The Great Indian Retail Dream
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[edit] Introduction
The retailing industry in India is highly fragmented (12 million retail outlets) and predominantly consists of small independent, owner-managed shops. Besides, the country is also dotted with low-cost kiosks and pushcarts. There has been a boom in retail trade in India in last few years, owing to a gradual increase in the disposable incomes of the middle class households. The size of the retailing industry in India is expected to be around Rs 9,30,000 crore. Out of this, organized retailing industry is around Rs. 35,000 crore, which contributes to less than 2-3 per cent of the industry in India. According to a report by the ministry of commerce & industry, the retail industry in India is expected to grow 7% per annum.
The organized retail industry in India is poised for an emphatic phase of growth. Retailing is well past the stage of infancy where only a handful of players like the German retailer Nanz bought international formats to virgin Indian territory, and that too, with limited scale and operations.
During the late 1990s, Indian retailers underwent an experimentation phase wherein new formats (department stores like Shoppers' Stop and Pantaloon) and product categories (consumer durables retailing, music retailing etc) were introduced. As the country marched into the new millennium, the organized retailing scenario began to stabilize, specially over the last 3-4 years when players like Big Bazaar, Barista, Pizza Hut, Shoppers' Stop etc. became successful in establishing a national footprint. This was also the stage when international retailers like McDonald's, Subway etc. adopted a mix of global and India-specific strategies in order to entice the local population.
India is now ready to leapfrog into the next stage of evolution where a large number of Indian and international build scalable models with a pan-India appeal with a view to be sustainable in the long term. Already, players are becoming profitable after having gone through their respective learning curves indicating the viability of organized retailing across formats. Opportunities are abundant, across formats and categories, as the new Indian consumer has clearly demonstrated a readiness for all organized retailing segments. Moreover, as has been the case in retail markets across the globe, the influx of foreign brands into India shall transform the retail landscape as domestic players grow bigger and become more innovative in the face of enhanced competitive pressures.
[edit] Evolution of Indian Retailing
[edit] Indian Retailing: The Way Forward
The past or the traditional strategy was largely dependent on low price and convenience. The current strategies are more based on value, customer relationship and customer experience. It is essential to know what the customer expects or what is "value" to him and once you offer it in a manner in which you have an edge over the competitor, you would surely be a winner. This added advantage of a "value" is offered by major players in different ways and a few examples of which are, (a) Talbots in US who give "after hours" shopping appointments and facility of "hotline" to callers (b) Home Depot offers customer education and (c) Costco offers a limited range of products but a fast efficient service, billing and checkout process. Offering something more than what the customer expects, i.e. a free gift, a free home delivery or service support delights the customer.
Building relationship with customers certainly helps. Greeting them at the entrance, knowing their preferences, offering service which will please them, giving them special attention are some of the often practiced, simple and effective strategies. Amazon suggests new books to their customers. Interaction with customers gives a lot of vital information and leads. Developing loyal customers is the key. People or employees in an organization are very important and customers consider this as an important attribute. Hiring the right kind of people and training them is important. Loyalty developed by fulfilling difficult requests, rather than turning them down, is far more beneficial and long lasting.
FoodWorld and Subhiksha established stores in many cities. Supermarket and Department Stores appearing all over and fast food and packaged foods and beverages from Nescafe, Tata Tea, café Coffee Day and Barista led the customers to different eating habits. There was more activity in the product categories such as lifestyle, accessories, fashion articles, etc. A lot of changes took place in the 1990s in FMCG industry. Leading players like HLL (Hindustan Lever Ltd.) and P&G (Procter and Gamble India Ltd.) faced competition from small and regional players. The product, place, promotion, service formats were given more attention. Rural markets and direct distribution were focused on. FoodWorld defined their objective as offering a wide range of products at a convenient location in a good ambience at reasonable prices. FoodWorld introduced a number of private brands. They aimed at upper middle class and upper class households, whereas Subhiksha decided to focus its attention on middle class market and offered prices suitable to them. Shoppers' Stop happens to be an early entrant in the organized retail market in India. It made major international brands like Levi's, Arrow, Lee, Ray-ban, Parker, Swatch, Revlon and many more available to Indian customers under one roof and gave an international shopping experience. Tata bought Littlewoods retail stores of UK and renamed it as Westside and entered Indian retail market through Westside. Their differentiation was introduction of their own brands. Good quality products, affordable prices, good ambience, comfort are what Westside paid attention to. Good customer service through good manpower was emphasized. Specific strategies adopted by landmark, Barista and Café Coffee Day, MTR and Namma MTR offering packaged foods, Shehnaz Husain offering beauty and healthcare products, an RPG group company, Health and Glow are also discussed by the author. During this period, FMCG industry introduced products like shampoo in small sachets which broadened their market base.
