Growth of Indian Retail Sector Consumer Perception an In

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GROWTH OF INDIAN RETAIL SECTOR

TABLE OF CONTENT

1. Introduction 5

2. Research methodology 7

3. Critical review of literature 14

4. Issue related to FDI in India 33

5. Technology used in retail 45

6. Method for measuring performance business of retail 53

7. Promotional measures in retail 61

8. Out look of strategies 76

9. Branded FMCG 80

10. Challenges before retail sector in India 83

11. Finding & Analysis 87

12. Recommendation 92

13. Conclusion 101

14. Bibliography 104

15. References 106

16. Questionnaire 108

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INTRODUCTION

OBJECTIVE OF THE RESEARCH:

1. The objective of the study is to understand the retail industry of India as a

whole.

2. See the industry in the perspective of emerging Indian Economy.

3. The study aims at understanding the opportunities for various firms in this fast

growing sector of India

4. We also examine that what are the perception of consumers regarding this

Industry.

SCOPE OF THE STUDY:

The study will focus on the growth of retail industry particularly in the fast growing

economy of India. It will further put light on the consumer perception & their

changing dressing, eating, spending habit of Indian consumers, which has

brought shopping mall culture in the country. Moreover it will focus on the growing

opportunities for domestic companies as well as for foreign companies.

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CHAPTER-2

RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY

A research process consists of stages or steps that guide the project from its

conception through the final analysis, recommendations and ultimate actions. The

research process provides a systematic, planned approach to the research

project and ensures that all aspects of the research project are consistent with

each other.

Research studies evolve through a series of steps, each representing the answer

to a key question.

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R e

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INTRODUCTION

This chapter aims to understand the research methodology establishing a

framework of evaluation and revaluation of primary and secondary research. The

techniques and concepts used during primary research in order to arrive at

findings, which are also dealt with and lead to a logical deduction towards the

analysis and results.

RESEARCH DESIGN

I propose to first conduct a intensive secondary research to understand the full

impact and implication of the retail industry, to review and critique the industry

norms and reports, on which certain issues shall be selected, which I feel remain

unanswered or liable to change, this shall be further taken up in the next stage of

exploratory research. This stage shall help me to restrict and select only the

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important question and issue, which inhabit growth and segmentation in the

industry.

The various tasks that I have undertaken in the research design process are:

Defining the information need.

Design the exploratory, descriptive and causal research.

Follow each step one by one and conclude the research.

RESEARCH PROCESS

The research process has four distinct yet interrelated steps for research analysis

It has a logical and hierarchical ordering:

Determination of information research problem.

Development of appropriate research design.

Execution of research design.

Communication of results.

Each step is viewed as a separate process that includes a combination of task ,

step and specific procedure. The steps undertake are logical, objective,

systematic, reliable, valid, impersonal and ongoing.

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EXPLORATORY RESEARCH

The data I used for exploratory research was

Primary Data

Secondary data

PRIMARY DATA

New data gathered to help solve the problem at hand. As compared to secondary

data which is previously gathered data. An example is information gathered by a

questionnaire. Qualitative or quantitative data that are newly collected in the

course of research, Consists of original information that comes from people and

includes information gathered from surveys, focus groups, independent

observations and test results. Data gathered by the researcher in the act of

conducting research. This is contrasted to secondary data which entails the use

of data gathered by someone other than the researcher information that is

obtained directly from first-hand sources by means of surveys, observation or

experimentation.

Primary data is basically collected by getting questionnaire filled by the

respondents.

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SECONDARY DATA

Information that already exists somewhere, having been collected for another

purpose. Sources include census reports, trade publications, and subscription

services. Data that have already been collected and published for another

research project (other than the one at hand). There are two types of secondary

data: internal and external secondary data. Information compiled inside or outside

the organization for some purpose other than the current investigation. Data that

have already been collected for some purpose other than the current study.

Researching information which has already been published. Market information

compiled for purposes other than the current research effort; it can be internal

data, such as existing sales-tracking information, or it can be research conducted

by someone else, such as a market research company or the U.S. government.

Published, already available data that comes from pre-existing sets of

information, like medical records, vital statistics, prior research studies and

archival data.

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DATA COLLECTION

Data collection took place with the help of filling of questionnaires. The

questionnaire method has come to the more widely used and economical means

of data collection. The common factor in all varieties of the questionnaire method

is this reliance on verbal responses to questions, written or oral. I found it

essential to make sure the questionnaire was easy to read and understand to all

spectrums of people in the sample. It was also important as researcher to respect

the samples time and energy hence the questionnaire was designed in such a

way, that its administration would not exceed 4-5 mins. These questionnaires

were personally administered.

The first hand information was collected by making the people fill the

questionnaires. The primary data collected by directly interacting with the people.

The respondents were contacted at shopping malls, markets, places that were

near to showrooms of the consumer durable products etc. The data was

collected by interacting with 108 respondents who filled the questionnaires and

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gave me the required necessary information. The respondents consisted of house

wives, students, business men, professionals etc. the required information was

collected by directly interacting with these respondents.

DETERMINATION THE SAMPLE PLAN AND SAMPLE SIZE

TARGET POPULATION

It is a description of the characteristics of that group of people from whom a

course is intended. It attempts to describe them as they are rather than as the

describer would like them to be. Also called the audience the audience to be

served by our project includes key demographic information (i.e.; age, sex

etc.).The specific population intended as beneficiaries of a program. This will be

either all or a subset of potential users, such as adolescents, women, rural

residents, or the residents of a particular geographic area. Topic areas:

Governance, Accountability and Evaluation, Operations Management and

Leadership. A population to be reached through some action or intervention; may

refer to groups with specific demographic or geographic characteristics. The

group of people you are trying to reach with a particular strategy or activity. The

target population is the population I want to make conclusions about. In an ideal

situation, the sampling frames to matches the target population. A specific

resource set that is the object or target of investigation. The audience defined in

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age, background, ability, and preferences, among other things, for which a given

course of instruction is intended.

I have selected the sample trough Simple random Sampling.

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SAMPLE SIZE

I have targeted 50 people in the age group above 18 years for the purpose of the

research. The sample size is influenced by the target population. The target

population represents the Gorakhpur regions.The people were from different

professional backgrounds.

SAMPLING TECHNIQUE

Simple random sampling technique has been used to select the sample. In this

sampling technique we select the respondents randomly.

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CHAPTER-3

CRITICAL REVIEW OF THE LITERATURE

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CRITICAL REVIEW OF THE LITERATURE

RETAIL SECTOR: AN INTRODUCTION

SIZE

India is one of the ten largest retail markets in the world

Retail sales were $206 billion in 2007, over 28% of GDP

Organized Retail constitutes only 4.5% of total retail sales - about $6.4

billion p.a.

However organized retail has been growing at over 24% p.a in the last 5

years

STRUCTURE

The Indian Retail sector is highly fragmented: mostly owner-run Mom and Pop

outlets .Over 12 million retail outlets

Average outlet size < 500 sq.ft

There are a few medium sized Indian retail chains like Pantaloon, Shoppers

Stop, Food world (RPG Group) and Westside (Tata Group) - all growing rapidly

Mainly in the apparel and food & grocery segments

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Dairy Farm, Metro, Shoprite and Marks & Spencer are the only major

international retail chains in India: Each has a marginal presence through either

franchisee or wholesale formats

POLICY

100% FDI is allowed in Cash and Carry Wholesale formats. Franchisee

arrangements are also permitted in retail trade.

