An introduction to Modern Retail

Guest lecture for the students of Govt. College of Engineering & Textile Technology, Berhampur, West Bengal, India.

By

Sumanranjan Palitsrpalit@gmail.com

August 8,2013

Retail ..defined in many ways..

• Retail comes from the French word Retailer , which refers to "cutting off, clip and divide”.

• According to Kotler: “Retailing includes all the activities involved in selling goods or services to the final consumers for personal, non business use”

• Modern Retailing is in its ability to provide easier access to variety of products, freedom of choice and many services to consumers.

Manufacturer

Wholesaler

Retailer

Consumer

Feedback

Weekly MarketsVillage FairsMelas

Convenience StoresMom and Pop/Kiranas

PDS OutletsKhadi StoresCooperatives

Exclusive Brand OutletsHyper/Super MarketsDepartment StoresShopping Malls

Traditional/Pervasive Reach

Government Supported

Historic/Rural Reach

Modern Formats/ International

Evolution of Retail

Source of Entertainment

Neighbourhood Stores/Convenienc

e

Availability/ Low Costs /

Distribution

Shopping Experience/Efficienc

y

Evolution of Retail

Organized retail calls for performance…

Organized retail

• Range of retail formats right from neighbourhood to hypermarkets

• Professionally managed & technologically advanced - better service and shopping experience

• High street location attracting large no of customer foot-falls in to stores.

• Nationwide large retail chain offering similar assortment in most of the categories

• Higher degree of awareness among the target group – offers great platoforms for the smaller brands

Unorganized retail• Melas/Mandies /Bazar or

Weekly Haat : selling different or similar merchandise

• Small-store (kirana) : Mostly Family Run,. Located in neighbourhood.

• Lack of standardization and professional approach

• No infrustructure for sourcing

Organized retail with larger scale of operation offers win-win-win situation…

• Arranging Assortment: Manufacturers usually make one or a variety of products and would like to sell their entire inventory to few buyers to reduce costs. Final consumers, in contrast prefer a large variety of goods and services to choose from and usually buy them in small units.

• Retailers are able to balance the demands of both sides, by collecting an assortment of goods from different sources, buying them in sufficiently large quantities and selling them to consumers in small units

• Breaking Bulk: to reduce transportation costs, manufacturer and wholesalers typically ship large cartons of the products, which are then tailored by the retailers into smaller quantities to meet individual consumption needs

• Holding stock: Retailers maintain an inventory that allows for instant availability of the product to the consumers. It helps to keep prices stable and enables the manufacture to regulate production.

• Promotional support: small manufacturers can use retailers to provide assistance with transport, storage, advertising, and pre- payment of merchandise.

• Impulse Purchase : Need strong forecasting ability , also In store experience is the key to take a share

Retail Formats can be classified on the basis of following:

Wedding mallKhadi PlazaVillage mallKisan Bazar ( Choupal Sagar)

Ownership

StandaloneChainFranchiseShop-in ShopOwned by Mfg.

Retail Strategy (Store Based)

Convenience StoreHypermarketSupermarketSpecialty storeDepartmental StoreDiscount StoreFactory outlet

Non-store

WWWDirect MarketingVending Machines

India specific…

Each component will differ as per the store format…

Location Price

Retail Exp Promotions

Merchandise

Convenience Store : Petrol pump & Metro stations, SPAR , Grocery

Hyper market : Wall-Mart, Carrefour , Hyper city, Big Bazar Supermarket : Spinneys, Food Bazar, More

Specialty Stores ( Multi brand) : Fab-India, Metro, Sleek Kitchen, Paris Gallery

Departmental Stores : Lifestyle, Shopper Stop, @Home

Discount Stores : Dollar Shop, Subhiksha, On Line Stores

Factory outlet

On Line Stores : Group-on, E bay

• Product Mix – In-house n reputed brands from Local/International market

• Pricing – value Pricing, Promotional Pricing, Time pricing ( Weekend), Bundling

• Place : Location of Stores and efficient Supply Chain

7 Ps of Modern Retail ( Example)

• Promotions – Advertisements, Loyalty , Brand endorsement, POP, Outdoor branding, PR, Live demo

• People – training, Appearance, empowerment, reward, employee of the month

• Process – Customer service, billing counter, Product

• Physical Evidence

7 Ps of Modern Retail…

Others11%

Food & Grocery

60%

Ap-pare

l8%

Mobile6%

Food Ser5%

Jeweller

y4%

Con Elect3%

Pharma3%

24%

11%

33%

11%

7%

6% 8%

The '8%'

India’s $500 billion retail industry..

Source : Deloitte, jan’13

92% of the sector is unorganized, those that fall under `mom & pop’ store.Organized sector is dominated by retailers having multiple stores

Still a long way to go, enormous potential for Indian Retail industry…

USA India

Contribution of Retail to the GDP

27% 13%

Per capita Retail Space in SQFT

16 2

% Population engaged in Retail

20% 8%

% of Organized retail 80% 8%

Wal-Mart/ Future Group

20% 0.3%

Average store size High Low

Role of wholesalers Limited Extensive

Infrastructure Extensive Limited

5th largest Retail destination in the globe

Only 4% of the 12 million Stores are bigger than 500 SQFT

Only 8% of Indian Retail is `Organized’

Organized retail is poised to grow @ 35~40% compared to only 6% to that of `Unorganized’ retail

Very young population. Ready to experiment & accept New

Six million rich Indians looking for changing Shopping experience

Evolution of Luxury in India is at a nascent stage as compared to other Asian countries

India’s emerging economic growth has sparked initial stages of luxury consumption

Locked into luxury habit

Confident discerning buyers

Subjugation

Start of money

Show off

Fit in

Way of life

Authoritarian rule

Poverty and deprivation

Economic growth

Masses buy white goods

Elites start consuming luxury

Acquire symbols of wealth

Display economic status

Large scale adoption of luxe

Fuelled by need to conform

IndiaChina

Taiwan, KoreaHong Kong, Singapore

Japan

Source: Chada and Husband’s evolution of luxe model)

Stage I

Stage II

Stage III

Stage IVStage V

14

Earlier Classification

Current Classification

Tier 1

Tier 2

Tier 3

Based on Geography and Population

MEGACITIES – Largest cities in terms of population and overall consumer markets

BOOM TOWNS – Next set of big-population cities with high expenditure per household

NICHE CITIES – Smaller in terms of overall population but still well above their weight in spending per household.

