Introduction to Retail

Unit I
An overview of Global Retailing Challenges and opportunities Retail trends in India Socio economic and technological Influences on retail management Government of India policy implications on retails.
1

Introduction:
The word retail has its origin in French word retaillier and means to cut a piece or to break bulk. Retailing is the sale of goods and services to the

ultimate consumer for personal, family or household use.

According to Kotler: Retailing includes all the

activities involved in selling goods or services to the final consumers for personal, non business use
2

Introduction
Retail management

The

various

processes

which

help

the

customers to procure the desired merchandise

from the retail stores for their end use refer to

retail management. Retail management includes all the steps required to bring the customers into the store and fulfil their buying needs.

WHEEL

OF

RETAILING

High-priced merchandise top range store

Low-priced merchandise high value store

Trading up midprice merchandise mid-range store

Wheel of Retailing

A better known theory of retailing wheel of retailing proposed by Maclcomb McNair says, 1. New retailers often enter the market place with low prices, margins, and status. The low prices are usually the result of some innovative cost-cutting procedures and soon attract competitors.
2. With the passage of time, these businesses strive to broaden their customer base and increase sales. Their operations and facilities increase and become more expensive.

3.

They may move to better up market locations, start carrying

higher quality products or add services and ultimately emerge

as a high cost price service retailer. 4. By this time newer competitors as low price, low margin, low status emerge and these competitors too follow the same evolutionary process.

5.

The wheel keeps on turning and department stores,

supermarkets, and mass merchandise went through this cycles.
6

TRADITIONAL AND NON TRADITIONAL RETAILING

-Traditional retailing involves the store based retailing.
-The new face of retailing is emerging taking the form of malls and

non-store based retailing.

Size: Traditional store based retailing is run with a relatively lesser square
feet compared to the malls which operates on a large scale.

Location: The small kirana shops are often located near the consumers
vicinity or household location. The modern retail stores may be located near the consumers location.

Ambience: The traditional stores do not bother about providing

amenities and ambience to the shoppers as they spend the minimum time in the shops. The modern malls are focusing more on providing shopping experience and hence ambience plays a major role.

TRADITIONAL AND NON TRADITIONAL RETAILING

Assortment: Traditional retail shops may not have a large space to store a wide variety of products and brands. The modern malls offer depth and breadth in a range of products complete with unlimited choices and substitutes. Knowledge of Consumer: Most of the (Traditional) Kirana shop owners know the customers by name and have a personal touch with the consumers and their family. Home Delivery: The consumer can depend on home delivery of their purchases without much delay in case of traditional stores. In case of modern retailing though some stores offer home delivery, not all stores offer the same. Cost: Normally consumers hold the perception that the products sold in malls and big shopping complex are costlier than the ones sold in the traditional store.

Characteristics of RM
1. Direct End-User Interaction 2. Platform for Promotions & POP displays 3. Lower unit sales

4. Impulse Purchases
5. Retail location 6. Services as important as Core Products

7. Large number of Retailers to meet geographical

coverage and population density

Importance
Largest and fastest growing sector in India. Modern retailing forms one point stop for all shopping.

Consumer gets a large product variety of brands

to choose from one roof. First it was a sellers market and now its changing to buyers market. By 2012 Indian retail sector would be generating

11 million employment opportunities.

FUNCTIONS/ROLE OF A RETAILER
1. From the customer point of view, the retailer serves him by providing the goods that he needs in the required assortment, at the required place and time.

2. From an economic standpoint, the role of a retailer is to

provide real added value or utility to the customer. This comes four different perspectives

11

1. Form: First is utility regarding the form of a product that is acceptable to the customer. The retailer does not supply raw material, but rather offers finished goods and services in a form that the customers want. The retailer performs the function of sorting the goods and providing us with an assortment of product in various categories. 2. Time: He perform Time utility by keeping the store open when the consumers prefer to shop. preferable shopping hours.
12

5.

Place: By being available at a convenient location, he creates place utility.

Ownership: Finally, when the product is sold, ownership utility is created. 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
13

6.

Apart from these functions retailer also performs like:

5.

5.

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.

6.

7.