FDI upto 51% is permissible in the retail trade of single brand products

Top Players in the Retail Industry

Players Revenue

s

Space Format

Pantaloon Retail 150 1,000,000 F&G, SpecialtyRPG Retail 135 590,000 F&G, SpecialtyShoppers Stop 100 740,000 Specialty RetailLifestyle International 53 325,000 Specialty RetailViveks Ltd. 46 150,000 Consumer

Durables

Trent (Tata) 38 270,000 F&G, Specialty

Note: Revenues in ($ million), Space: Sq. ft.

OUTLOOK

The overall retail market is expected to grow three-fold in the next 10 years from

$206 billion today to about $660 billion by 2015

India is expected to be among the top 5 retail markets in the world in 10 years

Organised retail is expected to grow rapidly to reach $100 billion

by 2015

Likely to account for 12-15% of total retail sales by 2015

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POTENTIAL

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 There is retail opportunity in most product categories and for all types of

formats Food and Grocery: The largest category; largely unorganized today

Home Improvement and Consumer Durables: Over 20% p.a. CAGR estimated in

the next 10 years Apparel and Eating Out: 13% p.a. CAGR projected over 10

years 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

.

Analysts expects the Indian retail growth process to take a decade since there is

a large population of one billion that needs to be slowly reached and this

population is spread across six hundred thousand villages. The large urban

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population of India is about three hundred million and spread across about a

couple of hundred large cities and smaller towns. Organized retail is expected to

home in on this proportion first in the next five to ten years. At present most of the

large retail activity and brand building is focused on about twenty Indian cities,

each of which has a population of one million.

Indian retail will slowly expand from the small dots that it represents across the

Indian map and become large spots and areas over the next several years.

Indian government regulations are going through a long and meandering debate

on whether or not India should allow foreign retail chains to come in and if yes,

then how they need to be regulated and controlled. Most see retail as a bastion

that will fully liberalize and globalize India and threaten large employment that is

presently provided by the small unorganized retail network that is present all

across Indian districts including the small towns and villages. The new organized

format will mean a lot of change for the network, the consumers and the product

vendors and this is being analyzed and considered carefully by the government.

The government knows that opening up the retail sector will create a lot of

changes in cultural and employment patterns as well as sound the death knell for

several hundreds of thousands of small and tiny enterprises that are involved in

retailing and manufacturing of products for local markets.

This large change is however unlikely to be possible to stem in the long run. India

will slowly open up and moderate the change but the new retailing experience

that has already been sampled with great success is expected to expand slowly

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but surely till it covers the entire geography of the country.

India map looks at retail as a large area of interest for its Indian and international

audience. India opens this section with a detailed analysis of the retail sector. We

plan a large directory for the retail sector and also plan to bring in expert

commentary and analysis that will help demystify Indian retail and help provide

clarity and substance for our readership.

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RETAIL SECTOR : IN 2007

Indian retailing industry has seen phenomenal growth in the last five years (2001-

2006). Organized retailing has finally emerged from the shadows of unorganized

retailing and is contributing significantly to the growth of Indian retail sector.

RNCOS India Retail Sector Analysis (2006-2007) report helps clients to

analyze the opportunities and factors critical to the success of retail industry in

India.

Key Findings

- Organized retail will form 10% of total retailing by the end of this decade

(2010).

- From 2006 to 2010, the organized sector will grow at the CAGR of around

49.53% per annum.

- Cultural and regional differences in India are the biggest challenges in front of

retailers. This factor deters the retailers in India from adopting a single retail

format.

- Hypermarket is emerging as the most favorable format for the time being in

India.

- The arrival of multinationals will further push the growth of hypermarket format,

as it is the best way to compete with unorganized retailing in India.

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India represents an economic opportunity on a massive scale, both as a global

base and as a domestic market. Indian Retail sector consists of small family-

owned stores, located in residential areas, with a shop floor of less than 500

square feet. At present the organized sector accounts for only 2 to 4% of the total

market although this is expected to rise by 20 to 25% on YOY basis.

Retail growth in the coming five years is expected to be stronger than GDP

growth, driven by changing lifestyles and by strong income growth, which in turn

will be supported by favorable demographic patterns and the extent to which

organized retailers succeed in reaching lower down the income scale to reach

potential consumers towards the bottom of the consumer pyramid. Growing

consumer credit will also help in boosting consumer demand.

The structure of retailing will also develop rapidly. Shopping malls are becoming

increasingly common in large cities, and announced development plans project at

least 150 new shopping malls by 2008. The number of department stores is

growing much faster than overall retail, at an annual 24%. Supermarkets have

been taking an increasing share of general food and grocery trade over the last

two decades.

However, Distribution continues to improve, but it still remains a major

inefficiency. Poor quality of infrastructure, coupled with poor quality of the

distribution sector, results in logistics costs that are very high as a proportion of

GDP, and inventories, which have to be maintained at an unusually high level.

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Distribution and marketing is a huge cost in Indian consumer markets. Its a lot

easier to cut manufacturing costs than it is to cut distribution and marketing costs.

Also, government has relaxed regulatory controls on foreign direct investment

(FDI) considerably in recent years, while retailing currently remains closed to FDI.

However, the Indian government has indicated in 2005 that liberalization of direct

investment in retailing is under active consideration. It has allowed 51% FDI in

single brand retail.

The next cycle of change in Indian consumer markets will be the arrival of foreign

players in consumer retailing. Although FDI remains highly restricted in retailing,

most companies believe that will not be for long. Indian companies know Indian

markets better, but foreign players will come in and challenge the locals by sheer

cash power, the power to drive down prices. That will be the coming struggle.

The year 2006 marked the beginning of the 'retail revolution' through the entry of

big names such as Reliance with the announcement of huge investments. But

what really grabbed attention was Bharti Group's announcement of its tie-up with

the world's largest retail chain, Wal-Mart.

Before Reliance opened its first supermarket in Hyderabad in November, with an

investment of around $5.5 billion, the only other big player was the Future Group

with its retailing arm, Pantaloon Retail India Ltd.

The Rs 4,000-crore Pantaloon Retail also announced an investment of $1 billion

to open 1,000 outlets in the near future, an answer to the aggressive growth plans

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of Reliance. "The year 2006 has assumed great significance in modern retailing

as Reliance announced a pan-India network of outlets in multiple formats in the

coming years," said Mr. Gibson G. Vedamani, CEO, Retailers' Association of

India.

"The most recent noteworthy development was the announcement of the Bharti-

Wal-Mart joint venture. This deal is likely to reinforce confidence levels and will be

viewed as a positive move by foreign retailers. In fact, it is likely to propel retailers

to move faster into India. The entry of Wal-Mart could result in more structured

deals within a regulatory framework of the Government's policy. International

retailers know they cannot afford to not have operations in India. They are

viewing the market with much interest and with the current regulatory framework,

have put strategies on hold," said Mr N. V. Sivakumar, Leader - Retail and

Consumer Practice, PricewaterhouseCoopers.

The year also saw big players such as the Aditya Birla Group announce their

entry into retail. Tata and Woolworths entered into a technical collaboration and

launched household appliances and home electronics store, Croma. The Raheja

Group opened Hypercity, a hypermarket, in Mumbai. Chennai-based discount

chain Subhiksha closed the year with nearly 500 outlets across India, making it

the largest in the discount format.

