. The consumer can choose between different stores for different needs. Retail units, on account of variety of merchandise mix, can be classified as follows:
Department Stores: - It is a large retail store organized into a number of departments, offering a broad variety and depth of merchandise, commonly part of a retail chain. Usually, department stores are located within the planned shopping centres or traditional up market downtown centres. The leading fashion department stores in India are Ebony, Globus, LifeStyle, Pantaloon, Shoppers’ Stop and Westside. All of them are multiproduct stores, Ebony has 7 stores, Globus has 4 stores, LifeStyle has 3 stores and there are 12 Pantaloon Family Stores.
Discount Stores: - Retailers offering a broad variety of merchandise mix, limited or no service and low prices are characterized by low margins, heavy advertising, low investments on fixtures, limited support from sales people etc. Discount stores prefer shopping centres that provide space at lower rents as they attract customers from other adjoining stores in the shopping centre.
47
48
Specialty Stores: - Specialty stores stress on one or a limited number of complementary product categories and extend a high level of service to their customers. In India, the traditionally independent retailers in the specialized market centres operate in a particular product category, at these centres attract large crowds. Such specialized retail operations provide expertise economies of scale, bargain and image to the particular stores.
Supermarkets and Hypermarkets: - A hypermarket is a very large retail unit offering merchandise at low prices. Superstores have a sales area of over 50,000sq.ft. Hypermarkets are characterized by large store size, low operating costs and margins, low prices and comprehensive range of merchandise.
48
49
RETAIL LOCATION STRATEGY
Location is the most important ingredient for any business that relies on customers. It is also one of the most difficult to plan for completely. Location decisions can be complex, costs can be quite high, there is often little flexibility once a location has been chosen and the attributes of location have a strong impact on a retailer’s overall strategy. In India, most retailers prefer to own the property rather than avail of the desired property through lease or rental. This makes the location decision even more critical. Choosing the wrong site can lead to poor results and in some cases insolvency and closure.
IMPORTANCE OF LOCATION DECISION The importance of the location decision is due to the following factors. Location is a major cost factor because it
• Involves large capital investment • Affects transportation costs • Affects human resources cost, e.g., salaries
Location is a major revenue factor because it
• Affects the amount of customer traffic • Affects the volume of business
49
50
The traditional inclination of Indian retailers to own property further increases capital investment and this along with the penchant of Indian retailers to continue their business at the same location makes the location decision even more important. The terms ‘location’ and ‘site’ are often used interchangeably but there is a distinct difference between the two. ‘Location’ is a broader concept, which denotes the store and its trading area from where a majority of its customers originate, while a site refers to the specific building or part of the building where a store is located. Location and site characteristics should interact in a positive and synergistic way with a store’s merchandising, operations and customer service characteristics. For example, a designer men’s store located in an up market shopping centre or a mall near posh residential colonies, housed in an attractive building with adequate parking facilities. LEVELS OF LOCATION DECISION AND ITS DETERMINING FACTORS
A retailer has to take the location decision, basing on three aspects:
1) Selection of a city 2) Selection of an area or type of location within a city 3) Identification of a specific site
The factors which influence these decisions are discussed below:
Selection of a City The following factors play a significant role in the selection of a particular city for starting or relocating an existing retail business:
50
51
• Size of the city’s trading area: A city’s trading area is the geographic region from
which customers come to the city for shopping. A city’s trading area would comprise its suburbs as well as neighboring cities and towns. Cities like Mumbai and Delhi have a large trading area as they draw customers from far off cities and towns.
• Population of population growth in the trading area: The larger the population of the
trading area, the greater the potential of the city as a shopping location. A high growth n population in the trading area can also increase the retail potential.
• Total purchasing power and its distribution: The retail potential of a city also depends
on the purchasing power of the customers and its distribution networks in its trading area. Cities with a large population of affluent and upper middle-class customers can be an attractive location for stores selling high-priced products such as designer men’s wear. The fast growth in purchasing power and its distribution among a large base of middle class is contribution to a retailing boom around major cities in India.
• Total retail trade potential for different lines of trade: A city may b become
specialized in certain lines of trade and attract customers from other cities. Moradabad has become an important retail location for brassware products while Mysore is famous for silk saris.
• Number, size and quality of competition: The retailer also considers the number, size
and quality of competition before selecting a city.
• Development cost: The cost of land, rental value and other related cost.
51
52
Selection of an Area or Type of Location within a City In the selection of a particular area or type of location within a city, evaluation of the following factors is required.
• Customer attraction power of a shopping district or a particular store: Major
shopping centres like Chandni Chowk in Delhi, Colaba in Mumbai and Commercial Street in Bangalore attract customers from far off, while small shopping centres located in colonies attract customers from immediate neighborhood.
• Quantitative and qualitative nature of competitive stores: Retailers would like to
evaluate the product lines carried by other sores, number of stores in the area, etc. before selecting the area.
• Availability of access routes: The area or shopping centre should provide easy access
routes. There should not be traffic jams and congestion MG Road in Bangalore provides easy access from different t parts of the city and hence has become popular.
• Nature of zoning regulations: The retailer should also consider the zoning regulations in
the city.
• Direction of spread of the city: The retailer should consider the direction in which the
city is developing while selection the location.
Selection of a Specific Site
The choice of a specific site is particularly important. In central and secondary shopping centre, non-anchor sores depend on customers coming to the market and the traffic generated by
52
53
anchor stores. The large stores in turn depend on attracting customers from the existing flow of traffic. Where sales depend on nearby settlements, selecting the trading area is even more important than picking the specific site.
53
54
TYPES OF RETAIL LOCATION
A retailer has to choose among alternate types of retail locations available. It may locate in an isolated place and pull the customer to the store on its own strength, such as a small grocery store or paan shop in a colony which attracts the customers staying close by. Or, it may locate in a business district where ther3 are a large number of retail establishments. If it decides to locate its store in a business district, it may have a choice ranging for, the large shopping centres in the heart of the city or smaller shopping complexes in a suburb.
The various options available to a retailer in India are shown below:
Free-standing Location Where there are no other retail outlets in the vicinity of the store and therefore, the store depends on its own pulling power and promotion to attract customers. This type of location has several advantages including no competition, low rent, and often better visibility from the road, easy parking and lower property costs.
Neighborhood Stores Neighborhood stores are located in residential neighborhoods and serve a small locality. They sell convenience products like groceries. Now, even the large organized sector stores, which pull customers from across the city, are also coming up in suburbs or away from major markets as free-standing locations. For example, Kemp Fort and LifeStyle stores are freestanding stores in Bangalore away from major market of the city.
54
55
Highway Stores
Highway stores are located along highways or at the intersections of two highways and attract customers passing through these highways.
Business-associated Location
These are locations where a group of retail outlets offering a variety of merchandise work together to attract customers to their retail area, but also compete against each other for the same customers. This type of location can be further classified as:
• Unplanned Business Districts/Centres: An unplanned business district is a type of retail
location where two or more retail stores locate together on individual considerations rather than on the basis of any long-range collective planning. Thus, we may find four to five shoe stores, three to four medical stores in a cluster but no grocery store. An unplanned district generally provides certain advantages like availability of a variety of goods, services and prices; access to public transport; nearness to commercial and social facilities; and pedestrian traffic.
• Planned Shopping Centres: A planned shopping centre consists of a group of
architecturally owned or managed stores, designed and operated as a unit, based on balanced tenancy and surrounded by parking facilities.
55
56
• Regional Shopping Centres or Malls: Regional shopping centres or malls are the
largest planned shopping centres; often they are anchored by two or more major department store, have enclosed malls, serve a large trading area, and have high rents. They attract customers from across the city and suburbs. Major regional shopping centres or malls in India include Crossroads in Mumbai, Ansal Plaza in Delhi, Spencers Plaza n Chennai and Meropolitan Mall in Gurgaon.
SITE SELECTION ANALYSIS
With the advent of new retail formats in India such as planned shopping centes and malls, emergence of free-standing department stores, hypermarkets, etc., and further development of traditional business districts and other unplanned shopping locations, a retailer is presented with a wider choice of locations. Consideration of all the options keeping in view the product mix, customer profile and overall business model presents an enormous challenge. A retailer has to consider the following factors while selecting a site:
• Kind of products sold • Cost factor • Competitor’s location • Ease of traffic flow and accessibility • Parking and major thoroughfares
56
57
• Market trends • Visibility
Kind of Products Sold For stores dealing in convenience goods, the quantity of traffic is most important. The corner of an intersection, which offers two distinct traffic streams and a large window display area, is usually a better site than the middle of a block. Convenience goods are often purchased on impulse from easily accessible stores. For stores dealing in shopping goods, the quality of the traffic is more important. The emergence of several apparel factory outlets within a short stretch on the Delhi-Jaipur highway, at Mahipalpur market in Delhi, is driven by this factor.
57
58
Cost Factor in Location Decision
Location decision on cost considerations alone is risky. Space cost is a combination of rent or mortgage payment, utilities, leasehold improvements, general decoration, security, insurance and all related costs having a place to conduct business operations. Traditionally, the retail community placed great importance on owning the place since this was considered prestigious in the business community. However, there are many periodic retail markets in Indian which operate on particular days of the week. The retailers operating in these periodic markets keep shifting from place to place and do not own any property; instead they pay a small rental for their set-up in each market. This supports their model of selling goods at very low margins.
Competitor’s Location
The type and number of competitors is another important factor. The presence of major retail centers, industrial parks, franchisee chains and department stores should be noted. Intense competition in the area shows that new businesses will have to divide the market with existing businesses. If one is not able to offer better quality and competitively priced products, one might reconsider that particular location. An excellent location may be next or close to parallel or complementary businesses that will help to attract customers.
58
59
Ease of Traffic Flow and Accessibility These two factors are more important to some businesses than others. Consider the nature of the business you are planning to open and your potential customers. Retailers selling convenience goods must attract business from the existing flow of traffic. Studying the flow of traffic, noting one-way streets, street widths and parking lots, is hence important. The following factors have to be considered: parking availability, distance from residential areas or other business areas, traffic congestion, side of street, width of street, part of the block and neighbors. Evaluate how accessible the site is for walk-in or drive-by traffic as well as the amount of pedestrian traffic and automobile traffic that goes by the proposed location.
Parking and Major Thoroughfares
Parking is another site characteristic that is especially a cause for concern in densely populated areas. When evaluating the parking that exists at a retail site, there are two considerations: parking capacity (the number of cars that can be parked), and parking configuration (the way the parking lot is laid out, the direction of the travel lanes and spaces, landscaping, etc.). There are several ratios that are generally used to determine the adequacy of a parking lot. While different ratios exist for different types of retailers or service providers, the ideal ratio for food stores is in the magnitude of 7-8 cars per 1,000 square feet of food store.
59
60
Market Trends
Evaluate the community from a broad, futuristic perspective. Local newspapers are a good source of information. Discussions with business owners and officials in the area can also help. Make use of information available through the Chamber of commerce.
Visibility
Visibility has a varied impact on a store’s sales potential. It is important when a shopper is trying to find the sore for the first or second time. Once the shopper has become a regular customer, visibility no longer matters. But consider this fact: one in five families’ moves every year, which means that some part of a community’s population may be ‘shopping’ in a new store.
EMERGENCE OF ORGANIZED RETAILING
Organized retailing in India represents a small fraction of the total retail market. In 2001, organized retail trade in India was worth Rs 11,228.7 billion. The modern retail formats are showing robust growth as several retail chains have established a base in metropolitan cities, especially in south India and are spreading all over India at a rapid pace. However, space and rentals are proving to be the biggest constraints to the development of large formats in metropolitan cities since retailers are aiming at prime locations.
60
61
In urban India, families are experiencing growth in income but dearth of time. More and more women are taking up corporate jobs, which is adding to the family’s income and leading to better lifestyles rising incomes has led to an increased demand for better quality products while lack of time has led to a demand for better quality products while lack of time has led to a demand for convenience and services. The demand for frozen, instant, ready-to-eat food has been on the rise, especially in the metropolitan and large cities in India. There is also a strong trend in favors of one-stop shops like supermarkets and department stores. Rural India continues to be serviced by small retail outlets. Only 3.6 million outlets cater to more than 700 million inhabitants of rural India. Here, provision stores, paan shops and ration shops are the most popular vehicles of retailing. Apart from this, there are periodic or temporary markets, such as haats, peeth and melas that come up at the same location at regular time intervals. The McKinsey report predicts that FDI will help the retail businesses to grow to US $ 460-470 billion by 2010. There has been a strong resistance to foreign direct investment (FDI) in retailing from small traders who fears that foreign companies would take away their business, lead to the closure of many small trading businesses and result in large-scale unemployment. Therefore, government has discouraged FDI in the retail sector. At present, foreign retailers can enter the retailing sector only through restricted modes. Global players in the retail segment have been entering the market for a while now. Players that entered before the easing of restrictions on FDI in retail had to come through different modes, such as joint ventures where Indian partner is an export house (Total Health Care); franchising/local manufacturing/sourcing from small-scale
61
62
sector (McDonald’s, Pizza Hut); cash and carry operations (Giant) and licensing (Marks & Spencer’s). The main condition for organized retailing is that the retailer should be able to manage and influence the supply chain variables in a commercially viable and sustainable manner. The organized retailer should be able to, through diversified risks and volume sales command huge concessions on prices from the manufacturers. He should then be in a position to allow a trickle down of this advantage to consumers out of his saved costs.
CURRENT SCENARIO The Indian population is whooping 1 billion with 75% of the people living in villages and small towns. It is only natural that the agricultural sector is the biggest employer with its contribution to GDP pegged at 26.7%. Retail is India’s largest industry after Agriculture with around 20% of the economically active population engaged in it and generation 10% of our country’s GDP. The growth of the efficient small store culture can be attributed to the 6 million villages distributed across the length and breadth of the country. The 12 million retail outlets in India are the highest in the world, and cater to the purchase need of its pole. It is interesting to note, that the Urban Population although just 25% of the total, is an astounding 250 million in size and is growing at a healthy rate of 7% per annum. The chief driver of growth in the retail sector has been the consumer, with the spending increasing at an average of 11% per annum. The Core and the Lower middle have increased their share in the Growth.
The Indian consumer’s shopping needs are and traditionally have been fulfilled by Kirana sores (corner stores), Kiosks, street vendors, weekly bazaars and high-street shops for consumer
62
63
durables and luxury goods. To cater to this, each city developed its own identity and shopping cluster, for instance in Pune there is MG Road, Bangalore has Brigade Road and Commercial Street, Delhi has Connaught Place, Karol Bagh and South Extension. India will have 358 shopping malls by 2007. Droves of middle-class Indians have broken off their love of traditional stand-alone shops that have no ACs, organized parking lots and other public amenities, according to a study by fashion magazine Image. At present (September 23, 2005), In India we have 96 malls, covering an area of 21.6 million sq ft. And by year end the count will shoot up to 158 malls. It will cover 34 million sq ft area. Currently estimated at $205 billion to grow to $400-500 million, over the next 2-3 years. • • • • • • • • • • Smaller cities will have about 12.8 million sq ft of mall space by 2007. Ludhiana to account for 2.5 million sq ft. Ahmedabad about 3.4 million sq ft. Delhi and Mumbai now have maximum number of shopping centres. Gurgoan saw the largest development in terms of retail outlet. North region has 39% of India’s retail share. East region has 10% of India’s retail share. West region has 33% of India’s retail share. South region has 18% of India’s retail share. Government and co-operative sector is also making their steps in retailing. For example, Kendriya Bhandar, Apna Bazar, Mother Dairy, Super Bazar etc.
63
64
DRIVERS OF CHANGE IN RETAILING
• • • • • • • Changing demographics and industry structure Expanding computer technology Emphasis on lower costs and prices Emphasis on convenience and service Focus on productivity Added experimentation Continuing growth of non-store retailing.
In today’s competitive environment retailers have redefined their role in general, and in the value chain in particular. Retailers act as gatekeepers who decide on which new products should find their way to the shelves of their stores. As a result, they have a strong say in the success of the product or service launched by a business firm. A product manager of household appliances claimed, ‘Marketers have to sell a new product several times, first within the company, then to the retailer and finally to the user of the product.’ It is a well-established fact that manufacturers need to sell their products through retail formats that are compatible with their business strategy, brand image, and market profile in order to ensure a competitive edge. The role of retailers in the present competitive environment has gained attention from manufacturers because external parties such as market intermediaries and supplying partners are becoming increasingly powerful. It is necessary for marketers of consumer products to identify the need and motivations of their partners in the marketing channel. This is especially true in the case or new products.