[edit] India : The top Destination for retailers globally
India moved from second place to first in the 2005 index, displacing Russia which had held the top spot since 2003. Driving India's move was a greatly improved investment climate due to the recent relaxation of direct ownership restrictions on foreign retailers. The country's retail market totals $330 billion, is vastly underserved and has grown by 10 percent on average over the past five years. It is also one of the most fragmented retail markets in the world -- the combined market share of the top five retailers totals less than two percent.
[edit] Emergence of FDI in Indian Retailing
The Current Scenario
FDI not permitted in retail trade sector, except in: • Private labels • Hi-Tech items / items requiring specialized after sales service • Medical and diagnostic items • Items sourced from the Indian small sector (manufactured with technology provided by the foreign collaborator) • For 2 year test marketing (simultaneous commencement of investment in manufacturing facility required)
Benefits of FDI
• Manpower and skill development Through retail training and Greater managerial talent inflow from other countries • Tourism Development A strong retailing sector boosts tourism as seen from the experience of Singapore and Dubai • Investment in whole supply chain Improved product basket from India for exports • Long term benefits Up-gradation of agriculture Development of efficient small and medium size industries
[edit] Retailing Through Malls
From the rate at which new malls and stores are springing up in metro cities and A and B class cities, it looks like organized retail is witnessing a revolution and is going to grow by leaps and bounds. The shopper tends to look at visits to stores and malls as an enjoyable experience, an outing for the family, receiving value for money while shopping and also as an entertainment available there. The players in the retail industry who are competing with one another, are trying to come up to the expectations of shoppers, are luring them, winning them over and are giving the shoppers a great international shopping experience, a wonderful ambience and something or the other, for everyone in the family.
Apart from the 450 malls currently, there will be somewhere around 300 malls being opened in India by the end of this year and another 1500 in the next 3 years.
"Malls are the direct outcome of the evolution in the lifestyle and mindset of the people". International brands coming to India get the type of brand image, environment and clientele they want through mall. Anuj Puri of Chesterten Meghraj property consultants has recommended a seven point strategy for a successful mall. Location, product mix, right-footfall, right pricing, strong infrastructural support, circulation and differential pricing are the factors which will be sought and appreciated by the customers. Attracting a maximum number of people and converting them into buyers is always uppermost in the minds of mall owners. A high level of activity through special events and promotional campaigns creates a "wow" factor essential for the malls. The local government authorities will have to provide the necessary infrastructure such as roads, public transport and communication facilities without which the most modern and expensive malls would not achieve their goal. Providing the necessary infrastructure will certainly will provide the required boost for the development of the local economy, employment and a promising business climate. In countries like Brazil and the Philippines, one can find successful examples of this.
[edit] Emergence of Multiple Formats
The organized retailing has called for different things being sold at different formats differently. Many formats are coming up for the customer to differentiate as shop as he /she wants.
Hypermarket (Hypercity, Big bazaar, Shoprite), the largest format in Indian retail so far is a one stop shop for the modern Indian shopper where you can get every thing that may desire, from food grocery to clothing to sports goods to books to stationery and what not! It is a 50,000 sq ft 20000- 30000 SKU (Stock keeping Unit) of paradise for a shopper.
Then there are supermarkets like food world, a subdued version of a hypermarket. They have 5000+ sq ft of space and house around 10000 SKUs.
Convenience stores are further subdued version of a supermarket where grocery is pre dominantly being sold in a 3000+ sq ft of space.
Then there are discount stores which stress on giving more stuff at less price e.g. Subhiksha. Departmental Stores like Shopper’s Stop, Trent and West Side are also coming up. Speciality Stores like Bata have expansion plans for the future. Cash n Carry formats such as METRO is also fast emerging in the sector.
[edit] The Discount Price Challenge
The discount stores have been aggressive in marketing through discount prices. Wal-Mart, Costco & Home Depot in the US and Aldi and Lidi in Europe are very successful examples of discount stores that have made a significant improvement in their share of retail sales. The customer gets better value for money and he understands every day low pricing strategy. These discount stores operate on large volumes, get the advantage in low price purchase, introduce efficiency in the entire operating system, thereby saving cost, operate on a low margin and give a price benefit to customer. This has put pressure on traditional retailers to improve their appeal and offers. They are required to compete by improving consumers' perception towards stores value or offering pricing strategies to suit products and locations to its best advantage. The traditional retailers provide differentiated offers which the discount stores cannot provide. Discount stores depend only on low price whereas, other stores can combine price with other sales promotion activities, selective price cuts, marketing messages, value communication etc. A review of promotions to decide as to which need to be continued and which need to be left out was used by a store effectively to improve revenues but at no adverse impact on margins. Availability of softwares and knowledge has assisted the stores in understanding and knowing the customers' price elasticity towards product categories and stores with which, the companies have been able to improve their sales and margins.