As far as formats are concerned, hypermarkets, supermarkets and discount

stores gained prominence. In fact, it won't be wrong to say that 2006 was the year

for FMCG retailing. And, as analysts predict, FMCG retailing is here not only to

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stay, but also to lead from the front. However, in the category, it is discount

retailing that has gained immense importance, where Subhiksha seems to have

beaten others in the race.

Now starting in 2007 the big players of retail going to open hyper market,

entertainment zone, retail mart for electronic or consumer durable items etc. They

invest huge money on these projects. These project also see as a revolution in

the field of Mall Culture.

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Globalization: Growing media penetration is leading to a convergence of

aspirations of various classes of consumers, bridging the rural-urban

divide. The modern consumer cannot be satisfied by any product or

service that is lesser in quality than the best offered in any other place on

the globe.

Till 1980s, India knew only kirana stores. Things started to change slowly after

that, with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim

opening their company owned outlets. Later on, Titan, maker of premium

watches, successfully created an organized retailing concept in India by

establishing a series of elegant showrooms.

ORGANIZED RETAILING:

Only 4 per cent of the retail trade in India belonged to organised retail. It covered

items such as apparel, grocery, music, electronics, automobiles and financial

services. This is inconsequential compared to 20 per cent in China, 40 per cent in

Thailand and 80 per cent in the United States. The emergence of organised retail

in India is, moreover, so far restricted to the top 15 cities. The strength of

organised retailing lies in the ability to source directly from the manufacturers due

to increased bargaining power achieved through large-scale operation. Organised

retail chains can get bulk discounts on large purchases and reduce cost by

eliminating middlemen and by reducing the supply chain. However, the potential

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benefits of lower prices is not evident in the early stages because modern

retailing tends to concentrate on the upper segment of the market where

consumers are willing to pay higher prices for convenience and a superior

shopping environment.

Organised retailing is often run on the principle of franchising. The franchiser

allows a local businessman, a franchisee, to set up a retail outlet using its name

and methods as a joint venture on a 50:50 paid up capital basis. The franchiser

also provides training, equipment, quality control and national advertising. In

exchange, it receives fees and a share of profits. Organised retailing, moreover,

has multiple formats like discounters, hypermarkets, convenience stores, and

small outlets and warehouse clubs. The special advantages of organised retailing

is:

Enhancing quality through skilled processing, grading and delivery of

goods.

Lower price through better expertise in managing back-end activities such

as sourcing and inventory management as well as the ability to strengthen

the front-end functions of merchandising, promotions and customer

services.

Creating a level playing field for small and medium enterprises vis--vis the

large manufacturers.

Higher productivity per worker and better job opportunities.

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The growth of organised retailing is thus expected to lead to value migration from

wholesale trade to retail trade.

1999 2002 2007Total Retail (in billion INR) 7000 8250 11000Organized Retail (in billion INR) 50 150 450% Share of Organized Retail 0.70% 1.80% 4.5%

Five Reasons why Indian Organized Retail is at the brink of Revolution:

Scalable and Profitable Retail Models are well established for most of the

categories.

Rapid Evolution of New-age Young Indian Consumers

Retail Space is no more a constraint for growth

Partnering among Brands, retailers, franchisees, investors and malls

India is on the radar of Global Retailers Suppliers.

RETAIL FORMAT:

Broadly, the organized retail sector can be divided into 2 segments:

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In-store Retailers: Operate through fixed point of sale outlets located

and designed to attract a high volume of walk-in customers. Also

referred to as brick-and mortar format.

Non-store Retailers: Reach out to the customers at their homes or

offices through direct selling, tale marketing and e-commerce.

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Major formats of In-store retailers have been listed in Table below: -

FORMAT DESCRIPTION VALUE PROPOSITION

Branded Stores Exclusive showrooms

either owned or

franchised out by a

manufacturer.

Complete range available

for a given brand,

Certified product quality

Specialty Stores (Multi-

Brand)

Focus on a specific

consumer need, carry

most of the brands

available

Greater choice to the

consumer, comparison

between brands possible.

Department Stores Large stores having a

wide variety of products,

organized into different

departments, such as

clothing, house wares,

toys, etc.

One stop shop catering

to varied consumer

needs, service as

differentiator.

Supermarkets Extremely large self-

services retail outlets.

One stop shop catering

to varied consumer

needs.Discount Stores Stores offering discounts

on the retail price through

selling high volumes and

reaping the economies of

scale.

Low prices

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Hyper-mart Larger than a

Supermarket, sometimes

with a warehouse

appearance, generally

located in quieter parts of

city

Low prices, vast choice

available including

services as cafeterias.

Convenience Stores Small self-service

formats located in

crowded urban areas.

Convenient location and

extended operating

hours.

Shopping Malls An enclosure having

different formats of in-

store retailers all under

one roof

Variety of shops available

close to each other.

Of the Top-200 Global Retailers, 21% of retailers fall in the specialty stores

category, followed by 18% in supermarket, 12% in department and 9% each in

hypermarket and discount stores.

RETAIL FORMATS IN INDIA:

Indian retail formats can be classified into two distinct categories:

(1) Traditional

(2) Modern

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Traditional Formats include: -

Kiranas: Traditional Mom and Pop Stores

Street Markets

Kiosks

Exclusive / Multiple Brand Outlets

Modern Formats include: -

Supermarkets such as Food world

Hypermarkets such as Big Bazaar, Giant, Shop rite, Star

Company Owned / Operated such as Bata, Sony

Department stores such as Shoppers stop, Lifestyle, Pantaloons,

Pyramids, Trent

INDIAN RETAIL ESTATE BY 2007 :

From 95 currently operational shopping centres with approximately 22-

million sq.ft space, India to have over 375 shopping centres/ Malls

covering over 90 million sq.ft quality retail space by 2007 end

50 hypermarkets, 305 large department stores, 1500 supermarkets and

over 10,000 new outlets under construction

Additional Retail space to add INR 300 billion of business to organised

retail.

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WHOLESALE TRADING:

Is another area, which has potential for rapid growth? German giant Metro AG

and South African Shop rite Holdings have already made headway in this

segment by setting up stores selling merchandise on a wholesale basis in

Bangalore and Mumbai respectively. These new-format cash-and-carry stores

attract large volumes from a sizeable number of retailers who do not have to

maintain relationships with multiple suppliers for all their needs.

Present Scenario Of Retail Sector In India

Retailing today is not only about selling at the shop, but also about surveying the

market, offering choice and experience to consumers, competitive prices and

retaining consumers as well.The Indian retail industry is no more nascent today.

There has been a significant change in retail trading over the years, from small

kiranawalas in the vicinity to big super markets; a transition is happening from the

traditional retail sector to organized retailing. The unorganized sector still holds a

dominant position in this industry. The organized segment holds just about 1.2% of

the current US$ 245 billion retail market, which is expected to reach about US $ 385

billion by the middle of this decade.

With consumers looking at convenience with multiplicity of choice under one roof and

expectations evolving over time, consumer demand is truly the driving force for

organized retailing in the country. Food and beverages form the main chunk of the

retail market. They are followed by apparel and footwear. The Indian textile industry,

the backbone of the apparel segment, has a large share of the Indian economy,

accounting for over 20% of industrial production as well as providing direct and

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indirect employment to around 65 million people.