64
65
The increasing numbers of product categories followed by multiple brands in each category complicate decision-making for both manufacturers and market intermediaries. Retailers want of optimize sales within the limited shelf space, governed by their individual sales philosophy. Retailers undertake risk in selecting a portfolio of products or brands to offer to their customers. Retailers have to make optimum selection of goods to be sold given the following major concerns:
•
Selling space available is relatively fixed and must return maximum profits. If such space is occupied by merchandise that is not moving, it will not result in profit. The retailer may have to resort to substantial price reductions in order to get rid of the unsold stock.
•
Selling space available is relatively fixed and must return maximum profits. If such space is occupied by merchandise that is not moving, it will not result in profit. The retailer may have to resort to substantial price reductions in order to get rid of the unsold stock.
Retailing is a dynamic industry---constantly changing due to shifts in the needs of the consumers and the growth of technology. Retail formats and companies that were unknown three decades ago are now major forces in the economy. Therefore, the challenges for retail managers the world over are increasing---they must take decisions ranging from setting the price of a bag of rice to setting up multimillion dollar stores in malls. Selecting target markets, determining what merchandise and services to offer, negotiating with suppliers, training salespeople---these are just a few of the many functions that a retail manager has to perform on a perpetual basis. The world over retail business is dominated by smaller family run chain stores and regionally targeted stores but gradually more and more markets in the western world are being taken over
65
66
by billion dollar multinational conglomerates, such as Wal-Mart, Sears, McDonald’s, Marks and Spencer. The larger retailers have managed to set up huge supply/distribution chains, inventory management systems, financing pacts and wide-scale marketing plans. In the backdrop of globalization, liberalization and highly aware customers, a retailer is required to make a conscious effort to position himself distinctively to face the competition. This is determined to a great extent by the retail mix strategy followed by acompany to sell its products.
MAJOR RETAILER SPACE HOLDERS IN INDIA Bata India Ltd, Big Bazaar, Crossword, Ebony Retail Holdings Ltd., Food Bazaar, Globus Stores Pvt. Ltd., Liberty shoes Ltd., Music World Entertainment Ltd., Pantaloon Retail India Ltd., Shoppers Stop, Subhiksha, Titan Industries, Trent and the new entrants penetrating the market soon will include Reliance Retail Ltd, Wal-Mart Stores, Carrefour, Tesco, Boots Group, etc.
66
67
RETAIL VIABILITY As per the CII McKinsey report, based on a GDP growth rate of 6-7% per annum, by 2010 the retail sector is expected to be US $ 300 Billion industry. Some of the major factors hindering the growth of this sector are as follows: • • • • • The non-industry structure and status The lack of adequate infrastructure FDI restrictions in this sector The huge investments required in expanding their markets, Problems associated with working Capital funding from lending Institutions.
67
68
SWOT OF THE MARKET
68
69
STRENGTH
1) Organized retailing at US$ 3.31 billion, growing at 8%. 2) 2nd largest contributor to GDP after agriculture at 20%. 3) Pattern of consumption changing along with shopping trends. 4) A Growing population will translate to move consumers. 5) Consumer spending increasing at 11% annually. 6) Almost 25 million sq. ft. retail space available. 7) Paradigm shift in shopping experience for consumers pulling in more people. 8) Most of the entrants to organized retail come from 3 main categories, and have ventured into retail as their business extension. a) Real Estate Developers b) Corporate Houses c) Manufacturers/Exporters
WEAKNESSES 1) Shortage of quality retail spaces at affordable rates. 2) Government regulations on development of real estate(Urban Land Ceiling Act) 3) Need to provide Value for Money-squeezing margins 4) Lack of industry status. 5) Retail revolution restricted to 250 million people due to monolithic urban-rural divide. 6) Footfalls not a clear indicator of sales as actual consumers lower in number. 7) Lack of huge investments for expansion
69
70
OPPORTUNITIES
1) Increasing urban population-more participants in retail revolution. 2) Increase in consuming middle class population. 3) Social factors like dual household income has enhanced spending power. 4) Spends moving towards lifestyle products and esteem enhancing products. 5) Availability of old industrial lands-prime real estate locked in sick industrial units. 6) Average grocery spends at 42% of monthly spends-presents a huge opportunity. 7) Increase in use of credit cards.
THREATS
1) Rising lease/rental costs affecting project viability 2) FDI restrictions in the retail sector 3) Poor monsoons and low GDP Growth could affect consumer spending drastically. 4) Archaic labour laws are a hindrance to providing 24/7 shopping experience 5) Personalized service offered by Mom-&-Pop stores. 6) Unavailability of qualified personnel to support exponential growth in retail. 7) Differentiate taxation laws hindering expansion.
70
71
INDIAN CONSUMERISM
The lifestyle and profile of the Indian consumer is going through a rapid transformation. The population of India is young, energetic and full of enthusiasm. 50% of the Indian population is under the age of 25. There has been a transition from price consideration to quality and design, as the focus of the customer has changed. The upper and middle- class population of today needs a feel good experience even if they have to spend a little more for that. People are moving towards luxury and want to experiment with fashion and technology. There is an increasing need of better apparels, cars, mobile phones and consumer durables.
The food & grocery, clothing, consumer durables and books & music sectors are the major retail sectors. However, unorganized small outlets largely control the sector. Hence there is tremendous potential for the organized sector in various formats, such as hypermarkets, supermarkets, specialty stores, category killers and discount chains.
71
72
FACTORS AFFECTING CONSUMER DECISION-MAKING
A consumer’s purchase decision tends to be affected by the following four factors:
1) Demographic 2) Psychological 3) Environmental 4) Lifestyle
72
73
DEMOGRAPHIC FACTORS
Demographic factors are unique to a particular person. They are objective, quantifiable and easily identifiable population data such as sex, income, age, marital status etc. It also involves identification of who is responsible for the decision-making or buying and who is the ultimate consumer.
PSYCHOLOGICAL FACTORS
Psychological factors refer to the intrinsic or inner aspects of the individual. An understanding of consumers’ psychology guides the marketers’ segmentation strategy.
ENVIRONMENTAL FACTORS
Environmental factors cover all the physical and social characteristics of a consumer’s external world, including physical objects, spatial relationships, the social factors , co customers, reference groups, social class . The environmental factors influence consumers’ wants, learning, motives, which in turn influence effective and cognitive responses and among other things the shopping behavior of the individual.
LIFESTYLE
Lifestyle refers to an individual’s mode of living as identified by his or her activities, interests and opinions. Lifestyle variables have been measured by identifying a consumer’s dayto-day activities and interests. Lifestyle is considered to be highly correlated with consumer’s values and personality.
73
74
An individual’s lifestyle is influenced by, among other things, the social group he belongs to and his occupation. For example, double-income-no-kids (DINKS) families in metros shop very regularly at the super malls because of the limited time at their disposal and they also look for entertainment while shopping on weekends. At the same time, they are higher spenders than, for e.g., single-income families.
74
75
DIVISION OF RETAILERS IN INDIA
The retail sector in India can be divided into two major categories: 1) Organized 2) Unorganized
75
76
UNORGANIZED RETAIL IN INDIA
Retailing in India is predominantly unorganized. According to a survey by AT Kearney, an overwhelming proportion of the Rs. 400,000 crore retail market is UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized. We are known as a nation of shopkeepers with over 12 million, the highest outlet density in the world in the world with an estimated turnover of $ 200 billion. However a disturbing point here is that as much as 96 per cent of them are smaller than 500 square feet in area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world. Another point to note is that only 8 % of our population is engaged in Retail whereas the global average is around 10-12%. Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labour costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector. However this is set to change with the entry of the corporate sector into the retail domain. The question that is being discussed, given the corporate onslaught with big bucks and deep pockets, what will be the impact on the traditional mom and pop store? Will they survive this or will they fold up and leave the field only to the major organized retail players? The answer could be a co-existence. The major advantage for the smaller players is the size, complexity and diversity of our Indian Markets. If we look at the organized retail players,
76
77
most of them have opened shop in the Metros, Tier 1 and Tier 2 towns. Very rarely do we find organized players in the rural areas and we have more than 70% of the population living in the rural areas. So what could be the scenario? One of the fallouts of the organized retail onslaught would be that the smaller stores in the areas where the majors operate could get squeezed out. The superior purchasing power of the majors and the volume of business generated can result in lower prices thus moving the custom away from the traditional store to the organized retail. The customer loyalty today is towards the price. This fear has manifested itself in Metros, Tier 1 and Tier 2 towns by the unorganized retail staging strikes against the majors and trying to influence Government policy toward the retail majors and making it difficult for them to operate. In UP, the Government has banned organized retail major based on the demands of the unorganized sector. While this may happen in the short run, in the long run the majors will come back and cannot be dislodged. The rising disposable income of the techies today, who having been exposed to top of line retail outlets in the foreign countries, will sooner or later generate a demand for the same facility. At this juncture, the majors will step and service this need. Another factor that is to be considered is that data on income distribution of households is insufficient in determining market size for different consumer products in India. This is because of the lack of homogeneity of the consuming class and the varying prices of a single product in different parts of India. For example, vegetables generally cost more in Mumbai than in Chennai, hence vegetable-purchasing power for identical income groups would be different in the two places even though they are the two biggest cities in India with comparable populations. In other
77
78
words, purchasing power is location-specific, not income specific. Consumption habits of households are therefore better determinants of consumer market size than income distribution. Another factor in the favor of the unorganized retail in rural areas is our mindset. Organized retailing also has to cope with the middle class/rural psychology that the bigger and brighter a Sales outlet is, the more expensive it will be. Given the above, it is too early to predict the erosion of the mom and pop stores in India. This is also proved by countries where Wal-Mart the world’s biggest retailer operates. The smaller stores have a peaceful coexistence in these countries with the number one company in the fortune 500 list.
TRADITIONAL v/s MODERN FORMAT RETAILERS
The retail boom will face a strong competition from the 12 million mom-and-pop stores. These are easily accessible and provide services like free home delivery and goods at credit, which is not possible with hypermarkets and supermarkets. Buying from Malls, Supermarkets and Department stores like Subhiksha, Marks & Spencers, etc. provide a different environment where one can pick and choose from a variety of products. Owing to the entry of such big players, the small shopkeepers fear losing their business. Reliance Retail Ltd. has been inviting such people to join in its Dairy business as franchisees. Traditional family run convenience stores are too well established in India than to be wiped out and besides there is uniqueness in the traditional items that represent the subcontinent. The retail stores in India are essentially dominated by the unorganized sector or traditional stores. In fact the traditional stores have taken up 98 percent of the Indian retail
78
79
market. Now stores run by families are primarily food based and the set up is as Kirana or the 'corner grocer' stores. Basically they provide high service with low prices. If the stores are not food based then the type of retail items available are local in nature. The traditional family run convenience stores can take pride in the fact that the Kirana is the most common outlet forms for the consumers. The tough competition for convenience stores are coming from organized retail stores dealing in food items, like: • • • • • Apna Bazaar Canteen stores Food World Subhiksha Food Bazaar
Convenience Stores are open for long hours and are one of the formats of the Indian retail stores that cater to basic needs of the consumer. A good example of such would be Convenio. These stores are found in both residential as well as commercial markets. The food products of traditional family run convenience stores are comprised of branded as well as non-branded items. The benefits of family run convenience stores is that they give importance to: • • • Personal touch Facilities of credit Quick home delivery
Non-food based stock comprises of multiple and varieties of local brands. The future of such stores as they face competition from organized sector would depend on the following particulars:
79
80
• •
Place and capacity Diligent area coverage Disciplined work schedule Managing turnover Revenue from assets Customer service and satisfaction
•
•
•
•
The traditional family run convenience stores serves the purpose of the housewives who definitely wants to avoid traveling long distances to purchase daily needs. The convenience factor in terms of items, among people in general can be highlighted as below:
• •
Groceries Fruits Drug Store Necessary stationery
•
•
As such traditional family run convenience stores are here to stay and cannot be oversized by the organized retail sector besides, it represents the variety of India.
OBJECTIVE
80
81
•
To know the problems and prospect of Retail Marketing in the present Senario in Bangalore city.
•
To suggest whether Retail Marketing can improve their service in a better way.
Research Methodology
81
82
A survey of the customer response and a brief discussion with the store in charge went into the groundwork of the paper. Research Design: Descriptive research design has been used. Research Plan: Data sources: ? Primary data has been used to find out the present market condition ? Secondary Data has been used to a very minimal extent to get figures about Indian Retail Industry
Research Approaches: Type of research approaches used is: o Survey Research.
Research Instruments: Questionnaires (both open ended and closed end questions have been used) Sampling Plan: o Sampling Unit: Current Customers of Big Bazaar o Sample Size: 210respondents o 200 respondents were customers o 10 respondents were Store Managers
82
83
o Sampling Procedure: Simple Random Sample and convenient sampling
Contact Methods: Personal interviewing (mall intercept) – Customers Personal Interviewing (Arranged Interviews) – Store Manager
The survey of customer responses was targeted at current customers and they were intercepted after their purchase near the cash counter. A meeting was arranged with store manager and a brief discussion was held with him regarding the merchandizing patterns, bundling offers , conversion ratios etc of the store and the brand as a whole which would be reflected in the later part of the report .
STATEMENT OF THE PROBLEM
The important area of Retail Marketing in India has come through only from 1970 onwards. However this system is not yet perculated to the lowest level. Therefore the problem is to study how retail Marketing system can go to the lowest category of customer without sacrificing the quality of the products and without loosing the profit for Organization.
Scope of Present problem:83
84
Help management of Retail marketing to improve to their planning. The scope of this subject is very vast. It covers marketing products quality, price systems, Distribution system, product differentiations, product mix. It helps the management to have good planning.
Analysis & Interpretation of Data Response of the Customers
84
85
1. Profession of Customers
Profession of Customers
Professional /Business 28% Housew ife 40% Student 4%
Service 28%
When asked about profession we found out that retail format is most appealing to housewives since they are the decision makers in purchasing most of the items. Then there is an equal majority of Service class and businessman people. Students visit this retail outlet on a very few occasions . Thus House wives are the most important customers for the hyper mart followed by the service and business class , the frequency of visit of these customers also tell us that it is seen as a suitable substitute for the conventional kirana stores which and the customers are visiting these stores for their monthly grocery and weekly vegetables needs too. The student class and some of the service class also purchase clothing from here though the purchase of high end clothing is percentage wise quite less .
2. This question was asked to know the target audience of these retail outlets
85
86
Age group of Customers
Above 60 years 7% 45-60 years 20%
15-24 years 13%
25-34 years 27% 35-44 years 33%
If we further go into analyzing the customers we find that the customers are mostly of the age group of 25 to 44 years which tells us that the hyper market has been able to stick to its positioning as a family store and most of the customers who are making walk ins are from the target market.
3. This question was asked to know the frequency of visit of the customer
86
87
Frequency of Visit
Once in a week 33% Once in a month 54% Twice in a week 13%
From the response we came to k now that frequency of visit of the respondent were mostly monthly as people come to these outlet to purchase there monthly Grocery and food item. Whereas 33 percent of them come weekly for there other needs and requirement and only 13% of the respondents visit these store on every forth night so that they can take care of there day today requirement.
87
88
4. This question was asked to find out what kind of peer group does they come with and with what frame of mind Accompanied by...
Friends 27%
Alone 20%
Children 13%
Spouse 40%
Around 40% of the football of the visitor in these retail outlet are accompanied by there spouse as they come to these places mostly for shopping of their monthly grocery also it’s a kind of outing for them when they both can move out together and have some god time. Nearly 20% of the customers are with their friends and 13% are accompanied with there children as they are the people who are the opinion leader in there home in today’s scenario. Whereas only 20% prefer to come alone
88
89
5. This question was asked to now the time customer prefer to visit in this retail outlet in a day
Time of Visit
Morning 13%
Afternoon 33%
Evening 54%
The footfall in these retail outlet is around 7000 on weekdays and 15000 on weekends as per the official figures. Most of the footfalls are between the time period of 7pm to 9 pm on weekdays and 5pm to 9pm on weekends. Noida is specifically categorized as a weekend market and thus the footfall pattern is justified, with dual income families thronging the area the evening time suits the most for the shoppers. The customers response says that more than 50 % of them come to the bazaar in the evening and when the data was analyzed it was seen that 40% of the customers preferred to come with their spouse. Thus the concept of dual income families again gets reinforced here and we can infer that the shopping actually happens while driving back from office. Hence most of the footfall is between 5 to 9pm.
89
90
6. This question was asked to know the perception of the customer about these outlets
7.
Perception about Retail Outlets
Just Another Option 13%
Value store 38%
One stop shop 49%
The response of this question was something we were expecting that most of the customer of these outlets have form a perception of convenient shopping or one stop shopping whereas 38% of them took it as value store as you get better offer in this store as compare to other unorganized retail outlets. There was 13% of customer for whom it was just another option for shopping and it didn’t make much different in there shopping habit.
