Emerging Opportunity in Retail Sector

8/2/2019 Emerging Opportunity in Retail Sector

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Emerging Opportunity in Retail Sector

1.0 THE INDIAN RETAIL SECTORI n d i a i s t h e c o u n t r y h a v i n g t h e m o s t unorganized retail market.Traditionally it was a family's livelihood, with their shop in the front andhouse at the back, whilethey run the retail business. More than 99%retailer's function in less than 500 square feet of

shopping space.Global retail consultants KSA Technopak have estimated thatIndianreta i l sector is est imated at around Rs 900,000 crore, ofwh ich theorgan ized sec tor accounts fo r a mere 2 per cent i nd ica t ingah uge p o t e n t i a l m a r k e t o p p o r t u n i t y t h a t i s l y i n g i n t h e w a i t i n g fo r t h e consumer-savvy organized retailer. Purchasing power of Indianurbanconsum er is gr owing a nd bran ded me rchand ise in c ategor ies l ikeAppare ls , Cosmet i cs , Shoes, Watches, Beverages, Food and even Jewel le ry , a re s low ly becoming l i f es ty le p roducts tha t a re w ide lyaccepted by the urban Indian consumer . Ind ian reta i lers need toadvantage of this growth and aiming to grow, diversify and introducenew formats have to pay

more attention to the brand building process. The emphasis here is on retail as abrand rather than retailers sellingbrands. The focus should be on branding the retail businessitself. There is no doubt that the Indian retail scene is booming. A numberof l a r g e c o r p o r a t e h o u s e s R e l i a n c e , T a t a ' s , R a h e j a ' s , P i r a m a l s ' s , Goenka's have alreadymade their foray into this arena, with beautyand heal th stores, supermarkets,self-service music stores, new agebook stores, every-day-low-price sto res, computers and per iphera lsstores, office equipment stores andhome/building construction stores. Today the organized players have attacked every retailcategory. The Indian retail scene has witnessed too many players in too shortat i m e , c r o w d i n g s e v e r a l c a t e g o r i e s w i t h o u t l o o k i n g a t t h e i r c o

r e competencies or having a well thought out branding strategy.

The growth rate of super market sales has been significant inrecentyears be cause g reater numbers o f h igher i ncome Ind ians pre fe r t os h o p a t s u p e r m a r k e t s d u e t o h i g h e r s t a n d a r d s o f h y g i e ne a nd at t rac t i ve ambience. Wi th growth in i ncome leve ls , Ind ians havestarted spending more on health and beauty products. Here also small,sing le -ou t le t r eta i le rs do mi na te th e m ar ket . I n rec en t yea rs, a f ew retail chainsspecialised products have come into the market.


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Although these retail chains account for only a small share of the totalmarket, thei r

business is expected to grow significantly in the futuredue to the growing

quality consciousness of buyers for these

products.N u m e r o u s c l o t h i n g a n d f o o t w e a r s h o p s i n s h o p p i n g c e

n t r e s a n d markets operate all over India. Traditional outlets stock a limited rangeof

cheap and popular items; in contrast, modern clothing and footwearstores have modern

products and attractive displays to lure customers.With rapid urbanization, and changing patterns of

consumer tastes andpreferences, it is unlikely tha t the tradit ional out lets will

survive thetest of time. Despite the large size of this market, very few large

andmodern retailers have established specialized stores for products. There seems to be a

considerable potential for the entry or expansionof specialized retail chains in the

country. The Indian durable goodssector has seen the entry of a large

numb er of f ore ign comp ani es dur ing the post

liberalization period. A greater variety of consumerelectronic items and

household appliances became available to theIndian customer. Intensecompetition among companies to sell theirbrands provided a strong impetus

to the growth for retailers doingbusiness in this sector. Increasing

household incomes due to

bettereconomic opportunities have encouraged consumer expenditure onleis

ure and personal goods in the country. There are spec ia lized reta ilers for each

category of products (books,music products, etc.) in this sector. Another prominent

feature of

thissector is popularity of franchising agreements between establishedmanuf

acturers and retailers. A strong impetus to the growth of retailindustry is

witnessed by economic boom and driver of key trends inurban as well as ruralIndia. T h e I n d i a n r e t a i l i n d u s t r y i n v a l u e d a t a b o u t $ 3 0 0 b i l l i o n

a n d i s expected to grow to $427 billion in 2010 and $637 billion in 2015. Onlythree percent of

Indian retail is organised. Retailers of multiple brandscan operate through a franchise or a

cash-and-carry wholesale model.Retail is Indias largest industry, accounting for over 10

percent of thecountrys GDP and around eight percent of employment. Retail in Indiais

at the crossroads. It has emerged as one of the most dynamic andfast

paced industries with several players entering the market. Thatsaid, the

heavy initial investments required make break even hard toachieve and many players

have not tasted success to date. However,the future is promising; the market is growing,

government policies arebecoming more favourable and emerging technologies are

facilitatingoperations.


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Indian consumer is also witnessing some changes in its demographicswith a largeworking population being under the age group of 24-35,there has been anincreasing number of nuclear families, increase inworking women population and

emerging opportunities in the servicesector during the past few years which has beenthe key growth drivero f the

organ ized reta i l secto r i n Ind ia. The emerge nce of a l argermiddle andupper middle classes and the substantial increase in theirdisposable income haschanged the nature of shopping in India from need based to lifestyle

dictated. The self-employ ed se gment ha s replac ed the e mploy ed sala r iedsegment as

the mainstream market, thus resulting in an increasingconsumption ofproductivity goods, especially mobile phones and 2 - 4wheeler vehicles. There is also

an easier acceptance of luxury andanincreased w i l l i ngness to exper iment w i th the mains t ream fash ion , r

euslting in an increased willingness towards disposability andcastingout f rom a pparels to ca rs to mobi le phone s to consum er durab

les . Indians spend over USD 30,000 a year (in PPP terms) onconspicuousconsumption that represents 2.8% of the entire population (whichisapprox 30 mi l l i on peop le) mak ing i t t he 4

thlargest economy in PP Pterms next only to USA, Japan and China.With reference tothe map of India 's income c lass, it can be noticed that the real driver of the

Indian retail sector is the bottom 80% of thefirst layer and the upper half of thesecond layer of the income map. This segment of about 40 million households

earns USD 4,000-10,000per household and comprises salaried employees andself-

employedprofess ionals and is expected to grow to 65 mi l l ion househo lds by2010. In addition to this, facilities like credit friendliness, availability of cheapfinance and a drop in interest rates have changed consumermarkets. Capital

expenditure (jewelry, homes, and cars) has shifted tobecoming redefined as consumerrevenue expenditure, in addition toconsumer durables and loan credit purchases.