Despite the retail store density in India with regard to population being the largest, it

is estimated that over 90% of the stores are less than 500 sq. ft in size. Industry

estimates put the number of retail outlets at 12 million. This is clearly indicative of

small-shop ownership crowding the unorganized segment of retailing. While this

fragmented market structure does pose significant challenges for organized retailing,

potential does exist if modern information and supply chain management systems are

deployed to support the development of convenience shops that match customer

expectations.

POTENTIAL FOR ALL FORMATS TO THRIVE:

Most of the global powerhouses in the retailing sector such as Wal-Mart,

Carrefour, Tesco etc have adopted multi-format and multi-product strategies in

order to customize their product offering for distinct target segments. Similar

trends are likely to be exhibited in India as all formats present prospects for

growth.

Further, with the emergence of larger store formats like superstores and

hypermarkets in countries like UK, France, Germany, Spain since the 1980s and

Eastern Europe more recently, traditional food retailers have been able to stock

more extensive non-food ranges. In fact, Tesco, UK's leading grocer, has become

the number one apparel retailer in the Czech Republic and also a major player in

Hungary apart from being one of the fastest growing clothing retailers in the UK.

Together with its rival, Wal-Mart-owned ASDA, Tesco is one of the food sector's

most successful exponents of clothing in Europe.

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CHAPTER - 4

ISSUES RELATED TO FDI IN RETAIL IN INDIA

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ISSUES RELATED TO FDI IN RETAIL IN INDIA

Traditionally, the retailing sector in India has been characterised by the presence

of a large number of small, unorganised retailers, popularly referred to as mom-

and-pop shops or kirana stores. The unorganised sector still dominates the retail

sector, with the organised sector accounting for only 3%. Retailing is one of the

few sectors where foreign direct investment (FDI) is not allowed. But India is

emerging as an attractive destination for FDI in retailing, evoking considerable

protest from trading associations and other stakeholders. The government

announced a partial opening of the sector by announcing 51% FDI in single-

brand retailing last week. Closer Look at some of the issues related to FDI in

retailing.

Was the retailing sector never opened to FDI?

Prior to 1997, there were no regulations restricting the entry of foreign players.

Nanz and Spencers are two major companies who were granted permission to

sell products directly to customers. In 1997, it was decided that FDI would not be

allowed for mere trading as it would lead to the outflow of foreign exchange, drive

out the unorganized retailers from business and increase unemployment.

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Do other countries allow FDI in retailing?

India is one of the few countries where FDI is not allowed in retailing. Almost all

major developed and developing countries have allowed it. Some have imposed

restrictions such as minimum capital requirements, sourcing conditions,

investment in supply chain, etc, while others have opened the sector in a phased

manner to allow domestic retailers to adjust to the changes.

Will opening the sector result in loss of jobs?

Its an aspect thats been greatly debated. Theres a view that modern trade will

unleash opportunities such as non-agricultural employment and better quality of

living for the existing agricultural society. Others say that by reducing the number

of intermediaries, middlemen etc, organised retailing will lead to some job

displacement. But this, they insist, will be compensated for by creation of jobs in

allied sectors such as the food processing industries. Currently, the retail industry

is the second largest employer, after agriculture, and it is estimated that the

sector has the potential to create eight million jobs.

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Will FDI in retail adversely impact kirana stores?

At present, mom-and-pop stores cater to 97% of the total market. They have

unique advantages, like indigenous processes, skills in retaining customers,

proximity, convenience and services. However, global retailers investing in new

markets have not hampered local retailers. In China, Carrefour, the largest

foreign retailer, has 68 hypermarkets and Wal-Mart 47. Despite this, domestic

competitors hold more than 90% of the market.

In India, of the 12 million retail outlets, only about 3.5 million are in urban areas,

where organised retail is likely to be restricted to. So only about 3% (about one

lakh) of the outlets in the midmarket range would be potentially affected.

Has FDI restriction acted as an entry barrier?

Not really. Many foreign players have entered the Indian market through different

routes. But the restriction has resulted in an uncertain regulatory environment and

prevented business expansion of both domestic organised retailers and foreign

retailers.

What are the other routes of entry?

Foreign players can enter the Indian trading sector through routes like

manufacturing and local sourcing; franchising; test- marketing; wholesale cash-

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and-carry; distribution and through special permission. Franchising is the most

preferred mode through which foreign players have entered the Indian market.

Fast-food chains like Pizza Hut, McDonalds and brands such as Lacoste, Mango,

Nike etc ,have entered the Indian market through this route.

Similarly, companies such as Swarovski and Hugo Boss have set up distribution

offices in India and these offices supply products, which the company imports to

local Indian retailers. In the case of test-marketing, FIPB allows foreign

companies to test-market products for a two-year period. Direct selling companies

like Amway and Oriflame entered the Indian market through this route.

What is single-brand retailing?

While the finer guidelines as to what constitutes single-brand retailing are yet to

come, its likely that under this route, retailers would deal with a single brand

catering to a select clientele. Though such a classification does not exist

anywhere in the world, in India such a decision was taken as a first step towards

opening up the sector and also to probably allay the apprehensions of those who

have been opposing FDI in retail.

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CHAPTER-5

TECHNOLOGY USED IN RETAIL

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Technology Used in Retail

Over the years as the consumer demand increased and the retailers geared up to

meet this increase, technology evolved rapidly to support this growth. The

hardware and software tools that have now become almost essential for retailing

can be into 3 broad categories.

Customer Interfacing Systems

Bar Coding and Scanners

Point of sale systems use scanners and bar coding to identify an item, use

pre-stored data to calculate the cost and generate the total bill for a client.

Tunnel Scanning is a new concept where the consumer pushes the full

shopping cart through an electronic gate to the point of sale. In a matter of

seconds, the items in the cart are hit with laser beams and scanned. All

that the consumer has to do is to pay for the goods.

Payment

Payment through credit cards has become quite widespread and this

enables a fast and easy payment process. Electronic cheque conversion, a

recent development in this area, processes a cheque electronically by

transmitting transaction information to the retailer and consumer's bank.

Rather than manually process a cheque, the retailer voids it and hands it

back to the consumer along with a receipt, having digitally captured and

stored the image of the cheque, which makes the process very fast.

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Internet

Internet is also rapidly evolving as a customer interface, removing the need

of a consumer physically visiting the store.

Operation Support Systems

ERP System

Various ERP vendors have developed retail-specific systems which help in

integrating all the functions from warehousing to distribution, front and

back office store systems and merchandising. An integrated supply chain

helps the retailer in maintaining his stocks, getting his supplies on time,

preventing stock-outs and thus reducing his costs, while servicing the

customer better.

CRM Systems

The rise of loyalty programs, mail order and the Internet has provided

retailers with real access to consumer data. Data warehousing & mining

technologies offers retailers the tools they need to make sense of their

consumer data and apply it to business. This, along with the various

available CRM (Customer Relationship Management) Systems, allows the

retailers to study the purchase behavior of consumers in detail and grow

the value of individual consumers to their businesses.

Advanced Planning and Scheduling Systems

APS systems can provide improved control across the supply chain, all the

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way from raw material suppliers right through to the retail shelf. These APS

packages complement existing (but often limited) ERP packages. They

enable consolidation of activities such as long term budgeting, monthly

forecasting, weekly factory scheduling and daily distribution scheduling into

one overall planning process using a single set of data.

Leading manufactures, distributors and retailers and considering APS

packages such as those from i2, Manugistics, Bann, MerciaLincs and

Stirling-Douglas.