90
91
7. This question was asked to know what the most sought-after promotion scheme was
M ost sought-after promotion Schemes
Festive Schemes 27%
Cash discount 40%
Product bundling 33%
It’s been a raining offers in these retail outlets on special occasions like New year, Independence day etc but the customers like Cash discount and product bundling are the strategies which works as the customers value these offers the most. The festive schemes are a way to lure new customers by offering schemes at discrete period of time that walk-in due to these offers and suddenly find more attractive offers due to which they start purchasing. The other offers like cash discount and product bundling are important for customer retention since they offer value at regular and continuous period of time. These create a unique customer base who becomes repeat purchasers from the retail chain.
91
92
8. This question was asked to know what was the items that were purchased from this outlets most
Type of item purchased
Household items 30%
Clothes 13%
Food items/ Grocery 57%
Food and Grocery items comprise the most of the purchase of the total merchandise of the store, household items purchase from the store comprise 33% and is at a rise . As per Mr. Sharma. Big Bazaar has increasingly been trying to meet all household demands of customers and here they have received quite a good response.
92
93
9. This question was asked to know the reason of visit that pulls the customers to the store
Reason to visit Big Bazaar
Others 19% Low price 47% Variety 17% Convenience 17%
As per the customer responses and the interaction with the store manager it is found that the lower price at this outlets is achieved through proper sourcing and more than that proper product and price bundling which attract most of the visitors and customers. Whereas all other factor like convenience and variety are the secondary thing in this sector which effect he market
93
94
10. This question was asked to know the average purchase of the customer per visit in this outlets
Average Purchase per visit
3000-5000 7%
5000 and above 7%
Below 1000 40%
1000-3000 46%
The typical household purchase ranges from Rs.1000-3000 since housewives visit Big Bazaar or Vishal for purchasing their monthly grocery that falls in this range. Apart from this range, most customers lie in below Rs.1000 purchase that comes to these retail outlets. Ranges higher than or equal to Rs.3000 has scope only in case customer purchase consumer electronics or home appliances or even in case of festive schemes when due to special appealing schemes people use to buy even costly items
Finding from Store Managers
94
95
The responses to the questions by the managers were as follows.. Question 1. How many times in a year do you go for a sale?
The answer to this question were given differently by different retailer some go for sale during festival season, some do it weekly whereas some go on sale during seasonal or particular years. Example • Vishal Mega Mart replied that as such it is not fixed, but one thing was for sure that the sale starts on Friday and goes minimum to minimum till the next Friday.
•
Ebony replied that they go in for sale in month of January and August, means mostly during the change of seasons.
Question 2. Is there any fixed number of days for which the sale should be continued? The Vishal Mega Mart said that the sale is to Occur from the Friday to next Friday, means its important for them that weekend should be there. According to CSM, Noida , there is not a fixed number of days for which the sale is to take place, it actually depends upon the companies who are having their showrooms in the mall. E.g number of days for which LEE will be on Sale will be different from the Woodland’s number of days for the sale.
95
96
Whereas Big Bazaar goes for sale on Wednesday and have named it as weeks economical day ‘Hahta Ka Sasta Din’
Question 3.
What type of different sales promotions are used by the company in a mall? Vishal Mega Mart uses discount on the items as the biggest tool for the sales promotion. All the items in Vishal Mega Mart are in discount, the minimum being 10% and maximum being 60%. For Ebony , they issue coupons as the tool to promote sales, they even have tie-ups with different companies, who give their employees the discount coupons. For CSM, they use nearly all the techniques, the go in for discounts, contests, coupons, and also they have collaborations with auto companies, who keep displaying the newer auto cars coming in the market.
Question 4.
What type of display strategies are used in a mall?
For Vishal Mega Mart, the display strategy is that, all the items are very much visible and the customer can actually touch them and can feel them. They provide their customers with trolleys, so that it can be more convenient for the customer to do shopping. They have different sections for garments and FMCG products. The stickers( displaying the discounts) are displayed at nearly all the places for the convenience of the customer.
96
97
CSM, the display of various Banners is found all over the Mall, the banners of Levis, Nokia are displayed. Also there is a Big Plasma TV at the door step of the Mall, where the different companies put their advertisements e.g. company like whirpool airs its advertisements at the CSM Plasma TV.
Question 5
What type of display strategies are used in a mall? According to CSM, there is not any fixed number of maximum food outlets but minimum of 2 is required at least in a mall. Also the large the number of outlets, the better it is for the profitability of the Mall.
Vishal Mega Mart do not outsource it, they rather their own food outlet. Ebony and Big bazaar does not have the food outlet at all.
Question 6. Is there any fixed number of food outlets in a mall? CSM responds it in a positive manner, according to it Multiplex is one of the major reasons for the mall to be popular and it actually increases the footfall for the mall. Also it happens to be a true revenue generator for the Mall. Vishal Mega Mart, Ebony do not have multiplexes. PVR Spice mall is actually famous for the PVR multiplex in it.
97
98
Question 7.
What types of special arrangements are done, for handling the traffic during the sale season or the festival days? In case of Vishal Mega Mart, they have four security guards at the gate. They have sensor equipped exits, in order to avoid the thefts. They provide their customers with free parking facility. For the CSM, the security team of around 10 guards is available at the door steps. Also inside the mall, there are few show rooms which have their own private guards, e.g. Westside etc. all the show rooms are more less equipped with sensor exits.
Question 8.
Out of entertainment, shopping store and the food outlet, which one id the more profitable one? In case of CSM , the entertainment is the most profitable business, then at second number is the food outlet, while shopping though profitable but is in the third position. In case of Vishal Mega Mart, the garment business and that especially the men’s section is the most profitable. The same goes for Ebony too, the men’s section is the most profitable. Question 9.
98
99
Which space in retail format is in demand the most? All the retail formats said one thing only that the most in demand is the ground floor and the first floor. Because whoever comes visits these two floors atleast, so the visibility by the consumer is higher in these two floors.
Question 10.
How much is Apparels related to the revenue for the store? According to CSM, the apparels is not the true indicator of revenue generation, because most of the people do come for window shopping and to enjoy the ambience of the mall.
While Vishal Mega Mart does not have a professional way of determining the linkage between the apparels and the revenue generated. But on talking to the employees came to know that they are planning to start it soon.
CONCLUSION
99
100
The convenience and personalized service offered by the unorganized sector holds its future in good stead for the future. Organized retail of late has seen a tremendous boom and is attracting more people to the malls. What is to be seen is how organized retail can duplicate the same level of personalized customer service levels offered by the unorganized sector to have a higher conversion ratio. The target audience for both the organized and unorganized retail formats remains relatively the same. When shopping in malls, people value the experience related to the trip the most and return most frequently for the same. Besides, while enjoying the experience they seem to buy high ticket and items of conspicuous consumption most frequently.
RECOMMENDATIONS
100
101
? In order to improve its business, Big Bazaar should introduce more competitive promotional schemes such as those in other Retail Stores.
? The product range of Big Bazaar should be improved in order to match that existing in other Retail Stores. ? For promotional offers, company should go for free gifts rather than going for other ways.
LIMITATIONS
101
102
? The sample size for the research was small. ? The area covered for the research was less. ? The time constraint was also one limitation. ? Store Managers were not ready to share the information’s and figures ? Customer were not ready to give there precious time for the survey
102
103
BIBLIOGRAPHY
www.bigbazaar.com www.retailindia.com Magazines India today. Business world. Material profile of company.
Search engines. www.google.com www.yahoo.com
APPENDIX - I
103
104
QUESTIONNEIR FOR CUSTOMER
1. Name:
____________________
2. Profession: o Service o Business o Housewife o Student o Others ___________
3. Age: o Below 24 Year o 25 -34 year o 35-44 years o 45-60years o Above 60years 4. Gender o Male o Female 5. Perception about retail outlet
104
105
o One stop shopping o Value Store o Just another option
6. Reason for visiting retail outlet instead of local shops o Low price o Convenient o Varity o Others _____________
7. Frequency of visit in these retail outlet o 1 in a month o 1 in fifteen days o 1 in a week o Regularly
8. At what time do you prefer to go to theses retail outlet o Before noon o Between 1pm – 3pm o Between 3pm -6pm o After 6pm
105
106
9. Mostly you are accompanied with o Alone o Spouse o Family o Friends
10. Type of purchase you do in these out let o Household o Cloth o Food item & Grocery o Other _____________
11. Average purchase per visit o Below Rs.1000 o 1000-3000 o 3000-5000 o Above Rs.5000
106
107
QUESTIONNEIR FOR MANAGERS
1. How many times in a year do you go for a sale? 2. Is there any fixed number of days for which the sale should be continued? 3. What type of different sales promotions are used by the company in a mall? 4. What type of display strategies are used in a mall? 5. Is there any fixed number of food outlets in a mall? 6. What role does the multiplex, plays in increasing the footfall of the mall? 7. What types of special arrangements are done, for handling the traffic during the sale season or the festival days? 8. Out of entertainment, shopping store and the food outlet, whch one id the more profitable one? 9. Which space in retail format is in demand the most? 10. How much is footfall related to the revenue for the store?
107
108
APPENDIX - II
SYNOPSIS
Title of the Project: “PROBLEMS AND PROSPECT OF RETAIL MARKETING” Statement of the problem: The important area of Retail Marketing in India has come through only from 1970 onwards. However this system is not yet percolated to the lowest level . Therefore the problem is to study how retail Marketing system can go to the lowest category of customer without sacrificing the quality of the products and without loosing the profit for Organization. Review of literature:• Other Research Project of Retail Marketing. • Blogs and Census data issued by Government and Agencies. • In various Articles, Journals etc,. • C.R Kothari Book of Research methodology. Scope of Present problem:Help management of Retail marketing to improve to their planning . The scope of this subject is very vast. It covers marketing products quality, price systems, Distribution system, product differentiation, product mix. It helps the management to have good planning.
108
109
Object of the study:• To know the problems and prospect of Retail Marketing in the present Scenario in Bangalore city. • To suggest whether Retail Marketing can improve their service in a better way. Formulation of Hypothesis:• The Retail Business contributes around 11% of GDP of this, the organized sector account 3% share and the remaining share is contributed by organized sector. • Organized sector covers only Bangalore city. • Retailers are interested in getting the high profit because they have invested huge amounts. • Whether market conditions are good in Bangalore. • Less then 5% of the consumers are interested to go for Retail Marketing i.e organized retail. • Definition of terms and concept - what is retail marketing. Selection of Variables:The variables will depend on the situations Representative population will be around 200 consumer and 10 in charge of the organized retailer of the Bangalore of this year.
109
110
Design of Research methodology :• Primary data • Secondary data • Questionnaire method
Defining of population:All the consumers and incharge of the organized retail shop who have in the Bangalore. In 2010 -2011 , but they are consumers and employees of that whom I am going to take as a population.
Methodology of Sampling:Steps in selection • Identifying the sample size based on age, sex income limited to 300 customers • Determine the desired sample. • List all the members of the population. • Assigned all individual on the list.
110
111
Reference Period:• January 2011 to March 2011.
Assumption of the Study :• It is assumed that all the costumers are aware of the products that are available in this particular retail shop.
Tools and Test:Questionnaire method ,Graphs also have been used to show progress. Collection of the Data
Primary data Data directly collected by the Researcher for the problems understanding by proper method is called primary data Methods to be used to collect primary data • Observation Method • Interview Method • Questionnaire Method
111
112
Secondary Method :• Organizational data • Articles Analysis and Interpretation of data • After organizing and arranging the data , the data should be analyzed which is representative in nature.
Testing of Hypothesis:• Formulate the hypothesis • Setup a suitable significance level • Choose a test criteria • Compute and make decision Limitation of study:• Only for short term analysis. • Time limit. Finding and decisions • Conclusion and recommendation This project conclude that the research regarding the problems and prospect of retail marketing and try to give good recommendation as per study.
112
doc_384236639.doc
Retail is the sale of goods and services from individuals or businesses to the end-user. Retailers are part of an integrated system called the supply chain. A retailer purchases goods or products in large quantities from manufacturers directly or through a wholesale, and then sells smaller quantities to the consumer for a profit. Retailing can be done in either fixed locations like stores or markets, door-to-door or by delivery. Retailing includes subordinated services, such as delivery.
1
INTRODUCTION
1. RETAIL CONCEPT The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually. The India retail industry is expected to grow from ` 35,000 crore in 2004-05 to ` 109,000 crore by the year 2010. The past century has been witness too many changes occurring in our changes occurring in our everyday world industrial growth has made a significant impact on our lives as consumer. One such industry which has made a phenomenal impact on our daily lives is retail. This Industry touches our lives as end consumer, by providing us with the products or services that we need.
What is retail?
The word retail is, in fact, derived from the French word Retailer, which means to cut off a piece or to break bulk. A retailer may be defined as a dealer or trader who sells good in small quantities or one who repeats or relates.
HISTORY OF GROWTH
2
After 2nd world war retail industry started to grow in U.S.A. Retail is the largest private industry in the world with total sales $6.6 trillion.
The Global Retail Scenario Large format retail businesses dominate the retail landscape in the United States and across Europe, in terms of retail space, categories, range, brands, and volumes. Indian retail industry cannot hope to learn much by merely looking at the Western success stories in retail. Their scales of operations are very huge, the profit margins that they earn are also much higher and they operate in multiple formats like discount stores, warehouses, supermarkets, departmental stores, hyper-markets, convenience stores and specialty stores.. The economy and lifestyle of the West is not in line with that of India and hence the retailing scene in India has not evolved in the same format as the West nor can we learn valuable lessons from their style of operations. In retailing, the conventional wisdom used to be, that, the critical success factor was location. But precise location no longer matters and geo-demographics is increasingly becoming irrelevant. The leading multiple chain retailers, superstores and malls create their own centers of gravity, attracting customers by car, bus, train or even by plane to wherever they are located. The growth of multiple chain retailers has been relentless for many years in the west and this has been accompanied by the development of retail names as brands in their own right. Discount retailer Wal-mart has catapulted to the top of the Fortune 500 rankings in the U.S. with a turnover of $258 billion (2003 revenues – the basis for 2004 rankings), ahead even of oil major Exxon Mobil and the mammoth manufacturing giant General Electric. A ruthless policy, of, ‘Always Low prices. Always.’ Has brought Walmart to the
3
top. On the day after Thanksgiving in November 2002, Wal-Mart sales hit $1.43 billion in one single day. Walmart and Nordstrom in the U.S. and Sainsbury’s and Marks & Spencer in the U.K. have grown by rapid geographic expansion in their own countries. Specialists like Benetton of Italy and IKEA of Sweden and The Body Shop of the UK are international and the fast food chains like McDonald’s and Pizza Hut are everywhere. The same products are increasingly available from the same names on every continent. Retailers worldwide have immensely benefited from the sustained growth of the disposable income of their global consumers. The Indian Retail Scene India is the country having the most unorganized retail market. Traditionally it is a family’s livelihood, with their shop in the front and house at the back, while they run the retail business. More than 99% retailers function in less than 500 square feet of shopping space. Global retail consultants KSA Technopak, have estimated that organized retailing in India is expected to touch Rs 35,000 crore in the year 2005-06. The Indian retail sector is estimated at around Rs 900,000 crore, of which the organized sector accounts for a mere 2 per cent indicating a huge potential market opportunity that is lying in the waiting for the consumer-savvy organized retailer. Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian consumer. Indian retailers need to advantage of this growth and aiming to grow, diversify and introduce new formats have to pay more attention to the brand building process. The emphasis here is on retail as a brand rather
4
than retailers selling brands. The focus should be on branding the retail business itself. In their preparation to face fierce competitive pressure, Indian retailers must come to recognize the value of building their own stores as brands to reinforce their marketing positioning, to communicate quality as well as value for money. Sustainable competitive advantage will be dependent on translating core values combining products, image and reputation into a coherent retail brand strategy. There is no doubt that the Indian retail scene is booming. A number of large corporate houses — Tata’s, Raheja’s, Piramals’s, Goenka’s — have already made their foray into this arena, with beauty and health stores, supermarkets, self-service music stores, new age book stores, every-day-low-price stores, computers and peripherals stores, office equipment stores and home/building construction stores. Every retail category has been attacked, by the organized players today. The Indian retail scene has witnessed too many players in too short a time, crowding several categories without looking at their core competencies, or having a well thought out branding strategy. To illustrate, the Indian lifestyle/fashion retail scene is already exhibiting the following characteristics, which do not augur well for its future: In India retail is the second largest sector after agriculture at provide employment to 8 % of the total work force of the country. In 80’s there was coming up of these retail outlets and super market came but it was not so affected but due to liberalization in 1995, the sectors started its growth and occupy the market share in India.