Promotional support: small manufacturers can use retailers to provide assistance with transport, storage, advertising, and pre- payment of merchandise.
14

SERVICES OF A RETAILLER -Consumers Perspective

Consumers are offered with wide variety of products and choices in terms of brands, flavors, designs, sizes, colors and prices under one roof. Development of organized retailing has led to quality products with good standards. The retailers help the consumers by way of breaking the bulk into smaller lot. Retailers maintain a large assortment of inventories. Retailers display the products in attractive manner such a way that the consumers can understand and select the products easily. The development in organized retailing has made shopping a pleasure to the customers.
15

SERVICES OF A RETAILLER -Contribution to the Economy

Retail sales in India amounts to more than $300 billion contributing to more than -15% of the GDP. (led to increased standard of living of Indian consumers in terms of more value for money). Retailing is becoming highly competitive and challenging Due to the policy liberalization huge amount of FDI is attracted towards our country contributing to the development of the nation. Retailing provides opportunities for people wishing to start their own business. Retail industry requires millions of square feet for construction of malls and the related infrastructure. Developing organized retailing would enable to attract large number of tourists as it happens in Dubai, Singapore and other countries.
16

SERVICES OF A RETAILLER -Manufactures/Wholesalers Perspective

The manufactures are provided with information regarding the consumers needs, wants, improvement expected by them in the products and the like. The retailers enable the producers to concentrate on production and thereby contribute to maximize their efficiency. Retailers help the producers by buying the quantities in bulk which also reduces the number of transactions and thereby the cost is minimized. The cash flow is smooth as the producers or wholesales sell in bulk and realize entire amount as against selling in small units to final consumers.
17

Retail Industry Evolution in India

Traditionally retailing in India can be traced to The emergence of the neighborhood Kirana stores catering to the convenience of the consumers Era of government support for rural retail: Indigenous franchise model of store chains run by Khadi & Village Industries Commission 1980s experienced slow change as India began to open up economy. Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw the emergence of retail chains Later Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Retailers. For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books. Post 1995 onwards saw an emergence of shopping centers, mainly in urban areas, with facilities like car parking targeted to provide a complete destination experience for all segments of society Emergence of hyper and super markets trying to provide customer with 3 Vs Value, Variety and Volume Expanding target consumer segment: The Sachet revolution

Evolution of Indian retail

Historic/Rural Reach Traditional/Pervasive Reach Government Supported Modern Formats/ International

Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls PDS Outlets Khadi Stores Cooperatives Convenience Stores Mom and Pop/Kiranas Weekly Markets Village Fairs Melas
Source of Entertainment Neighbourhood Stores/Convenience Availability/ Low Costs / Distribution Shopping Experience/Efficiency

Indian Retail market

19

Evolution of retail in India

Established formats Kirana shops Convenience/ department stores PDS/ fair price shops Pan/ Beedi shops Emerging Formats Exclusive retail outlets Hypermarket Internal retail Malls / Specialty Malls Multiplexes Fast food outlets Service galleries

Traditional Formats Haats Melas Mandis etc.

The Evolution of Retail in India

Retail in India has evolved to support the unique needs of our country, given its size and complexity Haats, Mandis and Melas have always been a part of the Indian landscape. They still continue to be present in most parts of the country and form an essential part of life and trade in Various areas. The PDS (Public Distribution System) would easily as the single largest retail chain existing in the country. the evolution of the PDS of Grains in India has its origin in the rationing system introduced by the British during world war II
21

 The system was started in 1939 in Bombay and subsequently extended to other cities and towns. the system was abolished post war but however attaining independence India was

forced to reintroduce it in 1950.

There was rapid increase in the ration shops ( being increasingly called the Fair Price Shop or FPSs)

22

 The Khadi & Village industries (KVIC) was also set up post independence. The cooperative movement

was again championed by the government.

23

 In the past decade, the Indian marketplace has transformed

dramatically. However from the 1950,s to the 80,s, investment

in various industries was limited favoring the small scale sector. The first attempts at organized retailing were noticed in the due to low purchasing power in the hands of the consumer and the governments policies

textiles sector. One of the pioneers in this field was Raymonds

which set up stores to retail fabric.
24

 Raymonds distribution network today comprises 20,000 retailers and over 256 exclusive showrooms in over 120 cities of the country Other textile manufacturing who set up their own retail chains -Reliance- which set up Vimal showrooms and

Garden Silk Mills, which set up Garden Vareli

showrooms.
25

Evolution of Indian Retail

Informal retailing Sector Typically small retailers. Evasion of taxes:- Difficulty-in enforcing tax collection mechanisms No monitoring of labor laws

Formal Retailing Sector Typically large retailers Greater enforcement of taxation mechanisms High level of labor usage monitoring
26