How has the Indian consumer changed over the years?In the past few years the whole concept of shopping has been alteredin terms of

format and consumer buying behavior. With theincreasingu r b a n i z a t i o n , t h e I n d i a n c o n s u m e r i s e m e r g i n g a s m o re t r e n d - conscious. There has also been a shift from price considerations

todesigns and quality as there is a greater focus on looking andfeelingg o o d ( a p p a r e l a s w e l l a s f i t n e s s ) . A t t h e s a m e t i m e

, t h e I n d i a n consumer is not beguiled by retail products which are high on pricebutcommensurately low on value or functionality. However, it can be saidthat theIndian consumer is a paradox, where the discount shopperloyalty takes a

backseat over price discounts6


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Indians have grown richer and thus spending more on vehicles, phonesand eating out inrestaurants. The spending is focused more

outs idethe homes, unl ike in other Asian count r ies where consumershave t e n d e d t o s p e n d m o r e o n p e r s o n a l i t e m s a s t h e y g r o

w r i c h e r

7.Spend ing on luxury goods have increased tw ice as fas t w i th 2 /3of India's population is under 35, consumer demand is clearly growing. Themal l ma nia h as bo ught in a whole n ew bre ed o f mode rn reta i l formatsacross the country catering to every need of the value-seekingInd ian consumer .

An average Ind ian wou ld see a mal l as ape rf ec tweekend getaway with family offering them entertainment, leisure,fo

od, shopping all under one roof.1.1 Key Trends in Urban India

:*

Retailing in India is witnessing a huge revamping exercise.*Estimated to be US$ 200 billion, of which organized retailing (i.e.modern trade) makes up 3 percent

or US$ 6.4 billion.*

India is rated the fifth most attractive emerging retail market: apotential goldmine*

Ranked second in a Global Retail Development Index of 30developing countries drawn up by ATKearney.

*India is rated the fifth most attractive emerging retail market: apotential goldmine

*Food and apparel retailing key drivers of growth.

*Organized retailing in India has been largely an urban phenomenonwith affluent classes and

growing number of double-incomehouseholds.

1.2 Key Trends in Rural India:*Rural markets emerging as a huge opportunity for retailers reflectedin the share of the rural market

across most categories of consumption*

ITC is experimenting with retailing through its e-Choupal andChoupal Sagar ruralhypermarkets.More than half of retail market in India is in the rural

a reas (55%);although share of urban market is increasing by almost 5% every 8-10years. Accommodating almost two-

third of the country's consumersand generat ing almost half of the nat iona l i ncome, the ru ra l Ind ia


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offers tremendous opportunities for organized retailers which manycompanie

s have failed to access. According to the study conducted byNCEAR, the number of

`lower middle income' group in rural areas

isa l m o s t d o u b l e a s c o m p a r e d t o t h e u r b a n a r e a s , h a v i n g

a l a r g e consuming class with 41% of the Indian middle class and 58% of

thetotal disposable

income.S o u r c e : C e n s u s ; N a t i o n a l C o u n c i l o f A p p l i e d E c o n o m i c

R e s e a r c h (NCAER).A look a t the dem ograph ics re veals t hat the

h ighest income leve lshouseholds in the rural areas are 1.6 million as compared to 2.3

millionin u rban areas. It has also been forecasted that the middle and thehigher

income households are expected to grow to 111 million by 2007from the current levels of 80

million. Thus, it can be said that with

128mi l l ion households, the rura l populat ion is near ly three t imes the

urban. This vast demand base and size offers a huge opportunity thatMNCs cannot

afford to ignore. Tradit ionally, the small store (ki rana) retail ing has been one oftheeasiest ways to generate self-

employment, as it requires min imuminvestments in terms of land, labour and

capital. These stores are

nota f f e c t e d b y t h e m o d e r n r e t a i l i n g a s i t i s s t i l l c o n s i d e r

e d v e r y convenient to shop. In order to keep pace with the modern

formats,kiranas have now started providing more value-

added services likestocking ready to cook vegetables and other fresh produce.

They alsoprovide services like credit, phone service, home delivery

etc. T h e o r g a n i z e d r e t a i l i n g h a s h e l p e d i n p r o m o t i n g s e v e r a l n i

c h e categories such as packaged fruit juices, hair creams, fabric bleaches,showergels, dep ilatory products and convenience and health foods ,which are

generally not found in the local kirana stores. Looking at thevast opportunity in this

sector, big players like Reliance and K

Rahejashas a nnoun ced i ts p la ns to becom e the count ry 's larges t mod

ern retainers by establishing a chain of stores across all major cities


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A p a r t f r o m m e t r o c i t i e s , s e v e r a l s m a l l t o w n s l i k e N a g p u r , N as i k , A h m e d a b a d , A u r a n g a b a d , S h o l a p u r , K o l h a p u r a n d A m r a v at i a s w i t n e s s i n g t h e e x p a n s i o n o f m o d e r n r e t a i l s . S m

a l l t o w n s i n Maharashtra are emerging as retai l hubs for large chainstores likePantaloon Retail because many small cities like Nagpur have a

studentpopulation, lower real estate costs, fewer power cuts and lower levelsofatt rition. However, reta ilers need to adjust the ir p roduct mix for smaller cities, asthey tend to be more conservative than the metros.In order for the market to grow in

modern retail, it is necessarythats t e p s a r e t a k e n f o r r e w r i t i n g l a w s , r e s t r u c t u r i n g t h e t a x r e

g i m e , accessing and developing new skills and investing significantly in India.

