• Liberalization of the Indian economy which has opened up markets for brands like Kellogs, Unilever, Nestle, etc. These companies are offering a wide range of choices to the Indian consumers.
• Consumers are demanding foreign brands like Apple, Sony, Panasonic, etc.
• The internet revolution. Reach of satellite T.V. channels is helping in creating awareness about global products for local markets. About 47% of India’s population is under the age of 20; and this will increase to 55% by 2015. This young population, which is tech-savvy, watches more than 60 TV channels, and displays the highest propensity to spend. These are the people who will immensely contribute to the growth of the retail sector in the country. As India grows with the world economy riding the waves of globalization, the retail sector is bound to take big leaps in the years to come.
The Indian retail sector is worth $ 180 billion; the organized sector accounts for only 2% share of this market. Organized retailing in the country has just started recently, and mainly in the metro cities .It has a huge scope because of the vast and growing market. A study conducted by Fitch Inc., expects the organized retail industry to continue to grow rapidly, especially through increased levels of penetration in larger towns and metros and also as it begins to spread to smaller cities and B class towns. The growth and development of the retail-specific properties and malls will just fuel this. According to the estimates available with Fitch, close to 25mn sq. ft. of retail space is being developed and will be available for occupation over the next 36-48 months. Fitch expects organized retail to be about 15%-20% of the market share by 2010. McKinsey says organized retailing would increase the efficiency and productivity of the total range of economic activities, and would help in achieving higher GDP growth. At 6%, the share of employment of retail in India is low, even when compared to Brazil (14%), and Poland (12%).
PRESENT INDIAN SCENARIO
* Unorganized market: Rs. 584,000 crores
* Organized market: Rs.4500 crores
* 5 times growth in organized retailing between 2000-2005
* Over 3500 new modern Outlets in the last 3 years
* Over 4,000,000 sq. ft. of mall space under development
* The top 3 modern retailers control over 750,000 sq. ft. of retail space
* Over 350,000 footfalls
* Growth in organized retailing on par with expectations and projections of the last 5 Years
Different Forms of Retailing: Emergence of new formats of retailing in India
Hypermarts: It is the largest format in Indian retail so far is a one stop shop for the modern Indian shopper. Their merchandise contains everything from food grocery to clothing to spots goods to books to stationery. Space occupied by a hypermart is generally50000 Sq.ft. and above. Numbers of SKUs ranges from 20000-30000.
Example: Pantaloon retail’s Big Bazaar, RPG’s Spencer’s (Giant).
Large supermarkets: Typically (3500 - 5000 sq. ft) they are a subdued version of a hypermarket. Merchandise is almost similar to that of a hypermarket but in relatively smaller proposition. Space occupied by them is around 5000 Sq. ft. SKUs range around 10000.
Example: Nilgiris, Apna Bazaar, Trinethra
Mini supermarkets: Typically their floor space is around 1000 - 2000 sq. ft.
Convenience stores with typically (750 - 1000 sq. ft) floor space are a subdued version of a supermarket. Their Merchandise include mostly groceries are predominantly sold. Space occupied: Around 500 Sq. ft. to 3000 Sq. ft.
Example: Stores located at the corners of the streets, Reliance Retail’s fresh and Select
Departmental stores: A retail chain establishment which specializes in selling a wide variety of products without any one prominent merchandise line. Examples include apparel, household accessories, cosmetics, gifts etc. Space occupied: Around 10000 Sq. ft. – 30000 Sq. ft. Example: Landmark Group’s Lifestyle, Trent India Ltd’s Westside.
Discount Stores are stores in which standard merchandise sold at lower prices with lower margins and higher volumes. Merchandise includes a variety of perishable/ non perishable goods.
Example: Viswapriya Group’s Subiksha, Piramal’s TruMart
Specialty store: It consists of a narrow product line with deep assortment. Merchandise depends on the stores
Example: Bata store deals only with footwear, RPG’s Music World, Crossword deals with only books.
Kirana stores (mom & pop’s stores): The smallest retail formats which are the highest in number (18 million approx.) in India. Merchandise includes mostly food and groceries. Space occupied: 50 sq ft and even smaller ones exist. Traditional retailers are trying to reinvent themselves by introducing self-service formats as well as value-added services such as credit & free home delivery etc.