Retail Industry Categories an Overview

27

Categories of Indian Retail

Corporate Houses
Tatas: Tata Trent RPG group: Food World, Health and Glow, etc ITC: Wills Life Style Rahejas (Shoppers Stop), Hiranandani (Haiko), DLF(DT cinemas) etc. Nike, Reebok, Zodiac etc

Dedicated brand outlets Multi-brand outlets

Vijay Sales, Viveks, Universal Mobiles etc

Pantaloons, Bata, Weekender Indian retail Categories of Indian retail
28

Manufacturers/ Exporters

Large Indian Retailers

Hypermarket Big Bazaar Giants Shoprite Star Department store Lifestyle Pantaloons Pyramids Shoppers Stop Trent Entertainment Fame Ad labs Fun Republic Inox PVR

29

Retailing in India
India has been a nation having approximately 12 million retailers.
Obviously retailing is in our blood either as a shopkeeper or as a
shopper. The Indian Retail market is estimated to grow to U. S. $ 637 billion by 2015. Retail which contributes More than10% of our GDP is the largest source of employment after agriculture . It is not just the global players like Wal-Mart are eying to capture the market but also the domestic corporates like Reliance, NeelKamal, KK Modi, Aditya Birla group, and Bharti group too Retailing in India
30

Retailing in India
Indian market worth $ 250b a year

Real Retailing yet to arrive

Organized retailing only 7% compared to that of 85% in US, 40% in Thailand, 55%in Malaysia and 20% in China Report by CII has - Indian retail market at $180 billion; market growing at 11 to 12 % annually

Big Bazaar, Caf Coffee Day, Cinemax, Fame, Loreal salon,

World of Titan, Smokin Joes, Sify, Mcdonalds etc. Potential in metros, urban, semi urban and rural areas also

Growth of Retail in India

The retail Industry is still in its nascent stage of growth The foreign direct investment (FDI) inflows in single-brand retail

trading during April 2000 to June 2012 stood at US$ 42.70 million
Cash and carry represents an opportunity worth around Rs

8,250 billion (US$ 149.19 billion) of the Rs 27,500 billion (US$ 497.29 billion) annual retail business in India
India's e-retail industry is likely to touch Rs 7,000 crore (US$

1.26 billion) by 2015, up from Rs 2,000 crore (US$ 361.66 million)

Focus on rural sector increasing

Size of Retail Market in India

The Indian retail market is currently estimated at USD 450 billion. Food segment contributes largest part of total value of retail market,

followed by fashion, leisure & entertainment and fashion accessories.

India's organized retail space is evolving fast and achieve penetration

level of 7%, which signifies huge potential growth.

Indian luxury market currently stands at USD 3.5 billion and expected to

grow to make India the twelfth-largest luxury retail market in the world by 2016.
Retail has become largest source of employment and has deep

penetration into rural India. Retailing contributes to 22% of GDP and around 8% of the employment.

Retail Growth In India

Organized Retail Growth In India

Key Success Factors for the Retail industry

Effective forecasting Strong Track Record Stock control Market positioning Proximity to market Creating Systems In Retail Hiring the Right Employees Marketing Buying The Right Merchandise Customer Service

Risks for Retail Sector

Low-growth consumer markets Regulation and compliance Inability to control costs/rising input prices Inability to benefit from e-commerce Wrong price image Supply chain disruptions Inability to penetrate emerging markets

Failure to respond to shifting consumer behavior

Volatility in commercial real estate markets

Opportunities for Retail Sectors

Rising emerging market demand and rise of global

middle class
New marketing channels and social media Competitive differentiation Multichannel approach Demographic change Private label Launching new products and services Global urbanization Enhancing efficiency in the supply chain

CHANGING TRENDS IN RETAILING IN INDIA From kirana stores to supermarkets and malls Exclusive stores and specialty stores From unorganized to organized format Professionally managed systems Impact to be seen in metros,urban,semi urban and rural areas also Shopping is being transformed from a daily chore to a pleasurable experience Integrated retail-cum-entertainment centers-Shop Entertainment to be seen more

Retailing: Scope
Retailing involves: Understanding the needs of consumers Developing merchandise Displaying the merchandise in an effective good assortment of

manner

so

that

consumers

find
40

it easy and attractive to buy.