1.3 An Overview of the Retail sector:The Indian retail sector is highly fragmented with 97% of its businessbeing run bythe unorganized retailers like the traditional family runstores and corner

stores. The organized retail however is at averyn a s c e n t s t a g e t h o u g h a t t e m p t s a r e b e i n g m a d e t o i n c r e a s

e i t s proportion to 9-10% by the year 2010 bringing in a hugeo p p o r t u n i t y f o r p r o s p e c t i v e n e w p l a y e r s . T h e s e c t o r i s t h e l a r g e st s o u r c e o f employment after agriculture, and has deep penetration into

ruralIndia generating more than 10% of India's GDP


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Source: Ernst &Young, The Great Indian Retail Story, 2006.A look at the statistics shows thatthe retail sector in India is worth USD394 billion and is growing at the rate of 30%annually. An ICRIER studyhas found that retailing ($180 billion) contributes to 10 per cent ofGDPand employs 7 per cent (21 million) of the workforce. According to ATKearney,India is given the top ranking as the next foreign investmentdestination, as markets like

China become increasingly saturated. Indiai s t h e 4thl a r g e s t e c o n o m y a s r e g a r d s G D P ( i n P P P t e r m s ) a n d i s expected

to rank 3rd

by 2010 just behind US and China1

. Over the pastfew years, the retail sales in India are hovering around 33-35% ofGDPas compared to around 20% in the US. The tab le gives the picture

of India's retail trade as compared to the US and China.

Source: Economist, Let gradualism guide FDI in retail, 2006. The last few years witnessed

immense growth by this sector, the keydrivers being changing consumer profile and

demographics, increasein the number of international brands available in the

Indian

market ,economic impl icat ions of the government increasing urbaniza

t ion ,c red i t ava i lab i l i t y , improvement i n the in f ras t ruc ture , i nc reas ing

inves tments in techno logy and rea l es ta te bu i ld ing a wor ld c lassshop

ping environment for the consumers. In order to keep pace withthe 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 relationshipsinvolving suppliers, third party distributors and retailers, which

can bedealt with the help of an efficient supply chain. A proper supply chainwill help

meet the competition head-on, manage stock availability;supplier relations,

new value-added services, cost cutting and mostimportantly reduce the wastage

levels in fresh produce.Large Indian players like Reliance, K Rahejas, Bharti

Ai rTel , ITC andmany others are making significant investments in this sector

leadingto emergence of big retaile rs who can bargain with suppliers to reap


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economies o f sca le . Hence, d i scount ing i s becoming an acceptedprac t i ce . Proper i n f ras t ruc ture i s a p re-

re qu isi te in ret ai l in g, wh ich would help to modernize India and facil itaterapid economic growth. This would help in efficient delivery of goods and value-

added servicesto the consumer making a higher contribution to the GDP.

. Segment analysis:The structure of Indian retail is developing rapidly with shopping mallsbecomingincreasingly common in the large cities and developmentplans being

projected at 150 new shopping malls by 2008.However,the traditional formats like hawkers, grocers and tobacconist shop

scont inue to co -exist wi th the modern formats of retai l ing. Modernretai l ing has helped

the companies to increase the consumption of their products for example:Indian consumers would normally consumethe rice sold at the nearby kiranas

viz. Kolam for daily use. With theintroduction of organized retail, it has beennoticed that the sale of Basmati rice has gone up by four times than it was a few

years back;as a superior quality rice (Basmati) is now available at almost the samepr ice as thenormal rice at a local kirana. Thus, the way a productisd i s p l a y e d a n d p r o m o t e d i n f l u e n c e s i t s s a l e s . I f t h e c o n s u m pt i o n continues to grow this way it can be said that the local market wouldgo through a

metamorphoses of a change and the local storeswoulds o o n b e c o m e t h e t h i n g s o f t h e p a s t o r r e s t r i c t e d t o l a s t

m i n u t e unplanned buying.4.1 Food and grocery retail:

The food business in India is largely unorganized adding up to barelyRs. 40,000crore, with other large players adding another 50% to that. The All India food

consumption is close to Rs. 900,000 crore, with thetotal urban consumption being

around Rs.330,000 crore. This meansthat aggregate revenues of large food players iscurrently only 5% of th e to ta l I nd ia n m a rk et , a nd a ro u nd 15 -2 0 % o f t o t a l u r b a n f o o d c o ns u mp t io n . M o st f oo d i s s o ld i n t h e l o c

a l `wet ' marke t , vendors, roadside push cart sellers or tiny kirana stores.According to McKinseyreport, the share of an Indian household's spending on food isone of the highest in the world, with 48% of income being spent on food andbeverages.

4.2 Apparel retail:The ready-mades and western outfits are growing at 40-45% annually,as the market

teems up with international brands and newentrantse n t e r i n g t h i s s e g m e n t c r e a t i n g a n R s . 5 0 0 c r o r e m a r k e t

f o r t h e premium grooming segment. The past few years has seen the

sector


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a l i g n i n g i t s e l f w i t h g l o b a l t r e n d s w i t h r e t a i l i n g c o m p a n ie s l i k e Shoppers' stop and Crossroads entering the fray to entice the middleclass.

However, it is estimated that this segment would grow to Rs. 300crore in the next three years.4.3 Gems and Jewellery retail:

The gems and jewellery market is the key emerging area, accountingfor a high

proportion of retail spends. India is the largest consumerof gold in th e wor ld wi th an e st imated annua l consu mpt ion o f 1000 tonnes, considering actual imports and recycled gold. The market for jewellery is

estimated as upwards of Rs. 65,000 crores9.