OVERVIEW OF RETAIL INDUSTRY
5
Background The Indian retail industry is divided into organised and unorganised sectors. Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganized retailing, on the other hand, refers to the traditional formats of lowcost retailing, for example, the local kirana shops, owner manned general stores,
paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. India’s retail sector is wearing new clothes and with a three-year compounded annual growth rate of 46.64 per cent, retail is the fastest growing sector in the Indian economy. Traditional markets are making way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls have begun appearing in metros and second-rung cities alike, introducing the Indian consumer to an unparalleled shopping experience. The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10 per cent by the year 2010 bringing in a huge opportunity for prospective new players. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of India’s GDP.
6
India is the 4th largest economy as regards GDP (in PPP terms) and is expected to rank 3rd by 2010 just behind US and China. On one hand where markets in Asian giants like China are getting saturated, the AT Kearney's 2006 Global Retail Development Index Corporate Catalyst India A report on Indian Retail Industry (GRDI), for the second
consecutive year Placed India the top retail investment destination among the 30 emerging markets across the world. Over the past few years, the retail sales in India are hovering around 33-35 per cent of GDP as compared to around 20 per cent in the US. The table gives the picture of India’s retail trade as compared to US and China.
7
The last few years witnessed immense growth by this sector, the key drivers being changing consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the Government increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate building a world class shopping environment for the consumers. In order to keep pace with the increasing demand, there has been a hectic activity in terms of entry of international labels, expansion plans, and focus on technology, operations and processes. This has lead to more complex relationships involving suppliers, third party distributors and retailers, which can be dealt with the help of an efficient supply chain. A proper supply chain will help meet the competition head-on, manage stock availability; supplier relations, new value-added services, cost cutting and most importantly reduce the wastage levels in fresh produce. Large Indian players like Reliance, Ambanis, K Rahejas, Bharti Airtel, ITC and many others are making significant investments in this sector leading to emergence of big retailers who can bargain with suppliers to reap economies of scale. Hence, discounting is becoming an accepted practice. Proper infrastructure is a prerequisite in retailing, which would help to modernize India and facilitate rapid economic growth. This would help in efficient delivery of goods and value-added services to the consumer making a higher contribution to the GDP.
8
International retailers see India as the last retailing frontier left as the China’s retail sector is becoming saturated. However, the Indian Government restrictions on the FDI are creating ripples among the international players like Walmart, Tesco and many other retail giants struggling to enter Indian markets. As of now the Government has allowed only 51 per cent FDI in the sector to ‘one-brand’ shops like Nike, Reebok etc. However, other international players are taking alternative routes to enter the Indian retail market indirectly via strategic licensing agreement, franchisee agreement and cash and carry wholesale trading (since 100 per cent FDI is allowed in wholesale trading).
CURRENT STATUS
India’s retail industry accounts for 10 percent of its GDP and 8 percent of the employment to reach $17 billion by 2010. The Indian retail market is estimated at US$ 350 billion. But organized retail is estimated at only US$ 8 billion. However, the opportunity is huge-by 2010, organised retail is expected to grow at 6 per cent by 2010 and touch a retail business of $ 17 billion as against its current growth level of 3 per cent which at present is estimated to be $ 6 billion, according to the Study undertaken by The Associated Chambers of Commerce and
Industry of India (ASSOCHAM). Indian retailing is clearly at a tipping point. India is currently the ninth largest retail market in the world. And it is names of small towns like Dehradun, Vijayawada, Lucknow and Nasik that will power India up the rankings soon. Organized retail in India has the potential to add over Rs. 2,000 billion (US$45 billion) business by the Year 2010 generating employment for some 2.5 million people in various retail operations and over 10 million additional workforce in retail support activities including contract production & processing, supply chain & logistics, retail real estate
9
development & management etc. It is estimated that it will cross the $650-billion mark by 2011, with an already estimated investment of around $421 billion slated for the next four years.
As noticed in the figure above, the Organized Retail Penetration (ORP) is the highest in footwear with 22 per cent followed by clothing. Though food and grocery account for largest share of retail spend by the consumer at about 76 per cent, only 1 per cent of this market is in the organized sector. However, it has been estimated that this segment would multiply five times taking the share of the organized market to 30 percent in the coming years.
RETAIL FORMATS AVAILABLE IN INDIA
10
FDI POLICY IN THE RETAIL SECTOR
Retailing is the largest private sector industry in the world economy with the global industry size exceeding $6.6 trillion and a latest survey has projected India as the top destination for retail investors. And the further upsurge is anticipated in the retail sector as the Government of opened up 51% FDI in single brand retail outlets. And as the government is in a process to initiate a second phase of reforms, it is cautiously exploring the avenues for multi-brand segment. The Government is seeking for these options keeping in view the existing social framework of India and the will ensure that the entry of global retail giants do not displace the existing employment in the retail business.
11
Industry experts are sensitive to the point that local markets have an edge over the retail investors in India as they have unique advantages such as an understanding of local needs and extended service like home delivery. As the FDI influence on the Indian retail sector sets in, the total size of the retail trade is expected to grow extensively in the coming years and the consumer segments patronizing the big malls will create frenzy for organized retailing predicting a growth of 25-30 per cent per annum over the next decade. Moreover, Indian retail chains would get integrated with global supply chains since FDI will bring in technology, quality standards and marketing thereby, leading to new economic opportunities and creating more employment generation. Industry trends for retail sector indicate that organized retailing has major impact in controlling inflation because large organized retailers are able to buy directly from producers at most competitive prices. World Bank attributes the opening of the retail sector to FDI to be beneficial for India in terms of price and availability of products as it would give a boost to food products, textiles and garments, leather products to benefit from largescale procurement by international chains; in turn, creating jobs opportunities at various levels. As foreign investors exploring their potentials in the retail sector, are keen on developing malls in India, the size of organized retailing is expected to touch $30 billion by 2010 or approximately 10 per cent of the total. This has initiated market-entry announcement from some retailers and has signaled to international retailers about India’s seriousness in promoting the sector. While there are reports of international retailers like Wal-Mart analyzing business opportunities in India; Reliance, the largest Indian conglomerate is investing $3.4 billion to become India’s largest contemporary retailer.
12
There are also reports of investments for ‘Hyper city Retail’ by K.Raheja Group to establish 55 hypermarkets by 2015. All these factors will contribute in taking Indian retail business to unexpected growth based on the consumer preference for shopping in congenial environs and also availability of quality real estate. BUSINESS MODELS FOR ENTRY IN INDIAN MARKETS Due to the FDI restrictions the international players are looking for alternative avenues to enter the Indian markets. However FDI restrictions in retailing have not deterred prominent international players from setting up shops in India. In recent developments, the Australian retail giant Woolworth Ltd made in innovative entry in India’s retail space, with India’s Tata group. The Tata group has floated Infiniti Retail Ltd, in venture with which will sell consumer goods and electronics across the country. Infiniti Retail will be a 100 per cent subsidiary of Tata Sons and will receive an initial equity infusion of Rs 4 billion. This Tata retail venture joined hands with Australian retail giant Woolworths Ltd, which currently operates more than 2,000 stores in 12 different formats. While Infiniti will own and run retail operations in India, Woolworths, which has attained notable success in selling electronics and consumer goods through its Dick Smith Electronics chain, will provide technical support and strategic sourcing facilities from its global network. At present entry into India’s retail sector can be done through three different routes. The chart below shows the current formats permitted by the Government of India for the international players. CURRENT ENTRY OPTIONS FOR FOREIGN PLAYERS:
13
FRANCHISE AGREEMENTS • Most widely used entry route by multinational retailers • Fast food retailer Domino’s entered India through master franchise root while Pizza Hut entered through regional franchisee CASH AND CARRY WHOLESALE TRADING • 100% FDI is allowed in wholesale trading which involves wholesale trading building of a large distribution infrastructure to assist local manufacturers. • The wholesaler deals only with smaller retailers and not Consumers • Metro AG of Germany was the first significant global player to enter India through this route STRATEGIC LICENSING AGREEMENT • Foreign company enters into a licensing agreement with a agreements Domestic retailer • Mango, the Spanisn apparel brand has entered India through this route with an agreement with Piramyd, Mumbai • SPAR entered into a similar agreement with Radhakrishna Foodland Pvt. Ltd WEAKNESS OF PLAYERS
Retail not being recognized as an industry in India: The lack of recognition as an industry hampers the availability of finance to the existing
14
and new players. This affects growth and expansion plans. The high cost of real estate:Real estate price in some cities in India are amongst the highest in the world. The lease or rent of the property is one of the major areas of expenditure, high lease rentals eat into the profitability of a project. lack of adequate infrastructure
oor roads the lack of a cold chain infrastructure ,etc hamper the development of food and fresh grocery retail in India. The exiting supermarkets and food retailers have to invest a substantial amount of money and time in building a cold chain network. Multiple and complex taxation system:The sales tax rates very from state to state. while organised players have to face a multiple point control and tax system, there is considerable expensive to transfer good from one store to another. Foreign direct investment:The fact that the Foreign Direct investment(FDI)is not permitted in pure retailing is seen as one of the prime reasons for the slow growth of retail in India. A global retailer can enter India only by way of a franchise with an Indian partner or through technological alliances.Purchasing power of money:-As the Indian population mostly consists of middle class families and low wages worker they don’t want to go in the super market or retail market.
MAJOR PLAYER:-
15
One of the largest private sector pure retail chain, in the country is “margin free” a Kerala-based groceries and discount store which has a staggering 214 outlets within the state. Major Players a few retailers have ventured into this area, and the main ones among them are foodworld which is a part of the RPG group and Subhiksha , which is Chennai- based . According to ORG marg estimates, Subhiksha sells 10.1 % of the top100 brands sold in food/grocery and 7.8 % of the OTC brands in Chennai. Subhiksha has yet to expand its operations to the country. This sector also features the largest discount retail chain dealing in groceries, which operates only in one state – kerala. This retail chain is margin free, which operates only in Kerala . Apart from Bata and Kodak it is the largest player in the Indian retail sector today. The fast food and restaurant business has seen a lot of action over the past few years. A large number of international fast food retailers have started operations in India . Prominent among them are McDonald’s Domino’s Pizza Hut and Subway. A few in India retailers like Barista and Café Coffee day are also making their mark in these fields.
THE UNSUNG HEROES OF INDIAN RETAIL
Only of the largest private sector pure retail chains (in terms of the number of outlets) in the country is “Margin Free,” a Kerala –based groceries and discount store which has a staggering 214 outlets within the state. Says T.K. Salem, founder of the store.”Every month we are opening up to 12stores and the number till today, has actually gone up to 239 and our overall turnover is Rs 600 crore.”
16
TAPPING INTO INDIAN CUSTOMER MARKET:
ADVANTAGES: • Indian incomes will triple over the next two decades, significantly reducing poverty • India will emerge as the world’s fifth largest consumer economy • A large urban middle class will develop, but rural areas will benefit too • Patterns of consumption will shift rapidly towards discretionary spending. • Income and consumption growth will create opportunities and challenges for business and government
STATITICS ON PRESENT INDIAN CONSUMERS:
17
18
19
OPPORTUNITIES AND CHALLENGES IN RETAIL SECTOR:
OPPURTUNITIES: INVESTMENT OPPORTUNITIES IN THE RETAIL SECTOR AT Kearney’s study on global retailing trends found that India is the least competitive as well as least saturated of all major global markets. This implies that there are significantly low entry barriers for players trying to setup base in India, in terms of the competitive landscape. The report further stated that global retailers such as Walmart, Carrefour, Tesco and Casino would take advantage of the more favorable FDI rules that are likely in India and enter the country through partnerships with local retailers. Other retailers such as Marks & Spencer and the Benetton Group, who operate through a franchisee model, would most likely switch to a hybrid ownership structure. A good talent pool, unlimited opportunities, huge markets and availability of quality raw materials at cheaper costs is expected to make India overtake the world's best retail economies by 2042, according to industry players. The retail industry in India, according to experts, will be a major employment generator in the future. Currently, the market share of organized modern retail is just over 4 per cent of the total retail industry, thereby leaving a huge untapped opportunity.
19
20
THE POTENTIAL OF THE INDIAN RETAIL SECTOR
The high growth projected in domestic retail demand will be fuelled by: The migration of population to higher income segments with increasing per capita incomes .An increase in urbanization, Changing consumer attitudes especially the increasing use of credit cards. The growth of the population in the 20 to 49 years age band. Opportunities for investment in supply chain infrastructure: Cold chain and logistics India also has significant potential to emerge as a sourcing base for a wide variety of goods for international retail companies. Many international retailers including Wal-Mart, GAP, JC Penney etc. are already procuring from India. The sector is expected to see an investment of over $30 billion within the next 4-5 years, catapulting modern retail in the country to $175-200 billion by 2016, according to Technopak estimates.
20
21
CHALLENGES IN RETAILING
The industry is facing a severe shortage of talented professionals, especially at the middle-management level. Most Indian retail players are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. Long intermediation chains would increase the costs by 15 per cent. Lack of adequate infrastructure with respect to roads, electricity, cold chains and ports has further led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices. The available talent pool does not back retail sector as the sector has only recently emerged from its nascent phase. Further, retailing is yet to become a preferred career option for most of India’s educated class that has chosen sectors like IT, BPO and financial services. Even though the Government is attempting to implement a uniform value-added tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network. Stringent labor laws govern the number of hours worked and minimum wages to be paid leading to limited flexibility of operations and employment of part-time employees. Further, multiple clearances are required by the same company for opening new outlets adding to the costs incurred and time taken to expand presence in the country.
21
22
The retail sector does not have ‘industry’ status yet making it difficult for retailers to raise finance from banks to fund their expansion plans. Government restrictions on the FDI are leading to an absence of foreign players resulting into limited exposure to best practices. Non-availability of Government land and zonal restrictions has made it difficult to find a good real estate in terms of location and size. Also lack of clear ownership titles and high stamp duty has resulted in disorganized nature of transactions.
22
23
OPPORTUNITIES AND CHALLENGES FOR BUSINESSES
OPPORTUNITIES • Along with China the fastest growing of world’s large consumer markets over next two decades • Major discontinuity, winners have yet to be determined – $1.1 trillion of new market growth not yet owned by anyone • Most accessible market – upper income urbanities – will grow twelve times • Almost half of middle class will be ‘new consumers’ at any point in time loyalties up for grabs
CHALLENGES • Indian companies –Retaining existing customers and market shares – Adapting rapid pace of change – Innovating to capture new growth opportunities – Educating new consumers
• Multinationals –Meeting middle class aspirations at Indian price – Adapting products and services to meet Indian needs and task points – Building brands –Overcoming infrastructure, regulatory, and distribution hurdles
23
24
OPPORTUNITIES AND CHALLENGES FOR GOVERNMENT
OPPORTUNITIES • A chance to make further significant inroads in poverty reduction • Domestic demand growth will spur further domestic production and Employment – particularly in higher value-added industries • An opportunity to attract FDC to serve Indian consumers • The potential to improve the material well-being of hundreds of millions of people
CHALLENGES • Long-term growth must be maintained • Infrastructure issues need to be addressed • Regulatory constraints on business need further reform to enable Businesses to meet growing demand and improve productivity • Financial system needs reform to efficiently allocate investment, rebalance savings away from households and provide consumer credit • Significant investments in human capital required (education, health care) in fiscally constrained environment.
24
25
CHARACTERISTICS OF RETAILING 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. In is the only point in the value chain to provide a platform for promotions. Sales at the retail level are generally in smaller unit sizes. Location is a critical factor in retail business. In most retail businesses 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.
• Direct Interaction with Customers Retail businesses have a direct interaction with end-users of goods or services in the value chain. They act as intermediaries between end-users and suppliers such as wholesalers or manufacturers. Therefore, they are in a position to effectively communicate the response and changing preferences of the consumers to the suppliers or sales persons of the company. This helps the manufacturers and markets to redefine their product and change the components of its marketing strategy accordingly. Manufacturers require a strong retail network both for reach of the product and to obtain a powerful platform for promotions and point-of-purchase advertising. Realizing the importance of retailing in the entire value chain, many manufacturers have entered
25
26
into retail business by setting up exclusive stores for their brands. This has not only provided direct contact with customers, but has also acted as advertisement for the companies and has provided the manufacturers with bargaining power with respect to other retailers who stocked their product. Retailing provides extensive sales people support for products which are information intensive, such as in the case or consumer durables.