Retailer role in Channel of Distribution

41

Drivers to growth in retail industry

Increased market share Explosion of Media Change in the profile and lifestyle of consumers Availability of quality retail space Increased opportunities in non metros Regulatory enablers aiding growth Relaxation of FDI norms Establishment of Supply chain Entry of the corporate sector New Entrepreneurs Technology Impact
42

KEY GROWTH DRIVERS IN INDIA Rising Incomes and improvements in infrastructure Liberalizations of Indian economy

Increase in spending per capita income

Advent of dual income in families

Shift in consumer demand to foreign brands

43

KEY GROWTH DRIVERS IN INDIA

The internet revolution is making the Indian consumer more accessible of domestic and foreign retail chains.

Reach of satellite TV Channels

Increasing share of Young population in total population

size
Availability of quality real estate and mall management

practices
Foreign companies attraction to India is the billion plus
44

population

MACRO ENVIRONMENTAL INFLUENCES

The macro-environment includes all factors that can influence the organization, but that are out of their direct control. It is made up of those elements

within the environment that consist of the larger

societal forces such as,

Demographic, economic, cultural and social,

political, legal, technological and natural factor.
45

MACRO ENVIRONMENTAL INFLUENCES

Demographic factors: The retailer must scrutinize the
demographic data to determine the target customers, their expectations and perceptions so as to design and deliver an effective value proposition.

Economic factors: Increase in the number of middle income

and high income group of consumers, increase in the disposable income and the resultant increase in the standard of living of population etc., provides a positive influence on the retail sector.
46

MACRO ENVIRONMENTAL INFLUENCES

Cultural and social factors: Lifestyles are changing which
is reflected in the form of change in the pattern of food
consumption, clothing and leisure time spending activities. Consumers pay greater emphasize to both price and quality. These changes are reflected in the needs and wants of consumers, their demands and expectations from the shopping experience.

Political factors: Governments economic policy will have a

major impact on the interest rates, taxation, inflation, and a host of other factors that will have an impact on the retail business and its 47

MACRO ENVIRONMENTAL INFLUENCES

Legal factors: Legal factor is closely associated with the
political philosophy. The role of law and the regulating authorities set up to administer and enforce the law are affected by the political power. For examples: the laws relating to FDI, labeling requirements, pricing, hours of trading etc is being constantly updated and therefore affects the retail operation.

Technological factors: Changes in technology not only

affects the products that the retailers sell but also the way they sell them. For example: the introduction of Electronic fund transfer systems, allows the transfer of funds from a customers accounts to the retailers account without the need for paper work. Likewise e-shopping and e-Retailing enriches the shopping 48 convenience of the retailer.

MACRO ENVIRONMENTAL INFLUENCES

Natural factors:- Environmental groups have brought to focus
the problems of pollution, water conservation, energy shortage and diminishing limited natural resources.

For example: the demand for green products, organic(Natural)

products and the like has increased.

49

MICRO ENVIRONMENTAL INFLUENCES

Competitors: Channel members: Consumer:

Other stake holder:

Creditors, share holders, employees, top management, public etc who have a impact on the retailers performance.

50

Challenges or Issues of retailing

Automatic approval is not allowed for foreign investment in retail Regulations restricting real estate purchases, and cumbersome local laws Taxation, which favors small retail businesses Absence of developed supply chain and integrated IT management Lack of trained work force Low skill level for retailing management Intrinsic complexity of retailing rapid price changes, constant threat of product obsolescence and low margins The high costs of real estate 51 lack of Adequate infrastructure

Retailing industry worldwide

Retail is the largest industry in the world with sales of $ 7.3 trillion 25 of the top 50 Fortune 500 companies are in retail Every 10th billionaire in the world is a retailer Retail is the second largest industry in US in terms of establishments and employees. Generates $3.8 trillion in sales in US Generates 11.7% of US employment Well known retailers-Wal Mart, Harrods, Sears, Mcdonalds

Retail in India vs. World

Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9 million outlets in USA, catering to more than 13 times of the total retail market size as compared to India India has the highest number of outlets per capita in the world - widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per person) Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail industry. Almost 100 times more than the turnover of HLL (India's largest FMCG company). Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) can compare. The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail industry employs about three million people. One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HLL's annual turnover. Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing (against 7 percent employed in India today). 60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of the fastest-growing 50 retailers have just one format Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average inventory turns ratio of about 18. Many Indian retailers KPMG surveyed have inventory turns levels between 4 and 10. Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail shelves (translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.