4.4 Pharma retail:The pharma retailing is estimated at about Rs. 30,000 crore, with 15%of the 51 lakhretail stores in India being chemists. According to VikasBali, Principal, A.T. Kearney(India) Ltd, "Pharma retailing will follow thetrend of becoming more organised and

corporatised as is seen in

otherreta i l in g format s ( food , appa re l e tc) " . A few corp orates who ha vealready forayed into this segment include Dr Morepen (with Lifespringand soon tobe launched Tango), Medicine Shoppe, Apollo pharmacies,98.4 from Global

Healthline Pvt Ltd, and the recently launched CRSHealth from SAK Industries.In the south, RPG group's Health & Glow isalready in this category, though it is

not a pure play pharma re taile rbut more in the health and beauty care business10.

4.5 Music Retail:The size of the Indian music industry, as per this Images-KSA Study, isestimated at

Rs.1100 crore of which about 36 percent is consumed bythe pirated market and

organized music retailing constitutes about 14percent, equivalent to Rs.150 crore11.

4.6 Book retail:The book industry is estimated at over Rs. 3,000 crore out of whichorganized

retail accounts for only 7% (at Rs.210 crore). This segment isseen to be emerging with textand curriculum books accounting toabout 50% of the total sales. The gifting

habit in India is catching on fast with books enjoying a significant share, thusexpecting this sectorto grow by 15% annually

.


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4.7 Consumer durables retailT h e c o n s u m e r d u r a b l e s m a r k e t c a n b e s t r a t i f ie d i n t o c o n s u me re lec t ron ics compr i s ing o f TV se ts , aud io sys tems, VCD p layers and others; and appliances like washing machines, microwave ovens,airc o n d i t i o n e r s ( A / C s ) . T h e e x i s t i n g s i z e o f t h i s s e c t o r s t a n d s

a t a n estimated USD 4.5 Billion with organized retailing being at 5%

Source: E&Y, The Great Indian Retail Story, 2006.As noticed in the figure above, the organized retail

penetration (ORP) isthe highest in footwear with 22% followed by clothing.Though foodand grocery account for largest share of retail spend by theconsumera t a b o u t 7 6 % , o n l y 1 % o f t h i s m a r k e t i s i n t h e o r g a n i z

e d s e c t o r . However, it has been estimated that this segment would multiplyfivetimes taking the share of the organized market to 30 percent in thecoming

years1.

5. Industry analysis of the Indian retail sector:Modern retailing has entered India in form of sprawling malls and hugecomplexes

offering shopping, entertainment, leisure to the consumeras the reta ilers

experiment with a varie ty of formats, from discountstores to supermarkets tohypermarkets to specialty chains. However,kiranas still continue to score over modernformats primarily due to theconvenience factor


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Source: IT Retailing: Are You In The Loop?, July 16,

2006. The organiz ed s egment typ ica l ly c ompr is es o f a large numbe r o

f re ta i l e rs , g rea ter en forcement o f taxa t ion mechan isms and bet te r la

bour law monitoring system. It's no longer about just stocking

andse l l i ng bu t about e f f i c ien t supp ly cha in mana gement , deve lop ing

vendor relationship quality customer service, efficient

merchandisingand t ime ly prom ot i ona l c amp aig ns. The mod ern reta i l for

mats areencourag ing deve lopment o f we l l -

establ ished and eff icient supplychains in each segment ensuring

efficient movement of goods fromfarms to kitchens, which will result in huge

savings for the farmers aswell as for the nation. The government also stands to

gain throughmore efficient collection of tax revenues.Along with the modern retail formats,

the non-store retailing channelsare also witnessing action with HLL initiating Sangam Direct, a

direct tohome service. Network marketing has been growing quite fast and hasa few

large players today. Gas stations are seeing action in the form of convenience

stores, ATMs, food courts and pharmacies appearing inmany outlets.In the

coming years i t can be sa id tha t the hypermarket rou tewi ll e m e r g e a s t h e m o s t p r e f e r r e d f o r m a t f o r i n t e r n a t i o n a l r e t a

i l e rss tepp ing in to the count ry . A t p resent , there are 50 hypermarke

tsoperated by four to five large retailers spread across 67 cities cateringto a

population of half-a-million or more. Estimates indicate that thissector will

have the potent ial to absorb many more hypermarkets inthe next four to five years.


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2.0 The Hidden ChallengesModern retailing is all about directly having "first hand

exper ience"wi th custo mers, g iv ing them s uch a sat iab le exp er ienc e tha t th ey would l ike to enjoy again and

again. Providing great experience tocustomers can easily be said than

done. Thus challenges likeretaildifferentiation, merchandising mix, supply chain management andcompetition from supplier's brands are the talk of the day. In India, aswe are moving to the next

phase of retail development, eachendeavort o o f f e r e x p e r i e n t i a l s h o p p i n g . O n e o f t h e k e y o b s e r v a tio n s b yc us tomers i s tha t i t i s very d i f f i cu l t t o f i nd the un iqueness

of re ta i l stores. The problem:

retail differentiation.The next problem in setting up organized retail operations is that

of s u p p l y c h a i n l o g i s t i c s . I n d i a l a c k s a s t r o n g s u p p l y c ha i n w h e n c o mp a re d t o Eu r op e o r t h e US A . Th e e xi s ti n g su p p ly

cha in has too many intermediaries: Typical supply chain looks like:- Manufacturer -National distributor - Regional distributor - Local wholesaler - Retailer -Consumer.This implies that global retail chains will have to build

as u p p l y c h a i n n e t w o r k f r o m s c r a t c h . T h i s m i g h t r u n f o u l w i t htheex is t i ng supp ly cha in opera tors . In add i t i on to f ragmented supp lycha in , the t ruck ing and t ranspo r ta t ion sys tem i s an t iquated. Thecon

cept of container trucks, automated warehousing is yet to take rootin India. The result:

significant losses/damages during shipping.Merchandising planning is one of the biggest challenges that any multistore retailer

faces. Getting the right mix of product, which is storespecific acrossorganization, is a combination of

customer insight,allocation and assortment techniques.The pr i va te labe l w i l l con t inue to compete w i th b rand leaders . Sosu p p l i e r ' s b r a n d w i i l t a k e t h e i r o w n w a y b e c a u s e t h e y h a

v e a established brand image from last decades and the reasons canb e a t t r i b u t e d t o b e t t e r

cu st om er ex per ie nc e , va lu e vs . pr ic e , aspiration,innovation, accessibility of supplier's brand.Logistics:

The focus of major retail expansions will be around the foodand grocery segment, with allmajor corporates entering retail throughth is segm ent. W it h the ob je c t i ve toha ve be tte r con tro l ov er pr ice , consistency in product supply as wel l asqual ity, there wi ll be hugeinvestment in supply chain infrastructure. Worldwide, IT

has been onthe forefront in SCM initiatives as it plays an integral role in automationand informationsharing during the whole chain.Warehousing:

A s r e t a i l e r s t a k e c o n t r o l o v e r t h e i n v e n t o r y m a n a g em e n t a s w e l l a s d i s t r i b u t i o n a c r o s s t h e s u p p l y c h a i n ,


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w a r e h o u s i n g w i l l p l a y a p i v o t a l r o l e i n t h e d i s t r i b u t i o n p r o c e ss . Advanced computerized systems such as Real Time Warehouse ControlSystems would offer

enhanced integration of information flow on a realtime basis, leading to more accurateinventory planning processes andelimination of wastages.

Merchandising:

The growth in the size of the formats brings inthecomplex i t y o f management o f s tock keep ing un i t s , wh ich inc ludesplanning of merchandise from sourcing till phasing out of the item. Theproblem

becomes more intricate with in-house private labelswherere ta i l e rs take the r i sk o f p roduct deve lopment and commi t o n theproduct ion quant i t i es . Pr i va te labe l no t on ly b r ings in add i t i ona lm

argins for retailers, but also competitive edge in terms ofp o s i t i o n i n g o f p r o d u c t s i n r e s p e c t i v e c a t e g o r i e s . I t i s a b i g o p p o r

t u n i t y , a s internationally 17% of the sales are generated through privatel a b e l s . T h o u g h m e r c h a n d i s i n g d e c i s i o n s a r e l a r g e l y t a k e n w i t h

h u m a n intervention, IT plays an important role as a decision support

s y s t e m , h e l p i n g u s e r s i n t a k i n g w e l l i n f o r m e d d e c i s i o n s f o r m e rc h a n d i s e management.Multi-formats:

As re ta i l e rs g row b ig and consumers ' expecta t ionchange, they w i l l have to c ome up wi th d i f feren t f ormats of fer in gdif ferent va lue

preposition to consumers. Managing of storesacrossf o r m a t s , c i t i e s , r e g i o n s a n d e v e n c o u n t r i e s t h ro u g h a s i n g l e m er ch an di si ng of fi ce ca n b e a da un ti ng ta sk wi th out requ is i te IT in f ras t ruc ture to fac i l i t a te the f l ow o f i n fo rmat ion be t

ween s to res,warehouses and the central merchandising office.Customer Engagement:

With increasing options in terms of formatsand increased penetration of thestores, customers will always havethe option to select from many stores.Retailers will have to

devisemul t ip le ways of reta in ing thei r customers by br ing ing in events , loya l t y p rograms, and bet te r cus tomer se rv i c ing th rough deepe run

derstanding of consumers' preferences.Multi-channel Retail:

On the lines of international models, thereisa n e v o l v i n g m o d e l o f C l i c k a n d B r i c k s , w h e r e i n b r i c k a n d mo r t a r retailers are strengthening their presence through supporting channelslike Webstores for reaching out to new customers as well as servicingof existing customers.

Al l these other supporting channe ls like Web,catalog or Kiosk rely heavily ontechnology for execution.Store Experience:

Apart from basic store process automation, thetechnology can be deployedfor better consumer experience in thestore. For instance, information kiosks

within the store for comparing


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b e t w e e n d i f f e r e n t m o d e l s o f t e c h n o l o g y p r o d u c t s c a n b ea b i g differentiator for consumers to shop from a particular store.Similarly, even simpler

technology initiatives can make consumers' in-store shopping experience more meaningful.Retail Applications

W i t h l a r g e c o r p o r a t e h o u s e s e n t e r i n g t h e r e t a i l s e c t o r a n d t h

e consequent en t ry o f IT pro fess iona ls f rom o ther i ndus t ry ver t i ca l s ,awareness levels of IT managers in the retail industry havegrown. T h e r e i s s t i l l a n e e d t o d i s p l a y t h e b e n e f i t s t

h a t a c c r u e f r o m implementing ERP and CRM applications in a retail organization.

4.0 Strategies4.1: Right PositioningT h e e f f e c t i v e n e s s o f t h e m a l l d e v e l o p e r ' s c o m m u n i c a t i o n o f

t h e offering to the target customers determines how well the mallgetspositioned in their minds. At this stage, the communication has to bemore of

relative nature. This implies that the message conveyed to the

arget customers must be effective enough in differentiating the mall'soffe ring fromthat of its competitors without even naming them. Themessage should alsoclearly convey to the target audience that themall offers them exactly what

they call the complete shopping-cum-e n t e r t a i n me n t p o i n t t h a t m e e t s a l l t h e i r e x p e c t a t i o n s . T h e c o

r e purpose is to info rm the target customers about the o ffering of the mall,persuade them to visit the mall and remind them about the mall. The mall developer can

create awareness about the offering amongthe target customers in anumber of ways. Variouscommunicationtools av ai lab le to the mal l d evelop er fo r th is purpo semay inc lude advertising, buzz marketing (WoM), celebrity endorsement, use of printmedia,

press releases and viral marketing .Once the message isbeingconve yed th rough th ese ch annels , the mal l develo per mu st add

a pe r s o n a l t o u c h t o h i s m e s s a g e b y c a r r y i n g o u t a d o o r - t o -d o o r campaign in order to reinforce the message.4.2: Effective Visual Communication

Retailer has to give more emphasis on display visualmerchandising,lighting, signages and specialized props. The visual commun

icationstrategy might be planned and also be brand positioned. Themeorl i f es ty le d i sp lays us ing s ty l i zed mannequ ins and props , wh ich arebased on a season or an event, are used to promote collections

andh a v e t o c h a n g e t o k e e p t o u c h w i t h t h e t r e n d . T h e m e r c h a nd i s e presentation ought to be very creative and displays are often on non-standard

fixtures and forms to generate interest and add on attitude tothe merchandise.