Strategic Decision Support Systems

Store Site Location

Demographics and buying patterns of residents of an area can be used to

compare various possible sites for opening new stores. Today, software

packages are helping retailers not only in their locational decisions but in

decisions regarding store sizing and floor-spaces as well.

Visual Merchandising

The decision on how to place & stack items in a store is no more taken on

the gut feel of the store manager. A larger number of visual merchandising

tools are available to him to evaluate the impact of his stacking options.

The SPACEMAN Store Suit from AC Neilsen and ModaCAD are example

of products helping in modeling a retail store design.

Investment Potential

Despite the huge presence of the unorganized sector, the Indian retail

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industry is attractive for international players. It is favoured over China's among

the developing countries due to a slew of laws in the communist country at

various levels. Though the market hasn't seen big time players of the developed

nations yet, the fact that Indian per capita retail space is among the lowest, is

expected to provoke people to look at retail as a potential business arena. The

growth of integrated shopping malls, retail chains and multi-brand outlets is

evidence of consumer behaviour being favourable to the growing organized

segment of the business. Space, ambience and convenience are beginning to

play an important role in drawing customers.

With the Indian per capita income on the rise and the distribution of

consumption expenditure expected to remain fairly stable, the current segments

of food and apparel is likely to remain attractive. Upgradation of traditional

grocery stores to present quality food products in ways and methods adopted in

North America and Europe can help in communicating value and attracting

customers.

Though the Indian retail industry is still a "protected industry" from the

stand point of foreign direct investment (FDI), the government is expected to

provide some flexibility on this front. Though FDI can help generate employment

in this sector, it is likely to pose stiff competition for existing small businesses.

Unlike the country's FDI investment objective of technology transfer and export

promotion of the 1980s, today's infusion of capital - specifically in the retail

segment -- can bring to the table issues on size of investment, actual inflows and

domestic company take-overs. Given the constraints, FDI should be viewed as a

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developmental resource that can help in restructuring the industry. It should be

aimed at filling up the resource and technology gaps in the retail segment.

While the differing tax and licensing systems across states could raise

some issues when organized retailers expand nationally, this could well protect

the interests of regional retailers. But the key to success is to build a fairly

extensive network of stores across the country to enable e-commerce

transactions. This in the emerging scenario would help retailers to target a wider

audience and maximize returns. Strength in physical distribution will remain the

backbone of any retail arrangement; however, ongoing investment in bandwidth,

development of internet facilities, and increasing awareness of IT among the

literate and educated population is expected to create a large base of shoppers.

The minimal contribution of the organized sector is a profitable direction for

potential investors. The movement of more and more people up the income

brackets also indicates a good market potential. Labour cost differential, the

removal of investment restrictions and the rationalization of the tax structure can

bring about best practices and the latest offerings to the Indian retail industry.

Growth opportunities for the organized sector can be propelled through land

reforms as well as uniformity in tax structure, which reduces the cost advantage

of the unorganized sector. These measures, if rightly implemented, would provide

a competitive environment for the Indian retail industry. Some of the facts about

investment

Potential For Investment: The total estimated Investment Opportunity in

the retail sector is around US$ 5-6 Billion in the Next five years.

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Location: with modern retail formats having made their foray into the top

cities namely Hyderabad, Coimbatore, Ahmedabad, Mumbai, Pune,

Chennai, Bangalore, Delhi, Nagpur there exists tremendous potential in

two tier towns over the next 5 years.

Sectors with High Growth Potential: Certain segments that promise a

high growth are

Food and Grocery (91 per cent)

Clothing (55 per cent)

Furniture and Fixtures (27 per cent)

Pharmacy (27 per cent)

Durables, Footwear & Leather, Watch & Jewellery (18 per cent).

Fastest Growing Formats: Some of the formats that offer good growth

potential are:

Speciality and Super Market (45 per cent)

Hyper Market (36 per cent)

Discount stores (27 per cent)

Department Stores (18 per cent)

Convenience Stores and E-R Retailing (9 per cent)

Supply Chain Infrastructure: Supply chain infrastructure in terms of cold

chain and Logistics.

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Cheap Consumer Credit

CHAPTER -6

METHODS FOR MEASURING THE

PERFORMANCE BUSINESS OF RETAIL

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Methods For Measuring The performance Business of

Retail

Managing any business, whether brick-and-mortar, catalogue, or on the

Web, requires measuring what matters - the business performance. From

these, one derives key metrics to measure and analyse the firm's business

performance. The need for the measurement of these metrics stems from

three primary sources:

Sales and revenue targets.

Simply put, retail, like any other business, must make a profit. Retail

performance measures not only aid in analyzing the sales performance in

greater detail but also are an invaluable aid in defining sales and revenue

targets.

Historic performance.

The ability to compare a retail store's present performance relative to its

past performance provides valuable trend information.

Benchmarking.

It is not enough to know your own business' performance; it is also critical

to know the performance of your competitors. Revenues may be less than

expected, but if competitors have faired worse, it may change your

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interpretation of the situation. Apart from comparison within a sector,

structured performance measurement also enables across-sector

comparisons and learning..

The following are some of the performance measures in the retail sector:

Walk-ins and Conversion

Walk-ins is the measure of number of people who walk into the stores

within a pre-determined period of time (daily, hourly, monthly). Conversion

is the percentage of customers who actually buy from the store.

Conversion = (No. of Customers who make a transaction) * 100/ walk-ins

The conversion figure is the benchmark of stores performance when

evaluated along with the Average Transaction Value. There could be a

scenario wherein due to high value of merchandise in a store, the

conversion is low but the average transaction value is high. Eg: jewelry

stores

Average Transaction Value

Average Transaction Value means the value worth of goods purchased by

the customers.

It is calculated as:

Avg. Transaction Value= Avg. Sales per day/ (Avg.daily walk in * Avg.

Conversion %)

The ratio gives an indication of how much each customer on an average

spends in the store. Useful for comparison and analysing if this needs to

be increased.

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Display to stock ratio

The display to stock ratio means the amount of backroom inventory

maintained as a backbone to that displayed in the store. It is calculated as

follows:

Display to stock ratio = No of pcs of an SKU on display/ No of pcs of the

SKU in backroom stock

Typically this ratio is maintained higher for the "Fast-moving" SKUs(those

with higher sales and experience more stock outs). This ratio should be

kept at an optimum level after considering the sales trend of the SKU, the

minimum coverage levels required for an item, display rules, so that

unnecessary investment in Inventory is avoided. It should also not be kept

too low or else there would be a scenario of frequent stock outs for the

SKU

Sales per sq. ft.

Sales per square foot is a very important retail performance benchmarking

ratio. It is the sales revenue generated per square foot of Retail space.


Sales per Sq.ft = Gross Sales/ Retail space in sq. ft

Since cost of Retail space is a significant cost element in the retail

business, this ratio is instrumental in gauging the store sales performance.

Sales per employee

Sales per employee is indicative of the performance of the sales staff. This

would in turn enable the decision making for their appraisals and further

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training. It would further indicate whether or not the store is adequately

staffed.

Sales per employee = Gross Sales / Strength of sales staff

A motivated sales team is one of the keys to better conversion in the

outlet. This ratio therefore benchmarks the sales team performance and

also aids in fixing their sales targets.