Lower Average Amount of Sales Transaction
The average amount of sales transaction at retail point is much less in comparison to the other partners in the value chain. Many consumers buy products in small quantities for household consumption. Due to lower disposable incomes, some consumer segments in India even buy grocery items on a daily basis rather than a weekly or a monthly basis. Inventory management becomes a challenge for retailers as a result of the many minor transactions with a large number of customers. Hence, retailers must take care of determining average levels of stock, order levels and the retailer has to keep a tight control on costs associated with each transaction in the selling process. Credit verification, employment of personnel, value-added activities like bagging, gift-wrapping and promotional incentives all add up to the costs. One way to resolve this is for the retail outlets to be able to attract the maximum possible number of shoppers.
26
27
Point-of-purchase Display and Promotions A significant relevant chunk of retail sales comes from unplanned or impulse purchases. Studies have shown that shoppers often do not carry a fixed shopping list and pick up merchandise based on impulsive or situational appeal. Many do not look at ads before shopping. Since a lot of retail products are low involvement in nature, impulse purchases of the shopper is a vital area that every retailer must tap into. Therefore, display, point-of-purchase merchandise, store layou8t and catalogues become important. Impulse goods like chocolates, snack foods and magazines can sell much more quickly if they are placed in a high visibility and high traffic location.
Larger Number of Retail Business Units
Location of retail store plays an important role compared to other business units. Manufacturers decide the location on the basis of availability of factors of productions and market. Similarly, retailers consider factors like potential demand, supply of merchandise and store image-related factors in locating the retail outlet. The number of operation units in retail is the highest compared to other constituents of the value chain, primarily to meet the needs for geographic reach and customer accessibility.
FUNCTIONS OF RETAILING
27
28
Retailers play a significant role as a conduit between manufacturers, wholesalers, suppliers and consumers. 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 an assortment of goods from different sources, buying them in sufficiently large quantities and selling them to consumers in small units. The above process is referred to as the sorting process. Through this process, retailers undertake activities and perform functions that add to the value of the products and services sold to the consumer. Supermarkets in the US offer, on and average, 15,000 different items from 500 companies. Customers are able to choose from a wide range of designs, sizes and brands from just one location. If each manufacturer had a separate store for its own products, customers would have to visit several stores to complete their shopping. While all retailers offer an assortment, they specialize in types of assortment offered and the market to which the offering is made. Westside provides clothing and accessories, while a chain like Nilgiris specializes in food and bakery items. Shoppers’ Stop targets the elite urban class, while Pantaloons is targeted at the middle class. BREAKING BULK
28
29
Breaking bulk is another function performed by retailing. 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 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
29
30
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 number of functions performed by a particular retailer has a direct relation to the percentage and volume of sales needed to cover both their costs and profits. As a result of these functions, retailers are required to perform the following activities:
ACTIVITIES PERFORMED BY RETAILERS Retailers undertake various business activities and perform functions that add value to the offerings they make to their target segments. Retailers provide convenient location, stock and appropriate mix of merchandise in suitable packages in accordance with the needs of customers. The four major activities carried out by retailers are:
1) Arrange for assortment of offerings 2) Breaking quantity 3) Holding stock
30
31
4) Extending services
ARRANGING ASSORTMENT
An assortment is a retailer’s selection of merchandise. It includes both the depth and breadth of products carried. Retailers have to select the combination of assortments from various categories. The assortments must include substitutable items of multiple brands and price points. They should be distinguished on account of physical dimensions and attributes e.g., colour or flavour. The small retailer takes assortment decision on the basis of his experience; on the other hand retailers from organized retailing depend on a detailed study of past trends and future projections. Retailers need to consider certain factors while devising assortment plans for their stores: profitability associated with particular merchandise mix, store image, layout and the level of compatibility between the existing merchandise. For example, FoodWorld, a leading food supermarket positioned as a one-stop shopping centre, deals in multiple product categories along with all possible variants of brands, stock keeping units, and physical attributes in order to meet the expectations of their consumers and survive in the business. Whereas, Subhiksha, a grocery chain in south India has impressive assortments of only the fast moving brands rather than all available variants in the market. Their assortment plan is governed by location, size and store image of their stores.
BREAKING BULK
31
32
Breaking bulk means physical repackaging of the products by retailers in small unit sizes according to customer’s convenience and stocking requirements. Normally, retailers receive large quantities of sacks and cases of merchandise from suppliers to reduce their transportation costs. In order to meet their customers’ requirements retailers have to break or arrange the bulk into convenient units. This entire function of the retailers adds value to the offerings not only for the end customers but also for the suppliers in the value chain. Even in the earlier days of generic and commodity-based trading most of the retailers used to perform this important function in the value chain. This function receives negligible attention from the retailers now due the introduction of new product categories, such as FMCG and ready-to-wear apparel.
HOLDING STOCK To ensure the regular availability of the offerings retailers maintain appropriate levels of inventory. Consumers normally depend on the retailers directly to replenish their stocks at home. Therefore, retailers, on periodic basis, maintain the required levels of stock to meet the regular or seasonal fluctuations in the demand. Retailers need to maintain equilibrium between the range or variety carried and the sales which it gives rise to. Retailers have to face the negative consequences of holding unwanted levels of stock—for instance, too little stock will hamper the sales volume, whereas, too much stock will increase the retailer’s cost of operation. Generally, in small towns of India most retailers have arrangements with the nearby warehouses to stock the goods. Some are so small that they have to stock only on the shop floor. Retailers in the organized sector, to a certain extent, are using effective software packages for maintaining adequate levels of inventory. At the same time, retailers avail of just-in-time deliveries with the
32
33
help of efficient consumer response systems, which reduces the burden of maintaining high levels of stocks.
EXTENDING SERVICES Retailing provides multiple services to immediate customers and other members of the value chain. The set of services extended by particular retailers may be part of their core product offerings or it may be ‘add on’ to their product or service. Retailers offer credit, home delivery, after-sales services and information regarding new products to their customers, thereby making the shopping experience convenient and enjoyable. At the same time, they provide stocking place, reach to the ultimate customers, and information about the concerned target segment to the suppliers. For example, Time Zone, the first organized retail chain of wristwatches in India, started by leading watch manufacturers Titan, set up in all its stores, service centres with proper equipment and trained manpower. This has not only diluted the relevance of service providers in the unorganized sector but has also enhanced the confidence of the customers in the retai9l services provided by the particular retail chain, as after-sales service is considered to be an integral ingredient of the watch purchase. CATEGORIZING RETAILERS Categorizing retailers helps in understanding the competition and the frequent changes that occur in retailing. There is no universally accepted method of classifying a retail outlet, although many categorization schemes have been proposed. Some of these include classifying on the basis of Number of outlets Location - Margin Vs Turnover - Size.
33
34
The number of outlets operated by a retailer can have a significant impact on the competitiveness of a retail firm. Generally, a greater number of outlets add strength to the firm because it is able to spread fixed costs, such as advertising and managers’ salaries, over a greater number of stores in addition to acquiring economies of purchase. While any retailer operating more than one store can be technically classified as a chain owner, for practical purposes a chain store refers to a retail firm which has more than 11 units. In the United States, for example, chain stores account for nearly 95% of general merchandise stores. Small chains can use economies of scale while tailoring merchandise to local needs. Big chains operating on a national scale can save costs by a centralized system of buying and accounting. A chain store could have either a standard stock list ensuring that the same merchandise is stocked in every retail outlet or an optional stock list giving the outlets the advantage of changing the merchandise according to customer needs in the area. Because of their size, chain stores are often channel captains of the marketing channel—captains can influence other channel partners, such as wholesalers, to carry out activities they might not otherwise engage in, such as extended payment terms and special package sizes.
Big stores focus on large markets where their customers live and work. They use technology to learn more about their customers and target them with point-of-sale machines interactive kiosks, and sophisticated forecasting and inventory systems. They tend to stock a narrow range of inventory that sells well and maintain an extensive inventory of the fast selling products. Branding is important to them. Pricing is often a key area of focus for these retailers. Big stores have many strengths, including regional or national reputation, huge buying power, vast inventory and hassle-free return and exchange policies. Their prime locations, the consistency in
34
35
their products and services, the fact that they are open when people can and want to shop and the clear consistent image and identity they develop and maintain challenge the abilities and resources of many small retailers. Perhaps their biggest advantage is their knowledge in every aspect of their business, from inventory selection to store layout. However, large retailers are not perfect. They have competitive weaknesses that small retailers can exploit. Most offer the same standardized assortments of products nationally. Local managers have little say in inventory selection. Often, sales staff has minimal product knowledge. Staff turnover is extremely high. Most large retailers have little connection with the community they serve. They usually do not offer special services. Larger companies are often slow to recognize and react to changes in their local markets. Independent retailers can co-exist and flourish in the shadow of the big chains by developing a niche within the diverse market. The niche should be developed on the basis of new or unusual product offerings, superior service and overall quality. While value is important, price may be less important. Efficient operations, including precise buying practices, are a must. Customer contact within the niche market must be characterized by ‘high-touch’ service. The key factor is innovation: stores that do not change will perish. The road to success for the independent retailer lies in doing all the things those big chain stores cannot or will not do. The successful independent retailers embrace the following principles: • • • • • Be prepared for change. Move to a narrower niche market and stop competing directly with the big retailers. Learn more about customers and include best customers in a database. Invest appropriately in advertising and promotion. Charge regular prices and avoid discounting (ensure requisite mark-up).
35
36
• • • • • •
Buy with precision and search out specialty suppliers. Maintain essential inventory. Focus on profit instead of volume (be ready to lose an occasional sale). Provide extraordinary service. Employ the best possible staff. Understand the significance of the Internet.
Gross margin and inventory turnover is another means of classifying retailers. Gross margin is net sales minus the cost of goods sold and gross margin percentage is the return on sales. A 30% margin implies that a retailer generates Rs 30 for every Rs 100 sales that can be used to pay operating expenses. Inventory turnover refers to the number of times per year, on average, a retailer sells his inventory. On the basis of this, retailers are classified as low margin low turnover—those that cannot survive the competition—and low margin high turnover, exemplified by Amazon.com. Jewellery stores and appliance stores are examples of high margin low turnover stores and only a few retailers achieve high margin high turnover. These retailers are in the best position to combat competition because their high turnover allows them to withstand price wars. The drawback of the classification by this method is that service retailers who have no inventory turnover cannot be encompassed. One of the old means of classification of retailers is by location, generally within a metropolitan area. Retailers are no longer satisfied with traditional locations within a city’s business district but are on the constant lookout for alternate locations to reach customers. Besides renovating old stores, retailers are testing unorthodox locations to expand their clientele.
36
37
With the advent of the Internet, this area of retailing is likely to undergo tremendous changes in the coming years. Size is often used as a yardstick to classify retailers because costs often differ on the basis of size, with big retailers having lower operational costs per dollar than smaller players. However, in this sphere too, the Internet may make size an obsolete method of comparison.
37
38
RETAIL ORGANIZATION
The term retail organization refers to the basic format or structure of a retail business designed to cater to the needs of the end customer. Recently, some scholars have started referring to India as a nation of shopkeepers. This epithet has its roots in the huge number of retail enterprises in India, which were over 12 million in 2003. About 78% of these are small family businesses utilizing only household labour. Retail firms may ;be independently owned, parts of a retail chain, operated as a franchisee, leased departments, owned by manufacturers or wholesalers, consumers owned or cooperative society. A retail unit could be owned by: • • • • • • • Manufacturer (e.g., company owned retail outlets) Wholesaler (e.g., Vastra outlet in Rajouri in New Delhi) Independent retailer (Chanakya Sweet Shop near Hazratganj in Lucknow) Consumer (consumer owned grocery stores in man y residential societies) Co-operative society (e.g., Mother Dairy milk booths in Delhi) Government (e.g., Cottage Emporia) Ownership shared among franchiser and franchisee (e.g., Archies Gallery) Although most Indian retailers fall in the category of small-scale units, there are also some very big retailers. Organized retail stores are generally characterized by large, professionally managed store formats providing goods and services that appeal to customers, in an ambience that is conducive for shopping and provides a memorable experience to customers.
38
39
From positioning and operating perspectives, each ownership format serves a marketplace niche and presents certain advantages and disadvantages. Retail executives must not lose sight of this in playing up their strengths and working around their weaknesses.
CLASSIFICATION OF RETAIL UNITS Conceptual classification of a business unit provides the marketers with strategic guidelines, useful in the design of retailing strategy. Besides, retail businesses are extremely diverse and there are quite a few types of retail units. Therefore, retail units are classified on multiple of ownership, geographical locations, kind of customer interaction level of services provided etc.
Retailers Classified on the Basis of Ownership One of the first decisions that the retailer has to make as a business owner is how the company should be structured. This decision is likely to have long-term implications, so it is important to consult with an accountant and attorney to help one select preferred ownership structure. There are four basic legal forms of ownership for retailers:
1) Sole
proprietorship: - The vast majority of small businesses start out as sole
proprietorships. These firms are owned by one person, usually the individual who has the day-to-day responsibility for running the business.
2) Partnership:
- A partnership is a common format in India for carrying out business
activities (particularly trading) on a small or medium scale. In a partnership, two or more people share ownership of a single business.
39
40
3) Joint venture: - A joint venture is not well defined in the law. Unless incorporated or
established as a firm as evidenced by a deed, joint ventures may be taxed like association of persons, sometimes at maximum marginal rates. It acts like a general partnership, but is clearly for a limited period of time or a single project.
4) Limited
liability Company (public and private):- The Limited Liability Company
(LLC) is a relatively new type of hybrid business structure that is now permissible in most states. The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. Classification of Retailers on the basis of Operational Structure Retail businesses are classified on the basis of their operational and organizational structure. Operational structure defines the key strategic decision of retail entity, whether to hire employees and manage the distributed sales function internally or to reach customers though franchised outlets owned and operated by local entrepreneurs.
Retail firms can be classified into five heads on the basis of their respective operational structures:
1) Independent retail unit: - The total number of retailers in India is estimated to be over 5
million in 2003. About 78% of these are small family businesses utilizing only household labour. An independent retailer owns one retail unit.
40
41
2) Retail Chain: -
A chain retailer operates multiple outlets (store units) under common
ownership; it usually engages in some level of centralized (or coordinated) purchasing and decision making.
3) Franchising:
- Franchising involves a contractual arrangement between a franchiser
(which may be a manufacturer, a wholesaler, or a service sponsor) and a retail franchisee, which allows the franchisee to conduct a given form of business under and establishments name and according to a given pattern of business.
4) Leased Department or Shop-in-shop:- It refers to department in a retail store that are
rented to an outside party. Usually this is done in case of department and specialty stores and also at times, in discount stores.
5) Co-operative Outlets: - Co-operative outlets are generally owned and managed by cooperative societies. In this context the detailed example of Kendriya Bhandar in India. Classification of Retailers on the basis or Retail Location Retailers have also been also been classified according to their store location. Retailers can locate their stores in an isolated place and attract the customers to the store on their own strength—such as a small grocery store or paan shop in a colony, which attracts the customers staying close by.
Classification of retailers on the basis of location is discussed below: 1) Retailers in a free-standing location: - Retailers located at a site which is not connected to other retailers depend entirely on their sore’s drawing power and on the various promotional tools to attract customers. This type of location has several advantages
41
42
including no competition, low rent, better visibility from the road, easy parking and lower property costs. For example the Haldiram’s outlet on the Delhi-Jaipur highway and the McDonald’s outlet on Delhi-Ludhiana highway. 2) Retailers in a Business-associated Location:- In this case, a retailer locates his store in a place where a group o retail outlets, offering a variety of merchandise, work together to attract customers to their retail area, and also compete against each other for the same customers. 3) Retailers in Specialized Markets: - Besides the above location-based classification, we also have in India-retailers who prefer specialized markets, particularly traditional independent retailers or chain stores. In India, most of the cities have specialized markets famous for a particular product category. For example, in Chennai, Godown Street is famous for clothes, Bunder treet for stationery products, Usman street for jewellery, T Nagar for ready-made garments, Govindappan naicleen street for grocery, Poo Kadia for food and vegetables. 4) Airport Retailing: - For quite some time, duty-free shops and newsstands dominated the small amount of commercial space provided at airports. Lately, serious efforts are being made to design new airport facilities in order to incorporate substantial amounts of retail space.
42
43
The key features of airport retailing are:
• Large groups of prospective shoppers • Captive audience • Strong sales per square foot of retail space • Strong sales of gift and travel items • Difficulty in replenishment • Longer operating hours • Duty-free shopping possible.