4.3:


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Strong Supply ChainCritical components of supply chain planning applications can helpma nu fa

cturers meet reta i le rs ' serv ice levels and mainta in prof i tmargins.Retailer has to develop innovative solution for managing

thes u p p l y c h a i n p r o b l e m s . I n n o v a t i v e s o l u t i o n s l i k e p e r f

o r m a n c e m a na g e me n t, f r e qu e n t s a le s o p e r at i on m a n a ge m en t ,demandplanning, inventory planning, production planning, lean systems andstaffshould help retailers to get advantage over competitors.

4.4:

Changing the PerceptionRetailers benefit only if consumers perceive their store brands to

h a v e c o n s i s t e n t a n d c o m p a r a b l e q u a l i t y a n d a v a i l a b i l i t y i n r e l at i on t o b r anded p r oduc t s . Reta i l e r has t o p r ovi de mor e assor tments

for private level brands to compete with supplier's brand. New produc

development, aggressive re tail mix as well as everyday low pricingstrategy canbe the strategy to get edge over supplier's brand.

5.0 Conclusion:In their preparation to face fierce competitive pressure, Indian

retai lersmust come to recognize the value of bui lding thei r own storesasbrands to reinforce their marketing Positioning, to communicate qualityas well as value for

money. Sustainable competitive advantage will bedependent on translating corevalues combining products, image andreputation into a coherent retail brand strategy.

Key Opportunities in RetailEmployment opportunities in this sector:The Indian retail sector offers an economic opportunity on a massivescale both as aglobal base and a domestic market. This sector yieldsmany positive results like generating

more jobs and bringingnumerousgoo ds to the con sume rs at reas ona ble pr i ces. Acc ordi ng to Erns t&Young's report `The Great Indian Retail Story' this sector is expectedto create 2

million jobs by2010.About 4 c rore p eople are employe d in reta i l t rade, assumin g ea

chperson supports a family of 5, this, implies that about 20 crore peoplearedependent on this sector. For a vast majority of the

households, reta i l ing is a eu phemis m for a margina l ex is tence. Moder

n re ta il formats have generated huge employment for the young andevensenior citizens and women wanting to work part-time (even insmalltowns). People have greater exposure to the technical aspects, trainingand also earn

higher salaries along with bonuses and incentives. Withforeign companies openingexpanding in Ind ia, employees are being re-trained according to international

standards and practices that arebeing boughtin. T h e r e i s a l s o a n i n c r e a s e i n t h e n u m b e r o f r e t a i l m a na g e m e n t programmes and institutes. This will bridge the gap in availabil ity


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of talented professionals at the middle and lower levels. Successful Indianretailers arecreating a robust second and third level of managementby hiring aggressively forthese key roles. Talented professionals willput increased pressure on wagecosts. Therefore operat ing margins,especially for mid-sized retailers, are

becoming a poaching ground forinternational retailers once they enter India.

With private companies getting into retail, there are peopleemployedfrom diverse cultures (no room for reservations unl ike governmentow n e d s t o r e s ) w h e r e t h e r e i s a s e n s e o f u n i t y i n d i v e r s i t y . T he companies are also employing people who are physically handicapped. The next few yearsare expected will see the sector offering new jobsto 50,000 young graduates and diploma

holders.9. IT and latest development:

Technology has played a key role in retailers' efforts to compete inthisvolatile market. With e-tailing channels making its presence felt inIndia

companies are using either their own web portal or are tyingupwith horizontal players like Rediff.com and Indiatimes.com to offertheir

products on the web15

(www.alexa.com). IT has been usedbyre ta i l e rs rang ing f rom Amazon.com to eBay, i n o rder to rad ica l l ych

ange the buying behavior across the globe16

.Retailers worldwide are looking forward to increase their ITspendingby a lmost 15% in 2 006, a l loca t ing a lmost hal f o f t h is increase toapp l i ca t ion so f tware w i th a par t i cu la r focus on too ls tha t fac i l i t atemulti-channel customer relationships, point of sale systems, strategicmerchandising

and supply chain management17

. Th e la st 2 -3 ye ar s have seen several retailers ranging from F&Boperations to discountclothing implementing supply chain management(SCM) solutions toimprove core business processes such as global sourcing,

distribution,log ist i cs, inno vat ion s, t ran spa renc y a nd vis ibi l i ty in f ina ncia ls an d inventory, compliance and management of point of sale (POS)

data.However, organized retailers have not taken well to the concept of 3PL(thirdparty logistics) due to their apprehensions of losing control overthe supply chain.

Currently, the transportation is carried out partlybyo r g a n i z e d s e r v i c e p r o v i d e r s a n d p a r t l y b y t r u c k e r s a nd l o c a l transporters.In conclusion, it can be said that in order to deliver the levelsof qualityand service that consumers are demanding; the organized retailers arein a pressing


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need for a single enterprise wide IT platform to manageoperations, which will becomeincreasingly complex once the marketexpands.