Inventory Turnover rate

Inventory Turnover: The inventory turnover ratio measures the number of

times during a year that a company replaces its inventory. The turnover is

only meaningful when comparing other firms in the industry or a company's

prior inventory turnover. Differences in turnover rates result from product

characteristics and differing operating characteristics within an industry.

The inventory turnover rate is calculated as follows:

Inventory Turnover = Cost of goods sold/ (Average inventory at cost

OR = Sales / Average inventory at sales

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The higher the inventory turnover rate means the more efficiently a

company is able to grow sales volume. There are several things to keep in

mind when calculating turnover rates:

1) Only consider cost of goods sold from stock sales filled from warehouse

inventory. Do not include on-stock items and direct shipments. Sure, these

sales are important, but don't involve your warehouse stock (your

investment in inventory).

2) The cost of goods sold figure in the formula includes transfers of

stocked products to other branches and quantities of these products used

for internal purposes such as repairs and assemblies.

3) Inventory turnover is based on the cost of items (what you paid for

them) not sales dollars (what you sold them for).

Inventory turnover depends on the average value of stocked inventory. To

determine your average inventory investment: 1) Calculate the total value

of every product in inventory (quantity on hand times cost) every month, on

the same day of the month. Be consistent in using the same cost basis

(average cost, last cost, replacement cost, etc.) to calculate both the cost

of goods sold and average inventory investment.

2) If your inventory levels fluctuate throughout the month, calculate your

total inventory value on the first and 15th of every month.

3) Determine the average inventory value by averaging all inventory

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valuations recorded during the past 12 months.

Gross margin per sq. ft.

Gross Margin per square ft is indicative of the profitability of the Retail space.


Gross margin per sq ft = Gross margin / Area of retail space

GMROI

In simple terms GMROI (Gross Margin Return On Inventory) tells us how

many times over a year we get our stock investment returned with a given

margin . In simple terms it may be defined as 'how hard the inventory is

working for the profitability of the business'. It is calculated as follows:

GMROI = (Gross Margin% / (100% -Gross Margin%)) x (52/weeks cover)

So a product with a gross margin of 50% and an average 26 weeks cover

would give us a G.M.R.O.I of 2.0

(50/50) x (52/26) = 1 x 2 = 2.0

If we compare this with a product with a gross margin of 40% but an

average of 17 weeks cover we see that the G.M.R.O.I. is also 2.0

(40/60) x (52/17) = 2/3 x 3.01 = 2.0

Simple gross margin measurement would indicate that the first of these

products was a better investment. GMROI shows us a fuller picture that

shows that the second product provided an equal return on stock invested.

We can see from this that we can use G.M.R.O.I. as a powerful measure

of historical performance, but it has an equally powerful application in

merchandise planning.

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In this instance we might well apply the measure at a summary level,

perhaps sub product group by branch, to give us an indication of those sub

product groups that have greater potential than others in specific branches.

From this we can make better informed decisions as to which should have

more space allocated to them, be better supported by stock or have

ranges expanded or contracted. For example, products with low cover and

high gross margin will probably have experienced stock outs and

fragmentation of ranges, and were therefore not fully exploited in terms of

their ability to generate profit. This combination would result in a relatively

high G.M.R.O.I..

Assuming that this performance were not the result of a fashion "blip", it

would make sense to increase the stock support for this area and maybe

increase the space allocated to it. We might also look at increasing the

number of options available.

Conversely a product with high cover and a low gross margin was

obviously over supported with stock, and failed to generate a reasonable

return in spite of this. It would therefore make sense to reduce its space

allocation ,and to channel the stock investment to a more appropriate area,

maybe reducing range width at the same time. In extreme cases we might

decide to remove the product area from the range altogether.

The adoption and analysis of the illustrated measures enable in-depth sales

analysis not only at the overall level but also at the category and sub-category

levels. This "drill-down" analysis can be effectively used to evaluate the

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performance of retail outlets, product categories, promotions as well as the

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CHAPTER 7

PROMOTIONAL MEASURES IN RETAIL SECTOR

AND ITS EFFECTS

Promotional Measures In Retail Sector And Its Effects

As competition heats up in Indian retail, major retailers are attracting more

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customers through quirky "event packages"/attractions or price promotions.

Customers are encouraged to celebrate a special occasion with a celebrity as

well as to spend money in the stores. It comprises specifications for a marketing

operation that is limited in time and that is meant to draw increased attention to

the enterprise (the retail outlet or the retail chain) in its sales market or the

influencing trading area. As a rule, it has a sales-promoting effect.

Setting objectives

The launch of promotional activity for a store requires creative handling of one of

the above ways of handling retail promotions. The most important factor to be

considered for retail promotion is the objective for promotion. If Food World

advertises that it has got the IR 8/20 rice at one of the lowest prices in the town,

the objective is to use the destination category of the retail grocery store to attract

greater store traffic. Promotions that increase footfalls and therefore improve

store traffic may result in a competing stores loyal customers to visit and even try

non-promoted merchandise. At the same time it would increase store inter-visit

time for the regular loyal store customers. Retail promotion objectives can be

store specific or product specific but the intended result is something that has to

be explicitly borne in mind while formulating a promotion plan. There is a need to

review the same after the promotion.

Shopper reaction

The consumer perspective of retail promotion is also crucial in formulating

promotions. Purchase event feedback is one of the crucial elements of the

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understanding of retail promotion. This concept means monitoring if the

promotion enhances or detracts consumers from future brand purchase

probabilities compared to non-promotion. In order to understand this concept, one

should look at a key theory in psychology as applied to consumer behavior, the

self-perception theory. Self-perception theory as attributed to the deal prone

consumer, results in questioning by the consumer - 'Did I buy the product

because of brand preference/ promotion?' The answer to this question by a

majority of the consumers of your store determines the nature of promotion to be

undertaken by the store.

If for example Shoppers Stop has through its customer relationship

management software a clear idea of the nature of customers especially

on deal prone-ness, it can decide what to emphasize in its promotion. The

decision to be taken is whether it is the store/brand or the promotion/deal

that would act as the primary reinforcement. The nature of promotion

needs to adapt according to the understanding of consumer behavior. In

this effort, we would also be able to clearly track brand loyal as well as

store loyal consumers behavioral effects of the consumer, when a

promotion is on are reflected in the nature of buying and therefore

implications for the retail outlet. Category purchase timing, brand choice,

and purchase quantity are the three major dimensions that one has to

track in order to see the effect of sales promotion. Category purchase

timing refers to the decision by the consumer to alter the regular purchase

cycle for the product. If Atta (wheat flour) is bought once in a fortnight,

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does she buy Atta earlier because of promotion? Brand choice refers to

the decision on being brand loyal inspite of a promotion on a comparable

competitive substitute brand. Would a consumer change from Captain

Cook to Tata salt because of promotion? Purchase quantity is a very

important variable to monitor as it is directly related to the nature of

consumption. This common effect of a promotion on a product or a brand

is reflected in stockpiling. For example, buying a five-litre edible oil jar

cheaper and storing the same for longer future use.

Lets take the example of a specialty coffee outlet selling different brands of

coffee. If we decompose the effect of sales promotion we may look, at lets

say, contribution of the three dimensions in the following manner - brand

switching (84 percent), purchase acceleration (14 percent), and stockpiling

(2 percent). This decomposition may be used to compare the effectiveness

of alternative promotional offerings and to determine the most suitable and

effective promotion. Putting together the facts that sales promotions

generate dramatic immediate sales increases and that brand switching

accounts for a large percentage of this increase, we can conclude that

sales promotions are strongly associated

with brand switching. If promotion increases a brand's sales by 100 units,

how many units come from other brands and how many units are due to

category expansion, i.e. shifts in the timing and/or amounts of purchase.