TRENDS IN RETAIL FORMATS
Retail industry is continuously going through changes on account of liberalization, globalization and consumer preferences. While multinational retail chains are looking for new markets, manufacturers are identifying, redefining, or evolving new retail formats. The existing retail houses are also gearing up to face the emerging competition from the organized sector and the changing outlook of the consumers. For example, consumer spending is shifting from goods to services. Accordingly the retailers too are fast adjusting to the changing consumer preferences.
Consumers are not only looking for the core products or functional benefits from the retailers but also the non-functional benefits, which need to be compatible with their lifestyles. For example, most of the traditional eating joints in India such as Haldiram, Bikaner and Sagar
43
44
Ratna have revised their product offerings and atmospherics on the lines of the multinational chains to compete with them and to serve changed expectations of the consumers. Mom-and-pop Stores and Traditional Kirana Stores
The retail sector is changing as new store categories have started dominating the marketplace. Mass merchandisers (Wal-Mart, Big Bazaar), discount clubs (Subhiksha), so-called category killers (Home Depot, Vishal chain), and speciality retailers (Time Zone, Tanishq) have all developed a successful retail models. At the same time, the small mom-and-pop stores and the traditional department stores, are finding the competition intense. In 2002, while Wal-Mart and Target saw revenues grow (by 12% and 10%, respectively), department stores such as Saks and Federated experienced declining revenues (down 3% and 1% respectively). But even in the mass-merchandising segment, the competition is fierce, as is evidenced by Kmart’s bankruptcy announcement in 2002. Small independent stores, across product categories, is a very common retail formats they are also undertaking large scale renovations to appeal and attract their target consumer segments.
E-commerce The amount of retail business being conducted on the Internet is growing every year. Indeed, Forrester Research Agency projects e-commerce revenue to rise to $123 billion in 2004, an increase of some 28% over the previous year and for e-tailing to comprise a bigger slice of the overall retail pie (5.6%, up from 4.5% in 2003). Many major retail organizations and manufacturers have online retail stores. Companies like Amazon.com and First and second.com, which helped pioneer the retail e-commerce concept, are now being followed by bricks-and44
45
mortar and catalogue retailers like J. Crew, which are expanding retail e-commerce into new markets. Department Stores A few years ago, names like Sears, J.C. Penney, Macy’s, and Montgomery Ward dominated malls and downtowns all over America. Over the last decade or so, however, these department stores have suffered badly. In part, this is a result of changing shopping patterns and increased competition from discount stores. It has also come from financial burdens incurred by companies that acquired competing companies and grew too fast. It is unlikely that these players will disappear from the market. However, they should be ready to expect more bumps as the strong get stronger and the weak get absorbed. Discount Stores These are giants such as Wal-Mart (the largest retailer in the world, with more than a million; employees), Target and Kmart, as well as membership warehouses, such as Costco. These, along with the category killers, have changed the landscape of both the retail industry and America. Where once mom-and-pop and department stores dominated retail, now the discount retailers and category killers are at the top of the heap. And where once shopping malls, anchored by at least one major department store; used to be the dominant retail presence lining the nation’s roads, now it is the behemoth Wal-Marts and Home Depots.
Category Killers These are the giant retailers that dominate one area of merchandise (e.g., Office Depot, Tower Records and The Sports Authority). They are able to buy bathroom tiles, file cabinets, electronic goods or pet food in such huge volumes that they can then sell them at prices even
45
46
fairly large competitors cannot match. The future of this category is better than that of many of the more general discounters, but the same employment caveats apply. For most job seekers, these companies offer earn-and-learn experiences with vendors and distributors before they move onward and upward.
Specialty Stores These include Crate & Barrel, the Body Shop, and Victoria’s Secret. These stores concentrate on one type of merchandise and offer it in a manner that makes it special. Some are very high-end (Louis Vuitton) while others cater to the price-conscious masses (Old Navy). Many are so successful that department stores have started to emulate their buying, marketing, and merchandise display strategies. Industry experts predict growth in this segment, particularly in home furnishings and home improvement, and it seems to attract many of the best and brightest in retail. Promotion and responsibility come quickly to those willing to work hard, and in many of these stores the hand of bureaucracy is not heavy.
E-tailers While most retailers have online storefronts, strictly online purveyors with no brick sandmortar counterparts are hoping to snare a percentage of the retail profit. Major players, such as Amazon.com, have generated enough business to cause top brick-and mortar competitors to come up with their own Internet sites. Traditional retailers like Wal-Mart and Starbucks, hugely successful in their own right, have also set up online stores so as not to miss out on the revenue opportunities that the Interned offers.
46
47
VARIETY OF MERCHANDISE MIX The retail merchandising has come a long way in India since the days when general stores (kirana) that stocked everything from groceries to stationery and small shops that sold limited varieties of products (such as clothes, furniture, medicines) reigned supreme.
There are many different retail stores in India—convenience stores, supermarkets, hypermarkets, department stores, brand stores and discount stores characterized by the variety of merchandise mix offered by a respective retail format. The consumer can choose between different stores for different needs. Retail units, on account of variety of merchandise mix, can be classified as follows:
Department Stores: - It is a large retail store organized into a number of departments, offering a broad variety and depth of merchandise, commonly part of a retail chain. Usually, department stores are located within the planned shopping centres or traditional up market downtown centres. The leading fashion department stores in India are Ebony, Globus, LifeStyle, Pantaloon, Shoppers’ Stop and Westside. All of them are multiproduct stores, Ebony has 7 stores, Globus has 4 stores, LifeStyle has 3 stores and there are 12 Pantaloon Family Stores.
Discount Stores: - Retailers offering a broad variety of merchandise mix, limited or no service and low prices are characterized by low margins, heavy advertising, low investments on fixtures, limited support from sales people etc. Discount stores prefer shopping centres that provide space at lower rents as they attract customers from other adjoining stores in the shopping centre.
47
48
Specialty Stores: - Specialty stores stress on one or a limited number of complementary product categories and extend a high level of service to their customers. In India, the traditionally independent retailers in the specialized market centres operate in a particular product category, at these centres attract large crowds. Such specialized retail operations provide expertise economies of scale, bargain and image to the particular stores.
Supermarkets and Hypermarkets: - A hypermarket is a very large retail unit offering merchandise at low prices. Superstores have a sales area of over 50,000sq.ft. Hypermarkets are characterized by large store size, low operating costs and margins, low prices and comprehensive range of merchandise.
48
49
RETAIL LOCATION STRATEGY
Location is the most important ingredient for any business that relies on customers. It is also one of the most difficult to plan for completely. Location decisions can be complex, costs can be quite high, there is often little flexibility once a location has been chosen and the attributes of location have a strong impact on a retailer’s overall strategy. In India, most retailers prefer to own the property rather than avail of the desired property through lease or rental. This makes the location decision even more critical. Choosing the wrong site can lead to poor results and in some cases insolvency and closure.
IMPORTANCE OF LOCATION DECISION The importance of the location decision is due to the following factors. Location is a major cost factor because it
• Involves large capital investment • Affects transportation costs • Affects human resources cost, e.g., salaries
Location is a major revenue factor because it
• Affects the amount of customer traffic • Affects the volume of business
49
50
The traditional inclination of Indian retailers to own property further increases capital investment and this along with the penchant of Indian retailers to continue their business at the same location makes the location decision even more important. The terms ‘location’ and ‘site’ are often used interchangeably but there is a distinct difference between the two. ‘Location’ is a broader concept, which denotes the store and its trading area from where a majority of its customers originate, while a site refers to the specific building or part of the building where a store is located. Location and site characteristics should interact in a positive and synergistic way with a store’s merchandising, operations and customer service characteristics. For example, a designer men’s store located in an up market shopping centre or a mall near posh residential colonies, housed in an attractive building with adequate parking facilities. LEVELS OF LOCATION DECISION AND ITS DETERMINING FACTORS
A retailer has to take the location decision, basing on three aspects:
1) Selection of a city 2) Selection of an area or type of location within a city 3) Identification of a specific site
The factors which influence these decisions are discussed below:
Selection of a City The following factors play a significant role in the selection of a particular city for starting or relocating an existing retail business:
50
51
• Size of the city’s trading area: A city’s trading area is the geographic region from
which customers come to the city for shopping. A city’s trading area would comprise its suburbs as well as neighboring cities and towns. Cities like Mumbai and Delhi have a large trading area as they draw customers from far off cities and towns.
• Population of population growth in the trading area: The larger the population of the
trading area, the greater the potential of the city as a shopping location. A high growth n population in the trading area can also increase the retail potential.
• Total purchasing power and its distribution: The retail potential of a city also depends
on the purchasing power of the customers and its distribution networks in its trading area. Cities with a large population of affluent and upper middle-class customers can be an attractive location for stores selling high-priced products such as designer men’s wear. The fast growth in purchasing power and its distribution among a large base of middle class is contribution to a retailing boom around major cities in India.
• Total retail trade potential for different lines of trade: A city may b become
specialized in certain lines of trade and attract customers from other cities. Moradabad has become an important retail location for brassware products while Mysore is famous for silk saris.
• Number, size and quality of competition: The retailer also considers the number, size
and quality of competition before selecting a city.
• Development cost: The cost of land, rental value and other related cost.
51
52
Selection of an Area or Type of Location within a City In the selection of a particular area or type of location within a city, evaluation of the following factors is required.
• Customer attraction power of a shopping district or a particular store: Major
shopping centres like Chandni Chowk in Delhi, Colaba in Mumbai and Commercial Street in Bangalore attract customers from far off, while small shopping centres located in colonies attract customers from immediate neighborhood.
• Quantitative and qualitative nature of competitive stores: Retailers would like to
evaluate the product lines carried by other sores, number of stores in the area, etc. before selecting the area.
• Availability of access routes: The area or shopping centre should provide easy access
routes. There should not be traffic jams and congestion MG Road in Bangalore provides easy access from different t parts of the city and hence has become popular.
• Nature of zoning regulations: The retailer should also consider the zoning regulations in
the city.
• Direction of spread of the city: The retailer should consider the direction in which the
city is developing while selection the location.
Selection of a Specific Site
The choice of a specific site is particularly important. In central and secondary shopping centre, non-anchor sores depend on customers coming to the market and the traffic generated by
52
53
anchor stores. The large stores in turn depend on attracting customers from the existing flow of traffic. Where sales depend on nearby settlements, selecting the trading area is even more important than picking the specific site.
53
54
TYPES OF RETAIL LOCATION
A retailer has to choose among alternate types of retail locations available. It may locate in an isolated place and pull the customer to the store on its own strength, such as a small grocery store or paan shop in a colony which attracts the customers staying close by. Or, it may locate in a business district where ther3 are a large number of retail establishments. If it decides to locate its store in a business district, it may have a choice ranging for, the large shopping centres in the heart of the city or smaller shopping complexes in a suburb.
The various options available to a retailer in India are shown below:
Free-standing Location Where there are no other retail outlets in the vicinity of the store and therefore, the store depends on its own pulling power and promotion to attract customers. This type of location has several advantages including no competition, low rent, and often better visibility from the road, easy parking and lower property costs.
Neighborhood Stores Neighborhood stores are located in residential neighborhoods and serve a small locality. They sell convenience products like groceries. Now, even the large organized sector stores, which pull customers from across the city, are also coming up in suburbs or away from major markets as free-standing locations. For example, Kemp Fort and LifeStyle stores are freestanding stores in Bangalore away from major market of the city.
54
55
Highway Stores
Highway stores are located along highways or at the intersections of two highways and attract customers passing through these highways.
Business-associated Location
These are locations where a group of retail outlets offering a variety of merchandise work together to attract customers to their retail area, but also compete against each other for the same customers. This type of location can be further classified as:
• Unplanned Business Districts/Centres: An unplanned business district is a type of retail
location where two or more retail stores locate together on individual considerations rather than on the basis of any long-range collective planning. Thus, we may find four to five shoe stores, three to four medical stores in a cluster but no grocery store. An unplanned district generally provides certain advantages like availability of a variety of goods, services and prices; access to public transport; nearness to commercial and social facilities; and pedestrian traffic.
• Planned Shopping Centres: A planned shopping centre consists of a group of
architecturally owned or managed stores, designed and operated as a unit, based on balanced tenancy and surrounded by parking facilities.
55
56
• Regional Shopping Centres or Malls: Regional shopping centres or malls are the
largest planned shopping centres; often they are anchored by two or more major department store, have enclosed malls, serve a large trading area, and have high rents. They attract customers from across the city and suburbs. Major regional shopping centres or malls in India include Crossroads in Mumbai, Ansal Plaza in Delhi, Spencers Plaza n Chennai and Meropolitan Mall in Gurgaon.
SITE SELECTION ANALYSIS
With the advent of new retail formats in India such as planned shopping centes and malls, emergence of free-standing department stores, hypermarkets, etc., and further development of traditional business districts and other unplanned shopping locations, a retailer is presented with a wider choice of locations. Consideration of all the options keeping in view the product mix, customer profile and overall business model presents an enormous challenge. A retailer has to consider the following factors while selecting a site:
• Kind of products sold • Cost factor • Competitor’s location • Ease of traffic flow and accessibility • Parking and major thoroughfares
56
57
• Market trends • Visibility
Kind of Products Sold For stores dealing in convenience goods, the quantity of traffic is most important. The corner of an intersection, which offers two distinct traffic streams and a large window display area, is usually a better site than the middle of a block. Convenience goods are often purchased on impulse from easily accessible stores. For stores dealing in shopping goods, the quality of the traffic is more important. The emergence of several apparel factory outlets within a short stretch on the Delhi-Jaipur highway, at Mahipalpur market in Delhi, is driven by this factor.
57
58
Cost Factor in Location Decision
Location decision on cost considerations alone is risky. Space cost is a combination of rent or mortgage payment, utilities, leasehold improvements, general decoration, security, insurance and all related costs having a place to conduct business operations. Traditionally, the retail community placed great importance on owning the place since this was considered prestigious in the business community. However, there are many periodic retail markets in Indian which operate on particular days of the week. The retailers operating in these periodic markets keep shifting from place to place and do not own any property; instead they pay a small rental for their set-up in each market. This supports their model of selling goods at very low margins.
Competitor’s Location
The type and number of competitors is another important factor. The presence of major retail centers, industrial parks, franchisee chains and department stores should be noted. Intense competition in the area shows that new businesses will have to divide the market with existing businesses. If one is not able to offer better quality and competitively priced products, one might reconsider that particular location. An excellent location may be next or close to parallel or complementary businesses that will help to attract customers.
58
59
Ease of Traffic Flow and Accessibility These two factors are more important to some businesses than others. Consider the nature of the business you are planning to open and your potential customers. Retailers selling convenience goods must attract business from the existing flow of traffic. Studying the flow of traffic, noting one-way streets, street widths and parking lots, is hence important. The following factors have to be considered: parking availability, distance from residential areas or other business areas, traffic congestion, side of street, width of street, part of the block and neighbors. Evaluate how accessible the site is for walk-in or drive-by traffic as well as the amount of pedestrian traffic and automobile traffic that goes by the proposed location.
Parking and Major Thoroughfares
Parking is another site characteristic that is especially a cause for concern in densely populated areas. When evaluating the parking that exists at a retail site, there are two considerations: parking capacity (the number of cars that can be parked), and parking configuration (the way the parking lot is laid out, the direction of the travel lanes and spaces, landscaping, etc.). There are several ratios that are generally used to determine the adequacy of a parking lot. While different ratios exist for different types of retailers or service providers, the ideal ratio for food stores is in the magnitude of 7-8 cars per 1,000 square feet of food store.
59
60
Market Trends
Evaluate the community from a broad, futuristic perspective. Local newspapers are a good source of information. Discussions with business owners and officials in the area can also help. Make use of information available through the Chamber of commerce.
Visibility
Visibility has a varied impact on a store’s sales potential. It is important when a shopper is trying to find the sore for the first or second time. Once the shopper has become a regular customer, visibility no longer matters. But consider this fact: one in five families’ moves every year, which means that some part of a community’s population may be ‘shopping’ in a new store.
EMERGENCE OF ORGANIZED RETAILING
Organized retailing in India represents a small fraction of the total retail market. In 2001, organized retail trade in India was worth Rs 11,228.7 billion. The modern retail formats are showing robust growth as several retail chains have established a base in metropolitan cities, especially in south India and are spreading all over India at a rapid pace. However, space and rentals are proving to be the biggest constraints to the development of large formats in metropolitan cities since retailers are aiming at prime locations.