Malls in India
In the last 5-6 years, the Indian consumer market has seen a significant growth in the number of modern-day shopping centers, popularly known as ‘malls’. Demand for quality retail space from a varied segment of large-format retailers and brands are increasing. From just 3 malls in 2000, India is all set to have over 500 malls by 2010. Today, the expected demand for quality retail space in 2010 is estimated to be around 80 million square feet. Malls are playing the role which previously the large organized retailers were doing.
The Indian retail sector can be broadly classified into:
a) FOOD RETAILERS
Food-retailing sector in India contains both variety & number. Traditional types of retailers, who operate small single-outlet businesses mainly using family labour, dominate this sector. Super markets account for a small proportion of food sales in India but their numbers are growing rapidly. Greater numbers of higher income Indians prefer to shop at super markets due to higher standards of hygiene and attractive ambience.
b) HEALTH & BEAUTY PRODUCTS
With higher income levels, Indians have started spending more on health and beauty products. Here also small, single-outlet retailers are dominating. However in recent years, a few retail chains specializing in these products have come into the market which is expected to have significant future growth. There is a growing quality consciousness of buyers for these products.
c) CLOTHING & FOOTWEAR
There are numerous clothing & footwear shops in shopping centers and markets in India. Traditional outlets have a limited stock; in contrast, modern clothing and footwear stores have modern products and attractive displays to lure customers. However, it is unlikely that the traditional outlets will survive the test of time due rapid urbanization and changing customer tastes.
d) HOME FURNITURE & HOUSEHOLD GOODS
Small retailers again rule the market. Despite the huge market, very few large and modern retailers have entered. However there is considerable potential for the entry& expansion of specialized retail chains in India.
e) DURABLE GOODS
Large numbers of foreign companies have entered the Indian durable goods sector during the post liberalization period. A wider range of consumer electronic items and household appliances are now available to the Indian customer. Cut throat competition among companies to sell their brands provided a strong thrust to the growth for retailers doing business in this sector.
f) LEISURE & PERSONAL GOODS
With an increase in personal income due to the strong economic boon the Indian customer is now splurging on expenditure of personal leisure & luxury goods. Focused retailers for each category of products (books, music products, etc.) are emerging in this sector. Franchising agreements between established manufacturers and retailers are another prominent feature in this sector
Problems faced by Retailers in India
Retailing as an industry in India has a long path ahead. To become a truly growing industry, retailing needs to overcome these challenges
- Foreign investment in retail industry needs to take government approval before entering the market. Barriers to FDI are not helpful in the long run. Protectionism is the bane.
- The Government does not recognize the Retail industry which is surprising.
- Regulations restricting real estate purchases and cumbersome local laws are not helping the cause for the retail industry.
- Soaring real estate costs
- Structural Impediments
- Tax structure which is too complex for any business to flourish.
- Protective Taxation, favoring the small retail businesses.
- Multiple & stringent labor laws. Too much liberal construction of the labor laws.
- Absence of a properly developed supply chain and an integrated IT management.
- Lack of proper talent in the work force
- Low skill level for retailing management.
- Retailing has some intrinsic complexities which include rapid price changes, constant threat of product obsolescence and low margins
- Supply chain Bottlenecks
- Customer preferences which have still a puritan mindset
- Manufacturers backlash in keeping their high margins
Key challenges of Retail Industry
LOCATION:
"Right Place, Right choice" is the most important mantra for any business.
Location plays a vital role for any business that is customer-centric, and is typically the prime consideration in a customer’s store choice.
MERCHANDISE:
The primary goal of most of the retailers is to sell the stuff the customer wants & is the most important thing in providing the right kind of thrust for the Retailing firm.
PRICING:
The most important decision in any business because it brings in the revenue & is the profit generator. The value of a good pricing decision is growing because today's customers are looking for good value at affordable prices when they buy merchandise and services. Price is the easiest and quickest variable to change and is at the hand of the Retailer.
TARGET AUDIENCE:
Consumer is the prime mover for any business. Consumer Pull is the most important driving factor for the industry to sustain in the long run. With the increasing purchasing power parity of the customer the Retail industry should play it cards really well. There are also varieties of other factors which are contributing to the retailing boom.
SCALE OF OPERATIONS:
Scale of operations would include all the supply chain activities, which are carried out in the business. The cost of business operations always remain on the higher side & are one of the major challenges the retail industry needs to overcome.
Indian retail industry is currently moving into the second gear which means it is at the stage of meeting customer expectations. It is now more consumer driven. Pure retailers are emerging which are being more multi-locational & multi-formatted. Global retailers are also eyeing the Indian retail market pie.
References