If three-fourths of the sales effect were due to other brands, retailers might

conclude that promotional activities provide little benefit. That is, unless

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promoted items provide higher margins, the vast majority of the effect

would simply be a reallocation of expenditures by households across items

within a category. Manufacturers/national brand marketers might conclude

that most of the effect increases competition between brands and would

not support promotions. Therefore, stockpiling and/or consumption

increases appear to be the dominant sources to look for sales effects due

to temporary price cuts. Cannibalization of future sales through stockpiling

is an important consideration in the assessment of the effectiveness of

sales promotions. In some product categories like beverages (Eg. soft

drinks) a substantial component of the primary demand increase may

represent enhanced consumption. One may drink more of Coke/Pepsi

because of a price cut. But in other categories (like house cleaning liquids),

households are unlikely to accelerate consumption. In these cases the

effect of sales promotion may just result in changed inventory

management by households.

Price/brand promotion

It has been proved by extensive research in the West that price promotions

are detrimental whereas non-price promotions are neutral/positive. Price

promotion of national brands erodes the loyalty of the national brands &

therefore helps the private labels/ store labels to gain market share. While

looking at it from store's viewpoint, the chain of causation could be - Price

promotion would lead to loss of national brand loyalty, which would trigger

greater trade allowances and therefore increase in store profit. However,

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the question of store image and loyalty are important. Discount stores like

Margin Free shop could afford to continuously involve in price promotion

whereas others cannot. Reaction from competitors is another aspect that

should be guarded against.

The conflict of promotion of store brands compared to the national brands

would become a matter of concern in the future in India. Many retailers see

the benefits of developing store loyalty as it can easily extend to store

brands. There are very few store brands in India competing with large

brands. However, for store brands, studies in the US have found that non-

price promotions have a more favorable long term effect on store profit

compared to price promotion.

IT IN Promotions

Several IT companies in the west have comprehensive solutions that

increase productivity and sales from promotions. They allow supply chain

participants to communicate more effectively throughout the various stages

in the design, implementation and evaluation of retail promotions. This has

been triggered by the significance of retail promotion. It is estimated that

60% of all retail activities are based around promotions and up to 40% of

these promotions fail to meet expectations. It is estimated that the industry

is losing Euro80 billion a year in retail promotions alone in Europe.

Inefficiencies in available management information, monitoring and

auditing of promotions result in:

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time losses i.e. communication delays between suppliers and retailers

communication errors in planning and execution among the various

departments

real costs at the end of the promotion i.e. the lack of clear cost

identification

lack of evaluation & management information

A 'live' access through an internet enabled retail promotion software and

communication between all those involved in the promotion cycle can

greatly enhance efficiency of the promotion while dealing with a large

number of formats & stores. In a large retail chain, a number of individuals

like the brand/category manager, promotions specialist and the individual

store manager are involved. A good understanding of the systems and an

efficient IT backbone would eliminate the inefficiencies involved in the

planning, implementation, and evaluation of promotions. It can reduce the

number of communications between the brand sponsor, retailer, and

supplier involved in any single promotion - traditionally by telephone, fax,

or e-mail - by 30 percent. In addition, it can dramatically reduce current

industry booking costs by as much as 60 percent through efficient

document generation and promotion auditing.

Thus, retail promotion in practice is akin to sales promotion by marketers.

However, by the very nature of business, retailers need to create

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excitement around outlets in order sustain. Therefore, retail promotion has

both short term as well as long term implications. A good mix of

promotions to serve both the objectives and a continuous effort to test

promotions through control stores & monitor store profitability will help in

sustaining any retail organization. Sales, traffic and profit need to be

compared as measures with base line sales/traffic in control stores in order

to study the effects on brand share, chain share, market share.

These would be measures that would provide the feedback on the right

promotions to continue with in the future. Cost effective non price

promotions, substantially unique promotion campaign that differentiates

and positions your outlet, coordination of the complex transactions using a

good information technology backbone corporate strategy oriented

objectives and a constant eye on consumer feedback are the ingredients

of a successful recipe called retail promotion.

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An Outlook Of Strategies Adopted : By European And

Indian RetailersTo Entice and Retain Customers

Retailers use promotions as a key strategy to entice and retain customers.

Effective promotions generate store brand equity, sales growth and

attracting repeat sales.

It is that time of the year when retailers woo customers by offering different

promotions and schemes, all designed to give the ultimate shopping

experience to the consumer and the required sales impetus to the retailer.

Shoppers' Stop has a 15-day 'India Shopping Festival' that offers prizes

ranging from diamonds to Scorpios. Another top retailer, Westside has a

Christmas magic promotion going on for 22 days with watches for gifts and

holidays to Singapore for the lucky shopper.

Some like Pantaloon are more into in-store promotions on certain

categories or merchandise. The company has been following this strategy

during the Diwali season too and this seems to be working well enough for

them. For example, Pantaloon is now running a promotion that offers

customers a shirt free on buying two trousers. Big Bazaar is tempting

women with discounts on several categories.

First, we take a look at a few few promotions by retailers

Shoppers' Stop has a 'India Shopping festival on that is on between

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December 13-Jan 27. Rs 1500 is what is needed to spend to be eligible for

the draws and there are gifts on offer on a daily, weekly basis and then the

bumper draws themselves. The total gifts on offer are 4000 diamonds, two

Scorpios and adventure holidays among others.

Globus is running a X-masti promo that has gifts on purchases above

certain amounts and holidays on offer.

Ebony is running a promotion 'Ebony Mega Sail' that has free cruises on

offer to about half a dozen exotic Asian locations. To participate in the

draw for these prizes, one has to shop for over Rs 1,500 at an Ebony

store.

At Westside, there is a shopping festival on from December 7-29 that has

events lined up and also watches as gifts on purchases in excess of Rs

2,500. If purchases exceed Rs 1,000, then one can participate in a draw

that has a trip for two to Singapore as the prize.

Akbarally's is offering attractive finance schemes for people who purchase

at their store, of course subject to their fulfilling certain criteria.

Promotions are a crucial tool in the retailers' arsenal to draw people into

their stores and considerable time, effort and money are invested for the

purpose. Says HS Kohli, director (operations), Ebony Retail Holdings,

"Promotions are a very important aspect of marketing. They help in

attracting the customer to the store. The more attractive the promotion, the

easier it is to bring the customer to the store. They love to feel involved

and be a part of the proceedings. It creates excitement and generates

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positive word of mouth publicity.'

Promotions can be of different types and each retailer has to decide the

promotional mix for their stores. This will in turn depend on the objective of

the promotion. Objectives can be of different types. One is to create brand

equity for the store in the minds of the customer. This will tell customers

how the store is differentiated from other stores and encourages tryouts

and doubters to come in to the shop and experience the offering. Says

Kohli, "Promotion is a central element of the Marketing mix. A promotional

activity is an effort made by a business to communicate with potential

customers. Promotional activities have two main purposes. These are to

inform customers about your store, its products, prices and services &

thereby increase footfalls. Once in the store to persuade customers to buy

the products you sell.