60
61
In urban India, families are experiencing growth in income but dearth of time. More and more women are taking up corporate jobs, which is adding to the family’s income and leading to better lifestyles rising incomes has led to an increased demand for better quality products while lack of time has led to a demand for better quality products while lack of time has led to a demand for convenience and services. The demand for frozen, instant, ready-to-eat food has been on the rise, especially in the metropolitan and large cities in India. There is also a strong trend in favors of one-stop shops like supermarkets and department stores. Rural India continues to be serviced by small retail outlets. Only 3.6 million outlets cater to more than 700 million inhabitants of rural India. Here, provision stores, paan shops and ration shops are the most popular vehicles of retailing. Apart from this, there are periodic or temporary markets, such as haats, peeth and melas that come up at the same location at regular time intervals. The McKinsey report predicts that FDI will help the retail businesses to grow to US $ 460-470 billion by 2010. There has been a strong resistance to foreign direct investment (FDI) in retailing from small traders who fears that foreign companies would take away their business, lead to the closure of many small trading businesses and result in large-scale unemployment. Therefore, government has discouraged FDI in the retail sector. At present, foreign retailers can enter the retailing sector only through restricted modes. Global players in the retail segment have been entering the market for a while now. Players that entered before the easing of restrictions on FDI in retail had to come through different modes, such as joint ventures where Indian partner is an export house (Total Health Care); franchising/local manufacturing/sourcing from small-scale
61
62
sector (McDonald’s, Pizza Hut); cash and carry operations (Giant) and licensing (Marks & Spencer’s). The main condition for organized retailing is that the retailer should be able to manage and influence the supply chain variables in a commercially viable and sustainable manner. The organized retailer should be able to, through diversified risks and volume sales command huge concessions on prices from the manufacturers. He should then be in a position to allow a trickle down of this advantage to consumers out of his saved costs.
CURRENT SCENARIO The Indian population is whooping 1 billion with 75% of the people living in villages and small towns. It is only natural that the agricultural sector is the biggest employer with its contribution to GDP pegged at 26.7%. Retail is India’s largest industry after Agriculture with around 20% of the economically active population engaged in it and generation 10% of our country’s GDP. The growth of the efficient small store culture can be attributed to the 6 million villages distributed across the length and breadth of the country. The 12 million retail outlets in India are the highest in the world, and cater to the purchase need of its pole. It is interesting to note, that the Urban Population although just 25% of the total, is an astounding 250 million in size and is growing at a healthy rate of 7% per annum. The chief driver of growth in the retail sector has been the consumer, with the spending increasing at an average of 11% per annum. The Core and the Lower middle have increased their share in the Growth.
The Indian consumer’s shopping needs are and traditionally have been fulfilled by Kirana sores (corner stores), Kiosks, street vendors, weekly bazaars and high-street shops for consumer
62
63
durables and luxury goods. To cater to this, each city developed its own identity and shopping cluster, for instance in Pune there is MG Road, Bangalore has Brigade Road and Commercial Street, Delhi has Connaught Place, Karol Bagh and South Extension. India will have 358 shopping malls by 2007. Droves of middle-class Indians have broken off their love of traditional stand-alone shops that have no ACs, organized parking lots and other public amenities, according to a study by fashion magazine Image. At present (September 23, 2005), In India we have 96 malls, covering an area of 21.6 million sq ft. And by year end the count will shoot up to 158 malls. It will cover 34 million sq ft area. Currently estimated at $205 billion to grow to $400-500 million, over the next 2-3 years. • • • • • • • • • • Smaller cities will have about 12.8 million sq ft of mall space by 2007. Ludhiana to account for 2.5 million sq ft. Ahmedabad about 3.4 million sq ft. Delhi and Mumbai now have maximum number of shopping centres. Gurgoan saw the largest development in terms of retail outlet. North region has 39% of India’s retail share. East region has 10% of India’s retail share. West region has 33% of India’s retail share. South region has 18% of India’s retail share. Government and co-operative sector is also making their steps in retailing. For example, Kendriya Bhandar, Apna Bazar, Mother Dairy, Super Bazar etc.
63
64
DRIVERS OF CHANGE IN RETAILING
• • • • • • • Changing demographics and industry structure Expanding computer technology Emphasis on lower costs and prices Emphasis on convenience and service Focus on productivity Added experimentation Continuing growth of non-store retailing.
In today’s competitive environment retailers have redefined their role in general, and in the value chain in particular. Retailers act as gatekeepers who decide on which new products should find their way to the shelves of their stores. As a result, they have a strong say in the success of the product or service launched by a business firm. A product manager of household appliances claimed, ‘Marketers have to sell a new product several times, first within the company, then to the retailer and finally to the user of the product.’ It is a well-established fact that manufacturers need to sell their products through retail formats that are compatible with their business strategy, brand image, and market profile in order to ensure a competitive edge. The role of retailers in the present competitive environment has gained attention from manufacturers because external parties such as market intermediaries and supplying partners are becoming increasingly powerful. It is necessary for marketers of consumer products to identify the need and motivations of their partners in the marketing channel. This is especially true in the case or new products.
64
65
The increasing numbers of product categories followed by multiple brands in each category complicate decision-making for both manufacturers and market intermediaries. Retailers want of optimize sales within the limited shelf space, governed by their individual sales philosophy. Retailers undertake risk in selecting a portfolio of products or brands to offer to their customers. Retailers have to make optimum selection of goods to be sold given the following major concerns:
•
Selling space available is relatively fixed and must return maximum profits. If such space is occupied by merchandise that is not moving, it will not result in profit. The retailer may have to resort to substantial price reductions in order to get rid of the unsold stock.
•
Selling space available is relatively fixed and must return maximum profits. If such space is occupied by merchandise that is not moving, it will not result in profit. The retailer may have to resort to substantial price reductions in order to get rid of the unsold stock.
Retailing is a dynamic industry---constantly changing due to shifts in the needs of the consumers and the growth of technology. Retail formats and companies that were unknown three decades ago are now major forces in the economy. Therefore, the challenges for retail managers the world over are increasing---they must take decisions ranging from setting the price of a bag of rice to setting up multimillion dollar stores in malls. Selecting target markets, determining what merchandise and services to offer, negotiating with suppliers, training salespeople---these are just a few of the many functions that a retail manager has to perform on a perpetual basis. The world over retail business is dominated by smaller family run chain stores and regionally targeted stores but gradually more and more markets in the western world are being taken over
65
66
by billion dollar multinational conglomerates, such as Wal-Mart, Sears, McDonald’s, Marks and Spencer. The larger retailers have managed to set up huge supply/distribution chains, inventory management systems, financing pacts and wide-scale marketing plans. In the backdrop of globalization, liberalization and highly aware customers, a retailer is required to make a conscious effort to position himself distinctively to face the competition. This is determined to a great extent by the retail mix strategy followed by acompany to sell its products.
MAJOR RETAILER SPACE HOLDERS IN INDIA Bata India Ltd, Big Bazaar, Crossword, Ebony Retail Holdings Ltd., Food Bazaar, Globus Stores Pvt. Ltd., Liberty shoes Ltd., Music World Entertainment Ltd., Pantaloon Retail India Ltd., Shoppers Stop, Subhiksha, Titan Industries, Trent and the new entrants penetrating the market soon will include Reliance Retail Ltd, Wal-Mart Stores, Carrefour, Tesco, Boots Group, etc.
66
67
RETAIL VIABILITY As per the CII McKinsey report, based on a GDP growth rate of 6-7% per annum, by 2010 the retail sector is expected to be US $ 300 Billion industry. Some of the major factors hindering the growth of this sector are as follows: • • • • • The non-industry structure and status The lack of adequate infrastructure FDI restrictions in this sector The huge investments required in expanding their markets, Problems associated with working Capital funding from lending Institutions.
67
68
SWOT OF THE MARKET
68
69
STRENGTH
1) Organized retailing at US$ 3.31 billion, growing at 8%. 2) 2nd largest contributor to GDP after agriculture at 20%. 3) Pattern of consumption changing along with shopping trends. 4) A Growing population will translate to move consumers. 5) Consumer spending increasing at 11% annually. 6) Almost 25 million sq. ft. retail space available. 7) Paradigm shift in shopping experience for consumers pulling in more people. 8) Most of the entrants to organized retail come from 3 main categories, and have ventured into retail as their business extension. a) Real Estate Developers b) Corporate Houses c) Manufacturers/Exporters
WEAKNESSES 1) Shortage of quality retail spaces at affordable rates. 2) Government regulations on development of real estate(Urban Land Ceiling Act) 3) Need to provide Value for Money-squeezing margins 4) Lack of industry status. 5) Retail revolution restricted to 250 million people due to monolithic urban-rural divide. 6) Footfalls not a clear indicator of sales as actual consumers lower in number. 7) Lack of huge investments for expansion
69
70
OPPORTUNITIES
1) Increasing urban population-more participants in retail revolution. 2) Increase in consuming middle class population. 3) Social factors like dual household income has enhanced spending power. 4) Spends moving towards lifestyle products and esteem enhancing products. 5) Availability of old industrial lands-prime real estate locked in sick industrial units. 6) Average grocery spends at 42% of monthly spends-presents a huge opportunity. 7) Increase in use of credit cards.
THREATS
1) Rising lease/rental costs affecting project viability 2) FDI restrictions in the retail sector 3) Poor monsoons and low GDP Growth could affect consumer spending drastically. 4) Archaic labour laws are a hindrance to providing 24/7 shopping experience 5) Personalized service offered by Mom-&-Pop stores. 6) Unavailability of qualified personnel to support exponential growth in retail. 7) Differentiate taxation laws hindering expansion.
70
71
INDIAN CONSUMERISM
The lifestyle and profile of the Indian consumer is going through a rapid transformation. The population of India is young, energetic and full of enthusiasm. 50% of the Indian population is under the age of 25. There has been a transition from price consideration to quality and design, as the focus of the customer has changed. The upper and middle- class population of today needs a feel good experience even if they have to spend a little more for that. People are moving towards luxury and want to experiment with fashion and technology. There is an increasing need of better apparels, cars, mobile phones and consumer durables.
The food & grocery, clothing, consumer durables and books & music sectors are the major retail sectors. However, unorganized small outlets largely control the sector. Hence there is tremendous potential for the organized sector in various formats, such as hypermarkets, supermarkets, specialty stores, category killers and discount chains.
71
72
FACTORS AFFECTING CONSUMER DECISION-MAKING
A consumer’s purchase decision tends to be affected by the following four factors:
1) Demographic 2) Psychological 3) Environmental 4) Lifestyle
72
73
DEMOGRAPHIC FACTORS
Demographic factors are unique to a particular person. They are objective, quantifiable and easily identifiable population data such as sex, income, age, marital status etc. It also involves identification of who is responsible for the decision-making or buying and who is the ultimate consumer.
PSYCHOLOGICAL FACTORS
Psychological factors refer to the intrinsic or inner aspects of the individual. An understanding of consumers’ psychology guides the marketers’ segmentation strategy.
ENVIRONMENTAL FACTORS
Environmental factors cover all the physical and social characteristics of a consumer’s external world, including physical objects, spatial relationships, the social factors , co customers, reference groups, social class . The environmental factors influence consumers’ wants, learning, motives, which in turn influence effective and cognitive responses and among other things the shopping behavior of the individual.
LIFESTYLE
Lifestyle refers to an individual’s mode of living as identified by his or her activities, interests and opinions. Lifestyle variables have been measured by identifying a consumer’s dayto-day activities and interests. Lifestyle is considered to be highly correlated with consumer’s values and personality.
73
74
An individual’s lifestyle is influenced by, among other things, the social group he belongs to and his occupation. For example, double-income-no-kids (DINKS) families in metros shop very regularly at the super malls because of the limited time at their disposal and they also look for entertainment while shopping on weekends. At the same time, they are higher spenders than, for e.g., single-income families.
74
75
DIVISION OF RETAILERS IN INDIA
The retail sector in India can be divided into two major categories: 1) Organized 2) Unorganized
75
76
UNORGANIZED RETAIL IN INDIA
Retailing in India is predominantly unorganized. According to a survey by AT Kearney, an overwhelming proportion of the Rs. 400,000 crore retail market is UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized. We are known as a nation of shopkeepers with over 12 million, the highest outlet density in the world in the world with an estimated turnover of $ 200 billion. However a disturbing point here is that as much as 96 per cent of them are smaller than 500 square feet in area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world. Another point to note is that only 8 % of our population is engaged in Retail whereas the global average is around 10-12%. Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labour costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector. However this is set to change with the entry of the corporate sector into the retail domain. The question that is being discussed, given the corporate onslaught with big bucks and deep pockets, what will be the impact on the traditional mom and pop store? Will they survive this or will they fold up and leave the field only to the major organized retail players? The answer could be a co-existence. The major advantage for the smaller players is the size, complexity and diversity of our Indian Markets. If we look at the organized retail players,
76
77
most of them have opened shop in the Metros, Tier 1 and Tier 2 towns. Very rarely do we find organized players in the rural areas and we have more than 70% of the population living in the rural areas. So what could be the scenario? One of the fallouts of the organized retail onslaught would be that the smaller stores in the areas where the majors operate could get squeezed out. The superior purchasing power of the majors and the volume of business generated can result in lower prices thus moving the custom away from the traditional store to the organized retail. The customer loyalty today is towards the price. This fear has manifested itself in Metros, Tier 1 and Tier 2 towns by the unorganized retail staging strikes against the majors and trying to influence Government policy toward the retail majors and making it difficult for them to operate. In UP, the Government has banned organized retail major based on the demands of the unorganized sector. While this may happen in the short run, in the long run the majors will come back and cannot be dislodged. The rising disposable income of the techies today, who having been exposed to top of line retail outlets in the foreign countries, will sooner or later generate a demand for the same facility. At this juncture, the majors will step and service this need. Another factor that is to be considered is that data on income distribution of households is insufficient in determining market size for different consumer products in India. This is because of the lack of homogeneity of the consuming class and the varying prices of a single product in different parts of India. For example, vegetables generally cost more in Mumbai than in Chennai, hence vegetable-purchasing power for identical income groups would be different in the two places even though they are the two biggest cities in India with comparable populations. In other
77
78
words, purchasing power is location-specific, not income specific. Consumption habits of households are therefore better determinants of consumer market size than income distribution. Another factor in the favor of the unorganized retail in rural areas is our mindset. Organized retailing also has to cope with the middle class/rural psychology that the bigger and brighter a Sales outlet is, the more expensive it will be. Given the above, it is too early to predict the erosion of the mom and pop stores in India. This is also proved by countries where Wal-Mart the world’s biggest retailer operates. The smaller stores have a peaceful coexistence in these countries with the number one company in the fortune 500 list.
TRADITIONAL v/s MODERN FORMAT RETAILERS
The retail boom will face a strong competition from the 12 million mom-and-pop stores. These are easily accessible and provide services like free home delivery and goods at credit, which is not possible with hypermarkets and supermarkets. Buying from Malls, Supermarkets and Department stores like Subhiksha, Marks & Spencers, etc. provide a different environment where one can pick and choose from a variety of products. Owing to the entry of such big players, the small shopkeepers fear losing their business. Reliance Retail Ltd. has been inviting such people to join in its Dairy business as franchisees. Traditional family run convenience stores are too well established in India than to be wiped out and besides there is uniqueness in the traditional items that represent the subcontinent. The retail stores in India are essentially dominated by the unorganized sector or traditional stores. In fact the traditional stores have taken up 98 percent of the Indian retail
78
79
market. Now stores run by families are primarily food based and the set up is as Kirana or the 'corner grocer' stores. Basically they provide high service with low prices. If the stores are not food based then the type of retail items available are local in nature. The traditional family run convenience stores can take pride in the fact that the Kirana is the most common outlet forms for the consumers. The tough competition for convenience stores are coming from organized retail stores dealing in food items, like: • • • • • Apna Bazaar Canteen stores Food World Subhiksha Food Bazaar
Convenience Stores are open for long hours and are one of the formats of the Indian retail stores that cater to basic needs of the consumer. A good example of such would be Convenio. These stores are found in both residential as well as commercial markets. The food products of traditional family run convenience stores are comprised of branded as well as non-branded items. The benefits of family run convenience stores is that they give importance to: • • • Personal touch Facilities of credit Quick home delivery
Non-food based stock comprises of multiple and varieties of local brands. The future of such stores as they face competition from organized sector would depend on the following particulars:
79
80
• •
Place and capacity Diligent area coverage Disciplined work schedule Managing turnover Revenue from assets Customer service and satisfaction
•
•
•
•
The traditional family run convenience stores serves the purpose of the housewives who definitely wants to avoid traveling long distances to purchase daily needs. The convenience factor in terms of items, among people in general can be highlighted as below:
• •
Groceries Fruits Drug Store Necessary stationery
•
•
As such traditional family run convenience stores are here to stay and cannot be oversized by the organized retail sector besides, it represents the variety of India.
OBJECTIVE
80
81
•
To know the problems and prospect of Retail Marketing in the present Senario in Bangalore city.