Decision Variables for Retailers/Elements of Retail Mix

Customer Service

Store Design and Display

Retail Strategy

Merchandise Assortment

Pricing Communication Mix

PPT 1-54

Location

The Marketing Retail Equation

Manufacturer

Manufacturer

Manufacturer

Wholesaler Retailer

Feedback

Retailer

Consumer

Consumer

Consumer

55

Recent trends in retail sector

Strategies of companies like Wal-Mart of being the lowprice leader on key items and taking a higher margin on other items will force every retailer to improve the quality of their price message . For retailers that choose not to compete on price, it means they will need to emphasize service, selection, experience, or whatever their niche is . Selling of off brands - cycle of major companies selling off brands they believe no longer worthy of their focus. The end result is that it will create significant opportunities for some smaller companies to pick up some brands .
56

Recent trends in retail sector

Exploiting Key New Technologies -Whether in the

area of stock control, supply chain efficiency or in

CRM many retailers are queuing up to utilise the latest

technologies to innovate. Wal-Mart is the owner of

the worlds largest data warehouse which it uses to identify customer-buying patterns at the store level, manage inventory and identify merchandising
57

opportunities.

Emerging Trends in Modern Retail Formats of India

Most of grocery retailers are region centric to suit different segments and taste preferences. Now a number of retailers are in a mode of experimentation and trying several formats which are essentially to fit into the consumer mind space. For example Pantaloon Retail India is experimenting with several retail formats to cater to a wide segment of consumers in the market. Govt. is also promoting the development of modern retail formats by policies like tax exemptions as Punjab government did. 58

Emerging Trends in Modern Retail Formats of India

Increasing acceptance of tier II cities- Real estate developers are jumping very fast to take mall culture further from Metro cities to smaller cities. Emergence of Private- Label Brands: The private labels are offering flexibility to both the retailer and the consumer on price front. Emergence of convenient stores: In India, Convenience stores occupied 23 thousand sq. meter of retail space with sales of about Rs 1347 million in 2005 and are expected occupy 85 thousand square meter of selling space by 2010. It offers ease of shopping and customized service to the shoppers Category Killer: A New Concept imported from U.S- Category Killer is a kind of discount speciality store that offers less variety but deep assortment of merchandise. By offering a deep assortment in a category 59 at comparative low prices, category specialist can be able to kill that specific category of merchandize for other retailers.

Emerging Trends in Modern Retail Formats of India

Most of the customers still rely on traditional supermarkets which sells grocery, fresh, cut vegetables, fruits, frozen foods, toiletries, cosmetics, small utensils, stationery and Gift items. e-Retailing or internet retailing is also emerging as a new trend all over the world. Eg . e Bay, flipkart, amason and rediff are providing a platform to vendors to sell their products online to buyer.
60

Tax Impacts and Regulatory Environment

The retail sector has not been conferred an industry status till now. Hence, there are no specific rules and regulations governing the sector. However, there are certain laws pertaining to the establishment of stores and conduct of activities, which retailers need to follow: The Shop and Establishments Act The Standards of Weights and Measures Act The Provisions of the Contract Labor(Regulations and Abolition) Act The Income Tax Act The Customs Act The Companies Act In addition to the above law: Retail companies have to follow certain regional rules and regulations on the basis of their stores location; different states have different laws to regulate the retail trade.
61

Tax Impacts
Presently, there are multiple indirect taxes: Customs duty Central Value Added Tax (CENVAT) Service tax Central Sales Tax (CST) State value added tax Entry tax GST implementation :-In order to integrate all of these taxes into a single unified tax system and bring about broad-based reforms in the indirect tax regime, the government of India has envisaged The introduction of a uniform Goods and Services Tax (GST) across the country.

62

Regulatory Environment
FDI Policy with regard to Retailing in India: FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route. FDI up to 100 % with prior Government approval (i.e. FIPB) for retail trade of Single Brand products. India allowed FDI of up to 51% in multi-brand sector. Single brand retailers such as Apple and Nike, can own 100% of their Indian stores, up from previous cap of 51%. The retailers (both single and multi-brand) will have to source at least 30% of their goods from small and medium sized Indian suppliers.

Regulatory Environment Contd..

Multi-brand retailers must bring minimum investment of US$ 100

million. Half of this must be invested in back-end infrastructure facilities such as cold chains, refrigeration, transportation, packaging etc. to reduce post-harvest with 3 years of setup. Losses and provide remunerative prices to farmers. The opening of retail competition (policy) will be within parameters of state laws and regulations. Overseas companies must put half of their investment in infrastructure such as processing, manufacturing, storage, warehouses and packaging