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Another is a short-term yet relevant objective of increasing sales during the

promotional period. Usually, the objectives are a mix of these two. Says Ajay

Kelkar, senior manager (marketing services), Shoppers' Stop, "Promotions are

seen from three perspectives. One is the brand promotion itself, like the Seven

Wonders shopping festival. The other is category/merchandise promotion. The

third is customer segment promotion where certain customers are targeted upon

for these promotions." The last mentioned segment is the customer loyalty

programmes that retailers use to encourage customers to shop more frequently at

the store and reap benefits as a result.

While promotions themselves cost money, publicising them itself involves

advertising in different media that in turn costs more money. Ultimately, the

objective of promotions should be defined, communicated and the results

of promotions should be measurable. This will not only enable evaluation

of promotions but also help fine-tune future events.

In budgeting for promotions, retailers commonly involve two categories.

One is the vendors themselves who have a significant stake in the store.

These vendors participate in the promotion with their merchandise as part

of the promotional mix, in turn getting publicity with the store as one of the

partners in the promotion. Another is non-competing partners who can

participate in the promotion and benefit from the huge crowd-pull of the

promotion. Says Kelkar, "There are a couple of partners like credit card

companies, telecom service providers who can participate in the

promotion, where we play the role of the aggregator." Thus, Shoppers' has

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the success or otherwise of the promotion.

In the final analysis, promotions are part of a retailer's life and setting

objectives is the most crucial activity, as every thing else will follow in

tandem. Evaluation a promotion is the other critical factor that will enhance

the feel-good factor created by a promotion with hard facts on its cost Vs

benefits. In a scenario where margins are anything but stratospheric, every

rupee spent on promotions must earn its worth as Kohli puts it, "each &

every promotion should be measurable to optimum ROI." And adds, "We

need to understand that promotions can do without retailing but retailing

cannot do without promotions." In sum, promotions if handled effectively

can do wonders for a company

"Building Trust" Is One Of The Important Key To Success In Retail

Sector

The ever-increasing focus on the customer will encourage all retailers to

investigate the best way to foster and retain customer loyalty. We take a

look at trends in retailing in Europe.

Tougher competition, breaking down of traditional barriers between

products and services and increasingly discerning customers necessitate

retailers to access an increasing range and depth of expertise to sustain

competitive advantage. With a shift in focus from loyalty to customer

relationship management, there has been an increase in the importance of

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loyalty cards within retailing.

Retailers are redefining customer relationships by developing tailored

loyalty card schemes and by extracting customer knowledge with the aid of

sophisticated data-mining and analytical tools. Over the past few years,

developments in the introduction and structure of loyalty card schemes

with varying degrees of claimed success highlighted the need for a

strategic model to help retailers decide on the most effective loyalty card

strategy.

This article is based on a survey report - the result of an in-depth research

undertaken by KPMG in partnership with Oxford Institute of Retail

Management (OXIRM). It provides valuable insights into developing trends

and impact on customer loyalty on retailing, and helps develop a

framework and analytical model. This model can be used to help clients

evaluate and select the right loyalty card strategy to meet their business

goals.

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The report helps retailers answer three key questions like the need for

loyalty card schemes, measurement methods for success of such scheme

and how to rework a failing scheme. This helps them evaluate the success

and future development of their loyalty card strategy.

Purchaser-Purveyor Loyalty Model

The Purchaser-Purveyor Loyalty Card Model shows five major loyalty card

strategies available to a retailer: Pure, Push, Pull, Purchase and Purge

(see diagram 'Picking the Perfect P').

Pure - involves spending and accruing benefits only with the card-issuing

retailer. An example would be purchasing groceries from a specific retailer

to gain a discount on future grocery purchases from the same retailer.

Push - involves spending at several retailers and accruing benefits with the

card-issuing retailer. An example would be a card-issuing retailer linking

with a bank to gain access to many retailers through the use of a common

payment scheme (e.g. Visa or MasterCard).

Pull - involves spending at the card-issuing retailer and accruing benefits

outside the retailer's everyday range. An example would be purchasing

petrol from the card issuer in order to claim gifts from a catalogue provided

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by a third party (for instance, Shell's SMART Card.)

Purchase - involves spending and accruing benefits across many retailers.

An example would be the use of general credit cards in order to claim gifts

from a catalogue.

Purge - involves no loyalty card. An example would be grocery shopping at

Asda supermarkets.

A retailer can embrace a range of loyalty card strategies in a single card.

However, the customers ultimately determine the most successful strategy.

To validate the general use of the Purchaser-Purveyor Model, a survey of

51 loyalty schemes across 10 European countries and 10 retail sectors

was carried out (see diagram 'Selecting a Strategy'). It revealed that 33 per

cent were Pure, 14 per cent were Push, 31 per cent were Pull and 22 per

cent were Purchase card schemes. The analysis also revealed an

apparent relationship between loyalty card strategy and retail sector.

Grocery retailers tend to operate Pure, mixed retailers Pure or pull,

financial services retailers purchase and petrol retailers Pull loyalty c

strategies.

Measures of Success

It is clear that loyalty card strategies need to be regularly evaluated and

evolved. Every loyalty card strategy must have clear performance targets.

This research suggests retailers should consider three critical success

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Cost of Loyalty Card Schemes

The cost of these schemes comprises charges (for the privilege of having

a loyalty card), administration (heavy initial investment followed by

significant running costs) and incentives. This research indicates that

efficient loyalty card schemes breakeven on an ongoing basis at around 3-

4 per cent increase in overall turnover. The speed with which the

breakeven point is reached, depends on the set-up costs, the take-up of

the card and the overall turnover and profitability of the retailer (see

diagram 'Price of Privilege'). The diagram compares four different schemes

- frequent use, non-payment card, frequent use, payment card, infrequent

use, magnetic strip-based card and infrequent use, smart (microchip-

based) card. Each scheme has its own advantages and disadvantages.

Furthermore, different tactics and operations can radically alter the cost

structure of such schemes.

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Deciding the Right Strategy

The Purchaser-Purveyor Loyalty Card Model offers a range of strategies

available to the retailer. It helps consider potentially successful scenarios

for the loyalty card strategy, key measures to monitor its success, key

tactics and operations for its success and strategic moves when the

retailer wishes to develop its loyalty card strategy as circumstances

change. Selecting the best strategy is dependent upon finding alignment

with overall strategic objectives.

Pure schemes are used primarily for retaining existing customers and are

often developed by the leading company in a retail market. Since a Pure

strategy is focused on the existing relationship between a customer and

the retailer, the key measures must be aimed at increasing the expenditure

and profitability of individual cardholding customers. A pure loyalty card

strategy primarily affects current customers. Therefore if successful, new

primary customers would then need to be attracted via a Push loyalty

strategy.

A Push Strategy is primarily aimed at pushing new primary customers

towards the retailer - is most appropriate when a retailer wishes to expand

its customer base and financial services base. Key measures must be

aimed at increasing the number of cardholding primary customers. To

increase the number of new primary customers, successful Push loyalty

card strategies tend to rely on external market research information. They

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tend to act as reward cards and payment cards simultaneously.

A Pull Strategy is aimed at attracting new primary customers or retaining

current customers - is best suited when a retailer's offer is not sufficient in

itself to attract new primary customers or retaining the existing ones. It is

focused on both attracting new primary customers as well as maintaining

the relationship between an existing customer and the retailer. Therefore

the key measures must be aimed at a combination of increasing the

number of cardholding primary customers and increasing the expenditure

and

Growth of Indian Retail Sector Consumer Perception an In

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