[edit] Food Retailing
India's emergence as a leading producer of food items and particularly items like milk, poultry saw the distribution of these through organized retail channel taking place along with the traditional channel. This saw the emergence of discount grocers like Subhiksha and supermarkets like FoodWorld. The organized retail is expected to benefit the producers as well as the customers. There are some questions being posed regarding manpower employed in the unorganized retail industry and in the processing of harvest items. Will they be redundant with the growth of retail industry? There is no answer to this question at present as only time will present an answer.
An interesting table gives stages of modernity in modern food retailing. India is considered to be in the first stage, china and Korea in the 2nd stage wherein competition leads to rapid growth. The third stage is that of retail market saturation in which Poland, Brazil, South Africa are seen. Advanced countries like UK, USA, Japan, France, and Germany are in the 4th stage which sees consolidation and diversification. With the rapid growth of retail industry in India, global retail development index of India has jumped from the 5th position in 2003 to the 2nd position in 2004, and now Ist in the list usurping Russia who was first from the last three years.
[edit] Online Retailing
It observes that retailing online is improving in volume. Visitors to online retailing sites are getting converted to customers and to the delight of the sites, it is observed that the online repeat purchases are also growing. Costs of acquiring online customers have declined. As the online market is growing and retailers are gaining valuable experience and insights, their efficiency in marketing will grow and they will derive the benefits of economies of scale. As the number of customers grows the cost of technology per customer or administrative expenses per customer will continue to drop. The attention of online retailers is now on obtaining more and higher value orders from their existing customers and on getting the best returns on the amount spent by them on marketing. Keeping a track of top 10% of the customers is important as they contribute 50% of the sales volume and 70% of profit. Hence, they are offered special incentives in terms of price, advance notice of events and CRM representative is specific attention. The marketing efforts, mailing, telephone calls, messages are very well coordinated and the frequency and timing carefully planned to ensure best returns and minimum wastage or overlap. Advertisements that appear on search engines like Yahoo or Google are found to be effective. High value customers' frequently bought product categories are identified and adjacent products are also offered. Online retailers are striving to give a flawless shopping experience to their major customers. Dealing effectively with the challenges posed by online retailing will lead to growth in volume and profitability.
[edit] IT in retail
Retailers Association of India is a body growing from strength to strength and they selected "IT as an enabler to the retail business" as an appropriate theme for their first annual national conference. Dealing with millions of customers, thousands of SKUs (Stock Keeping Units) and multiple locations of chain stores require strong IT and ITES without which they cannot function. Inventory control, Supply Chain Management, Point of Sales billing and inventory system, handling stock transfers and data across all stores, financial systems, are some of the major applications of IT in the retail industry. One of the crucial cost items in retail is inventory and with the complexities due to sheer number of items to be handled at multiple locations or even at only one, IT becomes essential. Pantaloon is in the process of deploying SAP for their stores which are in apparel business and in food Bazaar which deals in groceries. Major retailers like Shoppers' Stop, RPG, Pantaloon, Trent, Star India, Bazaar have gone for different types of IT solutions from various sources abroad. However, FoodWorld has opted for solutions offered by Zensar Technologies. Top priority applications of IT now are updating sales data, sales force automation and supply chain management.
Radio Frequency Identification (RFID) technology is no longer only about the US and Wal-Mart. Pune University's Jayakar library uses RFID tags on its books as well as library cards; the Chitale Dairy at Bhiwladi in Maharashtra's Sangli district has installed RFID to monitor the feeding patterns of cattle and bisons; Pantaloon Retail India and Shopper's Stop have RFID tags in their factories; more than 45 colleges in Pune have introduced student identity RFID cards that allow students access to hostels and monitor their classroom attendance; and ITC uses RFID to track what goes into the manufacturing of its cigarettes. These are but a few cases in point. Indian suppliers to retail majors such as Wal-Mart, Metro, Target and Tesco have already been issued directives to replace barcodes with RFID tags. While this may lower margins of these suppliers, it will unwittingly create a demand for RFID tags in India. The estimated market size of this industry in India is anywher between Rs 125-150 crore (Rs 1.25-1.50 billion) and is said to be growing at 30 per cent per annum. The current cost of tags is anywhere from Rs 5 to Rs 30, considered to be prohibitive when tagging hundreds of products. The rates are bound to decrease this year. Worldwide RFID spending is expected to surpass $3 billion in 2010, predicts Gartner. A Research and Markets report pegs the figure at $6 billion by 2010. RFID is not a bar code replacement, note analysts. While bar codes are better at collecting data in structured places like warehouses (likely to continue for the next five to seven years), RFID tags are expected to be used for data collection in largely chaotic or unstructured business processes like retail industry.
[edit] The Bright Future
We all know that the retailing sector in India is the next big thing. Day is not far when India will surpass all the deveveloped nations in the field of retailing.
[edit] External Links
- Countdown to India's retail revolution by Toby Poston (BBC News)
- Indiatimes Infotech on "India Inc goes RFID way"
- Who will win India's retail war? by Gouri Shukla (rediff.com)
- Economist.com on "Setting up shop in India"
[edit] News
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