RFID as SaviorIn a retail store, RFID assists in inventory management. All items in aretail outlet sport

read-only tags that contain the product code and itsdescription, including the

batch number, expiry date and price. Theshelves, exit gates, and warehousesare fitted with sensors that read

the information from the RFID tag and help in updating the inventorysystem in real-time. This way it helps in total asset visibility and

tracksthe inv entory s tock in g. I t a lso en sures bet ter proces s cont ro l fo rproducts in the store. In warehouses and container depots, containersare markedwith RFID chips that contain details of origin, destination,and other details. Entry and

exit gates, vehicles, and cranes are fittedwith an antenna that senses the RFIDtags, and records and updatesthe system to check for any deviation in theschedule. With precisetracking of the location of pallets and containers within

the warehouse,i t i s e a s y t o p i n p o i n t u n s c h e d u l e d m o v e m e n t s . T he s y s t e m a l s o considerably helps reduce costs and time for check-in and check-out. There

was only one issue with RFID technology-it was unable to workon vessels holdingliquids or made of metal. Now Wal-Mart's tech

teama n d i t s v e n d o r s h a v e o v e r c o m e t h i s p r o b l e m , i n vi t i n g m a j o r deployments. In India Globus, Pantaloons, and Madura Garments

havealready Started testing RFID.Point of Sale

In the retail industry, Point of Sale (POS) solutions have replaced thePC orcash registers to a great extent. Many POS systems connect toin-store

computers that, in turn, link to computers at the company'sheadquarters.And, POS today has come of age. "Now the POS is notonly a billing

machine, but has also become more intelligent. Today,POS can displayadvertisements and do data mining," says Sanat Rao,director of marketing, Emerging

Markets, Embedded Markets Division,In te l . A lso , w i th we l l -d e s ig n ed s o f tw a re , P OS c a n p ro v id e a s im p le , e a s y - t o -

u s e m e c h a n i s m f o r c a s h i e r s t o h a n d l e j u s t a b o u t a n y transaction, reducing training time, while improving productivity andcustomer service.

Touch screens are popular in the hospitalityandconven ience s to re indus t ry , and are rap id l y ga in ing acceptance ino t h e r r e t a i l m a r k e t s . S o m e b u s i n e s s e s c h o o s e t o c o m b i n e o t

h e r options with a touch screen POS.Security Concerns

Fraud and the f t , i nc lud ing employee p i l f e rage, shop l i f t i ng , vendor f rauds, and inaccuracy in superv i s ion and admin is t ra t i on cos t the Ind i

a n r e t a i l i n d u s t r y a b o u t R s 5 5 0 -6 0 0 c r o r e e v e r y y e a r . T h i s i s despite the fact that most large modern


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format retailers use standardsecuri ty features such as CCTVs, POSsystems, and anti-shopliftingsystems for greater control over fraud and

thef t. In financial terms,cost of this fraud constitutes about 2% of the organizedretail sector'srevenues.

Wi th s tandalone network ing systems, reta i lers run the r isk of notget t ing information quickly enough. According to Gupta, "We are usingLAN and WANset-up connected by MPLS and VPN. All our stores areconnected through IP

VPN."M o s t r e t a i l e r s f a i l t o p r o v i d e c o m m u n i c a t i o n b e t w e e n w o rk e r s , customers, managers, vendor partners, and stores due to lack of directlines.

This shortage of real-time information exchange takes a tollonthe quality of service, inventory, policy changes, and

managementdecision-making. Here a converged solution that includes data,voice,and video communications becomes essential. This can include

mobilecommun icat ion s p rov id in g in f ormat ion acce ss to workers at e ve ry level, from stockroom to store to executive offices.

Other TechnologiesHyperCITY have deployed I-Scan solution in all its stores. I-Scan allowscustomers to

scan merchandise as they p ick p roducts o ff the shelf. Once customers finishshopping, they can hand over the device to thecustomer service desk and cash-out

quickly.W a l -M a r t p l a n s t o i n v e s t i n t a g s t h a t s e n s e t h e t e m p e r a t u r e o f sensitive products, making sure products on the shelf are safe, rotatedcorrectl y, and inthe right place. Internet protocol (IP) surveillance ispicking up steam. WithIP cameras going for as low as Rs 7,000, the technology is ripe for deployment.

CIOs can use it to monitor remotelocations over a LAN or the Internet.Haryali Kisan Bazaar,one of the country's first retail initiatives by DCMShriram Consolidated, has created a

retail solution in partnership withSAP and Polaris . The ini tia tive, e-STARR(Systems and Technology inAgriculture and Rural Retail), offered a retail solutionthat helps Haryaliserve rural customers better, while creating a strong infrastructureforoperations spread over multiple locations. The SAP solutions, IS-Retailand SAP

Retail store, were implemented by Polaris, which integrated itwith Polaris POS andAgriculture Service modules.

The Unconventional PlayerExcept Ind ian Po sta l Depar tment , a l l o ther p layers , who are in there

tail area, have prior experience in some kind of business. India Postwas servingpeople to a great extent. Now, they feel they can take upthe retail business in thei r

own way. "We have got the bes t network ,we have got experience in servicingpeople, and above all we have got


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Opportunities in Retail Sector - China (2007-2011)"Opportunities in Retail Sector - China (2007-2011) ,

a report by RNCOS, provides extensiveresearch and rational analysis on the retail industry inChina. This report helps clients to analysethe opportunities and factors critical to the success ofretail industry in the country. It underlinesthe key issues the industry is facing and provides a

prudent analysis on its various aspects.The report analyses various market segments and retailformats present in the industry. Theoverview on opportunities and future forecast helps theclients analyse the future course of direction and major growth areas of the industry.

Market AnalysisRetail is one of the major industries in the world. It has played a key role in improvingtheworld's productivity and has been a major contributor to the economic growth of

developingcountries. In 2006, total sales of retail industry across the world are expected tohave reached the phenomenal value of around US$ 12.1 Trillion. China retail industry is thirdlargest emergingretail markets in the world and in past, the market has forged ahead with the

CAGR of 12.38%.The booming economy, increasing income levels, deregulation of retailsector and increasedconfidence of Chinese consumer makes china a lucrative market for

international retail players.Key Findings- Hypermarkets will have the highest growth potential among different store formats.-

Cosmetics and toiletries, apparel, furniture, washing machines and computers will be thetopfive fastest growing categories in the forecasted period.- Organic food sales will remain

buoyant in the coming years. It is expected that theorganic food turnover will be US$ 400Million by 2007.- Per head disposable income will increase with the CAGR of 11.52% during

theforecasted period and will give thrust to the overall retail industry.Key Issues Analyzed