These twenty cities together account for• 10% of Population,

• 55% of total urban income

• Boomtowns and niche cities today may be much smaller in terms of their income and spending weights, but they are growing rapidly.

Megacities Boom Towns Niche Cities

MumbaiDelhi

KolkataChennai

BangaloreHyderabadAhmedabad

Pune

SuratKanpurJaipur

LucknowNagpurBhopal

Coimbatore

FaridabadAmritsarLudhiana

ChandigarhJalandhar

Evolved Urban Classification

Map of India’s income classes

In face of the evolving market characteristics, Retail Industry need to work around three critical success factors

Developing a « product offering » catering to the Indian preferences….

Managing the mandatory sourcing and real estate is key to revenues/sq. ft in « Operations »

Offering an exceptional « Customer Service Experience » will make for clear winners

Evolving consumer tastes and preferences

Tackling mandatory 30% sourcing- identifying right partners

Offering much desired customer service experience and quality

Embracing Indianization of products

Managing real estate : revenues/sq.ft vs. rental costs

Identifying and hiring talent and investing in training

Indianization of their offerings….Embracing ‘Indianness’ brand’ will definitely help players connect with Indian consumers,

however, it remains to be seen what the efforts will yield ….

Indianizing offerings

Saris by Hermes

Indianized offerings visible in the watches, jewelry and apparel segments– Ex-Keeping in mind the like for logos on luxury products by Indian

consumers, Salvatore Ferragamo launched an exclusive ‘Gancino’ collection – Hermes offering Gold in its jewelry and accessories collection in India– Tod’s silk satin clutches with rhinestones as part of “only for India” collection

Indian inspired collections elsewhere create a connect in terms of brand image and perception – Ex-The Louis Vuitton Diwali collection

Gandhii Montblanc penSalvatore Ferragamo’s exclusive India collection of Gancino bagsNawab collection by Roberto Canali

Product Offering

Source: http://www.cpp-luxury.com/en/the-real-challenges-of-india-s-luxury-retail-market_1633.htmlhttp://in.reuters.com/article/2011/08/24/idINIndia-58939820110824http://jllindia.wordpress.com/2011/02/14/india-luxury-retail-property/

Brands will need to define localized growth strategies on smart investments

It is imperative for foreign players to shift focus to adding growth capital to gain scale, tackling the mandatory 30% sourcing rider and investing on hiring and training talent

Footfall versus rental cost a concern-Rentals varying from INR 450-550/sq.ft for high street vs. INR 350-450/sq.ft for luxury malls

P&L Item Global India

Revenue/sqft/day (INR) 110-170 60-80

Gross margin 70% 55-60%

Rentals(% of revenue) 10-15% 25-30%

Others costs (% of revenue) 20-25% 15-20%

Talent The luxury retail sector was estimated to face a shortage of 1,33,000 salesmen by 2010

Sourcing/production With the rider of mandatory 30% sourcing from SMEs in India, vendor

management, workmanship, quality of raw material and intellectual property issues need to tackled

Operations

Real Estate

Source: http://www.cpp-luxury.com/en/the-real-challenges-of-india-s-luxury-retail-market_1633.html, http://in.reuters.com/article/2011/08/24/idINIndia-58939820110824, Joe Lang La Salle India, AT kearney CII report

Consumer handling at entrance

Consumer identification

Consumer orientation

Ambiance (lighting, sounds, design…)

Shop/counter lay-out

Signage

Product… Staging Access Information Testing

Needs and habits inquiry

Main product choice

Link selling Additional

services Customization

Payment Delivery services Consumer

registering Satisfaction

check

Shop

vis

it

Befo

re S

hop

visi

t

After

Sho

p vi

sit

Consumer welcome

Atmosphere discovery

Product touch & feel

Advisory & services

Check out

Purchase provoked by need for conformance, social status

After sales service missing or insufficient due to high import duties

Requests and claims take time

Designing an exceptional “store-journey” is key to connecting with Indian consumers

Indian consumers’ need for attention and respect is synonymous with the culture with class consciousness and status symbolization : It is imperative to focus on the experience and after shop

visit

Source: First Retail workshop with Lancôme, Armani and YSLB DGAs

Shop journey

Customer Experience

… and creating brand awareness to capture the burgeoning luxury consumption class in India

It is critical for luxury brands to decode the aspirational DNA in order to connect with the Indian luxury consumer

Communicating luxury Newer affluent masses will need to be communicated the exclusivity and

prestige driven by a distance-– Artistic and graphic visualisations– Using India on global advertising campaigns– Localized marketing material

Press dominates the marketing budget of luxury brands as of now– Social media to target young consumers through Face book, Twitter,

internet and mobile communication will be the trend in near future– Over 300M users to have access to data-rich video through 3G and

4G capabilities on mobile by 2015

Role of digital media

Brand awareness Awareness is very high in rich class segment

– However, newly affluent lack sufficient knowledge and awareness. Here bollywood can create the connect. As brand awareness is low, brand loyalty too is low

Customer Experience

Source: Communicating luxury to the masses, JWThttp://sg.acnielsen.com/site/20080408.htm