•
To suggest whether Retail Marketing can improve their service in a better way.
Research Methodology
81
82
A survey of the customer response and a brief discussion with the store in charge went into the groundwork of the paper. Research Design: Descriptive research design has been used. Research Plan: Data sources: ? Primary data has been used to find out the present market condition ? Secondary Data has been used to a very minimal extent to get figures about Indian Retail Industry
Research Approaches: Type of research approaches used is: o Survey Research.
Research Instruments: Questionnaires (both open ended and closed end questions have been used) Sampling Plan: o Sampling Unit: Current Customers of Big Bazaar o Sample Size: 210respondents o 200 respondents were customers o 10 respondents were Store Managers
82
83
o Sampling Procedure: Simple Random Sample and convenient sampling
Contact Methods: Personal interviewing (mall intercept) – Customers Personal Interviewing (Arranged Interviews) – Store Manager
The survey of customer responses was targeted at current customers and they were intercepted after their purchase near the cash counter. A meeting was arranged with store manager and a brief discussion was held with him regarding the merchandizing patterns, bundling offers , conversion ratios etc of the store and the brand as a whole which would be reflected in the later part of the report .
STATEMENT OF THE PROBLEM
The important area of Retail Marketing in India has come through only from 1970 onwards. However this system is not yet perculated to the lowest level. Therefore the problem is to study how retail Marketing system can go to the lowest category of customer without sacrificing the quality of the products and without loosing the profit for Organization.
Scope of Present problem:83
84
Help management of Retail marketing to improve to their planning. The scope of this subject is very vast. It covers marketing products quality, price systems, Distribution system, product differentiations, product mix. It helps the management to have good planning.
Analysis & Interpretation of Data Response of the Customers
84
85
1. Profession of Customers
Profession of Customers
Professional /Business 28% Housew ife 40% Student 4%
Service 28%
When asked about profession we found out that retail format is most appealing to housewives since they are the decision makers in purchasing most of the items. Then there is an equal majority of Service class and businessman people. Students visit this retail outlet on a very few occasions . Thus House wives are the most important customers for the hyper mart followed by the service and business class , the frequency of visit of these customers also tell us that it is seen as a suitable substitute for the conventional kirana stores which and the customers are visiting these stores for their monthly grocery and weekly vegetables needs too. The student class and some of the service class also purchase clothing from here though the purchase of high end clothing is percentage wise quite less .
2. This question was asked to know the target audience of these retail outlets
85
86
Age group of Customers
Above 60 years 7% 45-60 years 20%
15-24 years 13%
25-34 years 27% 35-44 years 33%
If we further go into analyzing the customers we find that the customers are mostly of the age group of 25 to 44 years which tells us that the hyper market has been able to stick to its positioning as a family store and most of the customers who are making walk ins are from the target market.
3. This question was asked to know the frequency of visit of the customer
86
87
Frequency of Visit
Once in a week 33% Once in a month 54% Twice in a week 13%
From the response we came to k now that frequency of visit of the respondent were mostly monthly as people come to these outlet to purchase there monthly Grocery and food item. Whereas 33 percent of them come weekly for there other needs and requirement and only 13% of the respondents visit these store on every forth night so that they can take care of there day today requirement.
87
88
4. This question was asked to find out what kind of peer group does they come with and with what frame of mind Accompanied by...
Friends 27%
Alone 20%
Children 13%
Spouse 40%
Around 40% of the football of the visitor in these retail outlet are accompanied by there spouse as they come to these places mostly for shopping of their monthly grocery also it’s a kind of outing for them when they both can move out together and have some god time. Nearly 20% of the customers are with their friends and 13% are accompanied with there children as they are the people who are the opinion leader in there home in today’s scenario. Whereas only 20% prefer to come alone
88
89
5. This question was asked to now the time customer prefer to visit in this retail outlet in a day
Time of Visit
Morning 13%
Afternoon 33%
Evening 54%
The footfall in these retail outlet is around 7000 on weekdays and 15000 on weekends as per the official figures. Most of the footfalls are between the time period of 7pm to 9 pm on weekdays and 5pm to 9pm on weekends. Noida is specifically categorized as a weekend market and thus the footfall pattern is justified, with dual income families thronging the area the evening time suits the most for the shoppers. The customers response says that more than 50 % of them come to the bazaar in the evening and when the data was analyzed it was seen that 40% of the customers preferred to come with their spouse. Thus the concept of dual income families again gets reinforced here and we can infer that the shopping actually happens while driving back from office. Hence most of the footfall is between 5 to 9pm.
89
90
6. This question was asked to know the perception of the customer about these outlets
7.
Perception about Retail Outlets
Just Another Option 13%
Value store 38%
One stop shop 49%
The response of this question was something we were expecting that most of the customer of these outlets have form a perception of convenient shopping or one stop shopping whereas 38% of them took it as value store as you get better offer in this store as compare to other unorganized retail outlets. There was 13% of customer for whom it was just another option for shopping and it didn’t make much different in there shopping habit.
90
91
7. This question was asked to know what the most sought-after promotion scheme was
M ost sought-after promotion Schemes
Festive Schemes 27%
Cash discount 40%
Product bundling 33%
It’s been a raining offers in these retail outlets on special occasions like New year, Independence day etc but the customers like Cash discount and product bundling are the strategies which works as the customers value these offers the most. The festive schemes are a way to lure new customers by offering schemes at discrete period of time that walk-in due to these offers and suddenly find more attractive offers due to which they start purchasing. The other offers like cash discount and product bundling are important for customer retention since they offer value at regular and continuous period of time. These create a unique customer base who becomes repeat purchasers from the retail chain.
91
92
8. This question was asked to know what was the items that were purchased from this outlets most
Type of item purchased
Household items 30%
Clothes 13%
Food items/ Grocery 57%
Food and Grocery items comprise the most of the purchase of the total merchandise of the store, household items purchase from the store comprise 33% and is at a rise . As per Mr. Sharma. Big Bazaar has increasingly been trying to meet all household demands of customers and here they have received quite a good response.
92
93
9. This question was asked to know the reason of visit that pulls the customers to the store
Reason to visit Big Bazaar
Others 19% Low price 47% Variety 17% Convenience 17%
As per the customer responses and the interaction with the store manager it is found that the lower price at this outlets is achieved through proper sourcing and more than that proper product and price bundling which attract most of the visitors and customers. Whereas all other factor like convenience and variety are the secondary thing in this sector which effect he market
93
94
10. This question was asked to know the average purchase of the customer per visit in this outlets
Average Purchase per visit
3000-5000 7%
5000 and above 7%
Below 1000 40%
1000-3000 46%
The typical household purchase ranges from Rs.1000-3000 since housewives visit Big Bazaar or Vishal for purchasing their monthly grocery that falls in this range. Apart from this range, most customers lie in below Rs.1000 purchase that comes to these retail outlets. Ranges higher than or equal to Rs.3000 has scope only in case customer purchase consumer electronics or home appliances or even in case of festive schemes when due to special appealing schemes people use to buy even costly items
Finding from Store Managers
94
95
The responses to the questions by the managers were as follows.. Question 1. How many times in a year do you go for a sale?
The answer to this question were given differently by different retailer some go for sale during festival season, some do it weekly whereas some go on sale during seasonal or particular years. Example • Vishal Mega Mart replied that as such it is not fixed, but one thing was for sure that the sale starts on Friday and goes minimum to minimum till the next Friday.
•
Ebony replied that they go in for sale in month of January and August, means mostly during the change of seasons.
Question 2. Is there any fixed number of days for which the sale should be continued? The Vishal Mega Mart said that the sale is to Occur from the Friday to next Friday, means its important for them that weekend should be there. According to CSM, Noida , there is not a fixed number of days for which the sale is to take place, it actually depends upon the companies who are having their showrooms in the mall. E.g number of days for which LEE will be on Sale will be different from the Woodland’s number of days for the sale.
95
96
Whereas Big Bazaar goes for sale on Wednesday and have named it as weeks economical day ‘Hahta Ka Sasta Din’
Question 3.
What type of different sales promotions are used by the company in a mall? Vishal Mega Mart uses discount on the items as the biggest tool for the sales promotion. All the items in Vishal Mega Mart are in discount, the minimum being 10% and maximum being 60%. For Ebony , they issue coupons as the tool to promote sales, they even have tie-ups with different companies, who give their employees the discount coupons. For CSM, they use nearly all the techniques, the go in for discounts, contests, coupons, and also they have collaborations with auto companies, who keep displaying the newer auto cars coming in the market.
Question 4.
What type of display strategies are used in a mall?
For Vishal Mega Mart, the display strategy is that, all the items are very much visible and the customer can actually touch them and can feel them. They provide their customers with trolleys, so that it can be more convenient for the customer to do shopping. They have different sections for garments and FMCG products. The stickers( displaying the discounts) are displayed at nearly all the places for the convenience of the customer.
96
97
CSM, the display of various Banners is found all over the Mall, the banners of Levis, Nokia are displayed. Also there is a Big Plasma TV at the door step of the Mall, where the different companies put their advertisements e.g. company like whirpool airs its advertisements at the CSM Plasma TV.
Question 5
What type of display strategies are used in a mall? According to CSM, there is not any fixed number of maximum food outlets but minimum of 2 is required at least in a mall. Also the large the number of outlets, the better it is for the profitability of the Mall.
Vishal Mega Mart do not outsource it, they rather their own food outlet. Ebony and Big bazaar does not have the food outlet at all.
Question 6. Is there any fixed number of food outlets in a mall? CSM responds it in a positive manner, according to it Multiplex is one of the major reasons for the mall to be popular and it actually increases the footfall for the mall. Also it happens to be a true revenue generator for the Mall. Vishal Mega Mart, Ebony do not have multiplexes. PVR Spice mall is actually famous for the PVR multiplex in it.
97
98
Question 7.
What types of special arrangements are done, for handling the traffic during the sale season or the festival days? In case of Vishal Mega Mart, they have four security guards at the gate. They have sensor equipped exits, in order to avoid the thefts. They provide their customers with free parking facility. For the CSM, the security team of around 10 guards is available at the door steps. Also inside the mall, there are few show rooms which have their own private guards, e.g. Westside etc. all the show rooms are more less equipped with sensor exits.
Question 8.
Out of entertainment, shopping store and the food outlet, which one id the more profitable one? In case of CSM , the entertainment is the most profitable business, then at second number is the food outlet, while shopping though profitable but is in the third position. In case of Vishal Mega Mart, the garment business and that especially the men’s section is the most profitable. The same goes for Ebony too, the men’s section is the most profitable. Question 9.
98
99
Which space in retail format is in demand the most? All the retail formats said one thing only that the most in demand is the ground floor and the first floor. Because whoever comes visits these two floors atleast, so the visibility by the consumer is higher in these two floors.
Question 10.
How much is Apparels related to the revenue for the store? According to CSM, the apparels is not the true indicator of revenue generation, because most of the people do come for window shopping and to enjoy the ambience of the mall.
While Vishal Mega Mart does not have a professional way of determining the linkage between the apparels and the revenue generated. But on talking to the employees came to know that they are planning to start it soon.
CONCLUSION
99
100
The convenience and personalized service offered by the unorganized sector holds its future in good stead for the future. Organized retail of late has seen a tremendous boom and is attracting more people to the malls. What is to be seen is how organized retail can duplicate the same level of personalized customer service levels offered by the unorganized sector to have a higher conversion ratio. The target audience for both the organized and unorganized retail formats remains relatively the same. When shopping in malls, people value the experience related to the trip the most and return most frequently for the same. Besides, while enjoying the experience they seem to buy high ticket and items of conspicuous consumption most frequently.
RECOMMENDATIONS
100
101
? In order to improve its business, Big Bazaar should introduce more competitive promotional schemes such as those in other Retail Stores.
? The product range of Big Bazaar should be improved in order to match that existing in other Retail Stores. ? For promotional offers, company should go for free gifts rather than going for other ways.
LIMITATIONS
101
102
? The sample size for the research was small. ? The area covered for the research was less. ? The time constraint was also one limitation. ? Store Managers were not ready to share the information’s and figures ? Customer were not ready to give there precious time for the survey
102
103
BIBLIOGRAPHY
www.bigbazaar.com www.retailindia.com Magazines India today. Business world. Material profile of company.
Search engines. www.google.com www.yahoo.com
APPENDIX - I
103
104
QUESTIONNEIR FOR CUSTOMER
1. Name:
____________________
2. Profession: o Service o Business o Housewife o Student o Others ___________
3. Age: o Below 24 Year o 25 -34 year o 35-44 years o 45-60years o Above 60years 4. Gender o Male o Female 5. Perception about retail outlet
104
105
o One stop shopping o Value Store o Just another option
6. Reason for visiting retail outlet instead of local shops o Low price o Convenient o Varity o Others _____________
7. Frequency of visit in these retail outlet o 1 in a month o 1 in fifteen days o 1 in a week o Regularly
8. At what time do you prefer to go to theses retail outlet o Before noon o Between 1pm – 3pm o Between 3pm -6pm o After 6pm
105
106
9. Mostly you are accompanied with o Alone o Spouse o Family o Friends
10. Type of purchase you do in these out let o Household o Cloth o Food item & Grocery o Other _____________
11. Average purchase per visit o Below Rs.1000 o 1000-3000 o 3000-5000 o Above Rs.5000
106
107
QUESTIONNEIR FOR MANAGERS
1. How many times in a year do you go for a sale? 2. Is there any fixed number of days for which the sale should be continued? 3. What type of different sales promotions are used by the company in a mall? 4. What type of display strategies are used in a mall? 5. Is there any fixed number of food outlets in a mall? 6. What role does the multiplex, plays in increasing the footfall of the mall? 7. What types of special arrangements are done, for handling the traffic during the sale season or the festival days? 8. Out of entertainment, shopping store and the food outlet, whch one id the more profitable one? 9. Which space in retail format is in demand the most? 10. How much is footfall related to the revenue for the store?
107
108
APPENDIX - II
SYNOPSIS
Title of the Project: “PROBLEMS AND PROSPECT OF RETAIL MARKETING” Statement of the problem: The important area of Retail Marketing in India has come through only from 1970 onwards. However this system is not yet percolated to the lowest level . Therefore the problem is to study how retail Marketing system can go to the lowest category of customer without sacrificing the quality of the products and without loosing the profit for Organization. Review of literature:• Other Research Project of Retail Marketing. • Blogs and Census data issued by Government and Agencies. • In various Articles, Journals etc,. • C.R Kothari Book of Research methodology. Scope of Present problem:Help management of Retail marketing to improve to their planning . The scope of this subject is very vast. It covers marketing products quality, price systems, Distribution system, product differentiation, product mix. It helps the management to have good planning.
108
109
Object of the study:• To know the problems and prospect of Retail Marketing in the present Scenario in Bangalore city. • To suggest whether Retail Marketing can improve their service in a better way. Formulation of Hypothesis:• The Retail Business contributes around 11% of GDP of this, the organized sector account 3% share and the remaining share is contributed by organized sector. • Organized sector covers only Bangalore city. • Retailers are interested in getting the high profit because they have invested huge amounts. • Whether market conditions are good in Bangalore. • Less then 5% of the consumers are interested to go for Retail Marketing i.e organized retail. • Definition of terms and concept - what is retail marketing. Selection of Variables:The variables will depend on the situations Representative population will be around 200 consumer and 10 in charge of the organized retailer of the Bangalore of this year.
109
110
Design of Research methodology :• Primary data • Secondary data • Questionnaire method
Defining of population:All the consumers and incharge of the organized retail shop who have in the Bangalore. In 2010 -2011 , but they are consumers and employees of that whom I am going to take as a population.
Methodology of Sampling:Steps in selection • Identifying the sample size based on age, sex income limited to 300 customers • Determine the desired sample. • List all the members of the population. • Assigned all individual on the list.
110
111
Reference Period:• January 2011 to March 2011.
Assumption of the Study :• It is assumed that all the costumers are aware of the products that are available in this particular retail shop.
Tools and Test:Questionnaire method ,Graphs also have been used to show progress. Collection of the Data
Primary data Data directly collected by the Researcher for the problems understanding by proper method is called primary data Methods to be used to collect primary data • Observation Method • Interview Method • Questionnaire Method
111
112
Secondary Method :• Organizational data • Articles Analysis and Interpretation of data • After organizing and arranging the data , the data should be analyzed which is representative in nature.
Testing of Hypothesis:• Formulate the hypothesis • Setup a suitable significance level • Choose a test criteria • Compute and make decision Limitation of study:• Only for short term analysis. • Time limit. Finding and decisions • Conclusion and recommendation This project conclude that the research regarding the problems and prospect of retail marketing and try to give good recommendation as per study.
112
doc_384236639.doc