- The research report addresses some vital issues critical to the success of retail industryinChina, like:- The market size and scope of the retail industry.- Evaluation of current market

trends.- Analysis of various challenges and opportunities for the industry.- The factors drivinggrowth in this sector.- Various retailing formats in China retail industry.- Detailed discussion of

consumer behaviour.- Market position of key players in this sector.Key Players Analyzed

This section covers the key players currently operating in the China retail industry,includingWal-Mart Stores Inc., Carrefour SA,

Wumart Stores, Inc., Shanghai Bailian Group Co. Ltd., etc.Research Methodology Used

Information SourcesInformation in the report has been taken from various authentic sources like books,

newspapers,trade journals, and white papers, industry portals, government agencies, tradeassociations,monitoring industry news and developments, and through access to more than

3000 paiddatabases.Analysis Method


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The analysis methods include ratio analysis, historical trend analysis, linear regressionanalysisusing software tools, judgmental forecasting and cause and effect analysis

good relationships with them," says S Samant, GM, India Post.

I n d i a P o s t h a s g o t 8 3 5 h e a d p o s t o f f i c e s , 2 0 , 0 4 3 s u b -

p o s t o f f i c e s , a n d 145,975 delivery offices, thus becoming, by default, the largest

retailchain in India. Though India Post is not looking at serving people withproduct

portfolios that can match big names in the retail sector, thepostal

department feels no one can match their reach. Though thepo st al

depar tment i s no t very tech savvy , i t h as some b ig p lans

to computerize its offices. As of now, 7,488 sub-post offices have

beenconnected with LAN and 239 administrative branches are connected tothe

National Info rmatics Center. A lso, the public service departmenthas plans tointerconnect 1 lakh post offices.

n order to meet with this rapid growth in demand the government hasshown itsconcern by providing an induction of Rs.140 billion and Rs.300 billion in the rural

sector through its development schemes in theSeventh and the Eight planrespectively. The large players likeITC,H L L , B P C L a r e r e a l i z i n g t h e p o t e n t i a l o f t h i s s e c t o r a n d a

r e s e e n experimenting with new ways to tap this segment.ITC spent 3 years and Rs. 80crore on r&d to come up with the conceptof E-choupal and Choupal Sagar-rural

hypermarkets18

. Through th is,the farmers can access latest local and global information onweatherand market prices, scientific farming techn iques at the village

itself through a web-portal - all in Hindi. E-Choupal also facilitates supplyof h i g h q u a l i t y i n p u t s a s w e l l a s p u r c h a s e o f c o m m o d i t i e s a t t

h e i r d o o r s t ep . T h e h y p e r m a r k et ( C h o u p a l S a g a r ) p r o v i d e s t h em w i t h another platform to sell their produce and purchase necessaryfarmand household goods under one roof.Next in line, HLL came up with ProjectShakti in late 2000 to sell itsproducts through women self-help groups who

operate like a direct-to-h o m e t e a m o f s a l e s w o m e n i n i n a c c e s s i b l e a r e a s w h e r e

H L L ' s convent i ona l sa l es system does no t r each . Ano the r s t ep t ota p t he r u r a l m a r k e t w a s ` O p e r a t i o n B h a r a t ' w h e r e i n l o w -


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p r i ce d sa mp le packe t s o f too thpastes , f a i rness c reams , C l i n ic P l usshampoos andPonds face creams to 20mn

households.As a part of their rural strategy, BPCL introduced Rural Marke t ingVehicles (RMVs) that move from village and village and filling cylinderson thespot for rural consumers keeping in mind the low-income of therural population. The

Company also introduced a smaller size cylinderto reduce both the initial depositcost as well as the recurring refillcost.

Challenges faced by this sector

The indus t ry i s fac ing a severe shor tage o f ta len ted pro fess iona ls ,especially at the middle-management level.Most Indian reta il players are under serious

pressure to make theirsupply chains more efficient in order to deliver the levelsof quality

andservice that consumers are demanding. Long intermediation chainswouldincrease the costs by 15%.Lack of adequate infrastructure with respect to roads,electricity, coldch ain s a nd po rts ha s f urt he r l ed to the imp ed ime nt of apa n-I nd ia network of suppliers. Due to these constraints, retail chains havetoresort to multiple vendors for their requirements, thereby, raising costsand prices. The availabletalent pool does not back retail sector as the sector hasonly recently emerged from itsnascent phase. Further, retailing is yetto become a preferred career option for most of

India's educated classthat has chosen sectors like IT, BPO and financialservices.Even though the government is a ttempting to imp lement a

uniformvalue-added tax across states, the system is currently plaguedwithdifferential tax rates for various states leading to increased costs andcomplexities in

establishing an effective distribution network.Stringent labor laws govern the number of hoursworked andm i n i m u m w a g e s t o b e p a i d l e a d i n g t o l i m i t e d f l e x i b i l i t y o f o p e r a t

i o n s a n d employment of part-time employees. Further, multiple clearancesarerequired by the same company for opening new outlets adding to thecosts incurredand time taken to expand presence in the country. The retail sector does not have 'industry'

status yet making it difficultfor retailers to raise finance from banks to fund their expansion plans.List of resources:

1. Ernst & Young, The Great Indian Retail Story, 2006.2. FICCI - ICICI Property ServicesStudy.3. Let gradualism guide FDI in retail, Economist, 2006.4. AT Kearney, GRDI

2006.5. Re ta i l scena r io m ost d evelo ped in B angalo re, DH N ews serv i

ce, According to Bijou Kurien, 6. President & Chief Executive - LifeStyle,Reliance Retail.

7. CII, Logistics and Freight News, March 2006.8. KPMG ana lys is , Consumermarke ts in Ind ia - the nex t b i g th ing ,September 2005.9. CII, ManufacturingBulletin, June 2006.10. Pharma's retail push, Business Line, 2006.11. KSA Technopak, June

2006.12. CII, Retail scenario in India: Unlimited Opportunity


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strategies for success in retail

1 smart pricing:

Emerging Opportunity in Retail Sector

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